PROVISIONS OF THE STATE COUNCIL OF THE PEOPLE'S REPUBLIC
OF CHINA FOR THE ENCOURAGEMENT OF INVESTMENT AND
DEVELOPMENT IN HAINAN ISLAND

(Promulgated on May 4, 1988)

 

 

 

SUBJECT: ENTERPRISES WITH FOREIGN INVESTMENT

ISSUING-DEPT: STATE COUNCIL OF CHINA

ISSUE-DATE: 05/04/1988

IMPLEMENT-DATE: 05/04/1988

LENGTH: 2407 words

TEXT:

[Article 1] The present provisions are hereby formulated to facilitate attraction of both domestic and foreign investment and to accelerate the development and construction of Hainan Island.

[Article 2] For the Hainan Special Economic Zone, the state has adopted a more open and flexible economic policy and grants the People's Government of Hainan Province a greater measure of autonomy.

[Article 3] The state encourages both domestic and foreign enterprises, other economic entities and individuals (hereinafter referred to as investors) to invest in and develop Hainan Island, and to engage in different kinds of economic and social activities.

[Article 4] The state protects the legitimate rights and interests of the investors in accordance with the Chinese law.  The state shall not nationalize nor expropriate the property of the investors.  The state shall only nationalize or exproporiate the property of the investors under special circumstances where the needs of the public and society dictate such actions.  Under such circumstances, the state shall nationalize or expropriate the property of the investors by following legal procedures and providing appropriate compensation.

The investors must abide by the Chinese laws and regulations.

[Article 5] The investors may invest in or run their business in Hainan Island under the following arrangments:

(1) Establishing Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises (hereinafter referred to as enterprises with foreign investment) and other kinds of enterprises that are permitted by the law.  The operational period of each enterprise shall be decided by its partners and specified in the contract or shall be approved by the relevant department in charge;

(2) Buying negotiable securities like stocks and bonds;

(3) Taking over the operation of an enterprise by purchasing, and injecting new capital or contracting, and leasing; and

(4) Adopting any internationally accepted commercial practice to promote economic and technological co-operation and exchange.

[Article 6] The land-use right of all state-owned land on Hainan Island is open to paid-transfer. 

The Hainan provincial government may, according to the law, lease the land-use right of a piece of state-owned land to the investor.  Different pieces of land may have different lengths of tenure, depending on the type of industry and the specific conditions of individual projects.  However, the maximum tenure is 70 years and is subject to extension upon approval if necessary.

Investors are allowed to transfer their land-use right according to the relevant provisions.

[Article 7] Mineral resources in Hainan Island may be explored with compensation in accordance with the law.  With regard to the exploration of those mineral resources specified in state provisions, an application for exploration shall be submitted for approval to the state department in charge.  The application for exploration of other mineral resources shall be submitted to the Hainan provincial government for approval.  The investors are permitted to conduct prospecting and exploration for mineral resources by establishing equity joint ventures, contractual joint ventures or wholly foreign-owned enterprises.

[Article 8] The investors may invest in such in-frastructural facilities as docks, harbours, airports, highways, railways, power stations, coal mines and water conservancy projects through equity joint ventures or contractual joint ventures.  They may operate specific infrastructural facilities for special purposes through their wholly foreign-owned enterprises.  By following the relevant state provisions, investors are allowed to invest in different types of enterprises and businsses offering services related to the above-mentioned infrastructural facilities so that they may manage their infrastructural facilities by offering comprehensive services.

[Article 9] Depending on the needs of economic development and subject to the approval of the People's Bank of China, investors may be permitted to establish foreign-owned banks, Chinese-foreign joint venture banks or other financial institutions in Hainan Island.

[Article 10] All establishment applications for economic or public service activities in Hainan Island are subject to examination and approval by the Hainan provincial government.  If scope and the total amount of investment of the activity concerned exceed the approval limits authorized by the state to the Hainan provincial government, special application shall be made according to the procedures set by the state.

[Article 11] The Hainan provincial government is authorized to examine and approve the import of construction materials and production and management equipment to be used as investment by an approved enterprise, the raw materials, parts, packing materials and other materials for use in production or business operation of an enterprise and the tranport facilities and office supplies (for official use) of an enterprise.

[Article 12] The income derived from production and business operations and the income derived from other sources by an enterprise established in Hainan Island (except state banks and insurance companies) are subject to a 15% corporate income tax and an additional 10% local surtax, of which:

(1) Enterprises engaged in the construction of such infrastructure facilities as docks, harbours, airports, highways, railways, power stations, coal mines and water conservancy projects, as well as the development of agriculture, and with a minimum operational period of 15 years shall be exempt from the corporate income tax for the first five profitmaking years, followed by a 50% reduction of the said tax in the next five profit-making years;

(2) Enterprises engaged in productive industries such as manufacturing, communications and transportation with a minimum operational period of ten years shall, starting from their first profitmaking year, be exempt from the corporate income tax for the first two years, followed by 50% reduction of the said tax in the next three years and, those enterprises which have been accorded the status of "technologically advanced enterprise" shall enjoy 50% reduction of the corporate income tax for another three years;

(3) Enterprises engaged in such productive operations as industry and agriculture, whose output value of export products in a year amounts to 70% or more of the total output value of all products for the same year may continue to pay their corporate income tax at a 10% reduced tax rate after expiration of the exemption and reduction periods as stipulated;

(4) Enterprises engaged in the service industry with a total investment of more than US $ 5 million or 20 million yuan and a minimum operational period of more than ten years shall be exempt from the corporate income tax for the first profit-making year, followed by a 50% reduction of the said tax in the second and third profit-making years.

