According to the Provisions of the Civil Code of the People's Republic of China, natural persons engaged in industrial and commercial operations are individual industrial and commercial households after being registered in accordance with law. According to the current policy, individual industrial and commercial households have the following fiscal and tax characteristics:
First, the investors of individual industrial and commercial households shall bear unlimited liability
According to the provisions of Article 56 of the Civil Code: The debts of individual industrial and commercial households, which are operated by individuals, shall be borne by personal property; those operated by families shall be borne by family property; and those that cannot be distinguished shall be borne by family property.
Unlike the shareholders of a limited liability company, the investors of individual industrial and commercial households bear unlimited joint and several liability for debts formed during the operation.
Second, there are no special restrictions on the business scope of individual industrial and commercial households
Article 4 of the Regulations on Individual Industrial and Commercial Households stipulates that the State implements the principle of equal access to the market and fair treatment for individual industrial and commercial households. Where an application is made for registration of an individual industrial and commercial household, and the business scope of the application for registration does not belong to an industry prohibited by laws or administrative regulations, the registration organ shall register it in accordance with law.
As a market economy entity, individual industrial and commercial households are equal to the market status of enterprise entities such as limited companies, and their access thresholds are consistent at the legal level.
3. Individual industrial and commercial households may not open bank accounts
Individual industrial and commercial households may not open bank accounts, but the investor's personal bank account to receive and pay, while a limited company must set up an independent bank account, and to maintain the independence of funds, it cannot be mixed with the investor's property.
Fourth, it cannot be transferred or invested abroad
Individual industrial and commercial households cannot be transferred, but can only be written off; they cannot invest abroad and become shareholders of the company; nor can they set up branches.
V. Eligible individual industrial and commercial households need to establish accounts
According to the provisions of the Interim Measures for the Administration of Individual Industrial and Commercial Households' AccountIng, individual industrial and commercial households that meet one of the following circumstances shall set up double-entry accounts:
(1) The registered capital is more than 200,000 yuan.
(2) The monthly sales (turnover) of taxpayers or business tax payers who sell VAT taxable services is in the amount
More than 40,000 yuan; the monthly sales of VAT taxpayers engaged in the production of goods is more than 60,000 yuan; and the monthly sales of VAT taxpayers engaged in the wholesale or retail sale of goods are more than 80,000 yuan.
(3) Other circumstances in which the provincial taxation authority determines that a double-entry account should be set up.
Individual industrial and commercial households that meet any of the following circumstances shall set up simple accounts and actively create conditions to set up double-entry accounts:
(1) Where the registered capital is between 100,000 and 200,000 yuan.
(2) The monthly sales (turnover) of taxpayers or business tax taxpayers who sell VAT taxable services is between 15,000 yuan and 40,000 yuan; the monthly sales volume of VAT taxpayers engaged in the production of goods is 30,000 yuan to 60,000 yuan; and the monthly sales volume of VAT taxpayers engaged in the wholesale or retail sale of goods is 40,000 yuan to 80,000 yuan.
(3) Other circumstances in which the provincial taxation authority determines that a simple account shall be set up.
6. Vat policy for individual industrial and commercial households
Individual industrial and commercial households can apply to become general taxpayers or as small-scale taxpayers. According to the Implementation Measures for the Pilot Project of Changing Business Tax to Value-Added Tax (Cai Shui [2016] No. 36), "Article 3 Units and individual industrial and commercial households whose annual taxable sales exceed the prescribed standards but do not frequently engage in taxable acts may choose to pay taxes as small-scale taxpayers." ”
If you are a small-scale taxpayer, you can enjoy the following tax benefits:
From 1 March 2020 to 31 December 2021, small-scale VAT taxpayers in all provinces, autonomous regions and municipalities directly under the Central Government shall be subject to the taxable sales income of 3% and the 1% rate of VAT will be levied.
Policy Basis: Announcement of the Ministry of Finance and the State Administration of Taxation on the VAT Policy for Supporting Individual Industrial and Commercial Households to Resume Work and Business (Announcement [2020] No. 13 of the Ministry of Finance and the State Administration of Taxation)
From 1 April 2021 to 31 December 2022, small-scale taxpayers who have VAT taxable sales and whose total monthly sales do not exceed RMB150,000 (quarterly sales do not exceed RMB450,000 for a tax period in one quarter, the same below) are exempt from VAT.
Small-scale taxpayers who engage in VAT taxable sales with a total monthly sales volume of more than RMB150,000, but do not exceed RMB150,000 after deducting the sales of immovable property incurred in the current period, shall be exempt from VAT on the sales of goods, services, services and intangible assets.
