Hainan's 15% Corporate Income Tax: Who Qualifies and How to Stay Compliant

A Hainan business licence does not reduce corporate income tax to 15%. The licence proves that a company exists. The preferential rate depends on what the company does, how much qualifying revenue it earns, and whether the business is genuinely managed and operated in Hainan.

That distinction changes the compliance strategy. A company cannot wait until the annual tax return to manufacture evidence that should have been created by daily decisions, employment, contracts, accounting and bank activity. If 15% corporate income tax is important to the investment case, eligibility must be designed into the operating model from the beginning.

This guide explains the core conditions, the evidence behind them, the accounting controls that help, and the warning signs that suggest a company is not ready to claim the preference. It is a planning framework, not a substitute for a tax opinion based on current rules and the company’s actual facts.

The 15% rate has three connected gates

The foundational Hainan Free Trade Port corporate income tax rule provides a reduced 15% rate for encouraged-industry enterprises that are registered and substantively operating in Hainan. The encouraged activity must be the company’s main business, and qualifying main-business revenue generally must exceed 60% of total revenue.

The policy introduced under Finance and Taxation 2020 No. 31 and the relevant catalogues were extended through 31 December 2027 by Finance and Taxation 2025 No. 3.

The three gates are therefore:

1. Registration in Hainan. The taxpayer claiming the preference must be the relevant Hainan enterprise.
2. Encouraged-industry and revenue qualification. The real main business must fall within an applicable encouraged catalogue, and the revenue test must be met.
3. Substantive operation in Hainan. Actual management must exercise substantial and comprehensive management and control over operations, people, accounts and assets in Hainan.

Failing one gate can defeat the position even if the other two appear strong. An encouraged activity without Hainan substance is not enough. A well-staffed Hainan office carrying out a non-qualifying activity is not enough. A registration address and qualifying phrase in the business scope are not enough.

The correct question is not “Is my company in Hainan?” It is “Can the company demonstrate all three gates for the tax year?”

Gate one: the registered entity must match the taxpayer

Registration sounds simple, but group structures can blur the answer. A Singapore parent may own a Hainan subsidiary. A mainland affiliate may supply staff. Customers may sign with one entity while another performs the work. Intellectual property may belong to the parent and be licensed to the subsidiary.

The company claiming the 15% rate needs accounts and contracts that identify its own income, costs, people, assets and responsibilities. It cannot rely only on activity performed elsewhere in the group. Intercompany services may be legitimate, but they should be documented and priced according to the real functions and risks.

Start with the Hainan company’s Chinese business scope and actual contract set. The scope does not determine tax eligibility by itself, but a mismatch is an immediate warning. If the company is registered for software consulting but most revenue is commission income from unrelated product trading, both business-scope and encouraged-industry analysis need attention.

Corporate changes also matter. A move of address, change in ownership, expansion of scope or restructuring of contracts can affect evidence. The tax file should not be maintained in isolation from registry and governance records.

Gate two: encouraged activity must produce the qualifying revenue

The encouraged-industry test is not satisfied by selecting an attractive catalogue description. The company must perform the activity and earn qualifying main-business revenue from it.

The applicable catalogue can include national encouraged industries and Hainan-specific categories. The exact classification requires comparison between the legal description, the company’s products or services, its contracts, delivery evidence and accounting records. Broad commercial labels such as “technology,” “consulting” or “modern services” are not a conclusion.

For each proposed catalogue item, build a short analysis:

• quote the exact catalogue entry and effective period;
• describe the company’s product or service in operational terms;
• identify who performs the work and where;
• map the customer contract and acceptance evidence;
• define which revenue accounts are included;
• list revenue that does not qualify; and
• name the records that support the classification.

The revenue ratio generally compares qualifying main-business revenue with total enterprise revenue. A 2025 State Taxation Administration explanation confirmed that, where catalogues change during the year, qualifying income under the old and new catalogues can be combined for the annual calculation if the relevant activity qualified during each period. The official example states that the applicable ratio must exceed 60% and the other conditions must also be met. See the State Taxation Administration Q&A.

This calculation creates several practical risks. Revenue may be booked into accounts too broad to separate qualifying and non-qualifying activity. Bundled contracts may combine software, hardware, implementation and unrelated resale. Intercompany charges may be described vaguely. Credit notes and year-end adjustments may change the denominator. A fast-growing non-qualifying business line may push the ratio below the threshold.

The solution is not to relabel revenue at year-end. It is to create a chart of accounts and contract review process that can identify the revenue correctly when it is earned.

Gate three: substantive operation is a management test

The official definition focuses on whether the enterprise’s actual management body is located in Hainan and exercises substantial and comprehensive management and control over production or business operations, people, accounts and assets. Companies that do not meet substantive-operation requirements cannot enjoy the preference.

This is broader than renting an office. Premises are useful evidence, but the test asks whether the company is actually run from Hainan.

Operations

Operational evidence can include customer and supplier contracts, project files, production records, service delivery, procurement decisions, pricing approval, customer support and internal reporting. The records should show what the Hainan company is responsible for and how local management controls the work.

