Individual business and sole proprietorship are common forms of entrepreneurship in practice. However, from the perspective of tax-related management, the tax-related treatment of individual industrial and commercial enterprises and sole proprietorship enterprises has both similarities and differences, taxpayers should pay attention to distinguish.

Basic Concepts-It belongs to different market players

Conceptually, individual business and sole proprietorship are two different types of market entities.

The Civil Code stipulates that natural persons engaged in industrial and commercial operations shall be registered as individual industrial and commercial businesses. Individual industrial and commercial enterprises may use a shop name. Debts of an individual industrial or commercial business, if operated by an individual, shall be borne by his personal property; If the business is run by a family, it shall be borne by the family property; Those that cannot be distinguished shall be borne by family property.

According to the sole proprietorship Enterprise Law, a sole proprietorship enterprise refers to a business entity established within the territory of China according to law, invested by a natural person, whose property is owned by the sole proprietor, who shall assume unlimited liability for the debts of the enterprise with his personal property. At the same time, the civil Code stipulates that the sole proprietorship enterprise is an unincorporated organization. Among them, an unincorporated organization is an organization that does not have the status of a legal person but can engage in civil activities in its own name according to law.

Point of similarity-Are individual tax payers

The common point of the two is that individual businesses and sole proprietorship enterprises are the subject of individual income tax.

According to the Individual Income Tax Law and the Regulations for its implementation, individual income tax shall be calculated and paid on the income derived from the production or business operations of individual industrial and commercial households and the income derived from the production or business operations of a sole proprietorship enterprise or a partnership enterprise registered in China by a sole proprietor or an individual partner of a partnership.

For example, Zhang registered the establishment of a individual industrial and commercial households, providing construction services, the income should be calculated and paid in accordance with the “business income” individual income tax; When Mr. Li registered a sole proprietorship enterprise and transferred the real estate under his name, the income obtained shall be calculated and paid individual income tax according to the “business income”.

Different points-There are differences in the application scope of specific policies

Personal income tax, The provisions of the Announcement of the State Administration of Taxation of the Ministry of Finance on the Implementation of Preferential Income Tax Policies for Small and Micro Enterprises and Individual Industrial and Commercial Enterprises (Announcement of the State Administration of Taxation No. 12, 2021) and the Announcement of the State Administration of Taxation on Matters Related to the Implementation of Preferential Income Tax Policies for the Development of Small and Micro Profit Enterprises and Individual Industrial and Commercial Enterprises (Announcement of the State Administration of Taxation No. 8, 2021), On the basis of the current preferential policies, individual income tax shall be levied by half on the part of the annual taxable income of individual industrial and commercial households that does not exceed 1 million yuan. It is not difficult to see that individual businesses can enjoy the personal income tax halved, while sole proprietorship enterprises can not enjoy this preferential treatment.

In terms of value-added tax, the two tax identities are also different. According to the Implementation Rules of the Provisional Regulations on Value-added Tax and the Notice of the State Administration of Taxation of the Ministry of Finance on Comprehensively Promoting the Pilot Project of Replacing Business Tax with Value-added Tax (Finance Tax [2016] No. 36), individuals refer to individual businesses and other individuals. That is to say, “individuals” in VAT related tax policies refer to individual businesses and other individuals, excluding sole proprietorship enterprises.

For example, according to Finance and Taxation Document No. 36 [2016], the tax payable for individuals renting out their housing should be calculated on the basis of the 5% levies minus 1.5%. Combined with the definition of “individual”, individual businesses are the subject of this policy, while sole proprietorship enterprises are not. In other words, the sole proprietorship enterprise rental housing, should be based on the applicable tax rate or levies, calculated to pay VAT.

Prompt-Focus on the “subject” of policy application

In the specific practical treatment, it is suggested that relevant subjects read the policy carefully, focus on the “subject” of the policy, and find the key to the application of the policy.

For example, according to the Announcement of the Ministry of Finance of the State Administration of Taxation on Matters related to Continuing to Defer the payment of Part of Taxes and Fees for Msmes in the manufacturing industry (Announcement No. 17, 2022 of the Ministry of Finance of the State Administration of Taxation) and other relevant policies and provisions, eligible Msmes in the manufacturing industry (including sole proprietorship, partnership and individual businesses), After filing tax returns in accordance with the law, the payment may be deferred for the corresponding period of November and December 2021, February, March, April, May and June 2022 (monthly payment) or the fourth quarter of 2021, in accordance with the corresponding proportion. Corporate income tax, individual income tax, domestic value-added tax, domestic consumption tax, urban maintenance and construction tax, education surcharge and local education surcharge that have been deferred according to regulations in the first quarter and second quarter of 2022 (payable quarterly). That is to say, both sole proprietorship enterprises and individual businesses can apply the phased tax reduction policy.

The Announcement of the General Administration of Taxation of the Ministry of Finance on Further Implementing the Policy of Reducing and Reducing “Six Taxes and Two Fees” for Small and Micro Enterprises (Announcement No. 10, 2022 of the General Administration of Taxation of the Ministry of Finance) clearly stipulates that the period from January 1, 2022 to December 31, 2024 shall be determined by the people’s governments of provinces, autonomous regions and municipalities directly under the Central Government in light of their actual conditions and macro-control needs. Resource tax, urban maintenance and construction tax, property tax, urban land use tax, stamp tax (excluding stamp tax on securities transactions), cultivated land occupation tax, education fee surcharge, and local education surcharge may be reduced within 50% of VAT for small-scale taxpayers, small and low-profit enterprises, and individual industrial and commercial households.

This means that both small-scale VAT taxpayers and general VAT taxpayers, as long as they are self-employed, can enjoy the “six taxes and two fees” reduction and exemption. However, sole proprietorships can only enjoy the “six taxes and two fees” reduction if they are also small-scale VAT taxpayers.

Source: China Tax News