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China: Plans aimed to develop free-trade port, Hainan island
China: Plans aimed to develop free-trade port, Hainan
The Chinese government on 1 June 2020 released a master plan for policies that would support the creation and development of the Hainan free-trade port. The goal is to develop Hainan island (located on China’s south coast) into a globally significant free-trade port by 2050.
Among the policies to be rolled out are those that reportedly would facilitate trade, liberalize investment, allow capital to flow freely cross-border, provide convenient transit for people, and provide for the safe flow of data. Improvements to the taxation and legal systems would be intended to support the development of high-tech industries, tourism, and modern services.
Measures are to be adopted in several stages:
- By 2025, preliminary policies to facilitate trade and liberalize investment would be in place—including tax measures—with an independent customs regime on the island.
- By 2035, policies to support people flows and transport, as well as capital and data flows would be in place, together with further enhancement of the preliminary policies.
- By 2050, the goal of developing the free-trade port would be completed.
Tax measures
The proposed new customs and tax system would consist of a zero tariffs regime together with several tax incentives. For enterprises in “encouraged industries,” a reduced 15% corporate income tax rate would apply (the standard corporate income tax rate currently is 25%).
Furthermore, up to 2025, a corporate income tax exemption would apply to foreign-sourced dividend income received by newly established Hainan enterprises in the tourism, modern services, and high-tech industry sectors (i.e., the exemption method of double tax relief instead of the existing credit relief system under the corporate income tax regime). Complete (100%) tax depreciation and accelerated depreciation regimes would also be available.
For personnel with high-end or urgently needed skills, the individual income tax would be levied at a maximum rate 15% (the current marginal rate is 45%).
Support for specific industry sectors
Specific sectors—including aviation, shipping, telecommunications, and finance—would be supported with tailored measures, and would guide the design of the lists of sectors open to foreign investment, i.e., the negative list and market-entry list.
For the financial sector, policy support would be provided regarding:
- Set up of Hainan-based securities, funds, or futures businesses, whether wholly owned or joint ventures (JVs) by qualified foreign financial institutions
- Establishment of Hainan-based property and life insurance, reinsurance, mutual insurance, and self-insurance institutions and companies
- Development of cross-border medical insurance products jointly with foreign institutions
For the telecommunications sector, policy support would be provided regarding:
- Set up by foreign enterprises of Hainan-based value-added telecommunications services businesses
- Establishment by foreign enterprises of Hainan-based businesses to conduct online data processing and transaction processing
- Foreign enterprise involvement in providing basic telecommunications services
- International internet data interaction
For the aviation sector, policy support would be provided regarding:
- Liberalising the rules on foreign airlines flying to and from Hainan, including flights between a foreign country and China by an airline of a third country (i.e., fifth and seventh freedoms of the air)
- Facilitation of the transport of passengers or freight via Hainan to a third country or region
For the shipping sector, policy support would be provided regarding:
- Foreign investment of shipping through Hainan, by eliminating the foreign equity restriction for ship registration bodies
- An export tax rebate for ships built within China and registered at Yangpu port in Hainan, and engaged in international shipping
For more information, contact a KPMG tax professional:
David Ling | +1 (609) 874-4381 | davidxling@kpmg.com
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