The corporate income tax preferential policy for small, low-profit enterprises has been extended through December 31, 2027, and is currently the most certain and widely applicable universal policy. However, every year during the annual tax settlement season, some companies—due to a misunderstanding of the rules—either miss out on the benefits or end up overpaying a significant amount of tax because they ”cross the line.”

All four conditions must be met simultaneously.

To be eligible for the discount, businesses must meet all of the following criteria:

• Engaged in nationalNot restricted, not prohibitedsector
• year (e.g. school year, fiscal year)No more than 300 practitioners(Calculated based on the quarterly average for the year)
• year (e.g. school year, fiscal year)Total assets not exceeding $50 million(Also based on quarterly averages)
• year (e.g. school year, fiscal year)Taxable income does not exceed 3 million yuan

All four criteria are essential. In practice, the most common source of errors involves the calculation of the ”quarterly averages” for the number of employees and total assets—that is, instead of using the year-end or year-beginning figures, one first calculates the average for each quarter and then computes the annual quarterly average.

Just how low is the tax burden?

The policy states: For small and micro-profit enterprises, the portion of annual taxable income not exceeding 3 million yuan,Include the amount in taxable income at a reduced rate of 25%, and pay corporate income tax at a rate of 20%., with an effective tax rate of 5%.

Here’s an example: A small and micro enterprise had a taxable income of 2.8 million yuan in 2026. Its corporate income tax liability = 2.8 million × 25% × 20% = 140,000 yuan, with an effective tax rate of 5%. Compared to the statutory tax rate of 25%, the tax savings are quite substantial.

It should be noted that different sources provide varying descriptions of the actual tax burden for the 1 million to 3 million range (some use a uniform 5% methodology, while others use a tiered approach),For specific calculations, please refer to the guidelines published by the competent tax authority and the instructions for completing the tax return forms., Don't make decisions based solely on spreadsheets circulating online.

The 3 Million Threshold: Why We Can’t ”Break Through”

This is the most important point to keep in mind. Discounts are based onIs it more than 3 million yuan?The full amount is subject to taxation; it is not just the excess portion that is taxed at the higher rate.

In other words, if taxable income increases from 3 million to 3.01 million—a difference of 10,000—this could cause the overall tax burden to jump directly from the preferential tax bracket to the full application of the 25.1% rate, resulting in additional tax payments that may far exceed the 10,000 itself.

Therefore.Never artificially adjust profits to ”cross the line.”. The practice of keeping taxable income below 3 million by artificially inflating costs and shifting revenue across accounting periods carries extremely high risks under the cross-tax-type comparisons performed by the Golden Tax System. If such adjustments are reversed, the costs of back taxes, late payment penalties, and fines will far exceed the tax savings.

The correct planning approach is to lay the groundwork in advance: reasonable R&D investments, compliant expense allocations, business spin-offs, and organizational structure design should all be completed before business operations begin, rather than rushing to adjust the books at the last minute before the annual tax settlement.

How to Claim: Determine eligibility on your own, file a claim, and retain documentation for future reference

Preferential Policies for Small and Micro EnterprisesNo tax approval is required. Enterprises should follow the ”self-assessment, declaration for benefits, and retention for future reference” procedure; when filing their returns, they should complete the relevant fields, and the system will automatically calculate the tax reduction or exemption amount.

However, ”no approval required” does not mean ”no documentation required.” Documents that must be retained for future reference include: financial statements related to the number of employees and total assets, as well as materials proving compliance with industry requirements. It is recommended to verify compliance before filing the annual tax settlement and to document the calculation process in writing for your records.

Three Common Misconceptions

• Misconception 1: Taxable income is equal to the total profit reported in the financial statements. The correct answer is that tax adjustments must be made in accordance with tax law standards; business entertainment expenses, advertising expenses, employee benefit expenses, and other items must all be adjusted when calculating the tax base.
• Misconception 2: Tax benefits require approval. The correct approach is to determine eligibility on your own and file a claim to receive the benefit.
• Misconception 3: Thresholds can be adjusted on an ad hoc basis. The correct answer is that compliance boundaries must not be crossed.

Policy details are subject to the announcements issued by the Ministry of Finance and the State Taxation Administration. Qicaiying can assist enterprises with assessing their eligibility as small and micro enterprises, planning for threshold levels, and reviewing annual tax settlement and finalization filings.