Small Business Tax in China: 2026 Guide
China's small-business tax picture has three layers: corporate income tax (with a generous small-enterprise preference extended through 2027), value-added tax (with small-scale taxpayer relief also extended through 2027), and the separate regime for sole-proprietor-style businesses. The headline to remember: a qualifying small company can face an effective income tax rate of just 5%. This guide covers the 2026 rules.
Corporate income tax: the 25% baseline
The standard corporate income tax (CIT) rate in China is 25% on taxable profit. High-and-new-technology enterprises (HNTE) certified by the authorities pay a reduced 15%, and there are regional incentives (e.g. in Hainan Free Trade Port and the Guangdong-Hong Kong-Macao Greater Bay Area for qualifying industries). But for most ordinary small companies, the small-and-micro-enterprise preference below is the one that matters.
The small and micro enterprise preference: an effective 5%
Under Ministry of Finance / State Taxation Administration Announcement [2023] No. 12, qualifying small and micro enterprises have their taxable income counted at 25% and then taxed at 20% β an effective rate of 5%. The policy runs through 31 December 2027, so it fully covers 2026.
| Item | Detail |
|---|---|
| Effective rate | 25% Γ 20% = 5% on annual taxable income up to RMB 3 million |
| Policy window | Through 31 December 2027 |
| Legal basis | MOF/STA Announcement [2023] No. 12 |
All three size tests must be met simultaneously (the "300 / 300 / 50 million" test):
| Test | Threshold | Notes |
|---|---|---|
| Annual taxable income | β€ RMB 3,000,000 | After tax adjustments, per the annual filing |
| Number of employees | β€ 300 | Including dispatched labour, quarterly average |
| Total assets | β€ RMB 50,000,000 | Quarterly average |
| Industry | Non-restricted, non-prohibited industries | Per the national industry catalogue |
Warning: the test is all-or-nothing. If taxable income is RMB 3.2 million, the company fails the test entirely and the whole amount is taxed at 25% β you cannot claim the preference on the first 3 million. Businesses near the line should model this before year-end.
A RMB 2 million profit example: 2,000,000 Γ 25% Γ 20% = RMB 100,000 tax (5%), versus RMB 500,000 at the standard rate.
VAT for small-scale taxpayers: extended through 2027
China's VAT law took effect on 1 January 2026, and the transitional relief for small-scale taxpayers was carried over through 31 December 2027 (MOF/STA Announcement [2026] No. 10):
| Item | Rule (1 Jan 2026 β 31 Dec 2027) |
|---|---|
| Exemption threshold | Monthly sales β€ RMB 100,000 (quarterly β€ RMB 300,000): VAT exempt |
| Per-transaction threshold | Individuals taxed per transaction: RMB 1,000 per day |
| Reduced levy rate | Above the threshold, the normal 3% levy rate is cut to 1% (except sales/leasing of real estate and land-use rights, which stay at 5%) |
| Standard levy rate | 3% (the VAT law's simplified-method rate) |
Practical notes: the threshold uses tax-exclusive sales. If quarterly sales exceed RMB 300,000, the entire amount is taxed at 1% (it is a threshold, not an allowance). Taxpayers may voluntarily give up the exemption to issue special VAT invoices, but cannot reclaim the exemption for 36 months on that item.
Individual industrial and commercial households (δΈͺδ½ε·₯εζ·)
Sole-proprietor-style businesses (δΈͺδ½ε·₯εζ·) do not pay corporate income tax. Instead, their operating profit is subject to individual income tax on business operations at five progressive brackets from 5% to 35%. They enjoy the same small-scale-taxpayer VAT relief above (monthly RMB 100,000 exemption, 1% reduced rate), and qualifying small individual businesses have also benefited from periodic IIT relief policies β check the current year's notices, as these are often renewed annually.
VAT rates at a glance
For context, here are the standard VAT rates a growing business graduates into once it becomes a general taxpayer:
| Rate | Applies to |
|---|---|
| 13% | Goods, processed goods, most services tied to goods |
| 9% | Transport, construction, real estate, agricultural products, telecom basic services |
| 6% | Modern services, finance, lifestyle services |
| 3% | Simplified-method levy rate (small-scale taxpayers) |
The jump from small-scale (1% effective) to general taxpayer (13%/9%/6% with input credits) is the single biggest tax event in a small company's life. Voluntarily registering as a general taxpayer makes sense only when your input VAT credits (from suppliers' special invoices) outweigh the rate increase β typically businesses with heavy domestic procurement.
Quarterly prepayments and the annual filing
Corporate income tax is prepaid quarterly (or monthly for some taxpayers) based on actual profit, then trued up in the annual filing due 31 May of the following year. The small-enterprise preference flows through automatically: the return form computes the reduced amount once you tick the qualifying boxes β no separate approval needed. Keep quarterly asset and headcount averages on file; the tax bureau can ask for them during the annual review.
Next steps
- Confirm you meet all three size tests before year-end β the RMB 3 million income line is a cliff, not a taper.
- If you are a small-scale VAT taxpayer near the RMB 100,000/month line, time your invoicing: bunching sales into one month can accidentally push you over.
- File quarterly prepayments honestly; the CIT preference applies automatically through the return β no separate application needed.
- If 2027 expiry approaches with no renewal announced, model the 25% rate into your 2028 pricing β as of late 2026 no extension beyond 2027 has been published.