{"id":18357,"date":"2026-09-18T16:51:31","date_gmt":"2026-09-18T08:51:31","guid":{"rendered":"https:\/\/www.qicaiying.cn\/?p=18357"},"modified":"2026-09-18T16:51:31","modified_gmt":"2026-09-18T08:51:31","slug":"%e5%b0%8f%e7%ba%a2%e4%b9%a6%e5%ba%97%e9%93%ba%e4%b8%80%e5%b9%b4%e6%b5%81%e6%b0%b4300%e4%b8%87%ef%bc%8c%e7%bb%a7%e7%bb%ad%e7%94%a8%e4%b8%aa%e4%bd%93%e6%88%b7%e7%bb%8f%e8%90%a5%e8%bf%98%e5%90%88","status":"publish","type":"post","link":"https:\/\/www.qicaiying.cn\/en\/archives\/18357","title":{"rendered":"With an annual turnover of 3 million for my Xiaohongshu store, is it still appropriate to continue operating as a sole proprietorship?"},"content":{"rendered":"
Xiaohongshu\u2019s e-commerce sector has exploded in the past two years, with many bloggers shifting from \u201drecommending products\u201d to \u201dopening stores.\u201d A single post that goes viral can generate monthly revenue of over 100,000 or even several hundred thousand, reaching as much as 3 million over the course of a year.<\/p>\n\n\n\n
But one issue has been repeatedly overlooked:Even as the store continues to grow, it remains a sole proprietorship.<\/strong><\/p>\n\n\n\n
Withdrawals from the platform go directly to a personal bank card; purchases made through 1688 come with no invoices; and all profits are kept in a personal account\u2014is a sole proprietor with 3 million in annual turnover really still viable?<\/p>\n\n\n\n
Are there still many sellers on Xiaohongshu with a monthly turnover of 3 million who are registered as sole proprietors?<\/h2>\n\n\n\n
A great many. Xiaohongshu\u2019s e-commerce platform got a late start, and a large number of sellers transitioned from content creators. When they opened their stores, they casually registered as sole proprietors, and even after their sales volume increased, they never changed their business entity.<\/p>\n\n\n\n
3 Typical Characteristics of Self-Employed Sellers on Xiaohongshu<\/p>\n\n\n\n
\n
\u2460 Start whenever you like<\/strong>\u00a0\u2014 When I started getting traffic as a blogger, I opened a store and registered as a sole proprietor to keep things simple. I never imagined the business would grow to be worth several million.<\/li>\n\n\n\n
\u2461 Withdrawals are processed through personal bank cards<\/strong>\u00a0\u2014 Revenue from Xiaohongshu stores is deposited directly into the operator\u2019s personal bank account, blurring the line between personal and business finances.<\/li>\n\n\n\n
\u2462 Purchases without invoices<\/strong>\u00a0\u2014 Purchasing from small factories on 1688, buying surplus inventory for cash, and having contract manufacturers not issue invoices\u2014resulting in no documentation for the costs<\/li>\n<\/ul>\n\n\n\n
This model works fine when revenue is under 500,000, but once it hits 3 million, you start running into problems everywhere.<\/p>\n\n\n\n
Why Is an Annual Revenue of 3 Million the Ceiling for Sole Proprietors?<\/h2>\n\n\n\n
dimension (math.)<\/th>
a private firm (PRC usage)<\/th>
corporation<\/th><\/tr><\/thead>
Scope of Responsibility<\/td>
Unlimited liability<\/td>
limited liability<\/td><\/tr>
Attention on Tax Audits<\/td>
3 million = individuals of particular concern<\/td>
Routine Oversight<\/td><\/tr>
cost deduction<\/td>
Most of it is not deductible<\/td>
Full Deduction of Input Invoices<\/td><\/tr>
corporate income tax<\/td>
Based on business income 5%-35%<\/td>
25% (Small and Micro Enterprises 5%)<\/td><\/tr>
Brand Partnerships<\/td>
Major brands do not sign contracts with sole proprietors.<\/td>
Brands Available for Licensing and Distribution<\/td><\/tr>
Financing and Loans<\/td>
It's almost impossible<\/td>
You can apply for a business loan<\/td><\/tr>
Platform Trustworthiness<\/td>
Some features are limited<\/td>
Full Functionality Unlocked<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
Note the fourth line\u2014The maximum tax rate on business income for sole proprietors is 35%, while the corporate income tax rate for small and micro enterprises operating as limited liability companies is only 5%.<\/strong>. With a turnover of 3 million, the difference in tax rates is no small matter.<\/p>\n\n\n\n
3 Million in Revenue: A Comparison of Actual Tax Burdens Between Sole Proprietorships and Corporations<\/h2>\n\n\n\n
[Limited Liability Company]: With input tax credits, costs can be deducted, resulting in a more accurate profit figure.<\/p>\n\n\n\n
The company's total tax burden is approximately 120,000\u2013150,000<\/p>\n\n\n\n
