Notice of the Ministry of Finance and the State Taxation Administration on Preferential Corporate Income Tax Policies for the Hainan Free Trade Port

To: Hainan Provincial Department of Finance, Hainan Provincial Tax Service of the State Taxation Administration

In order to support the development of the Hainan Free Trade Port, the following preferential corporate income tax policies are hereby notified:

Article I

Enterprises engaged in encouraged industries that are registered in the Hainan Free Trade Port and conduct substantive operations shall be subject to corporate income tax at a reduced rate of 15 percent.

The term “enterprises engaged in encouraged industries” refers to enterprises whose main business involves industrial projects listed in the Catalogue of Encouraged Industries for the Hainan Free Trade Port, and whose main business income accounts for more than 60 percent of their total income.

The term “substantive operations” refers to enterprises whose actual place of management is located within the Hainan Free Trade Port and which exercise substantive and comprehensive management and control over their production and operations, personnel, accounting, and assets. Enterprises that do not meet the substantive operation requirement shall not enjoy the preferential policy.

The Catalogue of Encouraged Industries for the Hainan Free Trade Port includes the Industrial Structure Adjustment Guidance Catalogue (2019 Edition), the Catalogue of Encouraged Industries for Foreign Investment (2019 Edition), and the Catalogue of Newly Added Encouraged Industries for the Hainan Free Trade Port.
If any of the above catalogues are revised during the implementation period of this Notice, the revised versions shall apply from the date of implementation.

For eligible enterprises whose head office is located within the Hainan Free Trade Port, the 15 percent rate shall apply only to income derived from their head office and branches located within the Port.
For enterprises whose head office is located outside the Port, the 15 percent rate shall apply only to income derived from their eligible branches located within the Hainan Free Trade Port.
Specific collection and administration measures shall follow the relevant provisions of the State Taxation Administration.

Article II

Enterprises engaged in the tourism, modern services, or high and new technology industries established in the Hainan Free Trade Port shall be exempt from corporate income tax on income derived from new overseas direct investments.

The term “income from new overseas direct investments” refers to income meeting the following conditions:

1. Operating profits obtained from newly established overseas branches, or dividend income distributed by overseas subsidiaries in which the enterprise holds more than 20 percent (inclusive) of the shares, corresponding to the new overseas direct investment; and

2. The statutory corporate income tax rate of the country or region where the investment is made is not lower than 5 percent.

The industries of tourism, modern services, and high and new technology shall be determined in accordance with the Catalogue of Encouraged Industries for the Hainan Free Trade Port.

Article III

Enterprises established in the Hainan Free Trade Port that purchase (including self-construct or self-develop) fixed assets or intangible assets with a unit value not exceeding RMB 5 million (inclusive) may deduct the full amount as current-period costs and expenses when calculating taxable income, without annual depreciation or amortization.

For newly purchased (including self-constructed or self-developed) fixed assets or intangible assets with a unit value exceeding RMB 5 million, the enterprise may shorten the depreciation or amortization period or adopt accelerated depreciation or amortization methods.

The term “fixed assets” refers to fixed assets other than houses and buildings.

Article IV

This Notice shall be implemented from January 1, 2020, to December 31, 2024.

Ministry of Finance
State Taxation Administration
June 23, 2020