In August 2026, tax authorities across the country were conducting intensive ”double-random” inspections, and the transition of sole proprietorships from "fixed-rate taxation" to "account-based taxation" had entered a routine phase. A sole proprietor running a clothing stall recently received a notice from the tax bureau: his fixed-amount taxation method would be discontinued, and starting next month, he would switch to examination-based taxation. This means he must maintain complete accounting records and file tax returns based on actual profits, just like a formal business. He was confused: He had been paying a fixed tax amount for the past few years—why had this suddenly changed?

This is not an isolated case. As August began, the ”Golden Tax Phase IV” big data cross-checks continued to tighten; many regions launched ”double-random” tax inspections; stricter fixed-rate taxation for individual businesses; and the normalization of the “review-to-investigation” process have become the most prominent trends in tax administration. At the same time, several tax preferential policies will remain in effect through the end of 2027—including VAT exemption for small-scale taxpayers with monthly sales below 100,000 yuan, an effective corporate income tax rate of 5% for small and low-profit enterprises, and a 50% reduction in the “six taxes and two fees,” all of which will be implemented until June 30, 2027. However, qualifying for these incentives does not mean taxpayers can file returns carelessly; incorrect reporting can still trigger risks. Many business owners are still clinging to the outdated notion that “registering as a sole proprietor guarantees a low tax burden and tax savings,” but the reality has undergone fundamental changes.

Phase IV of the Golden Tax System has entered the ”Data-Driven Tax Administration 3.0” stage, leveraging big data to create precise profiles and implement ”four-stream convergence” for penetrative oversight. The system automatically triggers alerts for high-risk behaviors this year, such as concealing income through personal bank accounts, consistently filing zero tax returns, failing to repay shareholder loans across fiscal years, and inconsistencies in the “four streams.” In light of this trend, businesses need professional compliance support to mitigate risks. Qicaiying Group specializes in providing domestic and international company registration services in Shenzhen, Guangzhou, Shanghai, Beijing, Hangzhou, Hong Kong, the U.S., Japan, South Korea, Southeast Asia, Singapore, the British Virgin Islands (BVI), the Cayman Islands, and more, as well as services such as annual company audits, bookkeeping and tax filing, tax compliance, information updates, bank account openings, ODI filings, FDI filings, and other corporate services, as well as Hong Kong residency applications, renewals, and permanent residency services; Singapore EP application services; and cross-border e-commerce coaching and managed operations—all as part of our one-stop service. If you have any needs or are interested, please feel free to contact me at any time (Consultation Hotline: 18676749275, add me on WeChat: Qicaiyingjituan).

I. Regularization of ”Registration, Transfer, and Inspection” for Sole Proprietors: ”Low Tax Burden Simply by Registering” Is No Longer the Case”

Many business owners have a fundamental misunderstanding about the fixed-rate tax collection method, believing that registering as a sole proprietor automatically means a low tax burden. The reality of tax administration in 2026 has completely overturned this perception.

The fixed-rate tax collection method has not been completely abolished, but the threshold has been significantly raised. The fixed-rate tax collection method applies only to small retail businesses with truly inadequate accounting records. In many regions, service industries such as consulting, design, and live-streaming are no longer readily approved for fixed-rate taxation. Existing sole proprietorships are gradually receiving ”fixed-rate-to-audit-based” transition notices, requiring them to switch to audit-based taxation. This means that sole proprietorships that previously paid a fixed tax amount must now maintain accounting records, collect supporting documents, and file tax returns based on actual profits, just like formal enterprises.

Shell sole proprietorships have become a key target for crackdowns. The system will issue an immediate alert for shell sole proprietorships that have no actual business address, no employees, and exist solely to issue invoices to offset costs, with funds flowing in and out rapidly. Tax authorities use multi-dimensional cross-checks—including business registration data, bank transaction records, the number of social security enrollees, and utility consumption—to accurately identify such shell entities.

Data from e-commerce and short-video platforms has been integrated with tax systems. Data from e-commerce and short-video platforms has been integrated with the tax system, and cases where reported income is significantly lower than platform transaction volumes directly trigger a risk flag. A self-employed live-streaming merchant discovered that the tax system had automatically recorded his annual total transaction volume on Douyin—a figure five times higher than his reported income.

