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China: Master plan for Hainan free-trade port unveiled
Lewis Lu of KPMG China sets out the low tax rates and simplified tax categories planned for the Hainan hubs in development.

Watch ITR and KPMG's webinar: The development of China's Hainan free-trade port
China’s 13th National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC), broadly equivalent to the lower and upper houses of parliament in other jurisdictions, held meetings (the so-called ‘two sessions’) in the period of May 21 to 28 2020. The meetings were held two months later than in previous years as a result of the COVID-19 disruption.
Setting innovative tax measures
- A reduced 15% CIT rate will apply to enterprises in encouraged industries. The standard China CIT rate is 25%;
- IIT will be levied at a maximum rate of 15% for personnel with high-end or urgently-needed skills. China’s marginal IIT rate is 45%;
- For the period to 2025, a CIT exemption will apply to foreign-sourced dividend income received by enterprises in the tourism, modern services and high-tech industry sectors, i.e. the exemption method of double tax relief in place of the existing CIT law credit relief method; and
- 100% tax depreciation and accelerated depreciation regimes for eligible capital expenditure.
- A simplified tax system will be in place, i.e. streamlining various turnover taxes (such as VAT, consumption tax, vehicle purchase tax) into a ‘sales tax’, which is a tax exclusively for application in Hainan. This means that, by 2035, there would be only seven taxes applied in Hainan (China has 13 taxes);
- The 15% reduced CIT rate will expand to cover all enterprises established in Hainan; and
- IIT will be levied at 3%, 10% or 15% for all individuals residing in Hainan for more than 183 days in a tax year, going beyond those with particular skillsets.
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