Taxation
Article 1: Income out of production or business operation of an enterprise in Hainan (state banks and insurance companies excluded) shall be levied an income tax at a rate of 15 percent.
1. Enterprises with an operational period of over 15 years and engaging in either agricultural or infrastructural development such as the construction of harbor, dock, airport, highway, railway, power station, coal mine, water-control project, etc., shall be exempt from income tax for the initial five years beginning from the first profit-making and enjoy a 50 percent reduction during the following five years. For those with an operational period of less than 15 years, their income tax shall be exempt for the first and second profit-making year and reduced by half during the third to fifth years.
2. Enterprises with an operational period of over 10 years engaging in industry, communications and transport, shall be exempt from income tax in the first and second years beginning from the first profit-making year and shall be offered a reduction of 50 percent for their income tax during the following three profit-making years; an extra three-year income tax reduction of 50 percent shall be granted to those who have been confirmed by the provincial government as technologically advanced enterprises (TAE). Those with an operational period of less than 10 years, shall be exempt from income tax for the first two years beginning from the first profit-making year and be charged an income tax at a rate of 15 percent beginning from the third profit-making year.
3. After the expiration of the prescribed taxation exemption or remission, an enterprise engaging in such manufacture operations as agriculture and industry whose annual output value of exports makes up over 70 percent of its total output value of the year shall be allowed to pay the income tax for the said year at a reduced rate of 10 percent.
4. Enterprises engaging in service sector, with an operational period of over 10 years and a total investment of more than US$5 million or 20 million yuan, shall be exempt from income tax for the first profit-making year and have the income tax reduced by 50 percent for the following two years. Those whose operational period and total investment cannot reach the above level shall be exempt from income tax for the first profit-making year, pay income tax with a 50 percent reduction for the second profit-making year, and be levied an income tax at a rate of 15 percent from the third profit-making year on.
5. Enterprises engaging in commercial and other activities shall be exempt from income tax for the first profit-making year, pay income tax with a reduction of 50 percent for the second profit-making year, and levied an income tax at a rate of 15 percent from the third year on.
Article 2: Foreign-invested manufacture enterprises established in the Hainan Special Economic Zone shall be exempt from local tax for all their business incomes.
Article 3: Foreign investors who have not opened their administrative offices in China shall be exempt from withholding tax on their Hainan-based dividend, interest, rental, franchise fee as well as other proceeds.
Article 4: To speed up the updating of equipment and increase technical competence, foreign-funded enterprises whose products are export-oriented and those technologically advanced shall be allowed to practice rapid depreciation widely adopted in the world, after getting approval from Hainan?s administrative department responsible for finance and taxation.
Article 5: Foreign investors who have ploughed back profits made from their Hainan enterprises in the Hainan Special Economic Zone for new operations of no less than years in China, shall have 40 percent of the collected business income tax on their reinvested portion returned. If the reinvest is used for the construction of Hainan?s infrastructure facilities and the development of agricultural enterprises, or export-oriented enterprises or TAEs, as confirmed by the provincial government, the collected business income tax on the reinvested portion shall be refunded in full. Foreign investors transfer earnings from their Hainan-based enterprises abroad shall be exempt from withholding income tax.
Article 6: Haikou-made products sold within Hainan Special Economic Zone are exempt from value added tax, excluding cigarette, liquor, mineral, oil and sugar which shall be charged VAT with a 50 percent reduction.
Article 7: Favorable policies for imports and exports
1. Foreign-invested enterprises
1) Favorable policies for imports
i) Equipment and other materials imported for self-use within the aggregated investment by a foreign-funded enterprise approved before March 31, 1996 are exempt from tariff and import duty, except for duty-bound commodities (such as autos, motorbikes, the specified 20 varieties of goods, stationery, materials and equipments necessary for the construction of real estate items like hotels approved after the date of May 1, 1995).
ii) Imported equipments for foreign-invested projects approved during the period from April 1, 1996 to December 31, 1997 are exempt from tariff and import added tax, except for goods listed in the ?Index of Commodities for Foreign-invested Projects Not Entitled to Tariff Exemption? (totaling 20 varieties of goods).
iii) Equipment imported by foreign-funded enterprises approved after January 1, 1998 for foreign-invested projects subject to the ?Index of Encouraged Foreign-invested Industries? (186 categories) and ?Restriction B? (87 categories) are exempt from tariff and import value added tax, except for goods listed in the ?Index of Commodities for Foreign-invested Projects Not Entitled to Tariff Exemption.?
