The State Taxation Administration of Hainan Province, the Hainan Provincial Department of Finance, and the Hainan Provincial Administration for Market Regulation have jointly issued the “Announcement on Issues Related to the Substantive Operations of Encouraged Industry Enterprises in Hainan Free Trade Port.” This announcement provides authoritative guidance on how to determine the substantive operations of encouraged industry enterprises.
To implement the “Overall Plan for the Construction of Hainan Free Trade Port” and to promote the development of encouraged industry enterprises in Hainan Free Trade Port, we hereby issue the following announcement on issues related to the substantive operations of encouraged industry enterprises in accordance with the “Notice on Preferential Corporate Income Tax Policies in Hainan Free Trade Port” (Ministry of Finance and State Taxation Administration Document [2020] No. 31) and the “Announcement on Issues Related to Preferential Corporate Income Tax Policies in Hainan Free Trade Port” (State Taxation Administration of Hainan Province Announcement 2020 No. 4).
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(1) This announcement applies to resident enterprises registered in the Free Trade Port, branches of resident enterprises established in the Free Trade Port, and establishments or places of non-resident enterprises set up in the Free Trade Port.
(2) Resident enterprises registered in the Free Trade Port that engage in encouraged industry projects and do not have branches outside the Free Trade Port, with their production and operations, personnel, accounting, and assets all located within the Free Trade Port, are considered to be substantively operating in the Free Trade Port.
Resident enterprises that are only registered in the Free Trade Port but have any of their production and operations, personnel, accounting, or assets outside the Free Trade Port are not considered to be substantively operating in the Free Trade Port and are not eligible for the preferential corporate income tax policies of the Free Trade Port.
(3) Resident enterprises registered in the Free Trade Port that engage in encouraged industry projects and have branches outside the Free Trade Port are considered to be substantively operating in the Free Trade Port if they exercise substantial and comprehensive management and control over the production and operations, personnel, accounting, and assets of these branches.
(4) Resident enterprises registered outside the Free Trade Port that establish branches within the Free Trade Port, or non-resident enterprises that establish establishments or places within the Free Trade Port, are considered to be substantively operating in the Free Trade Port if these branches or establishments possess production and operational functions and have corresponding business income, employee compensation, and total assets matching their production and operational functions.
(5) Resident enterprises registered in the Free Trade Port that establish branches outside the Free Trade Port, or resident enterprises registered outside the Free Trade Port that establish branches within the Free Trade Port, must strictly comply with the “Announcement on Issuing the Administrative Measures for the Collection of Corporate Income Tax on Enterprises Operating Across Regions on a Consolidated Basis” (State Taxation Administration Announcement 2012 No. 57). They must calculate the taxable income and tax payable of both the headquarters and each branch according to the regulations and pay corporate income tax accordingly.
(6) Non-resident enterprise establishments or places established within the Free Trade Port that meet the prescribed conditions for consolidating the payment of corporate income tax must strictly comply with the provisions of the “Announcement on Issues Related to Consolidated Payment of Corporate Income Tax by Non-Resident Enterprise Establishments or Places” (State Taxation Administration, Ministry of Finance, People’s Bank of China Announcement 2019 No. 12). They should calculate the taxable income and tax payable accordingly and pay corporate income tax in accordance with the regulations.
(7) Enterprises that meet the criteria for substantive operations and enjoy the preferential corporate income tax policies for encouraged industry enterprises in the Free Trade Port should, after completing the annual settlement and payment, in accordance with the provisions of the “Announcement on Issues Related to Preferential Corporate Income Tax Policies for Enterprises in Hainan Free Trade Port” (State Taxation Administration of Hainan Province Announcement 2020 No. 4), compile and retain relevant documents for inspection by tax authorities.
(8) Enterprises enjoying tax incentives policies should be subject to the method of audit-based tax collection for corporate income tax.
(9) This announcement shall be effective from January 1, 2020, to December 31, 2024.
Issued by:
State Taxation Administration of Hainan Province Hainan Provincial Department of Finance Hainan Provincial Administration for Market Regulation March 5, 2021
Related article: Compilation of important policies for Hainan Free Trade Port (February 2024)
