Announcement on the Policy of Exempting Value-added Tax on Interest Income Obtained by Financial Institutions from Loans to Micro and Small Enterprises
Announcement of the Ministry of Finance and the State Taxation Administration [2023] No.16
August 1, 2023
The relevant tax policies supporting the financing for micro and small enterprises and individual businesses are hereby announced as follows:
I. The interest income obtained by a financial institution from issuing small-amount loans to small enterprises, micro enterprises and individual businesses shall be exempted from value-added tax (VAT). A financial institution may enjoy the VAT exemption policy under either of the following two methods:
1. The interest income from each small-amount loan offered by a financial institution to a small enterprise, a micro enterprise or an individual business shall be exempted from VAT if the interest rate is not higher than 150% (inclusive) of the market-based loan prime rate announced by the National Interbank Funding Center; the part of interest income from a small-amount loan with an interest rate higher than 150% of the market-based loan prime rate announced by the National Interbank Funding Center shall be subject to VAT in accordance with current policies.
2. Among the interest income from each small-amount loan offered by a financial institution to a small enterprise, a micro enterprise or an individual business, the portion of interest income, calculated at a rate of up to 150% (inclusive) of the market-based loan prime rate announced by the National Interbank Funding Center, shall be exempted from VAT; the excessive portion shall be subject to VAT in accordance with current policies.
A financial institution may choose to enjoy the VAT exemption policy under either of the above-said two methods for a fiscal year, which cannot be changed once it is chosen within that fiscal year.
II. For the purpose of the Announcement, the term "financial institutions" refers to institutions that are established upon approval of the People's Bank of China and the National Administration of Financial Regulation and have simultaneously achieved the growth goal regarding loans to micro and small enterprises put forward by the regulatory authority in the previous year, and development banks and policy banks, foreign-funded banks and non-banking financial institutions, established upon approval of the People's Bank of China, the National Administration of Financial Regulation and the China Securities Regulatory Commission. Information about financial institutions' achievement of the growth goal regarding loans to micro and small enterprises shall be subject to the assessment results announced by the National Administration of Financial Regulation and its dispatched agencies.
III. For the purpose of the Announcement, the terms "small enterprises" and "micro enterprises" refer to those which meet the conditions set out in the Provisions for Classification Standards of Small and Medium-sized Enterprises (Gong Xin Bu Lian Qi Ye [2011] No.300). In particular, the total value of assets and number of employees shall be determined based on the actual figures when loans are issued. The operating revenue shall be the aggregate amount in the 12 calendar months before a loan is issued; where the operating period is shorter than 12 months, the operating revenue shall be calculated under the formula below:
Annual operating revenue = operating revenue actually obtained by an enterprise during the period of existence / the number of months that the enterprise exists × 12.
IV. For the purpose of the Announcement, the term "a small-amount loan" refers to a credit loan of no more than CNY10 million (inclusive) offered to a small enterprise, a micro enterprise or an individually-owned business, or a loan of no more than CNY10 million (inclusive) under the loan contract offered to each enterprise or business whose outstanding loans are also no more than CNY10 million (inclusive), if it does not have a line of credit.
V. Financial institutions shall safekeep supporting materials relating to VAT exemption for further reference, separately calculate the eligible interest income derived from small-amount loans, and file tax returns with their respective competent tax authorities under the current rules; where they fail to separately calculate the said interest income, the VAT shall not be exempted.
Financial institutions shall enjoy preferential VAT policies in accordance with laws and regulations, and shall be stopped from enjoying the relevant preferential VAT policy provided herein if they are found to file false tax returns or commit fraud to enjoy the tax incentives provided herein in a deceptive manner.
Financial institutions shall continuously track the whereabouts of loans to ensure that loans truly go to small enterprises, micro enterprises and individual businesses, and that loan applicants are indeed the subjects actually using the loans.
VI. Small enterprises, micro enterprises and individually-owned businesses to which the interest income derived from credit loans issued by financial institutions is offered, with each credit loan being of no more than CNY1 million (inclusive), or from loans under a loan contract of no more than CNY1 million (inclusive) if they do not have a line of credit and their respective outstanding loan is no more than CNY1 million (inclusive), may enjoy VAT exemption according to the Announcement of the Ministry of Finance and the State Taxation Administration on Relevant Tax Policies Supporting Financing for Micro and Small Enterprises (Announcement of the Ministry of Finance and the State Taxation Administration [2023] No.13).
VII. The Announcement shall remain effective until December 31, 2027.
The Announcement is hereby given.
