On July 31st, the Hainan Provincial Taxation Bureau of the State Administration of Taxation issued an announcement, clarifying the relevant regulations on preferential corporate income tax policies for enterprises in the Hainan Free Trade Port. The full text is as follows:
Announcement on Issues Regarding Preferential Corporate Income Tax Policies for Enterprises in Hainan Free Trade Port (State Taxation Administration of Hainan Provincial Taxation Bureau Announcement No. 4 of 2020)
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In accordance with the “Enterprise Income Tax Law of the People’s Republic of China” and its implementing regulations (hereinafter referred to as the implementing regulations), as well as the “Notice of the Ministry of Finance and the State Administration of Taxation on Preferential Corporate Income Tax Policies for Enterprises in Hainan Free Trade Port” (Finance and Taxation department [2020] No. 31, hereinafter referred to as the notice), the following issues regarding the implementation of preferential corporate income tax policies for enterprises in Hainan Free Trade Port are hereby announced:
The Issue of Corporate Income Tax Being Levied at a Reduced Rate of 15% for Enterprises in Encouraged Industries
Enterprises in encouraged industries registered and operating substantially in the Hainan Free Trade Port (hereinafter referred to as the FTP) shall have their corporate income tax Levied at a Reduced Rate of 15%. This provision includes non-resident enterprise institutions and premises established in the FTP.
For enterprises with their headquarters located within the FTP, only the headquarters and branch institutions within the FTP will be considered to determine compliance. Branch institutions established outside the FTP will not be assessed. For enterprises with their headquarters located outside the FTP, only the branch institutions within the FTP will be considered to determine compliance. Branch institutions established outside the FTP will not be assessed.
Enterprises eligible for the Reduced Rate of 15% tax policy for encouraged industries can enjoy it as prescribed during prepayment and declaration. Key documentation to be retained includes:
- Explanation showing that the main business belongs to specific items in the encouraged industry catalogue of the FTP, and that the main business income accounted for over 60% of the total enterprise income.
- Explanation of the relevant circumstances of substantial operation by the enterprise, including total assets, total income, total number of personnel, total wages, etc., and the corresponding proportion of institutions established in the FTP.
Encouraged industry enterprises registered and substantially operating in the Hainan Free Trade Port (hereinafter referred to as the FTP) shall have their corporate income tax levied at a reduced rate of 15%. Enterprises referred to in this provision include non-resident enterprise institutions and premises established in the FTP.
For enterprises with their headquarters located within the FTP, only the headquarters and branch institutions within the FTP will be considered to determine compliance. Branch institutions established outside the FTP will not be assessed. For enterprises with their headquarters located outside the FTP, only the branch institutions within the FTP will be considered to determine compliance. Headquarters and branch institutions located outside the FTP will not be assessed.
The policy of reducing corporate income tax to 15% for encouraged industry enterprises can be enjoyed as prescribed during prepayment and declaration. Key documentation to be retained includes:
- Explanation demonstrating that the main business belongs to specific items in the encouraged industry catalogue of the FTP, and that the main business income accounted for over 60% of the total enterprise income.
- Explanation detailing the relevant circumstances of substantial operation by the enterprise, including total assets, total income, total number of personnel, total wages, etc., and specifying the corresponding proportion of institutions established in the FTP.
Issue of Corporate Income Tax Exemption for Income from Overseas Direct Investment by Tourism, Modern Service, and High-Tech Industry Enterprises
The term “newly acquired overseas direct investment” referred to in Article 2 of the notice refers to overseas direct investments made by enterprises from January 1, 2020, to December 31, 2024. This includes establishing new branch institutions overseas, establishing new enterprises overseas, increasing capital or expanding shares in existing overseas enterprises, and acquiring equity in overseas enterprises.
The policy of exempting corporate income tax on income derived from newly acquired overseas direct investment by tourism, modern service, and high-tech industry enterprises can be enjoyed as prescribed during annual tax declaration.
Key documentation to be retained includes: an explanation that the enterprise belongs to the encouraged industry sectors of tourism, modern service, and high-tech industries listed in the FTP Catalogue, along with details confirming eligibility for the income derived from newly acquired overseas direct investment.
Issue of One-time Deduction or Accelerated Depreciation and Amortization for Newly Purchased Assets
(1) For self-developed intangible assets, the purchase time is determined based on the achievement of the predetermined purpose.
(2) Intangible assets are eligible for one-time deduction or accelerated amortization starting from the year they are available for use.
(3) For intangible assets purchased by enterprises and subject to shortened amortization periods or accelerated amortization methods as stipulated in Article 3 of the notice, the relevant provisions of the “Notice of the State Administration of Taxation on Issues Concerning the Treatment of Corporate Income Tax on Accelerated Depreciation of Fixed Assets” (State Taxation Administration [2009] No. 81) shall apply by analogy.
The policy of one-time deduction or accelerated depreciation and amortization for newly purchased assets can be enjoyed as prescribed during prepayment and declaration.
Key documentation to be retained includes:
(1) Documentation related to the timing of asset acquisition (such as invoices for assets purchased in monetary form, explanations of the time of receipt for assets purchased on instalment or credit terms, completion settlement explanations for self-constructed fixed assets, and explanations of the achievement of the predetermined purpose for self-developed intangible assets).
(2) Relevant asset accounting vouchers.
(3) Ledger accounting for the differences between tax treatment and accounting treatment of relevant assets.
(4) Second-level branch institutions and non-resident enterprise institutions or premises established in the FTP implementing audit-based tax collection can benefit from the one-time deduction or accelerated depreciation and amortization policy.
(5) This announcement shall be effective from January 1, 2020, to December 31, 2024. If the benefits were not enjoyed in a timely manner before the release of relevant documents, they can be availed of collectively during subsequent monthly (quarterly) prepayment and declaration or in the annual settlement and payment for the year 2020.
This announcement is hereby made. State Taxation Administration Hainan Provincial Taxation Bureau July 31, 2020
Related article: Compilation of important policies for Hainan Free Trade Port (February 2024)