The Hainan provincial government may grant exemptions and reductions of the local surtax to enterprises established in Hainan Island.

[Article 13] Except those overseas investors who have been granted exemptions according to the law, other overseas investors with no establishments in Hainan Island are subject to a 10% income tax on dividends, interest, rentals, royalties and other income obtained in Hainan Island.  The People's Government of Hainan Island is authorized to grant exemptions and reductions on such income if necessary.

[Article 14] In Hainan Island, both enterprises with foreign investment and enterprises with 25% foreign equity share enjoy the right to engage in import and export businesses.  Other enterprises may enjoy the same right to import materials needed for their own production and operations, and to export their own products subject to approval by the Hainan provincial government.

[Article 15] Enterprises in Hainan Island are exempt from Customs duties and product tax or value-added tax for imported machinery and equipment, raw materials, parts, communications and transportation facilities and other materials, as well as office supplies needed by the enterprises for their own construction and production uses.

Goods imported by enterprises in Hainan Island for sale on the island are subject to Customs duties and product tax or value-added tax at half the original rate.

[Article 16] The state encourages enterprises in Hainan Island to export their products, except crude oil, oil products and some products which have been specified in the state provisions, export products of enterprises in Hainan Island are exempt from export Customs duties.  For those export products for which product tax or value-added tax have already been paid, the enterprises concerned are entitled to a refund of the paid tax.

[Article 17] Most of the products produced by enterprises in Hainan Island are exempt from product tax or value-added tax when they are sold on the island except mineral oil, cigarettes, wine and some products which have been specified in the state provisions.  Mineral oil, cigarettes, wine and those specified products are subject to product tax or value-added tax at half the original rate.  Imported materials and parts used in products made by enterprises in Hainan Island and sold in other regions in China may be exempt from Customs duties and product tax or value-added tax or may be allowed to make up for the payment of Customs duties and product tax or value-added tax subsequently in accordance with the provisions stipulated in Article 15.

Enterprises are free to sell their products in other regions in China unless their products are those whose import is restricted by the state.  In the latter case, the import of such products is subject to approval according to the state provisions.  For ordinary products, enterprises shall pay the product tax or value-added tax according to the provisions when the products are sold in other regions in China; materials and parts used in products produced by enterprises in Hainan Island are required to make up for the payment of Customs duties and product tax or value-added tax subsequently according to the provisions when the products are sold in other regions in China.

Enterprises with foreign investment in Hainan Island may apply for "import substitution" treatment when the enterprises sell their products in other regions in China and the products are qualified under the state provisions for import substitution.

[Article 18] Enterprises in Hainan Island are allowed to retain all their foreign exchange income in cash including income from export products and other business activities subject to the administration of the local People's Bank of China.

Enterprises are allowed to trade foreign exchange in the foreign exchange adjustment (swap) centers in Hainan Island or other regions in China so that they may balance their foreign exchange accounts.

[Article 19] Overseas investors are free to remit profits abroad through the foreign exchange accounts of their enterprises in Hainan Island.  No remittance tax will be levied.

Overseas investors who reinvest in China their share of profits derived from their enterprises in Hainan Island for a period of no less than five years are entitled to a refund of 40% of the income tax already paid on their reinvested portion.  In case the reinvestment is made for the construction of infrastructure facilities or enterprises engaged in the development of agriculture in Hainan Island as well as the establishment or expansion of export oriented enterprises and technologically advanced enterprises, the investors are entitled to a 100% refund of the income tax already paid on their reinvested portion.

Domestic investors are free to remit profits derived from their enterprises in Hainan Island to other regions in China.  Their remitted profits are exempt from income tax for ten years starting from their first profit-making year.

[Article 20] Sll foreigners from regions and countries which have diplomatic relations or formal trade relations with China who plan to stay in Hainan Island for investment or business negotiations, economic and technological exchange, visiting relatives or travel for a period of not more than 15 days, may directly go through visa application formalities at the port of Haikou or Sanya.  Visitors with a valid reason may apply for extensions or extra visas if they wish to extend their stay in Hainan Island or to travel to other parts of the country according to the relevant provisions.

Multiple-entry visas may be issued by the relevant departments of the People's Government of Hainan Province on the basis of an application submitted by foreigners stationed in Hainan Island, foreigners who invest in enterprises in Hainan Island or participate in the development of Hainan Island and their family members.

[Article 21] With respect to entry to and departure from Hainan as well as transit to other parts of the country, no visa application is required from compatriots from Hong Kong, Macao and Taiwan and overseas Chinese who carry valid passports or other travel documents issued by the departments in charge under the Chinese State Council or by other authorized departments.  Compatriots from Taiwan may apply for the "Travel Certificate for Compatriot from Taiwan" directly at ports of Hainan Island.

Unless otherwise stipulated by the state, the Hainan provincial government authorized to examine and approve the exit applications of Chinese personnel of Chinese personnel of Chinese units in Hainan Island when these units oncerned send economic, trade or travel organizations abroad to establish enterprises.

[Article 22] Matters not stipulated in the present provisions shall be dealt with by the People's Government of Hainan Province by referring to the relevant state regulations on Special Economic Zones.

Impementational measures for the present provisions shall be jointly formulated by the departments in charge under the State Council and the People's Government of Hainan Province.

[Article 23] The present provisions shall go into force as of the date of their promulgation.