China to Cut US$9.5 Billion in Taxes for Small and Micro Enterprises, High-tech Firms

China to Cut US$9.5 Billion in Taxes for Small and Micro Enterprises, High-tech Firms

May 15, 2018

On April 25, the State Council reported that China will cut more than RMB 60 billion (US$9.5 billion) worth of taxes for little and micro enterprises and high-tech firms.

The tax reductions come as seven measures intended to lessen costs for small companies and stimulate innovation. As indicated by a government proclamation, “The move intends to lessen the cost for innovation and entrepreneurship, energize small and micro businesses, and spur job creation.”

The cuts come not long after China diminished its value-added tax (VAT) rates as a component of a RMB 400 billion (US$64 billion) tax cut package. In his Work Report at the Two Sessions gatherings in March, Chinese Premier Li Keqiang said that China would slice up to RMB 800 billion (US$126 billion) worth of taxes for businesses and people in 2018.

The seven tax cut measures are:

1. The value per unit of recently bought research & development (R&D) instruments and equipment eligible for a one-time tax deduction will be raised from RMB 1 million (US$157,913) to RMB 5 million (US$789,565);

2. The annual taxable income threshold of little and micro enterprises to be qualified for particular preferential corporate income tax (CIT) incentives will be raised from RMB 500,000 (US$78,957) to RMB 1 million (US$157,913);

3. The prevention of tax deductions for overseas R&D expenses will be eliminated;

4. The quantity of years for capital loss carryover for high-tech enterprises and innovation-based SMEs will be extended out from five years to 10 years;

5. All enterprises will have pre-tax deductions for employee training costs raised from 2.5 percent to eight percent of employee salaries and wages, a similar rate that innovative companies as of now appreciate;

6. The stamp tax charged on book accounts built up by taxpayers for paid-in capital and capital reserves will be split, and stamp duty on other book accounts will be exempted;

7. The tax incentives enjoyed by venture capital firms and angel investors that sees 70 percent of their investment deducted from taxable income at the seed and beginning times of high-tech startups they back will be expanded across the country.

Measures one and two will be effective from January 1, 2018 until December 31, 2020. Measures three, four, and five will be executed from January 1, 2018, while measure six will be implemented from May 1, 2018. Measure seven will be implemented from January 1, 2018 for CIT and from July 1, 2018 for personal income tax.

These most recent tax reductions for high-tech firms come as Chinese President Xi Jinping has pledged to increase efforts to build up China’s local tech capabilities – to be specific through the controversial Made in China 2025 program – in the midst of trade tension with the US.

The US as of late reported that it would keep US companies from doing business with Chinese telecom equipment giant ZTE as discipline for violating sanctions on Iran. The choice will cause a main challenge for ZTE because of its dependence on US technology.

As of late Xi has compared the improvement of China’s indigenous tech abilities to the nation’s huge Three Gorges Dam project and its advancement of nuclear weapons, underscoring the significance of the mission.

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