Announcement on Issues Related to the Substantive Operation of Enterprises 

in Industries Encouraged by Hainan Free Trade Port

2021 No.1

In order to implement the Overall Plan for the Construction of Hainan Free Trade Port and promote the development of enterprises in industries encouraged by Hainan Free Trade Port, issues related to the substantive operation of enterprises in industries encouraged by Hainan Free Trade Port (the "Hainan FTP") are hereby announced as follows according to the Circular of the Ministry of Finance and the State Taxation Administration on Preferential Policies of Income Tax on Enterprises in Hainan Free Trade Port (Cai Shui [2020] No.31), the Announcement of the Hainan Provincial Tax Service of State Taxation Administration on Issues Related to the Preferential Policies of Income Tax on Enterprises in Hainan Free Trade Port (Announcement of Hainan Provincial Tax Service, State Taxation Administration [2020] No.4):

I. The Announcement applies to resident enterprises registered in Hainan FTP, branches of resident enterprises established in Hainan FTP, and institutions and premises of non-resident enterprises established in Hainan FTP.

II. Resident enterprises registered in Hainan FTP are deemed having substantial operations in Hainan FTP when they are engaged in the encouraged industrial projects, and have no branches outside Hainan FTP and their production and operation, personnel, accounts, assets, etc. are in Hainan FTP.

For a resident enterprise that is only registered in Hainan FTP and any of its production and operation, personnel, accounts or assets is not in Hainan FTP, it is not deemed to have substantial operation in Hainan FTP and therefore it shall not enjoy the preferential policies of income tax on Hainan FTP enterprises.

III. A resident enterprise that is registered in Hainan FTP and engaged in encouraged industrial projects is substantially operated in Hainan FTP provided however that it practices substantial and comprehensive management and control over the production and operation, personnel, accounts and assets of the branches outside Hainan FTP, if any.

IV. A resident enterprise that is registered outside Hainan FTP but has branches in Hainan FTP or a non-resident enterprise has institutions or premises in Hainan FTP is substantially operated in Hainan FTP provided however that the said branches or institutions or premises have production and operation functions, and have business income, employee compensation and total assets corresponding to their production and operation functions.

V. If a resident enterprise registered in Hainan FTP has set up its branch outside Hainan FTP, or if a resident enterprise registered outside Hainan FTP has set up its branch in Hainan FTP, its taxable income and tax of head office and branches shall be calculated in strict accordance with the Circular of the State Taxation Administration on Issuing the Measures for the Collection and Administration of Enterprise Income Tax for Cross-regional Operations (Announcement of State Taxation Administration [2012] No.57) and its enterprise income tax shall be paid as required.

VI. If the institutions and premises of non-resident enterprises established in Hainan FTP meet the prescribed conditions for aggregated payment of enterprise income tax, their taxable income and tax shall be calculated in strict accordance with the Announcement of the State Taxation Administration, the Ministry of Finance and the People's Bank of China on Issues Relating to the Aggregated Payment of Enterprise Income Tax by Institutions and Premises of Non-Resident Enterprises (Announcement of State Taxation Administration [2019] No.12) and their enterprise income tax shall be paid as prescribed.

VII. For enterprises that have substantial operations and enjoy the preferential income tax policy offered to enterprises engaging in encouraged industries in Hainan FTP, they shall, after completing the annual tax settlement, collect and retain the relevant information for the verification of tax authorities in accordance with the Circular of Hainan Provincial Tax Service, State Taxation Administration on Issues Relating to the Preferential Enterprise Income Tax Policy of Hainan Free Trade Port (Announcement of Hainan Provincial Tax Service, State Taxation Administration [2020] No.4).

VIII. Enterprises subject to preferential tax policies shall pay enterprise income tax by way of levying based on accounts examination.

IX. The Announcement shall come into effect from January 1, 2020 to December 31, 2024.

Hainan Provincial Tax Service of State Taxation Administration

The Department of Finance of Hainan Province

Hainan Provincial Administration for Market Regulation

March 5, 2021

(All information in the documents are authentic in Chinese and their English versions are provided for reference only. In case of any discrepancy, the Chinese versions shall prevail.)