Supplementary Announcement by the Hainan Provincial Taxation Bureau, Hainan Provincial Department of Finance, and Hainan Provincial Market Supervision Administration on Issues Related to the Substantial Operations of Encouraged Industries in the Hainan Free Trade Port
Announcement No. 5 of 2022 by the Hainan Provincial Taxation Bureau, Hainan Provincial Department of Finance, and Hainan Provincial Market Supervision Administration
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To implement the “Overall Plan for the Construction of the Hainan Free Trade Port” and promote high-quality development of the Hainan Free Trade Port (hereinafter referred to as “the Free Trade Port”), and with the approval of the Hainan Provincial Government, we hereby issue the following supplementary announcement to the “Announcement by the Hainan Provincial Taxation Bureau, Hainan Provincial Department of Finance, and Hainan Provincial Market Supervision Administration on Issues Related to the Substantial Operations of Encouraged Industries in the Hainan Free Trade Port” (No. 1 of 2021, hereinafter referred to as “the Announcement”):
(1) The term “operating in the Free Trade Port” mentioned in Article 2 of the Announcement refers to enterprises having fixed production and business premises, necessary production and operational equipment and facilities within the Free Trade Port. It also includes enterprises whose main production and business activities take place in the Free Trade Port, or whose institutions responsible for substantial overall management and control of operations are located in the Free Trade Port. Additionally, contracts related to these operations must be signed under the enterprise’s name.
(2) The term “personnel in the Free Trade Port” mentioned in Article 2 of the Announcement refers to enterprises having enough employees working in the Free Trade Port to meet operational needs. These employees’ salaries and wages must be paid through bank accounts established by the enterprise in the Free Trade Port. Depending on the size of the enterprise and its workforce, at least 3 to 30 employees must reside in the Free Trade Port for a cumulative total of at least 183 days within a tax year.
(3) The term “accounting in the Free Trade Port” mentioned in Article 2 of the Announcement refers to enterprises keeping their accounting records, such as accounting vouchers, ledgers, and financial statements, in the Free Trade Port. Additionally, their primary deposit accounts and bank accounts used for main business transactions must be established in the Free Trade Port.
(4) The following circumstances will be considered as non-compliance with substantial operations:
(A) The enterprise does not have production or business functions and only handles financial settlements, tax declarations, and invoice issuance for mainland operations.
(B) The registered address does not match the actual business address, and the enterprise cannot be contacted or, if contacted, cannot provide the actual business address.
(5) The substantial operations of enterprises or units where high-level and urgently needed talents, who are eligible for personal income tax incentives under the “Interim Measures for the Management of the List of High-Level and Urgently Needed Talents Enjoying Personal Income Tax Incentives in the Hainan Free Trade Port” (issued as Hainan Provincial Government Document [2022] No. 31), are employed or engaged shall be executed in accordance with the provisions of this Announcement.
(6) Enterprises enjoying the preferential corporate income tax policies for encouraged industries in the Free Trade Port will manage their substantial operations through a system of “self-assessment, declaration commitment, and post-verification.” When settling annual taxes, enterprises will commit to their substantial operations and fill out the “Substantial Operations Self-Assessment Commitment Form.” Enterprises are responsible for the authenticity, accuracy, and completeness of their tax declaration materials and related supporting documents.
(7) The Provincial Taxation Bureau, Provincial Department of Finance, Provincial Market Supervision Administration, and other relevant departments have jointly establish a mechanism for joint verification of substantial operations (hereinafter referred to as the “joint verification mechanism”). Under this mechanism, the joint working group and the competent tax authorities conduct a “full coverage” verification of newly added enterprises benefiting from the preferential corporate income tax policies for encouraged industries in the Free Trade Port and enterprises where high-level and urgently needed talents, who are eligible for personal income tax incentives in the Free Trade Port, are employed or engaged for the current year. For existing enterprises or units, a certain proportion of them will be selected for inspection through random sampling.
(8) In cases where there are disputes regarding the determination of substantial operations of enterprises, the Provincial Market Supervision Administration takes the lead, in collaboration with the Provincial Department of Finance, the Provincial Taxation Bureau, and other relevant departments, to establish a mechanism for dispute coordination and resolution. They will jointly research and determine the resolution of the disputes.
(9) This Announcement shall be effective from January 1, 2023, to December 31, 2024.
Announced hereby.
State Taxation Administration Hainan Provincial Taxation Bureau Hainan Provincial Department of Finance Hainan Provincial Market Supervision Administration
September 27, 2022
Related article: Compilation of important policies for Hainan Free Trade Port (February 2024)
