Hainan Free Trade Port Attractive Income Tax Policies
On 1 June 2020, the Chinese authorities released the master plan for the construction of Hainan Free Trade Port (“FTP”), a large-scale plan which aims to transform the southern island province into a free trade port to promote high-quality economic development.
The master plan also laid out a series of preferential policies, such as attractive tax incentives, subsidies, and administrative simplification to attract businesses in setting up operations in Hainan.
Preferential Corporate Income Tax (“CIT”) Policies
1. A reduced CIT rate of 15 per cent (the current statutory CIT rate in China is 25 per cent) applies to enterprises registered with Hainan FTP that engage in substantive business activities in the list of encouraged industries.
- “Encouraged industries” refers to sectors listed in the Guiding Catalogue for Industrial Structure Adjustment (2019 Edition), the Catalogue of Encouraged Industries for Foreign Investment (2019 Edition), and the new Hainan-specific list
- Enterprise revenue from “encouraged industry” business must be at least 60 per cent of the total income
- There must be substantive management and control over business operations, staff, accounting, assets, etc.
2. CIT exemption for new foreign-sourced income received by Hainan FTP enterprises in the tourism, modern services, and high-tech industries.
- “New foreign-sourced income” refers to the operating profits obtained from newly established overseas branches, or dividend income corresponding to the newly increased overseas direct investment obtained from the overseas subsidiaries in which more than 20 per cent (inclusive) of equity is held
- The statutory CIT rate of the investee jurisdiction should not be less than 5 per cent
3. Hundred per cent expensing, and accelerated depreciation regimes for eligible capital expenditure.
- Applies to newly, purchased fixed assets (except for immovables) and intangible assets
- Hundred per cent expensing for assets with a unit value of less than RMB 5 million, and deducts on a one-time basis before CIT calculation
- For assets that exceed RMB 5 million, the depreciation or amortisation period may be shortened or the accelerated depreciation or amortisation method may be applied
Preferential Individual Income Tax (“IIT”) Policies
IIT policies provide a maximum of 15 per cent IIT rate for personnel (working in Hainan FTP) with high value and urgently required skills.
- Comprehensive income, operating income, and Hainan government subsidies; not covering investment or asset transfer income
- Exemption can be obtained via IIT annual filing
All the above preferential policies came into effect on 1 January 2020 and remain effective until 31 December 2024.