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:
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:
For the telecommunications sector, policy support would be provided regarding:
For the aviation sector, policy support would be provided regarding:
For the shipping sector, policy support would be provided regarding:
For more information, contact a KPMG tax professional:
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