There are three types of tax preferential policies issued by the government this year:
- New preferential tax policies
- Continue with some of the COVID-19 relief tax policies introduced in 2020
- Extending the implementation period of some previous tax incentive policies
1. New preferential tax policies
1.1）From April 1,2021 to December 31,2022, small-scale VAT taxpayers with monthly sales of less than 150,000 yuan will be exempted from VAT.
1.2）From January 1,2021 to December 31, 2022,the income tax of small and micro enterprises and individual industrial and commercial households with annual taxable income below 1 million yuan will be further halved.
1.3）Starting from January 1,2021,the proportion of pre-tax additional deductions for R&D expenses of manufacturing enterprises will be raised to 100 percent.
2. Continue with some of the COVID-19 relief tax policies introduced in 2020
2.1）Policies to support epidemic prevention and control
The following policies will continue until the end of 2021:
- Items issued by companies to individuals for the prevention of COVID-19 are exempt from individual income tax.
- Temporary work subsidies and bonuses obtained by prevention and control personnel will be exempted from individual income tax.
2.2）Policies to support enterprises in resuming work and production
The 1% reduced rate for small-scale VAT payers, VAT exemption for film screening services and VAT exemption for cultural construction services will continue until the end of 2021.
3. Extending the implementation period of some preivous tax incentive policies
3.1）Policies that encourage innovation
Examples of innovation related policies include:
- Enterprise R&D expenses are deducted at 75%
- R&D institutions can receive full VAT refund for purchases of domestic produced equipment
- VAT is refunded upon collection for animation industry
3.2）Policies to support financial stability and development
Examples include:
- Interest income obtained by financial institutions from issuing small loans to farmers, small and micro enterprises, and individual industrial and commercial households are exempted from VAT
- Bank, insurance, securities and other financial institutions are allowed to deduct corporate income tax before tax
- Exemption of VAT on free borrowing of funds within enterprise groups
3.3）Policies that improve people’s lives
The tax incentives are provided to taxpayers who are in medical services, public rental housing, rural drinking water safety projects and poverty relocation programs.
Conclusion
The latest tax preferential policies fully guarantee the continuity, stability and sustainability of China’s institutional plan for tax reduction. Also, we can see that small-scale VAT taxpayers, small and micro enterprises, and individual industrial and commercial households are still the key targets of government taxation support.
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