2) Favorable policies for exports
Except for state-stipulated duty-bound silicon iron and tin sand, exports of self-made or value-added products (with a 20 percent increment at least) substantially processed with inland raw materials by foreign-funded enterprises are exempt from export tariff.
2. Domestic-invested enterprises
1) Favorable policies for imports
i) Imported equipment for technological transformation projects approved before March 31, 1996 and entitled to exemption from taxation are exempt from tariff and import value-added tax.
ii) Imported equipment for construction projects approved by the State Council before April 1, 1996 and was subject to half reduction of taxation as well as those to be used domestic-invested projects approved from April 1, 1996 through December 31, 1997 are exempt from tariff and import value-added tax, except for goods listed in the ?Index of Commodities for Domestic-invested Projects Not Entitled to Tariff Exemption? (totaling 20 categories).
iii) Imported equipments for self-use within the aggregated investment of projects in line with the ?Index of Currently State-encouraged Key Industries, Products and Technology? are exempt from tariff and import value-added tax, except for goods listed in the ?Index of Commodities for Domestic-invested Projects Not Entitled to Tariff Exemption.?
iv) Other goods imported by enterprises or organizations based in the SEZ, except for those stipulated (such as autos, motorbikes, the specified 20 varieties of goods, stationery, materials and equipment for the construction of real estate items like hotels approved after the date of May 1, 1995), within the approved amount, are subject to tariff and import value-added tax. The collected tax shall be returned within a five-year transition period, with an amount of 20 percent of the total for each year.
2) Favorable policies for exports
i) Except for state-stipulated duty-bound silicon iron and tin sand, exports of self-made or value-added products (with a 20 percent increment at least) substantially processed with inland raw materials by foreign-funded enterprises are exempt from export tariff.
ii) With respect to the export of made-in-Hainan products, except for commodities subject to international passive quota management and those exclusively sold to Hong Kong and Macao subject to China?s quota and license management, the export quota and license management is in the charge of the Ministry of Foreign Trade and Economic Cooperation (MOFTEC). Hainan is responsible to submit its export plan each year to the MOFTEC who, after approval, will assign export quotas in batches to meet Hainan?s demand.
Article 8: Within the state-stipulated amount, tariff and import value-added tax on imported self-use materials shall decrease progressively year by year from 1996 to 2000 (unsuitable to foreign-invested enterprise).
Article 9: Favorable policies suitable to Haikou Bonded Zone.
Both domestic and foreign investors are allowed to set up trade and non-trade enterprises according to law in the bonded zone, engaging in import and export trade, international commerce, entrep?t trade, export processing, storage of bonded goods, transportation, real estate development, and import commodities exhibition. Financial and insurance institutions shall also be allowed to establish in the bonded zone upon approval. Besides favorable policies suitable to Hainan Special Economic Zone, the above businesses and institutions also enjoy the following favorable policies:
1. As far as the bonded zone is concerned, except for those under export passive quota management, import/export commodities are not subject to import and export quota license management. Transit goods, commodities in storage and merchandise for processing trade for import/export shall be filed with relevant departments.
2. Collection of duties and import value-added taxes on imported commodities by enterprises in the bonded zone, except for separate legal provisions, is subject to the following regulations:
1) Imported machines, equipment and materials for the infrastructure construction of manufacture projects are exempt from taxation.
2) Self-use facilities for production and management, stationery in reasonable amounts, necessary maintenance spare parts, fuels for production, materials and equipment for the construction of factory buildings, warehouses as well as warehouse facilities imported by enterprises are exempt from taxation.
3) Imported raw materials, component parts, elements and parts, and packing facilities needed for processing export commodities are kept in bond.
4) Transit goods and commodities stored up in the bonded zone are subject to management for bonded goods and exempt from taxation when re-exported. Storage of goods has no time limit.
5) Export commodities produced or processed by enterprises are exempt from taxation.
3. Commodities entering non-bonded areas from the bonded zone shall go through formalities for imported goods. Tax-refunding of commodities entering the bonded zone from non-bonded areas is subject to China?s relevant regulations.
4. Commodities are transferable between enterprises in the bonded zone. Both parties concerned shall take the responsibility of submitting the transference or transaction of commodities to the Customs for the record.
5. Except for those subject to separate legal and administrative provisions, exported end products processed in the bonded zone as well as leftover bits and pieces produced in the process of manufacture are exempt from export tariff.
6. The Customs shall impose duties on end products processed with imported materials and spare parts that to be sold in non-bonded areas.
