Essential for Yiwu Business Owners: Is the Corporate Income Tax Only 5% for Profits Below 3 Million CNY? How to Enjoy the Small and Micro-Profit Enterprise Preferential Policy in 2026?

Business owners in Yiwu, the August reporting period is here again. Many business owners operating in the International Trade City and Huangyuan Market have made a good profit throughout the year, but they feel the pinch when it comes to quarterly reports: How much corporate income tax do we really need to pay? There's a rumor that there's a "small and micro-profit enterprise" preferential policy, where the actual tax burden is only 5% for profits below 3 million CNY. Is this true? Does my company qualify?

Today, Jinfan Tax & Finance will explain this thoroughly: the conditions for eligibility, the extent of the preference, the critical importance of the 3 million CNY threshold, and how to file. We'll clarify everything in one article to help you save on taxes where possible.

I. What is a Small and Micro-Profit Enterprise? Four Conditions Must All Be Met

A small and micro-profit enterprise is not just about being 'small in scale'; it is a specific concept under tax law. According to the Announcement by the Ministry of Finance and the State Administration of Taxation on Further Implementation of Preferential Corporate Income Tax Policies for Small and Micro Enterprises (Announcement No. 12 of 2023 by the Ministry of Finance and the State Administration of Taxation) (财政部 税务总局公告2023年第12号), the following four conditions must be met simultaneously:

• Industry Requirement: Engaging in industries not restricted or prohibited by the state (most normal businesses meet this requirement);
• Taxable Income: Annual taxable income not exceeding 3 million CNY;
• Number of Employees: Not more than 300 people (including dispatched workers);
• Total Assets: Not more than 50 million CNY.

All four conditions must be met simultaneously; failing any one disqualifies the enterprise. The number of employees and total assets are calculated based on the quarterly average, not just a single day at the end of the year. This is a common misunderstanding among many business owners.

II. How Significant is the Preference? A Simple Calculation Will Make It Clear

The core of the policy can be summarized in one sentence: For small and micro-profit enterprises, the portion of annual taxable income not exceeding 3 million CNY shall be included in the taxable income at 25%, and the corporate income tax shall be paid at a rate of 20%. This may sound complicated, but the result is straightforward — the actual tax burden is only 5%, and this policy extends until December 31, 2027.

Let's do a calculation for a Yiwu company. Suppose your company's annual profit (taxable income) is 1 million CNY:

">">>table border="1" cellpadding="8" cellspacing="0" style="border-collapse:collapse;width:100%;">Profit SituationWithout Preferential TreatmentWith Preferential TreatmentSavingsProfit of 1 million CNYTax at 25% is 250,000 CNYTax at 5% is 50,000 CNYSaves 200,000 CNYProfit of 2 million CNYTax at 25% is 500,000 CNYTax at 5% is 100,000 CNYSaves 400,000 CNYProfit of 3 million CNYTax at 25% is 750,000 CNYTax at 5% is 150,000 CNYSaves 600,000 CNY">">p>See? For the same profit of 1 million CNY, a boss who enjoys the policy pays 200,000 CNY less in taxes per year. For small businesses in Yiwu, where profits are not high and rely on volume, this amount could be equivalent to more than half a year's rent.">">h2>Three, Crossing the 3 Million CNY Line Means a World of Difference">">p>This is the most critical pitfall that Yiwu business owners must remember: Once taxable income exceeds 3 million CNY, it’s not just the excess that is taxed at 25%, but the entire profit is taxed at 25%!">p>For example, if your company's profit is 2.99 million CNY, with the preferential treatment, you only pay 149,500 CNY; but if you make one more deal and the profit becomes 3.01 million CNY, you are no longer considered a small and micro-profit enterprise, and the entire 3.01 million CNY is taxed at 25%, which amounts to 752,500 CNY – earning an extra 20,000 CNY but paying over 600,000 CNY more in taxes, making it all for nothing.">">p>Therefore, before the quarterly report, bosses must have a clear understanding: When approaching the 3 million CNY threshold, control costs as necessary and make provisions (such as year-end bonuses, compliant expenses, and equipment depreciation). Don't foolishly cross the line. Of course, this should be done through compliant planning, not by falsifying accounts, as the books must withstand scrutiny.">">h2>Four, How to Enjoy the Benefits? Apply and Enjoy, No Filing Required">">p>The good news is: small and micro-profit enterprises do not need to apply separately or file for the tax preference. According to the Announcement of the State Administration of Taxation on the Collection and Management Issues of Income Tax Preferential Policies for Small and Micro-Profit Enterprises (Announcement No. 6 of 2023 of the State Administration of Taxation) (《国家税务总局关于小型微利企业所得税优惠政策征管问题的公告》（国家税务总局公告2023年第6号）), enterprises can directly enjoy the benefits during the provisional payment declaration, as the system will automatically identify and calculate the benefits.">">p>Remember these practical points:

• At the quarterly prepayment, determine eligibility based on the cumulative amount for the quarter. If eligible, prepay at 5%;
• If not eligible at prepayment but becomes eligible during the annual tax settlement, overpaid taxes can be refunded or offset;
• Enterprises subject to assessed collection (fixed amount and fixed rate, or assessed taxable income ratio) can also enjoy this benefit; it's not limited to those under account-based collection only;
• The number of employees includes labor dispatch personnel, so don't miss them in your count.

