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How to Reduce Business Corporation Tax Legally?

Update Date:2021-5-20 15:31:47 Source:BeiJing Tannet Views:778

Chinese business entities can be mainly categorized into two types: the general taxpayer and the small-scale taxpayer. Accordingly, the tax rates for the two types of entities are different.

Normally, the VAT rate for small-scale taxpayers is 3%. Furthermore, from January 1, 2020 to December 31, 2021, the VAT rate for small-scale taxpayers is only 1% and taxpayers are exempted from VAT if their quarterly income is lower than 450,000 RMB. 

For general taxpayers which could not obtain input invoices, the 2021 VAT rate would be up to 6%, 9%, or even 13% respectively. But for those with input invoices, they can claim tax deduction and decrease their tax liability. There are some tips below for corporate accountants to reduce business corporation tax legally.

Enterprises can set up branches or subsidiaries in different regions. Since branch offices are not separate legal entities, their headquarters should declare and file taxes for them. Thus, when a corporate headquarters is a general taxpayer, its branch offices should be the same and so as the tax rate. On the other hand, subsidiaries can register as small-scale taxpayers and file taxes independently. Thus, the tax rate of subsidiaries can be different from that of its headquarters.

When choosing the location of a subsidiary company, not only should business owners take into consideration of the company's existing business needs, but also the preferential policies issued by the Chinese government. For example, when China’s central government released a plan, building Hainan island into the Hainan Free Trade Port (Hainan FTP) on June 1, 2020, a reduced 15% Corporate Income Tax (CIT) rate applied to enterprises registered in Hainan FTP, engaged in listed “encouraged industries” and conducting substantive business activities; for reference, the standard China CIT rate is 25%. In other words, if you set up a subsidiary company registered as a small-scale taxpayer in Hainan FTP, the VAT rate of this subsidiary is 1% and the CIT rate is 15% respectively.

It is the civil obligation for every citizen and enterprise to pay taxes. Only through reasonable planning and compliance management can a company achieve sustainable operation and management. Please feel free to contact TANNET if you have any further inquiries about China payroll compliance and tax service

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