Hainan Provincial Tax Bureau, Department of Finance of Hainan Province and Hainan Provincial Administration for Market Regulation recently released the Announcement on Relevant Issues Concerning the Continuation of the Substantial Operation Policy for Encouraged Industrial Enterprises in Hainan Free Trade Port (hereinafter referred to as the Announcement), which clarifies the substantial operation criteria for enjoying Hainan corporate income tax (CIT) incentive will continue to be implemented until 31 December 2027 and further refines the relevant provisions.
According to the Announcement, the key criteria for substantial operation of Hainan enterprise are as follows:
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It constitutes substantial operation in Hainan, if an enterprise is registered in Hainan Free Trade Port (hereinafter referred to as Hainan) and its production and operation, personnel, accounting, assets are all located in Hainan. If an enterprise is registered in Hainan only, while any of its production and operation, personnel, accounting, or assets are not located in Hainan, it does not constitute substantial operation in Hainan and therefore cannot enjoy Hainan CIT incentive. Among which,
(1)
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“Production and operation in Hainan” means the enterprise has fixed production and operation premises and necessary equipment and facilities in Hainan, with its primary location of production and operation in Hainan, or has institution that exercising substantial and comprehensive management and control over production and operation in Hainan, and signs relevant contracts in its own name.
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(2)
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“Personnel in Hainan " means the enterprise has employees who meet its production and operation needs actually working in Hainan, and the salaries of the employees are paid through the bank account opened by the enterprise in Hainan. Based on the business scale of the enterprise, it must have at least 3 to 30 employees who have resided in Hainan for at least 183 cumulative days in a tax year.
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(3)
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“Accounting in Hainan" means the accounting records such as accounting vouchers, accounting books, and financial statements of the enterprise must be maintained in Hainan, and the basic deposit account and settlement accounts for major business activities of the enterprise must be opened in Hainan.
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(4)
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“Assets in Hainan” means the enterprise must have necessary assets, where it has title or the use right, physically in use in Hainan.
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It constitutes substantial operation in Hainan, if an enterprise registered in Hainan exercises substantial and comprehensive management and control over the production, operation, personnel, accounting and assets of its branch offices outside of Hainan.
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It constitutes substantial operation in Hainan, if a resident enterprise registered outside of Hainan has a branch office in Hainan, or a non-resident enterprise has an office or premises in Hainan, the said branch office, office or premises has the production and operation functions and has operation income, employee salaries and total assets that match its production and operation functions.
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It does not constitute substantial operation in Hainan, if an enterprise is lack of production and operation functions and only undertakes functions such as financial settlement, tax declaration, and invoice issuance for business outside Hainan.
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It does not constitute substantial operation in Hainan, if the registered address of the enterprise is inconsistent with its actual operation address and cannot be contacted or fails to provide its actual operation address after contact.
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