7. Imported raw and semi-finished materials for production and processing shall have no quantitative limit and be free of cash deposit. Upon approval, these raw and semi-finished materials shall be allowed to be processed outside the bonded zone upon approval.
8. Enterprises in the bonded zone shall be allowed to open foreign exchange accounts and keep foreign exchange earnings in the form of cash as turnover funds. After taxation, foreign investors? profits, foreign employees? salaries as well as other lawful incomes shall be allowed to be remitted abroad. Foreign currencies shall be used for quoting prices and settling accounts and allowed to circulate within the bonded zone.
9. End products processed in the bonded zone shall be exempt from production value-added tax, if marketed exclusively in Hainan Province.
10. The bonded zone sets up the Foundation for Enterprise Development to award and support its enterprises. Assessment and rewards are in accordance with the following criteria: general and high-tech industrial enterprises are rewarded respectively by 10 percent and 12 percent of their paid value-added tax (VAT), and 18 percent and 25 percent of their paid local tax (urban construction tax and personal income tax excluded); commercial enterprises and those in other industries are rewarded by 8 percent of their paid VAT and 15 percent of their paid local tax (urban construction tax and personal income tax excluded); big taxpaying businesses (whose yearly paid VAT is over 8 million yuan [about US$1 million]) are rewarded by 15 percent of the portion exceeding the said 8 million yuan.
11. When high-tech enterprises purchase land in the bonded zone, they shall be charged 85 percent of the standard land price and allowed payment by installments; and they shall be charged 85 percent of the standard price for the rents of land, factory building, warehouse as well as office space in the bonded zone. High-tech and general enterprises shall pay 80 percent and 90 percent respectively of other administration and operating expenses charged according to Haikou?s regulations in force.
Article 10: Favorable taxation policies for high-tech information enterprises.
Information enterprises, upon confirmation by the department responsible for information industry and approval by the taxation authorities shall enjoy the following favorable policies:
1. Favorable income tax policies
1) Productive and explorative information enterprises with an operational period of 10 years or more are exempt from business income tax for the first two years beginning from the first profit-making year, and shall be levied an income tax with a reduction of 50 percent in the following three years; an extra three years of half-reduced income taxes is granted to technologically advanced enterprises (TAE) confirmed by the provincial government. Those with an operational period of less than 10 years shall be exempt from business income tax for the first two years beginning from the first profit-making year and levied an income tax at a rate of 15 percent from the third year on.
2) Enterprises engaged in information service, with an operation period of 10 years or more and a total investment of more than US$5 million or 40 million yuan, shall be exempt from business income tax for the first profit-making year and be levied an income tax with a 50 percent reduction for the following two years. Those whose operation period and total investment cannot reach the above level shall be exempt from business income tax for the first profit-making year and levied a half-reduced tax for the second year.
3) Information enterprises engaging in commercial or other activities, shall be exempt from business income tax for the first profit-making year and levied an income tax with a 50 percent reduction for the second year.
4) After the expiration of the prescribed 50 percent taxation reduction, information enterprises whose annual export value makes up over 70 percent of the total output value of the year, may pay their income tax at a reduced rate of 10 percent for that very year.
5) Income made by scientific research institutes and universities through technological transaction, technical training, technical consultation, technical service, and contracted technical projects are exempt from income tax.
6) Net income less than 100,000 yuan (roughly US$12,500) made by information enterprises engaging in technological transaction as well as related technical training, consultation and service of the information industry, shall be exempt from income tax for the time being. However, the portion exceeding 300,000 yuan (around US$37,500) shall be taxed accordingly.
2. Products by information enterprises, if sold in Hainan Province, shall be exempt from production-stage VAT. For those sold outside Hainan, the local portion of the VAT shall be refunded 60 percent for the first three years beginning from the enterprise?s first operation year, by means of enumerating income and expenses; for the fourth-sixth years, 40 percent of the said portion shall be refunded.
3. Tax-deductible high-tech projects operated by high-tech information industries or individuals to offer taxable labor services, intangible assets transfer, and real estate sales, upon approval by financial and tax institutions, shall enjoy a 10-year business tax refunding treatment in the form of enumerating income and expenses, beginning from the first year of business operation.
4. Stamp duty paid by information enterprises for signing contracts of technological development, utilization and transactions shall be returned by the financial institutions.
