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Hainan (China) Free Trade Port Tax Incentive Policies Released

Hainan (China) Free Trade Port Tax Incentive Policies Released

The Ministry of Finance and the State Administration of Taxation of the PRC have just released a Notice on Preferential Policies for Enterprise Income Tax In Hainan Free Trade Port and a Notice on Individual Income Tax Policy for High-end Talent in Short Supply in Hainan Free Trade Port in order to rationalise the Overall Plan for the Construction of Hainan Free Trade Port announced on 1 June 2020. A summary of the preferential tax policies as follows:

  1. Enterprise Income Tax Incentives

    Encouraged industrial enterprises registered and substantially operating in Hainan Free Trade Port are entitled to a reduced enterprise income tax rate of 15%.

    Encouraged industrial enterprises refer to those enterprises whose main businesses are specified in the catalog of encouraged industries of Hainan Free Trade Port and whose main business income accounts for more than 60% of the total income of the enterprise.

    Substantial operation means that the actual management body of the enterprise is established in Hainan Free Trade Port and the operation, personnel, finance and properties of the enterprise shall be materially and comprehensively managed and controlled by the actual management body. Enterprises not conforming to the substantial operation shall not enjoy the preferential treatment.

    The current valid catalogue of encouraged industries in Hainan Free Trade Port includes the Catalogue of Guiding Industrial Restructuring (2019 Edition), the Catalogue of Industries for Encouraging Foreign Investment (2019 Edition) and the catalogue of encouraged industries added by Hainan Free Trade Port.

    The income acquired from new overseas direct investment by tourism, modern services and hi-tech industry enterprises registered in Hainan Free Trade Port shall be exempted from enterprise income tax.

    The income acquired from new overseas direct investment shall meet the following conditions:

    (a)  The operating profit acquired from the new branches established abroad; or the dividend income acquired from the overseas subsidiaries (share holding no less than 20%), in proportion to overseas direct investment activities.
    (b)  The statutory enterprise income tax rate in the invested country (region) shall not be less than 5%.

    Enterprises set up in Hainan Free Trade Port, which purchase (including self-built and self-developed) fixed assets or intangible assets with unit value not exceeding RMB5 million (inclusive), shall be allowed to book the assets in the current costs in a lump sum and fully deduct the costs before tax. Depreciation and amortization will no longer be calculated annually. If the unit value of the assets exceed RMB5 million, the depreciation and amortization period may be shortened or accelerated depreciation and amortization method may be adopted. The aforesaid fixed assets refer to the fixed assets other than houses and buildings.

  2. Individual Income Tax Incentives

    The maximum individual income tax rate for high-end talents and talents in short supply working in Hainan Free trade Port shall be 15%. The exceeding amount is exempt from individual income tax.
    The income subject to the above preferential policy includes the comprehensive income from Hainan Free Trade Port (including remuneration for wages and salaries, remuneration for personal services, remuneration of authors and royalties), business income and the income from talent subsidies recognized by Hainan.
    Taxpayers shall enjoy the above preferential policy when handling the annual final settlement of individual income tax in Hainan Province.
    The specific rules and list of  high-end talents and talents in short supply who are entitled to the above preferential policy shall be formulated by Hainan with the approval of the State Taxation Administration and the Ministry of Finance of the PRC.

The above tax incentives shall be implemented from 1January 2020 to 31 December 2024.

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