If you’re running a small company in China, then the main taxes you need to pay are business tax and income tax.
1. Business Tax
You need to pay business tax, also known as value-added tax (VAT), on your business income. The tax rate varies depending on the scale and industry of the enterprise.
Generally, the tax rate for general taxpayers engaged in the sale of goods is 13%, and for service providers, it is 6%.
For small-scale taxpayers, whether selling goods or providing services, the tax rate is 3%. For details and definitions of general taxpayers and small-scale taxpayers, please refer to our previous article: General Taxpayer or Small Scale Taxpayer?
2. Income Tax
You need to pay corporate income tax on the profits of the company, which is calculated at a unified rate of 25%.
3. Preferential Policy
However, in recent years, the government has implemented a series of preferential tax policies for small and micro-enterprises. First, you may judge whether you are eligible for these tax incentives based on the following criteria:
- Engaged in industries that are not restricted or prohibited by the state, and simultaneously meet the criteria for quarterly prepayment and declaration：
- The average quarterly total assets at the end of the period do not exceed 50 million yuan;
- The average number of employees in the quarter does not exceed 300;
- The taxable income（meaning profit） does not exceed 3 million yuan.
If you meet these criteria and qualify as a small and micro-enterprise, then the VAT rate is:
- For small-scale taxpayers with monthly sales of less than 100,000 yuan (inclusive), VAT is exempt.
- For small-scale taxpayers subject to a 3% tax rate on taxable sales revenue, VAT is levied at a reduced rate of 1%.
As for income tax, small and micro-profit enterprises calculate their taxable income at a reduced rate of 25% and pay corporate income tax at a rate of 20%. In other words, the income tax rate for small and micro-enterprises is calculated as: 25% * 25% * 20% = 5%.
According to current policies, both of the above preferential measures will be implemented until December 31, 2027.
