What are the requirements for companies to benefit from the 15% preferential tax policy in the Hainan Free Trade port

From January 1, 2020, enterprises registered in Hainan may be subject to a corporate income tax (CIT) rate of 15 percent. To be eligible for the lower CIT rate, the main business of the enterprise must fall within the Encouraged Sectors list revealed in January.

Also, the main business of the enterprise must contribute at least 60 percent of the enterprise's total revenue, and the enterprise has to be in “substantive business operation” as defined by the official documents. By 2025, when the island will independently control its own customs operations, the policy will cover all enterprises outside a negative list registered in Hainan and engaged in substantive business activities.

The standards of the “substantive business operation,” according to Carol Cheng from KPMG China Tax Center, are “not new, but have long been implemented both in China and internationally.”

The company's management body must reside in Hainan and have real control over the operation, personnel, accounting and assets of the company. Major decisions have to be made by executives on the island. “It is international common practice,” said Cheng.

In building key industrial parks, local authorities in Hainan also made extra promises of cash rewards, subsidies and financial returns.

In May 2020, Haikou, capital of Hainan, released preferential policies to attract the film and TV industry. If registered in Haikou, such companies will get their CIT and value-added tax 100 percent reimbursed and an extra reward of between 1 million yuan (US$154,300) and 4 million yuan (US$617,200) based on their tax contributions.