As long as the company files normally, the system will automatically calculate for you. However, the prerequisite is that the accounts must be correct and the data accurately reported—if the number of employees, total assets, or profits are reported incorrectly, not only will you miss out on the benefits, but you may also trigger a tax alert.

Section 5: Common Misunderstandings: 3 Pitfalls Yiwu Business Owners Often Fall Into

Misunderstanding 1: Thinking that a "small company" automatically qualifies as a small and micro-profit enterprise. This is not true! If the conditions are not met, it does not qualify. For example, if the profit exceeds 3 million CNY or the total assets exceed 50 million CNY, it does not qualify.

Misunderstanding 2: Reporting casually during prepayment, thinking it can be adjusted during the annual tax settlement. Underpaying too much during prepayment may result in late fees; overpaying means your money is tied up with the tax authority for a long time, which is not cost-effective.

Misunderstanding 3: Counting the number of employees by combining subsidiaries and branches. Independently accounted subsidiaries should be judged separately; do not combine them, as it is easy to make mistakes.

Q&A: Frequently Asked Questions Answered

Q1: I run an individually-owned business under assessed collection. Can I enjoy this benefit?
Individually-owned businesses pay personal income tax on business income, not corporate income tax, and are subject to a different set of preferential policies. Assessed collection enterprises (limited liability companies) can enjoy the small and micro-profit enterprise benefits, but individually-owned businesses do not apply.

Q2: What if my profit is exactly 3 million CNY?
It is recommended to plan ahead and confirm all allowable costs and expenses in the current year (such as compliant bonuses, repairs, and depreciation) to keep the profit within 3 million CNY. It would be a significant loss to pay tens of thousands more in taxes due to a few thousand CNY difference.

Q3: How long will this policy last? Will it be gone next year?
The official document clearly states that the policy will continue until December 31, 2027. You can plan with confidence for the next few years. If there are any changes in the policy, follow the latest announcements from the State Taxation Administration.

Q4: How do I know if I am eligible for quarterly prepayment?
Determine eligibility based on the cumulative number of employees, total assets, and taxable income as of the end of the quarter. The system will automatically prompt you during prepayment, and if eligible, you can directly enjoy the benefit.

Q5: What if I had a loss last year and made a profit this year?
Losses can be carried forward and offset within 5 years (for high-tech enterprises and technology-based small and medium-sized enterprises, it is 10 years). After offsetting the losses, determine if the taxable income is within 3 million CNY; do not forget to account for the losses.

Policy Basis

This article is based on the following official documents:

• Announcement on Further Implementation of Income Tax Preferential Policies for Small and Micro Enterprises (Announcement No. 12 of 2023 by the Ministry of Finance and the State Administration of Taxation) (财政部 税务总局公告2023年第12号) —— Specifies a 25% inclusion rate for amounts below CNY 3 million, with a tax rate of 20%, effective until December 31, 2027;
• Announcement on Administrative Issues Concerning the Preferential Income Tax Policies for Small and Low-Profit Enterprises (Announcement No. 6 of 2023 by the State Administration of Taxation) (国家税务总局公告2023年第6号) —— Clarifies the administrative measures such as enjoying benefits upon declaration and prepayment enjoyment;
• Enterprise Income Tax Law of the People's Republic of China and its Implementing Regulations —— Basic provisions for the recognition and tax rates of small and low-profit enterprises.

Final Words

The preferential policies for small and low-profit enterprises are the most tangible policy bonus from the state to small and medium-sized enterprises. However, whether or not one can benefit from them depends on how clearly the accounts are calculated and how accurately the data is reported. Business in Yiwu emphasizes meticulous calculation, and even more so when it comes to taxes.

If you are unsure about whether your company meets the criteria, how to stay within the CNY 3 million threshold, or how to fill out the advance payment declaration, feel free to contact Jinfan Tax & Finance at any time — a financial and taxation service team with a decade of experience in Yiwu, dedicated to helping you save every possible yuan in taxes and keep every risk at bay.