A small Chinese business under the preferential tax regime pays two taxes: 1% VAT on turnover and 5% on profit. The total is about 6%, and it is calculated mostly on the margin, not on total revenue. These tax benefits are fixed until December 31, 2027.
VAT: 1% always
The base is the total amount received from sales: with a turnover of 100,000 ¥, the VAT will be 1,000 ¥. It is paid regardless of whether there is a profit or not—this is the cost of operating legally. The standard VAT rate in China is 13%; the small business benefit reduces it thirteenfold.
Income tax: 5% up to the threshold
The 5% rate applies to profits up to 3 million ¥ per year. Anything above this is taxed at 25%, but only on the excess amount: with a profit of 3.5 million, the tax will be 3,000,000 × 5% + 500,000 × 25% = 275,000 ¥.
| Tax | Rate | Base | When to pay |
|---|---|---|---|
| VAT | 1% | total turnover | once a year via declaration |
| Income tax | 5% (up to 3 million ¥) | profit = revenue − verified expenses | once a year |
| Profit over 3 million ¥ | 25% on the excess | amount above the threshold | once a year |
Small business thresholds
- turnover up to 5 million ¥ per year — small business status: simplified accounting, declaration every six months, full report once a year
- profit up to 3 million ¥ — 5% rate
- exceeding turnover — transition to the general regime: monthly reporting, 13% VAT — what changes in accounting
- limits are calculated for each legal entity separately — how this is used
What happens after 2027
There are no decisions yet; the discussed benchmarks are 3–6% VAT and 10–15% profit tax. The tax authority is required to notify about changes in advance, so there will be time to adjust. The conditions are fixed until the end of 2027.
Frequently asked questions
What taxes does a small Chinese business pay under the preferential tax regime?
A small business pays a 1% VAT on total turnover and a 5% tax on profits up to 3 million ¥ per year. These benefits are fixed until December 31, 2027.
How is the 1% VAT calculated for my business?
The 1% VAT is calculated based on the total amount received from sales, regardless of whether the business made a profit. For example, with a turnover of 100,000 ¥, the VAT will be 1,000 ¥.
What is the tax rate if my annual profit exceeds 3 million ¥?
The 5% rate applies to profits up to 3 million ¥, while any amount exceeding this threshold is taxed at 25%. For instance, with a profit of 3.5 million, you would pay 5% on the first 3 million and 25% on the remaining 500,000 ¥.
What happens to my tax status if my turnover exceeds 5 million ¥?
Exceeding the 5 million ¥ turnover threshold triggers a transition to the general tax regime, which includes monthly reporting and a 13% VAT rate. However, in practice, many sellers continue to pay 1% if their counterparty does not request a fapiao, though this is a practical nuance rather than a regulation.