SME Promotion Law of China (“Promotion Law”) was promulgated in 2003 aiming to improve the operation conditions of Small and medium enterprises (SMEs). However, due to lack of clear rules the enforceability has been an issue.
SMEs are making up 99.6% of all registered companies in China, contributing around 60% of the GDP and 70% of exports， hiring over 80% total employees in China. However most SMEs have been undergoing difficulties with access to bank financing while undertaking heavy tax burden.
Being aware of the growing importance of SMEs by China government, the revised Promotion Law was urged and issued in September of 2017 and is effective as of 1 January 2018.
The revised law grants various preferential treatment on taxation and governmental fees to SMEs to reduce their tax burden.
The policy on postponement, reduction, and exemption of enterprise income tax and value-added tax as well as simplified taxation administration procedure shall be applicable to the qualified SMEs so that their tax burden can be mitigated. In addition, the administrative charges shall be reduced or exempted for applying for and maintaining Intellectual Property Rights.
To solve the issue of underfunding, the revised law provides that the banking regulatory authority will urge banks to lift the tolerance on non-performing loan to SMEs and extend the service networks to more counties and town, and promote the development of small and medium sized banks and internet financing, as well as encouraging SMEs to obtain secured financing by putting up accounts receivable, intellectual property rights, inventories, machinery and equipment, etc. as collaterals.
The revised law also promises better governmental services to SMEs and encouragement of technology innovation.
The Promotion Law will apply to the foreign invested enterprise as long as they meet of criteria of SMEs.
Still the implication of the revised law will rely on more detailed measures and policy to be made and enforced.