Summary
Following the 1 June 2020 issuance of the Overall Plan for the Construction of Hainan Free Trade Port (Hainan FTP Plan), the Chinese Ministry of Finance (MOF) and State Taxation Administration (STA) on 30 June 2020 set out detailed corporate income tax (CIT) and individual income tax (IIT) preferential policies for Hainan FTP. Businesses may find these tax rate reductions and administrative simplifications very attractive in deciding whether to establish Hainan operations.
KPMG observations
The Hainan FTP Plan outlined a range of innovative tax policies, many going well beyond those on offer in China’s existing pilot free trade zones. MOF and STA Circular CaiShui [2020] No. 31 and CaiShui [2020] No. 32 have now given concrete detail on these measures.
FTP Plan measure | Detailed rules | KPMG observations | |
➢ Implementation before 2025 | |||
CIT | CaiShui [2020] No. 31 | ||
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CaiShui [2020] No. 32 | |||
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VAT | To be clarified | ||
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➢ Implement before 2035 | To be clarified | ||
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Many businesses are actively looking at establishing operations in Hainan FTP. The following should be considered:
- Strategy and planning: Some enterprises may look to leverage Hainan FTP’s innovative new policies for a thorough restructuring or adjustment of their existing investment holding structure and operating model, including redeployment of human resources to Hainan and optimized financing arrangements.
- Tax optimisation: The tax cost savings from establishing operations in Hainan should be carefully evaluated against the tax position under China’s standard tax rules, with the costs of managing economic substance requirements and revised TP arrangements taken into account.
- Implementation: Enterprises will need to assess any potential challenges arising in redeploying human and material resources, and set and oversee a step plan for any move to Hainan.
KPMG is closely monitoring the development of Hainan FTP. With its extensive experience, the firm can provide deep insights, advice and services in relation to industrial development planning, surveys on policy incentives, tax and customs optimisation, and assistance in accessing preferential regimes. See KPMG’s tax alert on Hainan FTP from the customs angle here.
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