Tax Incentives for China (Hainan) Free Trade Port
China has just released an Overall Plan for the Construction of Hainan Free Trade Port (hereinafter as the Overall Plan) on 1 June 2020. The Overall Plan will be advanced gradually. The whole island of Hainan will establish the policies and systems for free trade port step by step. Kaizen hereby summarizes the main tax incentives involved in the Overall Plan as follows for your easy reference.
- Tax Incentives Available before 2025
(1) Zero Tariff Treatment to Part of the Imported Commodities
(a) The production equipment imported by enterprises for their own use shall be exempted from import tariff, import value-added tax and consumption tax.
(b) The imported operational vehicles and yachts that are used for transportation and tourism shall be exempted from import tariff, import value-added tax and consumption tax.
(c) The raw and auxiliary materials imported for production shall be exempted from import tariff, import value-added tax and consumption tax.
(d) The imported commodities purchased by the residents of Hainan island shall be exempted from import tariff, import value-added tax and consumption tax.
(e) The quota for offshore duty-free shopping is raised to RMB100,000 per person per year and the categories of duty-free commodities shall be expanded.
(2) Preferential Income Tax Policies
(a) Encouraged industrial enterprises registered and substantially operated in Hainan Free Trade Port may enjoy a reduced corporate income tax rate of 15%.
(b) The income acquired from new foreign direct investment before 2025 by tourism, modern services and hi-tech industry enterprises registered in Hainan Free Trade Port shall be exempted from corporate income tax.
(c) Qualified capital expenditures can be fully deducted before tax or accelerate depreciation and amortization.
(d) The maximum personal income tax rate for those high-end talents and talents in short supply in Hainan Free Trade Port shall be 15%.
- Tax Incentives Available before 2035
(1) Zero Tariff Treatment
Commodities that are allowed to be imported to Hainan Free Trade Port and outside the catalogue of commodities subject to import tariff shall be exempted from import tariff when the whole island of Hainan becomes a bonded area and the simplified taxation system is applied.
(2) Preferential Income Tax Policies
(a) Enterprises registered and substantially operated in Hainan Free Trade Port may enjoy a reduced corporate income tax rate of 15% (except for those industries on the negative list).
(b) For individuals who have resided in Hainan Free Trade Port for an accumulative period of 183 days in a tax year, the individual income tax on their combined income and business income derived from Hainan Free Trade Port shall be levied at a progressive rate of 3%, 10% and 15%.
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