Hainan Free Trade Port Tax Policy —— Corporate Income Tax

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Hainan Free Trade Port Tax Policy Corporate Income Tax

Encouraged Industry Enterprises:

For encouraged industry enterprises registered and substantially operated in Hainan Free Trade Port, a reduced enterprise income tax rate of 15% will be levied.

How to determine if an enterprise is an encouraged industry enterprise:

1. The enterprise’s main business is in the industry projects specified in the encouraged industry catalogue of the Hainan Free Trade Port.

2. The main business income accounts for more than 60% of the total income of the enterprise.

How to Determine if Substantially Operated:

For resident enterprises registered in the free trade port engaged in encouraged industry projects and without setting up branch organizations outside the free trade port, if their production, operation, personnel, accounting, and assets are located in the free trade port, they are considered to be substantially operated in the free trade port.

Key point: Resident enterprises whose production, operation, personnel, accounting, assets, or any other aspect are not in the free trade port are not considered to be substantially operated in the free trade port.

For resident enterprises registered in the free trade port engaged in encouraged industry projects and have set up branch organizations outside the free trade port, the resident enterprise exercises substantial and comprehensive management and control over the production, operation, personnel, accounting, and assets of each branch organization, and is considered to be substantially operated in the free trade port.

For resident enterprises registered outside the free trade port that have set up branch organizations in the free trade port, or non-resident enterprises that have set up institutions or places in the free trade port, if the branch organization or institution/place has production and operational functions, and has corresponding operating income, employee compensation, and total assets, they are considered to be substantially operated in the free trade port.

Can branch organizations enjoy the preferential tax rate of 15%?

For enterprises whose headquarters are located in Hainan Free Trade Port and meet the criteria, a tax rate of 15% will be applied only to the income of their headquarters and branch organizations located in Hainan Free Trade Port. For enterprises whose headquarters are located outside Hainan Free Trade Port, a tax rate of 15% will be applied only to the income of their eligible branch organizations located in Hainan Free Trade Port.

What are the eligibility criteria for enterprises?

To enjoy the preferential tax rate of 15%, enterprises should use the “self-determination, declaration, and retention of relevant information for future reference” method when making prepayment declarations.

Main Information to be Retained for Future Reference:

1. Explanation of the specific projects in the encouraged industry catalogue of Hainan Free Trade Port, which belong to the enterprise’s main business, and confirmation that the revenue generated by these projects accounts for more than 60% of the total revenue of the enterprise.

2. Relevant information about the substantial operation of the enterprise, including the total assets, total revenue, total number of employees, and total salary expenses, etc. Also, the proportion of the institution set up in Hainan Free Trade Port should be clarified.

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Encouraged Industry Catalogue QR Code.

Scan the QR code for more information.

Policy Links:

“Notice on Preferential Enterprise Income Tax Policies for Hainan Free Trade Port” (Cai Shui [2020] No. 31)

http://www.chinatax.gov.cn/chinatax/n362/c5153879/content.html

“Announcement on Relevant Issues of Enterprise Income Tax Preferential Policies for Hainan Free Trade Port” (Announcement No. 4 of the State Administration of Taxation Hainan Provincial Taxation Bureau)

https://hainan.chinatax.gov.cn/lawlibrary/zh/37099.jhtml

“Announcement on Relevant Issues of Substantial Operation for Encouraged Industries in Hainan Free Trade Port” (No. 1 in 2021 by the State Administration of Taxation Hainan Provincial Taxation Bureau, Hainan Provincial Finance Department, and Hainan Provincial Market Supervision Administration)

https://hainan.chinatax.gov.cn/lawlibrary/zh/38157.jhtml

2. Tourism, modern service, and high-tech industry enterprises

For income obtained from overseas direct investment made by tourism, modern service, and high-tech industry enterprises established in Hainan Free Trade Port, enterprise income tax is exempted.

What are the conditions for income obtained from overseas direct investment?

1. Operating profits obtained from newly established overseas branches; or dividends obtained from overseas subsidiaries with a shareholding of over 20% (inclusive) that correspond to the newly established overseas direct investment.

2. The statutory tax rate for enterprise income tax in the invested country (region) is not lower than 5%.

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QR code for the tax incentives list for tourism, modern service, and high-tech industry enterprises in Hainan Free Trade Port.

Policy Links:

Notice of the Ministry of Finance and the State Taxation Administration on the Preferential Tax Policies for Enterprises in Hainan Free Trade Port (CaiShui [2020] No. 31)

http://www.chinatax.gov.cn/chinatax/n362/c5153879/content.html

Notice of the Ministry of Finance and the State Taxation Administration on the Promulgation of the Catalogue of Preferential Enterprise Income Tax Policies for the Tourism, Modern Service and High-tech Industries in Hainan Free Trade Port (CaiShui [2021] No. 14)

Note: These are official notices from the Chinese government regarding the preferential tax policies for enterprises in Hainan Free Trade Port, including those in the tourism, modern service, and high-tech industries.

For enterprises established in the Hainan Free Trade Port:

If they purchase (including self-built and self-developed) fixed assets or intangible assets with a unit value not exceeding RMB 5 million, they are allowed to be included in current cost as a one-time deduction when calculating the taxable income and are no longer subject to annual depreciation and amortization. If they purchase (including self-built and self-developed) fixed assets or intangible assets with a unit value exceeding RMB 5 million, they may shorten the depreciation or amortization period or adopt accelerated depreciation and amortization methods.

Fixed assets refer to fixed assets other than buildings and structures.

Policy Links:

“Notice of the Ministry of Finance and the State Taxation Administration on Preferential Tax Policies for Enterprises in Hainan Free Trade Port” (Cai Shui [2020] No. 31)

http://www.chinatax.gov.cn/chinatax/n362/c5153879/content.html

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