Announcement on Issues Related to Preferential Policies of Corporate Income Tax in Hainan Free Trade Port
On July 31, the Hainan Taxation Bureau of State Administration of Taxation issued an announcement to clarify the relevant provisions of preferential policies on corporate income tax in Hainan Free Trade Port. The full text is as follows:
Announcement by Hainan Taxation Bureau of State Administration of Taxation on Issues Related to Preferential Policies of Corporate Income Tax in Hainan Free Trade Port
(Announcement No.4, 2020, Hainan Taxation Bureau of State Administration of Taxation)
In accordance with the provisions of the Corporate Income Tax Law of the People’s Republic of China and its Implementation Regulations (hereinafter referred to as the Implementation Regulations) and the Notice by the Ministry of Finance and the State Administration of Taxation on Preferential Policies of Corporate Income Tax in Hainan Free Trade Port (Notice No. 31, 2020, hereinafter referred to as the Notice), the relevant issues concerning the implementation of preferential policies of corporate income tax in Hainan Free Trade Port are hereby announced as follows:
I. Issues concerning the 15% corporate income tax on enterprises in encouraged industries.
1. Encouraged industrial enterprises that are registered in Hainan Free Trade Port (hereinafter referred to as FTP) and has a substantial operation record are levied at a reduced rate of 15% for their corporate income. Enterprises mentioned in this clause include the non-resident enterprise institutions and establishments in the FTP.
2. For an enterprise with its head office located in the FTP, only the head office and branches of the enterprise located in the FTP (excluding the branches below third level that are set up in FTP by branches below second level which are established outside FTP) shall fall into the scope for judging whether they meet the specified conditions, while the branches set up outside the FTP shall not be included in the judgment scope; For enterprises whose head office is established outside the FTP, only the branches set up in the FTP (excluding the branches below third level that are set up in FTP by branches below second level which are established outside FTP) shall be judged whether they meet the specified conditions, and the head offices and branches outside the FTP are not included in the judgment.
3. Enterprises in encouraged industries can enjoy the policy of being levied at a reduced corporate income tax rate of 15%, which could be enjoyed when prepayment declaration is made under regulations. Enterprises should retain main documents for reference as follows:
(1). Explanation document that the main business belongs to the specific items in the FTP catalogue of encouraged industries, and income from such main business accounts for more than 60% of the total corporate income;
(2). Relevant information about the substantial operation of the enterprise, including total assets, total income, total personnel, total wages, etc., and their corresponding proportions distributed among insitutions established in the FTP.
II. Issues concerning corporate tax exemption for income from new overseas direct investment for enterprises in tourism, modern service and high-tech industries established in FTP.
1. The ‘new overseas direct investment’ mentioned in Article 2 of the Notice refers to the newly-added overseas direct investment of enterprises from January 1, 2020 to December 31, 2024, including the establishment of new branches and overseas investment in new enterprises, increased capital and shares of established overseas enterprises and acquired equity of overseas enterprises.
2. The policy of exemption of corporate income tax on income from new overseas direct investment by enterprises in tourism, modern service industry, and high-tech industries can be enjoyed in accordance with regulations during the annual tax declaration. Main documents for reference that should be retained are: Explanation documents that the enterprise belongs to the tourism industry, modern service industry, high-tech industry in the FTP catalogue of encouraged industries and that the newly-increased overseas direct investment income meets required conditions.
III. Issues concerning the one-off deduction or accelerated depreciation and amortization of newly purchased assets.
1. For self-developed intangible assets, the time of purchase shall be indentified as the time when the intended purpose of assets is achieved.
2. One-off full deduction or accelerated amotization could be applied on intangible assets from the year when they are available for use.
3. Enterprises that purchase intangible assets and take the approach of shortening amortization period or accelerating amortization speed in accordance with the provisions of Article 3 of the Notice can refer to the ‘Notice of Relevant Issues about Accouting Treatment for Income Tax related to Accelerated Depreciation on Enterprise Fixed Assets issued by the State Taxation Administration’ (Notice No.81, 2009)
4. The one-off deduction or accelerated depreciation and amortization policy can be enjoyed when prepayment declaration is made under regulations, main documents for reference that enterprises should retain are as follows:
(1) Documents about the point in time when assets are being purchased (ie. Invoices for assets purchased in currency, Description of the arrival time of assets purchased by installment or on credit, Description of completion settlement on self-built fix assets, Description of self-developed intangible assets when reaching their intended use);
(2) Relevant asset accounting vouchers;
(3) Adjustment of the ledger related to the differences between accounting practice and taxation practice for asset accouting.
5. Secondary branches and non-resident enterprise institutions and establishments that are set up in FTP and levied on auditing can enjoy one-off deduction or accelerated depreciation and amortization policy.
IV. The announcement will be implemented from January 1, 2020 to December 31, 2024. Those who fail to enjoy the income tax allowances in time based on the preferential policy before the release of relevant documents can enjoy the allowances in the future monthly (quarterly) prepayment declarations or in the 2020 year-end final settlement.
Announcement is hereby given.
Hainan Provincial Taxation Bureau of State Taxation Administration
31 July, 2020