“What Should You Do After Receiving a ”Referral for Investigation” Notice? Individual business owners already subject to fixed-rate taxation must ensure the authenticity of their business operations. Upon receiving a ”fixed-rate to audit” notice, they should promptly supplement cost documentation and maintain proper accounting records; they should not blindly register individual businesses in other locations to exploit loopholes. Above all, do not artificially manipulate income—practices such as集中作废 and red-line invoices at the end of a quarter to deliberately stay just below the tax-exempt threshold will be flagged as abnormal by big data analysis.

II. Four Major High-Risk Behaviors Under Phase IV of the Golden Tax System: Be Sure to Conduct a Self-Inspection Item by Item

In 2026, Phase IV of the Golden Tax Project has entered the ”Data-Driven Tax Administration 3.0” stage, with real-time data sharing now in place among more than 40 agencies, including tax authorities, banks, market regulation authorities, social security agencies, customs, public security, housing and urban-rural development, logistics, and e-commerce platforms. The following four types of conduct pose extremely high risks this year, and businesses must conduct a thorough self-inspection of each item.

High-Risk Behavior #1: Accepting payments for business transactions through personal bank accounts, WeChat, or Alipay. Concealing business income through personal bank accounts is the top risk identified in this year’s tax audits. Tax authorities can legally access transaction records from third-party payment platforms, so there is no such thing as ”small amounts that can’t be traced.” Through big data analysis of bank transaction records, the "Golden Tax Phase IV" system automatically flags instances where personal accounts frequently receive business-related payments. Once such activity is determined to be income concealment, businesses will not only be required to pay back taxes but will also face fines ranging from 0.5 to 5 times the amount of tax owed, as well as a daily late payment penalty of 0.05 percent.

High-Risk Behavior No. 2: Consistently filing zero-income tax returns. If a company fails to maintain accounting records or consistently files zero tax returns after registration, it will be flagged as high-risk, classified as “abnormal,” and, in severe cases, reclassified as a “non-compliant taxpayer.” It is particularly important to note that three consecutive months of zero tax returns in the individual income tax withholding system will trigger a system pop-up blocking further submissions, requiring the company to explain the reason. If a company is actually conducting business but files zero-income tax returns, the risk is extremely high; if the company is genuinely not operating, it should provide an accurate explanation through the Electronic Tax Bureau rather than simply filing zero returns.

High-Risk Behavior No. 3: Failure to Repay Shareholder Loans by the End of the Year. If a shareholder borrows money from the company and fails to repay it by the end of the year—and the funds were not used for business operations—the amount is treated as a dividend and is subject to a 20% personal income tax. This is a risk that many business owners tend to overlook—when a business owner transfers funds from the company’s account to their personal account as a ”loan,” and fails to repay it by year-end or use it for business operations, the tax system automatically identifies such behavior through related-party transaction monitoring.

High-Risk Behavior #4: Inconsistencies in the Four Aspects. If there are discrepancies between contracts, invoices, funds, and business transactions—or if a company receives an abnormal invoice—it must reverse the input tax credit and bear the loss itself. The core logic of the Golden Tax Phase IV initiative is ”four-stream integration” through penetrative supervision—the parties signing the contract, the issuer of the invoice, the parties receiving and disbursing funds, and the actual participants in the transaction must all be consistent. If there is a discrepancy in any of these links, the system will automatically flag it.

To address the four high-risk behaviors mentioned above, Qicaiying has launched a comprehensive service package combining ”Bookkeeping and Tax Filing,” “Tax Audit Response,” and “Tax Compliance”: Bookkeeping and tax filing cover all tax types, including VAT, corporate income tax, and individual income tax, ensuring the accuracy and authenticity of the reported data; tax audit response helps companies organize evidence chains to verify the authenticity of their business operations, draft explanatory statements, and accompany them during communications with tax authorities; Tax compliance standardizes a company’s financial accounting system from the source and establishes an internal control mechanism that ensures consistency across the four flows of business information. Qicaiying Group specializes in providing domestic and international company registration services in Shenzhen, Guangzhou, Shanghai, Beijing, Hangzhou, Hong Kong, the United States, Japan, South Korea, Southeast Asia, Singapore, the British Virgin Islands (BVI), the Cayman Islands, and other locations, as well as corporate annual review and audit, bookkeeping and tax filing, tax compliance, corporate information changes, bank account openings, ODI filings, FDI filings, and other corporate services; Hong Kong identity applications, renewals, and permanent residency services; Singapore EP application services; and cross-border e-commerce coaching and agency operations. If you have any needs or are interested, please feel free to contact me at any time (Consultation Hotline: 18676749275, add WeChat: Qicaiyingjituan).