Policy Basis: Announcement of the State Administration of Taxation on Issues Concerning the Exemption of SMALL-scale Taxpayers from VAT (SAT Announcement [2021] No. 5)
7. Individual industrial and commercial households are not required to pay enterprise income tax and disability insurance
Individual industrial and commercial households are not corporate income tax taxpayers and are not required to pay corporate income tax or pay an employment deposit for the disabled. Article 2 of the Notice of the Ministry of Finance, the State Administration of Taxation, and the China Disabled Persons' Federation on Printing and Distributing the Administrative Measures for the Collection and Use of Employment Security Funds for the Disabled (Cai Shui [2015] No. 72) stipulates that the guarantee fund is a fund paid by organs, groups, enterprises, public institutions and private non-enterprise units that do not arrange the employment of the disabled in accordance with regulations to protect the rights and interests of the disabled.
8. The transfer of ownership of real estate and land between the owners of individual industrial and commercial households and the individual industrial and commercial households in which they invest is exempt from deed tax
Paragraph 1 of Article 6 of the Notice of the Ministry of Finance and the State Administration of Taxation on The Relevant Deed Tax Policies of Enterprises Using Sale and Leaseback financing (Cai Shui [2012] No. 82) stipulates that the proprietors of individual industrial and commercial households transfer the ownership of houses and land under their personal names to the names of individual industrial and commercial households, or the individual industrial and commercial households transfer the ownership of houses and land under their names back to the original business operators, and are exempt from deed tax.
IX. The income obtained by the owners of individual industrial and commercial households is "business income", not "wage and salary income"
According to the Measures for the Calculation of Individual Income Tax of Individual Industrial and Commercial Households (Order No. 35 of the State Administration of Taxation), "the wage and salary expenses of owners of individual industrial and commercial households shall not be deducted before tax. "The income obtained by the owners of individual industrial and commercial households from individual industrial and commercial households is business income, and if comprehensive income such as nominal wage and salary income is obtained, it cannot be deducted before tax, and it must be incorporated into the final business income and levied personal income tax."
10. What expenses cannot be deducted before the individual income tax on the business income of individual industrial and commercial households?
The following expenses shall not be deducted: (i) individual income tax; (ii) late tax fees; (iii) penalties, fines, and losses of confiscated property; (iv) donation expenses that do not meet the deduction requirements; (v) sponsorship expenses; (vi) expenditures for individuals and families; (vii) other expenses unrelated to the acquisition of production and operation income; and (viii) expenses that are not allowed to be deducted under the provisions of the State Administration of Taxation.
Policy basis: Measures for Individual Income Tax Calculation of Individual Industrial and Commercial Households of the State Administration of Taxation (Order No. 35 of the State Administration of Taxation)
11. How can individual household expenses of individual industrial and commercial households that cannot distinguish between production and operation be deducted before tax?
In the production and business activities of individual industrial and commercial households, production and operation expenses and personal and family expenses shall be separately accounted for. For expenses that are difficult to distinguish between production and operation and personal and family life, 40% of them are regarded as expenses related to production and operation and are allowed to be deducted.
12. What are the preferential personal income tax benefits for individual industrial and commercial households?
From January 1, 2021 to December 31, 2022, the annual taxable income of small and low-profit enterprises and individual industrial and commercial households not exceeding 1 million yuan will be halved on the basis of the current preferential policies. Small and low-profit enterprises and individual industrial and commercial households can enjoy the halving policy regardless of the method of collection.
Policy Basis: Announcement of the State Administration of Taxation on The Implementation of Preferential Income Tax Policies for Supporting Small and Low-Profit Enterprises and Individual Industrial and Commercial Households (SAT Announcement [2021] No. 8)
13. How to calculate the amount of tax reduction and exemption for individual industrial and commercial households?
Tax reduction = (taxable amount of taxable income of individual industrial and commercial households not exceeding 1 million yuan - tax reduction and exemption amount of other policies× part of taxable income of individual industrial and commercial households not exceeding 1 million yuan ÷ taxable income of business income) × (1-50%)
Example:
Taxpayer Li Mou operates an individual industrial and commercial household C, the annual taxable income is 80,000 yuan (applicable tax rate of 10%, quick calculation deduction of 1500 yuan), and can enjoy the tax reduction and reduction of the disabled policy of 2000 yuan, the amount of tax reduction = [(80000×10%-1500) -2000] × (1-50%) = 2250 yuan.
14. Can individual industrial and commercial households still enjoy preferential policies if they have paid taxes on their business income?
From January 1, 2021 to April 1, 2021, if an individual industrial and commercial household has already paid individual income tax on business income, it can automatically deduct the tax in the following months, and if the deduction is not completed in the current year, it can apply for a tax refund at the time of annual remittance; it can also directly apply for a refund of the tax that should be reduced.
15. When an individual industrial and commercial household applies for the issuance of freight invoices on its behalf, is it still subject to personal income tax in advance?
From 1 April 2021, when individual industrial and commercial households, sole proprietorships, partnerships and individuals apply for the issuance of VAT invoices for the goods transportation industry, the tax authorities will no longer levy individual income tax in advance, but will be self-declared and paid by taxpayers in accordance with the law.