Regulation Alert: Expansion of the coverage of Preferential Income Tax for Small Low-profit Enterprises


On 11 July 2018, the Chinese Ministry of Finance (MOF) and the State Administration of Taxation (SAT) jointly released the Circular on Further Expanding the Coverage of the Preferential Income Tax Policy for Small Low-profit Enterprises [Caishui 2018 No. 77] (Circular No.77). The previous RMB 500,000 upper limit on annual taxable income for small low-profit enterprises has been changed to RMB 1 million for the period 1 January 2018 to 31 December 2020.

In practise

For qualifying enterprises whose annual income is no more than RMB 1 million, they shall pay income tax on 50% of taxable income at a tax rate of 20%. For example, if an enterprise earns RMB 500,000 in taxable income, RMB 250,000 will be taxed at a 20% and the remaining RMB 250,000 will not be taxed.

Who qualifies?

Qualifying small low-profit enterprises are defined as enterprises engaged in an industry that is not restricted or prohibited by the State. Small low-profit enterprises must also meet the below conditions:

  • Industrial enterprises — annual taxable income does not exceed RMB 1 million; does not employ more than 100 employees[i] and total assets do not accumulate to more than 30 million[ii].
  • Other enterprises — annual taxable income does not exceed RMB 1 million; does not employ more than 80 employees and total assets do not accumulate to more than 10 million.

If an enterprise was not eligible for the tax policy in the previous tax year, or it is a newly-established small business, and it’s expected to be eligible for the tax policy at the current tax year, it can enjoy the preferential tax policy as long as its profit or taxable income for the current year is estimated to be no more than RMB 1 million.


[i] Employees refers to all staff members with a labour relationship with the enterprise and dispatched workers of the enterprises.

[ii] Number of employers and total assets are required to be calculated on a quarterly average of a single year. The calculation is defined by Circular No.77 as follows:

Quarterly average number = (number at the beginning of a quarter + number at the end of the quarter) / 2

Quarterly average number of a single year = (sum of the quarterly average numbers in a single year) / 4

In the event, an enterprise commences its business or terminates, business activities in the middle of a year, the calculations shall be based on the actual business period seen as a tax year.

If you would like more information on taxation or other related corporate issues, send us an email at, and we’ll have a Horizons professional contact you.  

Horizons helps clients solve complex problems, thrive and be inherently responsible in their business activities worldwide. Please visit our website at