Hainan Renews Preferential CIT and IIT Policies, Bolstering Free Trade Port Competitiveness

Explore Hainan’s preferential tax policies designed to attract investment and stimulate business growth. Learn how these targeted tax incentives can benefit your company in one of China’s most dynamic economic zones.

The Hainan Free Trade Port (FTP) has extended key preferential individual income tax (IIT) and corporate income tax (CIT) policies for three years until the end of 2027. The policies include a reduced 15 percent CIT rate, CIT exemptions on new outbound direct investment (ODI), and a partial IIT exemption on income of high-end and in-demand talent.

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The Ministry of Finance (MOF) and State Tax Administration (STA) first began implementing these preferential tax policies in the Hainan FTP at the end of 2020, and were initially effective until the end of 2024.

The extension of these preferential policies will further alleviate the tax burden on businesses and individuals in the Hainan FTP while ensuring long-term policy consistency and stability, fostering a more attractive and predictable investment environment.

What are the preferential corporate tax policies in the Hainan FTP?

15 percent corporate tax rate for companies in encouraged industries

Companies working within certain encouraged industries in the Hainan FTP can enjoy a reduced 15 percent CIT rate on income generated in the port area. China’s standard CIT rate is 25 percent.

To qualify for the reduced CIT rate, companies must be registered in the Hainan FTP and have “substantial operations” within one of the encouraged industries in the Hainan FTP.

To be considered to have “substantial operations” within the Hainan FTP, companies derive at least 60 percent of their main business income from industries in the encouraged industries catalogue.

The encouraged industry catalogues are:

• The Hainan FTP Encouraged Industries Catalogue (2024 Edition);
• The Catalogue for Guiding Industrial Restructuring (2019 Edition); and
• The Catalogue of Encouraged Industries for Foreign Investment (2022 Edition)

Note that for companies that qualify for the reduced CIT rate that have their head office in the Hainan FTP, the 15 percent rate is levied only on the income of the head office and any branch offices located in the FTP.

Companies that have their head offices outside the FTP can still enjoy the 15 percent rate on the income of any branches located in the FTP that meet the requirements for the preferential treatment.

Corporate tax exemption on income from new ODI in select industries

In addition to the reduced CIT rate, the Hainan FTP also fully exempts CIT on income obtained from new ODI by companies in the tourism, modern services, and high-tech industries in the FTP.

To qualify for the exemption, the following conditions must be met:

1. The income is the operating profits obtained from newly established overseas branches, or dividend income corresponding to new ODI distributed from overseas subsidiaries with a shareholding ratio of at least 20 percent; and
2. The statutory CIT rate of the invested country or region is no less than 5 percent.

The eligible tourism, modern service, and high-tech industries refer to the industries outlined in the Catalogue of Preferential Corporate Income Tax for the Tourism, Modern Services, and High-tech Industries in the Hainan Free Trade Port. This catalogue, which was initially effective until the end of 2024, has also been extended until the end of 2027 by the MOF and STA notice on the extension of the preferential CIT policies.

One-off pre-tax deduction or accelerated depreciation and amortization for newly acquired assets

Companies established in the Hainan FTP can fully deduct newly acquired (as well as self-constructed and self-developed) fixed assets or intangible assets with a unit value of up to RMB 5 million (US$689,836) as current costs and expenses on a one-time basis when calculating taxable income. This can be done without the need for annual depreciation and amortization.

For fixed assets or intangible assets with a unit value of over RMB 5 million, the depreciation and amortization period may be shortened, or companies can adopt accelerated depreciation and amortization methods.

The applicable fixed assets include all fixed assets other than houses and buildings.

What are the preferential individual income tax policies in Hainan FTP?

High-end and in-demand talent working in the Hainan FTP are exempt from paying IIT on the portion of their income in excess of 15 percent. In China, comprehensive income is generally subject to a progressive tax rate of three to 45 percent on the whole.

The eligible income includes the comprehensive income obtained in the FTP (including wages and salaries, labor remuneration, royalties, and franchise royalties), business income, and talent subsidy income recognized by Hainan Province.

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Individuals can receive this IIT benefit when handling their annual IIT settlement in Hainan Province. This means eligible individuals will first need to pay IIT according to China’s general IIT rate in the current year. When the final settlement is made the next year, the Hainan tax bureau will refund the portion of the IIT that exceeds 15 percent of the actual taxable income.

The notice states that eligibility for the preferential policy will be handled through a high-end and in-demand talent list and corresponding implementation measures, to be formulated by the Hainan Provincial Department of Commerce and Finance and the STA.

In 2022, following the initial implementation of this preferential policy, the Hainan FTP released the Interim Measures for the Management of the List of High-end and In-Demand Talent Enjoying IIT Preferential Policies in Hainan FTP (hereinafter, the “Interim IIT Measures”), along with a catalogue of in-demand talent in the Hainan FTP (the Industry Catalogue for In-Demand Talent in the Hainan FTP).

Whereas the notice on the extension of the preferential IIT policy does not state which measures and list will be applicable, it is likely it will be the same or a slightly updated version of these Interim IIT Measures.

Per the Interim IIT Measures, individuals must meet the following basic criteria to be eligible for the preferential treatment:

1. Live in the Hainan FTP for a minimum total of 183 days in a tax year; and
2. Be a talent recognized by talent management departments at all levels in Hainan Province or have an income of more than RMB 300,000 (US$41,390) in the Hainan FTP in a given tax year (this threshold will continue to be adjusted based on economic and social developments).

However, people working in the fields such as aviation, shipping, offshore oil and gas exploration who have lived in the Hainan FTP for less than 183 days in a tax year due to being required to work away from the area that still meet the talent recognition and income requirements may still be able to receive the preferential treatment if they also meet the following conditions:

1. They have continuously paid basic pension insurance for employees in Hainan FTP as an employee of a company (except for those exempted from payment in countries that have signed social security agreements with China) for more than 6 months (including December of the current year) in a tax year; and
2. They have signed a labor contract or employment agreement for more than 1 year with a company or unit registered and with substantial operations in the Hainan FTP.

Individuals that can provide other labor and personnel relationship certification materials to prove the above requirements can also be considered eligible. To be found eligible, these individuals must submit an application to the tax department within the prescribed time and explain the situation. Their application will be reviewed and approved by the Hainan Provincial Human Resources and Social Security Department.

Individuals must also be working within one of the industries listed in the Industry Catalogue for In-Demand Talent in the Hainan FTP. This catalogue lists 17 broad industry categories and talent characteristics, including (but not limited to):

• Technical, core, and management talent in the tourism, modern services, high-tech, agriculture, medical, education, telecommunications, and other industries;
• Individuals working in government agencies and institutions in Hainan Province, as well as individuals employed by statutory institutions and social organizations;
• Other foreign personnel (Category C) that meet the relevant standards of the Interim Measures for the Management and Service of Work Permits for Foreigners in Hainan; and
• Individuals from Hong Kong, Macao, and Taiwan working in Hainan FTP.

Strengthening Hainan FTP’s business environment

The extension of Hainan FTP’s preferential tax policies reinforces the government’s commitment to enhancing the region’s business environment, attracting both FDI and domestic investment, and fostering key industries such as tourism, modern services, and high-tech sectors. By reducing tax burdens and providing greater policy stability, Hainan aims to position itself as a global hub for innovation and economic development. Additionally, the continued incentives for high-end and in-demand talent will help build a skilled workforce, further driving the growth and competitiveness of the Hainan FTP.

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