On March 13, 2015, the Ministry of Finance and the State Administration of Taxation issued the Circular on Policies Relating to Income Tax of Small Low-profit Enterprises (hereinafter, the "Circular").
Pursuant to the Circular, the income of a small low-profit enterprise with an annual taxable income below RMB200,000 (including RMB200,000) during January 1, 2015 through December 31, 2017 will be reduced by 50% for purposes of calculating its taxable income, and it shall pay the enterprise income tax at a tax rate of 20%.
The Circular specifically provides that the number of employees shall include the number of workers with employment relations with an enterprise and the number of dispatched workers accepted by the enterprise. The total number of employees and the total value of assets shall be determined by the quarterly average of the enterprise for a year. The specific calculation formula is: Quarterly Average = (Initial Quarterly Value + Final Quarterly Value)/2; and Quarterly Average for the Year = Sum of All Quarterly Averages in the Year / 4.
For a small low-profit enterprise established or terminated in the middle of a year, the Circular provides that the relevant indicators shall be determined based by treating its actual operating period as a tax year.
The Circular came into effect on January 1, 2015, when the implementation of Article 7 of the Circular of the Ministry of Finance and the State Administration of Taxation on Issues Relating to the Implementation of Preferential Enterprise Tax Polices (Cai Shui (2009) No. 69) was terminated.