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Why do some companies pay an effective corporate income tax rate of just 5%, while others pay 25%?

China's Corporate Income Tax (CIT) features a standard rate of 25%, but the government offers significant relief for specific sectors and eligible small businesses to foster innovation and growth.

Ⅰ.Preferential Rates

• High-Tech Enterprises: Certified companies enjoy a reduced tax rate of 15%.
• Small Low-Profit Enterprises (SMEs): Qualified small businesses benefit from a preferential rate, resulting in an effective tax burden as low as 5% on qualifying income.

To access the SME rate, a company must not be in a restricted or prohibited industry and must meet all three criteria below:

1. Assets: Total assets do not exceed RMB 50 million.

2. Employees: No more than 300 employees.

3. Taxable Income: Annual taxable income does not exceed RMB 3 million.
   

Please note that "taxable income" is not simply the accounting profit on your accounting book. It is the profit figure adjusted according to tax laws and regulations, which forms the actual basis for calculating your corporate income tax liability.Also, please be aware that the preferential tax rate for Small Low-Profit Enterprises is a temporary policy, currently valid until December 31, 2027.

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