* The figures are based on empirical estimates and may vary depending on cost structures, tax deductions, and local policies.<\/p>\n\n\n\n
For the same 3 million in revenue, sole proprietors pay more in taxes than companies.120,000\u2013160,000<\/strong>. And that doesn't even take into account the inflated profits resulting from unrecorded costs\u2014since sole proprietors often purchase inventory without invoices, the tax authorities don't recognize those costs, so taxes are calculated based on the full profit amount, which may result in a higher actual tax burden.<\/p>\n\n\n\n
You might think being a sole proprietor is \u201dconvenient,\u201d but in reality, you end up paying over 100,000 yuan extra each year in \u201dconvenience fees.\u201d<\/em><\/p>\n\n\n\n
What are the differences between the Xiaohongshu platform for sole proprietors and companies?<\/h2>\n\n\n\n
Functional Permissions<\/th>
a private firm (PRC usage)<\/th>
corporation<\/th><\/tr><\/thead>
Store Type<\/td>
Sole Proprietorship\/Individual Business<\/td>
Corporate Store\/Brand Store<\/td><\/tr>
Brand Onboarding<\/td>
Restricted<\/td>
Brand-exclusive retail locations are available for application<\/td><\/tr>
Category Eligibility<\/td>
Certain categories are prohibited from being sold<\/td>
All Categories Available<\/td><\/tr>
Marketing Tools<\/td>
Some advertising features are limited<\/td>
Full Functionality Unlocked<\/td><\/tr>
Withdrawal Limit<\/td>
Daily Limit<\/td>
There is no limit on business account withdrawals.<\/td><\/tr>
consumer trust<\/td>
Show \u201dIndividual Store\u201d<\/td>
Show \u201dCorporate Store\u201d<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
One last, very important point\u2014buyers on Xiaohongshu pay attention to the store type. \u201dIndividual stores\u201d and \u201dbusiness stores\u201d are in different leagues when it comes to consumer trust, especially for categories with high average order values, where individual stores are at a natural disadvantage.<\/p>\n\n\n\n
What is the biggest risk for a self-employed individual with 3 million in annual revenue?<\/h2>\n\n\n\n
\u26a0 Risk 1: Unlimited Liability\u2014Full Compensation in the Event of an Incident<\/p>\n\n\n\n
Sole proprietorships involve unlimited liability; if the business encounters problems (such as quality disputes, infringement, or tax issues), the owner\u2019s personal assets may be fully subject to claims. A corporation has limited liability; liability is limited to the amount of registered capital.<\/p>\n\n\n\n
\u26a0 Risk 2: The platform\u2019s data has been submitted to the tax authorities<\/p>\n\n\n\n
Like other e-commerce platforms, Xiaohongshu has integrated its merchant transaction data into the tax system. The 3 million in turnover is clearly recorded in the system\u2014it\u2019s not as if \u201dno one knows\u201d about it.<\/p>\n\n\n\n
It\u2019s common for sole proprietors to purchase inventory without invoices, but the tax authorities don\u2019t recognize costs without invoices. Your actual profit might be only 500,000, but the tax authorities will calculate taxes based on a profit of 2 million\u2014the extra tax you\u2019ll have to pay is ten times higher than the cost of setting up a company.<\/p>\n\n\n\n
When these three risks combine,With 3 million in revenue and still operating as a sole proprietorship\u2014that\u2019s not saving money, that\u2019s operating without any safeguards.<\/strong>The<\/p>\n\n\n\n
When Should You Switch from a Sole Proprietorship to a Corporation? 4 Signs to Look For<\/h2>\n\n\n\n
If any of the following occurs, it's time to move on.<\/p>\n\n\n\n
\n
\u25a1 Annual revenue exceeds 1 million \u2192 The tax rate for sole proprietorships becomes less favorable<\/li>\n\n\n\n
\u25a1 We\u2019ve started sourcing from reliable suppliers \u2192 We need to issue invoices through our corporate account<\/li>\n\n\n\n
\u25a1 Want to apply for a brand store or expand your product categories \u2192 The platform requires a business entity<\/li>\n\n\n\n
\u25a1 Start hiring staff and renting warehouse space \u2192 The scale of operations exceeds what a sole proprietorship can handle<\/li>\n<\/ul>\n\n\n\n
With 3 million in turnover, I hit all four\u2014it\u2019s not a question of \u201dshould I roll or not,\u201d but rather \u201dif I don\u2019t roll now, it\u2019ll be too late.\u201d<\/p>\n\n\n\n
How to Convert a Sole Proprietorship to a Corporation on Xiaohongshu<\/h2>\n\n\n\n