Article 11: Certain regulations of Haikou City for fostering medical industry. Priority shall be given to projects in the following medical fields: 1. projects to produce medical products to meet the market demand from home and abroad by utilizing Hainan?s advantageous resources such as the abundant medicinal and marine resources; 2. medical projects, local medical enterprises, medical technologies and medical research achievements that are gap-filling in China and have intensive technical contents; 3. medical projects, medical and research technology of the domestic or international advanced level developed by overseas medical enterprises based on their technology, fund and management advantage; 4. competitive local medical research institutions and medical enterprises with integrated business in both production and trade.
Article 12: Medical enterprises investing in Haikou and in line with Article 11, shall enjoy the following favorable tax policies upon approval by tax authorities:
1. Favorable VAT policy
Products sold inside Hainan Province, subject to relevant regulations, are exempt from value-added tax (VAT). With respect to products sold outside the province, upon approval by tax authorities, shall have 50 percent of the local retained portion of their paid VAT refunded for the first three years beginning from the first year of operation.
2. Favorable income tax policies
1) Enterprises involving in medical production and exploration and with an operation term of 10 years or more shall be exempt from business income taxes for the first two years beginning from the first profit-making year, and be levied a tax with a reduction of 50 percent for the third-fifth years. An extra treatment of three more years for half-reduced income tax shall be granted to technologically advanced enterprises (TAE) confirmed by the provincial government. For those with an operation term of less than 10 years, their business income tax shall be exempt for the first two years beginning from the first profit-making year and levied at a rate of 15 percent from the third year on.
2) At the expiration of the prescribed taxation reduction or remission, medical enterprises whose annual export value makes up over 70 percent of the sales value of all its products shall be levied an income tax at a reduced rate of 10 percent for the same year.
3) The local retained portion of the income tax for earnings out of medical research institutes? medical technology development, technical consultation, technical service, technical training, technological transaction and contracting shall be refunded by the city financial departments for the first five years.
3. Favorable business tax policy
For high-tech medical enterprises and projects offering taxable labor services, intangible assets transfer, or real estate sales, after being approved by financial and tax departments, shall have 50 percent of the local retained portion of the paid business tax refunded for the first five years beginning from the first year of business operation.
4. Favorable property tax policy
Applied by productive medical enterprises and approved by tax authorities, the financial department shall return the paid tax on self-owned house property for five years.
5. Favorable stamp tax policy
The financial department shall return stamp duties paid by medical enterprises or medical research institutes on signing technical contracts while investing engaging in medical technology development, utilization and transactions.
Production venues and business space newly built or purchased by information enterprises and high-tech information projects shall be exempt from construction reporting fee.
Article 14: In cases of facing operation difficulties with their production venues and business space, an information enterprise shall be exempted from house property tax for five years beginning from the first operation year, after the case being confirmed by financial and tax departments.
Article 15: Land used by information enterprises for production operation and high-tech information projects shall be subject to land assignment charge but exempt from charge for the land-use right.
Land-use policies
Article 16: According to the state system of paid land-use right, the land-use right can be lawfully sold, transferred or mortgaged. The longest term for the use-right of state-owned land shall be 70 years. Land used for high-tech industrial projects, state-supported industrial projects, and key industrial projects aided by provincial or municipal governments shall be subject to paying two yuan per square meters for land-use right. In regard to land used for tourist projects aided by the state, the province or the city, commercial housing at set prices, and low-cost housing projects, a 10-20 percent discount shall be offered on the basis of the consensual selling price.
Article 17: Land used for production projects of medical enterprises that share allocated land with existing state-owned enterprises, after going through legal formalities for the purchase of land, shall be exempt from charges for land-use right. Land used for developing medical manufacture enterprises or construction of additional projects shall enjoy the same preferences for land used for high-tech industrial projects. Besides the prescribed three compensations for requisitioned land, cultivated land occupation tax, vegetable plot development fund, and management fee for requisitioned land, shall be charged two yuan per square meters for the land-use right. Land for necessary residential facilities of a medical enterprise, upon approval, shall enjoy a 50 percent reduction for the land-use right based on the price charged for the land used for the enterprise?s other projects.
Personnel policies
Article 18: Based on their own production and operation, enterprises investing in Haikou can determine by themselves both the organizational structure and the manning quotas. Assisted or coordinated by local personnel departments, enterprises can independently recruit technical and managerial personnel and workers either in Haikou or from other places of Hainan, or other provinces.
Article 19: Enterprises invested by businesspeople from other provinces or overseas must join the social insurance program in accordance with the law, and enforce state and provincial labor-related laws and regulations to safeguard the legitimate rights and interests of the employees.