III. Tax Incentives for 2026: The Benefits Remain, but There Are Conditions for Eligibility

While strict regulatory oversight remains in place, several inclusive tax and fee preferential policies will continue to be implemented in 2026, allowing businesses to continue to benefit from substantial relief. However, to qualify for these benefits, businesses must maintain complete financial records, ensure that supporting documents are in order, and submit accurate tax returns.

VAT Preferential Policies for Small-Scale Taxpayers. Monthly sales of 100,000 yuan or less (300,000 yuan per quarter) are exempt from value-added tax; amounts exceeding these thresholds are subject to a 1% tax rate. This policy will remain in effect through the end of 2027. It is important to note that “small-scale taxpayers” are not the same as “micro and small enterprises”; the criteria for determining each category differ, so the two preferential tax systems should not be confused.

Corporate Income Tax Incentives for Small, Low-Profit Enterprises. For taxable income of 3 million or less, the effective tax rate is 5%, effective through the end of 2027. The period for halving the collection of the “Six Taxes and Two Fees” runs from July 1, 2026, to June 30, 2027; eligibility for this preferential treatment is determined based on the previous year’s annual tax settlement results.

No prior registration is required to take advantage of the discount, but you must keep a record of the evidence. It is essential to retain a chain of evidence—including business contracts, warehouse release forms, chat logs, and shipping documents—for future reference. During subsequent audits, tax authorities will require companies to provide supporting documentation for claiming tax incentives. If a company’s accounting records are incomplete or supporting documents are missing, it will not only be ineligible for the incentives but may also face retroactive adjustments.

IV. Checklist for Corporate Response: From ”Firefighting” to ”Fire Prevention”

In the face of routine ”nuclear transfer and audit” procedures and the penetrative oversight of the Golden Tax Phase IV system, companies must avoid the mistake of ”treating symptoms rather than causes.” The truly effective approach is to establish a permanent compliance firewall.

Step 1: Self-inspection of existing business operations. Compare bank statements, invoicing records, and tax filing data from the past three years to verify, on a month-by-month basis, whether all income has been fully reported. Focus the review on the following: whether payments received into personal accounts have been properly transferred to corporate accounts; whether costs and expenses are supported by compliant documentation; and whether shareholder loans have been repaid or handled in accordance with regulations.

Step 2: Standardize bookkeeping and accounting. Whether they are sole proprietors or businesses, all entities should maintain complete accounting records based on their actual business operations. Revenue should be recognized on an accrual basis, and costs and expenses should be recorded as they are actually incurred. All supporting documents (invoices, contracts, payment records, and shipping documents) must be retained in their entirety. Upon receiving a ”Review and Transfer” notice, sole proprietors should establish their accounting records as soon as possible under professional guidance.

Step 3: Establish a mechanism for ongoing compliance. Regularly review whether tax rates, gross profit margins, and expense ratios are reasonable; stay informed about the latest announcements from the State Taxation Administration; and conduct a compliance assessment before expanding operations or restructuring. Do not ignore tax alerts; promptly review your accounts and take proactive measures.

The major trend for 2026 is already very clear: tax savings must be based on genuine business operations. The era of aggressively reducing tax burdens through tax havens and shell companies is over; compliance is now the lowest operating cost for businesses. Qicaiying Group specializes in providing domestic and international company registration services in Shenzhen, Guangzhou, Shanghai, Beijing, Hangzhou, Hong Kong, the United States, Japan, South Korea, Southeast Asia, Singapore, the British Virgin Islands (BVI), the Cayman Islands, and other locations, as well as annual review and auditing, bookkeeping and tax filing, tax compliance, information changes, bank account openings, ODI and FDI filings, as well as one-stop services such as Hong Kong residency applications, renewals, and permanent residency; Singapore Employment Pass (EP) applications; and cross-border e-commerce support and management. If you have any needs or are interested, please feel free to contact me at any time (Consultation Hotline: 18676749275, add WeChat: Qicaiyingjituan).

Phase IV of the Golden Tax System is not intended to ”eliminate” businesses, but rather to weed out those that rely on gray-area practices to survive, thereby reserving market space for companies that operate in full compliance with regulations. Maintaining accurate accounting records, keeping complete supporting documents, and filing tax returns in accordance with regulations are the true foundations for weathering regulatory cycles.