Low Profit Companies Eligible for Preferential Tax Treatment

China's State Administration of Taxation has released a circular announcing a one year preferential tax treatment for small and low-profit companies.

Companies with a taxable income of less than RMB30,000 will be eligible to have 50 percent of their income taxes levied as the taxable income and pay an income tax rate of 20 percent for 2010.

The definition of a small and low-profit enterprise will be based on the Enterprise Income Tax Law. The preferential tax treatment is aimed at relieving small and medium-sized enterprises (SME) of some of the financial burdens brought about by the global financial crisis.

In China, SMEs are a vital part of the economy contributing to majority of all registered business in the country and accounting for more than 60 percent of GDP. In addition, SMEs are a strong employment channel for urban jobs.