Article 20: The above-said enterprises shall be allowed to independently determine their hiring and laying off of employees. Settlement of disputes between the enterprises and their employees relating to labor contracts shall be subject to state stipulations concerning labor disputes.
Article 21: Predicated on the enforcement of state and provincial provisions concerning labor and wages, the above-said enterprises shall independently determine their employees? wage level, pay form, allowance, rewards and penalties, etc.
Landing visa
Article 22: Authority for issuing landing visas. According to Article 9, Document No. 24 issued by the State Council (1988), foreigners from countries and regions that have diplomatic relations or hold an official commercial intercourse with China, who come to Hainan to hold business talks, engage in scientific and technological exchanges, visit their relatives or travel, and will stay for no more than 15 days, can get their entry visas in either Haikou or Sanya. Those who need to extend their stay in Hainan or change their route and head for the mainland of China for appropriate reasons can apply for visas in accordance with relevant laws and provisions. Foreigners as well as their family dependants who reside in Hainan or invest in the development and construction of Hainan Island can apply to the provincial department concerned for multiple-entry visas for Hainan. Overseas Chinese and compatriots from Hong Kong, Macao, and Taiwan holding valid passports or other credentials issued by responsible institutions of the State Council or authorized organizations, who come to Hainan, or head for the mainland of China, or leave the country via Hainan, do not have to apply for their visas. Taiwan compatriots heading for Hainan can directly apply for the ?Travel Permit for Taiwan Residents? at selected ports-of-entry in Hainan Province.
Others
Article 23: Hainan?s authority to examine and approve construction projects invested by businesspeople from other provinces or overseas. As stipulated in Article 22, Document No. 23 issued by the State Council (1988), ?For export-oriented projects whose exports make up over 70 percent of all products and are not involving state quotas, as well as projects to develop tourist and infrastructural facilities such as energy, transportation, communication, etc. whose constructive, productive and operational conditions neither rely on the country?s overall balance nor involve the state export quotas, Hainan Province can do the examination and approval independently, and then submit to the State Development Planning Commission for the record.?
Article 24: Authority to examine and approve the dispatch of economic agencies. As prescribed in Article 9, Document No. 23 issued by the State Council (1988), ?Hainan Province is authorized to examine and approve dispatches of trade and tourist organizations to run enterprises abroad, and submit to the Ministry of Foreign Affairs or the National Tourism Administration for the record.?
Article 25: The issuance of debentures. According to Article 4, Document No. 24 issued by the State Council (1988), approved by the responsible department of the State Council, Hainan Province qualifies to float bond issues. Hainan Branch of the People?s Bank of China (PBC) is authorized to grant a few operating finance institutes and other enterprises permission to handle the above business.
Article 26: Foreign or Chinese investors from other provinces are allowed to purchase or manage as shareholders, contractors or leaseholders Hainan-based state-owned enterprises (special industries excluded) and other types of enterprises.
Article 27: Besides that on taxation, preferential treatment in land use and raw material supply shall be offered to technologically advanced enterprises and outsider-invested export-oriented businesses.
Article 28: Adjustment of the administration of imports and exports of foreign-trade enterprises. According to relevant documents issued by the Ministry of Foreign Trade and Economic Cooperation (MOFTEC), the foreign-trade department in Hainan Province has the authority to make dynamic adjustment concerning managerial authority over imports and exports as long as the total number of foreign trade enterprises in the province keeps no more than 292, and the issue is reported to MOFTEC for the record.
Article 29: Investment, purchase of housing property, and residence registration. According to Decree No. 13 issued by Haikou Municipal People?s Government, investors, managerial or technical personnel and their relatives of domestic enterprises and institutions, social organizations, the three kinds of foreign-invested enterprises (i.e. Sino-foreign joint ventures, cooperative businesses and exclusively foreign-owned enterprises in China), or Chinese individuals, overseas Chinese, compatriots from Hong Kong, Macao, and Taiwan who have purchased housing property or made donations to social welfare services and public welfare undertakings in Haikou are granted preferential policies to register for permanent residence in this city.
Article 30: Projects for the development of the state?s first- and second-class high-tech medicines confirmed by relevant medical and technical departments are exempt from municipal project-construction supplementary fee.
Article 31: Medical enterprises, scientific research institutes and medical research personnel are encouraged to buy shares with intangible assets (technologies, patents, etc.) after evaluation. Technology investment shall be allowed to make up to 35 percent of the total amount of the registered capital. After the enterprise is approved to issue listed stock, proportion of the technical stock to the aggregate capital stock shall be adjusted in line with relevant state provisions.
