Tax Incentives for Tax Planning

State tax incentives are given to a specific taxpayers' tax relief benefits.   Therefore, the use of tax incentives can, not only to reduce their tax burden, but this behavior is encouraged by the State and there is no legal risk.

According to China's current corporate income tax policy, eligible small low-profit enterprises, can enjoy a reduced rate of 20% on enterprise income tax.    Countries that need to focus on supporting high-tech enterprises are reduced at a rate of 15% enterprise income tax.    From 1 January 2010 to 31 December 2010, for those with an annual taxable income below RMB 30,000 (including RMB 30,000) small low-profit enterprises, it can enjoy a reduced rate of 50% on its income that included in taxable income, 20% on the corporate income tax rate.

The use of tax incentives for tax planning is mainly in the following two(2) ways:-

Firstly, it should apply by those in line with preferential policies.   It is the taxpayers to take the initiative to apply.   Even if the taxpayer has met the conditions that laid down in the preferential policy, the tax authorities will not take the initiative to give the taxpayer the relevant preferential.   Enterprises should always focus on the latest tax policy.

For those small enterprises that meet the conditions for small profit, a 20% on preferential corporate income tax rate is granted.
Small profit related conditions are:-

  1. Industrial Enterprises:   An annual taxable income does not exceed RMB 300,000 , the number of employees does not exceed 100 people with its total assets for not more than RMB 30 million.
  2. Other companies:    An annual taxable income does not exceed RMB 300,000, the number of employees does not exceed 80 people with total assets for not more than RMB 10 million.
  3. The Ministry of Finance and the State Administration of Taxation also stipulates that companies must implement audit for collection of the enterprises, to proof that the enterprises are unable to enjoy the approved levy subject.


Many enterprises meet the above criteria.   But not all companies are actually enjoying the preferential policies if the enterprises enjoy under such policy, the tax authorities take the initiative to submit relevant materials.

Secondly, those creative industries enjoy preferential taxation policies.   All tax incentives have its applicable conditions.   Businesses which meet these conditions can enjoy, so companies can consider other methods to fulfill these conditions to enjoy preferential taxation policies.

For example, for small low-profit enterprises, it can enjoy preferential tax policies by three(3) conditions, the company does not have a sound financial system, the company can establish and improve its financial system so as to become the implementation of audit collection business.

For example: XX corporate taxable income of $ 250,000 should be subject to corporate income tax:-    25 × 25% = 6.25 (million),   profit after tax for the 25-6.25 = 18.75 ( million).      If the books recorded RMB 10,000 flows out before year end as expenditure, such as the payment of expert consultancy, purchase of office supplies, etc. , then the corporate taxable income RMB 240,000 should be subjected to corporate income tax : 24 × 20% = 4.8 (million) after-tax profit :24- 4.8 = 19.2 ( million).   Thus, corporate has an additional expenses of RMB 10,000 makes a more profit after tax increased by 0.45 million, which is the tax planning benefits .