As the owner of an online clothing store, she received a risk assessment notice from the tax authorities in 2026: her reported income was significantly lower than the platform’s transaction volume, and she had employed two people without paying social security contributions. She had originally thought that “no one would bother with a small business,” but this time she hit a brick wall.

With the VAT Law taking effect on January 1, 2026, and the full integration of tax-related information reporting across platforms, e-commerce taxation is shifting from a “lenient” approach to “precise compliance.” This article clearly explains the two “red lines” regarding social security and individual income tax—e-commerce business owners are advised to read it.

A Look Ahead to 2026: With the implementation of the Fourth Phase of the Golden Tax Project and data integration among five departments (tax authorities, banks, public security, market regulation, and online platforms), the era of receiving payments through personal accounts, failing to pay social security contributions, and not withholding commissions is coming to an end.

01

Personal income tax is a mandatory obligation

Misconception: As long as monthly sales are below 100,000, you’re in the clear. You may be exempt from VAT, but you still have to pay personal income tax—as long as you have business income, you must report it accurately even if monthly sales are below 100,000. Otherwise, when your bank transaction history is cross-checked with platform data, it will be treated as tax evasion.

Sole proprietorships/individual businesses: Pay individual business income tax, subject to a five-tier excess progressive tax rate ranging from 5% to 35%. Limited liability companies: The corporate income tax rate is 25%; small and micro enterprises that meet the eligibility criteria are subject to a 5% tax rate (extended through the end of 2027).

Streamer commissions and slot fees: These are taxed as income from services. The payer must withhold and remit individual income tax at a withholding rate ranging from 20% to 40%, and may only record the payment in the books after obtaining a compliant invoice from the streamer.

02

Don't Cross the Social Security Red Line

Under the audited assessment system, operating costs include employee wages and social insurance contributions. If you hire employees but fail to make social insurance contributions, the tax authority will request payroll records and social insurance payment records. If it is found that contributions were not made, you will be summoned for a meeting and required to make back payments, and the late payment penalties for social insurance are very high.

Under the fixed-rate taxation system, tax authorities generally do not oversee social insurance compliance. However, with the full implementation of audited taxation in 2026, social insurance compliance will shift from being “negligible” to a “mandatory audit item.” Sellers who have hired employees should bring their operations into compliance as soon as possible.

Note: Payroll records, social security records, and individual income tax withholding records must be fully consistent with one another; this constitutes the core chain of evidence for verifying the authenticity of costs under the audit-based taxation system.

If you’re facing a similar situation—running an e-commerce business or live-streaming, worried about social security and personal income tax audits, and wanting to maintain compliant financial records—we can help you assess your tax filing risks and establish standardized accounting practices. Scan the QR code to contact Qicaiying’s online customer service (WeChat/Phone: 18620388671), and we’ll help you sort out this entire process from start to finish.

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03

Consolidation of Multiple Income Streams

Failure to report income from live streaming, advertising, and commissions separately is a common source of tax compliance issues. Tax authorities apply the “substance over form” principle to look through such arrangements, requiring all income from entities under the same actual controller to be aggregated and reported collectively.

Frequent changes to business licenses and splitting revenue among different names won’t work—even if a business holds multiple business licenses or splits revenue across multiple stores to evade registration, the revenue from stores under the actual controller’s name must be aggregated.

If a business exists but has not been registered or filed tax returns, it should proactively complete the necessary procedures, pay the back taxes and late payment penalties, and rectify the violation—which costs several times less than making corrections after an audit.

04

Stop protecting small-scale operations

In the past, businesses could maintain their status as small-scale taxpayers—and thus enjoy lower tax rates—by concealing income or splitting their operations, but this approach will no longer be viable in 2026. Announcement No. 2 of 2026 issued by the State Taxation Administration clearly states that if a business does not meet the criteria for small-scale taxpayer status, the tax authorities may require it to be taxed as a general taxpayer.

Once it is confirmed that a business has improperly registered as a small-scale taxpayer, it will be required to pay back taxes retroactively at the tax rates applicable to general taxpayers (e.g., 13% for goods), rather than the collection rates ranging from 1% to 3%. As a result, the total amount owed—including back taxes, late payment penalties, and fines—will increase significantly.

The actual tax burden isn’t as daunting as it seems: Once they’re in compliance, small and medium-sized sellers often face an effective tax rate of just 2% to 3% of their annual revenue—paying a little more brings peace of mind, while paying less leaves them living in constant fear.

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05

How do you avoid crossing the line?

First, report all income: Ensure that platform sales figures match reported income; even if monthly sales are low, you must file quarterly reports. Second, ensure social security contributions are up to date: Pay social security contributions as soon as you hire employees, and maintain a closed-loop system for payroll records, individual income tax withholding, and the three certificates.

Third, consolidate multiple revenue streams: Account for product sales, advertising, and commissions as a single unit; do not split them across different entities. Fourth, choose the appropriate tax status: Select either a small-scale taxpayer or a general taxpayer based on your business size, and do not conceal revenue.

In a nutshell: The bottom line for e-commerce taxation in 2026 is “dual reporting of individual income tax and social security contributions, and the consolidation of income from multiple sources.” Keeping accurate records is far less stressful than gambling on the tax authorities not auditing you.

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