Incorporate a Limited Liability Company<\/p>\n\n\n\n
Determine the equity structure and registered capital (recommended: 100,000\u2013500,000), with the scope of business covering e-commerce retail.<\/p>\n\n\n\n
Tax Registration + Opening a Business Bank Account<\/p>\n\n\n\n
After obtaining the business license, complete tax registration, open a corporate bank account, and apply for an invoice authorization.<\/p>\n\n\n\n
Change in the Legal Entity of the \"Xiao Shu\" Store<\/p>\n\n\n\n
Submit an application to change the business entity from a sole proprietorship to a limited liability company through the Xiaohongshu merchant dashboard, while retaining store data and followers.<\/p>\n\n\n\n
Switch Payment Channels<\/p>\n\n\n\n
Switch store withdrawals from a personal card to a business account; all future revenue will go through the business account.<\/p>\n\n\n\n
Bookkeeping and Tax Filing + Invoice Management<\/p>\n\n\n\n
Begin standardizing bookkeeping and tax filing; require suppliers to issue invoices for purchases; and establish a cost documentation system.<\/p>\n\n\n\n
Deregistration or Retention of a Sole Proprietorship<\/p>\n\n\n\n
If a sole proprietorship has no outstanding business, it should be dissolved; if there are historical contracts that have not yet expired, they may be retained during a transition period.<\/p>\n\n\n\n
The entire process usually2-4 weeks<\/strong>It\u2019s possible to complete the process, but the main bottleneck is the review of the structural change for Xiaohongshu\u2014if all materials are complete, it typically takes 7\u201310 days; if materials are incomplete, the application may be rejected and require repeated revisions.<\/p>\n\n\n\n
3 Misconceptions Among Xiaohongshu Sellers Regarding the Transition from a Sole Proprietorship to a Corporation<\/h2>\n\n\n\n
Misconception 1: \u201dIsn\u2019t the tax rate higher if you incorporate?\u201d<\/p>\n\n\n\n
Quite the opposite. The corporate income tax rate for small and micro enterprises is 5%, while the maximum tax rate on business income for sole proprietors is 35%. When 3 million in revenue is channeled through a company, the tax burden is typically lower, not higher.<\/p>\n\n\n\n
Misconception #2: \u201dIt\u2019s too much trouble after the transfer.\u201d<\/p>\n\n\n\n
Bookkeeping and tax filing cost a few hundred yuan a month, which is much cheaper than overpaying more than 100,000 yuan in taxes. Plus, once you\u2019re in compliance, it actually gives you peace of mind\u2014you don\u2019t have to worry about audits every day or stress over withdrawal limits.<\/p>\n\n\n\n
Misconception 3: \u201dLet\u2019s wait until we reach 5 million.\u201d<\/p>\n\n\n\n
3 million is already the threshold for heightened tax scrutiny. Wait until you reach 5 million before making the switch\u2014the additional taxes paid in the meantime, plus the exposure to historical risks, will result in costs far higher than if you switch now.<\/p>\n\n\n\n
Isn't it time for you to switch from being a sole proprietor to incorporating a company?<\/h2>\n\n\n\n
6 Signs to Watch for<\/p>\n\n\n\n
\n
\u25a1 Your Xiaohongshu store's annual sales have exceeded 1 million<\/li>\n\n\n\n
\u25a1 All your withdrawals go through your personal bank card; you don't keep your business and personal finances separate.<\/li>\n\n\n\n
\u25a1 Most of your purchases are not accompanied by invoices<\/li>\n\n\n\n
\u25a1 You want to apply for a brand store but are stuck on the business entity type<\/li>\n\n\n\n
\u25a1 Are you worried that high cash flow will draw the attention of the tax authorities?<\/li>\n\n\n\n
\u25a1 Have you calculated the difference between actual profit and what you actually take home after taxes? It\u2019s quite significant.<\/li>\n<\/ul>\n\n\n\n
If you check two or more of these, it means your current sole proprietorship model has alreadyI can't handle your size anymore.<\/em>\u2014It\u2019s not that being a sole proprietor is bad; it\u2019s just that your business has outgrown the sole proprietorship structure.<\/p>\n\n\n\n
Should You Switch Companies? Just Do the Math to Find Out<\/p>\n\n\n\n
Reply with a keyword in the chat, and we'll help you with: \u2460 Comparison and Analysis of Tax Burdens Between Sole Proprietorships and Corporations \u2461 Upgrade Plan for Your Xiaohongshu Store \u2462 Checklist for the Xiaohongshu Entity Change Process<\/p>\n\n\n\n\n<\/figure>\n<\/figure>","protected":false},"excerpt":{"rendered":"
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