The Settlement of the Corporate Income Tax for Small Companies in China

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In the first half of the year, one of the priorities for the finance department of a small company is undoubtedly the final settlement of corporate income tax.

In recent years, the final settlement and declaration process of small enterprises has been much simplified compared with that of general enterprises.

However, due to the introduction of many new tax incentives for small enterprises in the past two years, many people are unable to timely understand the changes.

In this article, we will show what are the requirements for small companies to enjoy this simplified declaration process:

The standard of total assets

To follow the requirements, the total assets of a small company shall not exceed 50 million yuan.

The number of employees

To meet the requirements, the number of employees of a small enterprise is no more than 300.

The number of employees here includes the number of employees who have established labor relations with the enterprise and the number of dispatched labor accepted by the enterprise.

The above “employees” and “total assets” indicators should be determined according to the annual quarterly average of the enterprise.

The specific calculation formula is as follows:

  • The quarterly average value = (the initial value of the quarter + the end value of the quarter) divided by 2
  • The annual quarterly average = (the sum of the annual quarterly average) divided by 4

The standard of taxable income

To be compliant with the regulation, the taxable income of a small enterprise shall not exceed 3 million yuan.

Trade restrictions

Small enterprises that meet the regulations may not engage in industries restricted or prohibited by the state.

To check what are the restricted industries, you may refer to the “Catalogue 0f the national industry limited and prohibited industrial structure adjustment (2011) (2013 revision) and the “Catalogue of specified limitation and elimination of foreign investments (2017 revision)”.

Calculation of the payable income tax of small companies

If the annual taxable income of a small company does not exceed 1 million yuan, the taxable income shall be included in the taxable income at a reduced rate of 25% and the corporate income tax shall be paid at the rate of 20%.

The portion of annual taxable income exceeding 1 million yuan but not exceeding 3 million yuan shall be included in the taxable income at a reduced rate of 50%, and the corporate income tax shall be paid at the rate of 20%.

Branch company

Under normal circumstances, a branch company is not recognized as a small enterprise and is directly levied at the 25% corporate income tax rate. It does not enjoy the preferential treatment of small and micro enterprises, except for the combined tax payment of the total organization.


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