A contract signed electronically while every commercial decision is made outside Hainan may be weaker than it appears. Conversely, not every action must occur physically in one office. Modern businesses work across locations. The important issue is whether the Hainan management and operating system have real authority and responsibility.

People

People evidence can include employment contracts, payroll, individual income tax, social insurance, job descriptions, attendance, project assignments, management reporting and authorization matrices. Headcount should be proportionate to the business.

There is no responsible universal answer such as “hire one person and qualify.” One employee cannot credibly perform ten specialized functions for a high-revenue enterprise. A labour-intensive business needs a different operating profile from a software licensing business. Outsourcing may be commercially valid, but contracts should explain what remains managed and controlled by the Hainan company.

Accounts

The company should maintain books, tax filings, invoices and bank records that reflect its real transactions. Accounting policies should identify encouraged-industry revenue, related-party transactions, payroll, fixed assets and significant contracts.

Local bookkeeping alone is not substantive operation. An outside accountant can record transactions, but management must understand and control the company’s financial position. Evidence may include budget approval, payment authority, monthly management reports, reconciliations and board or management decisions.

Assets

Assets include premises, equipment, inventory, systems, intellectual property rights and other resources used by the business. The company should be able to show what it owns, leases or is authorized to use.

The asset profile should make sense for the activity. A research company may need laboratories, equipment or documented access to specialist facilities. A consulting company may need fewer physical assets but should still show workstations, systems and access to the tools used to deliver services.

Build an evidence matrix before the first tax year ends

An evidence matrix connects each eligibility proposition to records and an owner. It prevents the tax position from depending on one person’s memory.

Eligibility proposition	Example evidence	Internal owner
Activity falls within catalogue	Catalogue memo, contracts, product description, delivery files	Legal / business lead
Qualifying revenue exceeds threshold	Revenue ledger, invoice mapping, reconciliation, contract index	Finance
Management operates in Hainan	Delegations, meeting minutes, approvals, management reports	General manager
People perform the activity	Employment, payroll, IIT, social insurance, project assignments	HR / operations
Accounts are controlled locally	Books, bank approvals, tax returns, close checklist	Finance manager
Assets support the activity	Lease, asset register, equipment records, inventory	Operations

Review the matrix quarterly. A missing item in March can often be corrected through a genuine operational change. A missing item discovered after year-end may expose that the activity never occurred as claimed.

The matrix should also identify negative evidence. If all contracts are approved overseas, no local employee has decision authority, the Hainan bank account is inactive and the premises are never used, those facts must be addressed honestly. A tax file should not ignore contradictory records.

Monthly bookkeeping is part of the control system

Bookkeeping supports the 15% position when it captures the business accurately and produces early warnings. It does not create eligibility on its own.

A useful monthly process includes:

1. collecting bank statements, invoices, contracts, payroll and expense evidence;
2. reconciling banks and confirming transaction purpose;
3. classifying qualifying and non-qualifying revenue with supporting contracts;
4. identifying related-party and cross-border entries;
5. updating employee and asset records;
6. preparing tax filings according to the assigned calendar;
7. reporting missing evidence and unusual changes; and
8. updating the forecast revenue ratio.

The forecast is particularly important. Suppose qualifying revenue is 70% after the first half of the year. A large non-qualifying contract in the fourth quarter may lower the annual ratio. Management should understand that consequence before signing—not because the contract should be rejected, but because the tax forecast and pricing should reflect the real outcome.

Similarly, a new service line should not be automatically placed in a qualifying account. Finance should ask legal and operational teams how it maps to the catalogue and what delivery evidence exists.

Governance records should tell the same story as the tax return

Board minutes, shareholder decisions, payment authority, employment records and contracts are often maintained by different advisers. Inconsistent records weaken credibility.

If the tax position says management is in Hainan but every board resolution states that all decisions are made by the overseas parent, the inconsistency needs analysis. If the Hainan company claims to own equipment but the lease and invoices name another affiliate, the asset story is incomplete. If staff work for the Hainan company but payroll is paid informally by a shareholder, people and account evidence will not align.

Create a governance calendar with recurring decisions: annual budget, major contracts, bank authority, hiring, related-party agreements, asset purchases and tax review. Record who reviewed the information, where the decision was made and which company bore the risk.

The purpose is not paperwork for its own sake. Good governance records make responsibility visible and reduce the chance that a group operates one way while reporting another.

Common failure patterns

Several patterns should trigger a deeper review.

The address-only company

The company rents a registration address but has no reliable access, employees, management routine or local bank activity. An address document cannot carry the entire substantive-operation test.

The catalogue-by-keyword company

The business scope contains words that resemble an encouraged industry, but contracts and delivery files show a different activity. Catalogue eligibility follows the real business.

The year-end reclassification

Finance discovers the 60% test in December and moves revenue between accounts without changing the underlying contract or activity. Accounting labels do not override facts.

The outsourced-everything company

Every function is performed by the parent or unrelated providers, while the Hainan entity has no person with authority to manage them. Outsourcing can support an operation, but the company still needs real management and control.

The dormant bank account

Customers pay another group entity, expenses are funded personally and the Hainan account shows little connection to the claimed activity. The funds flow contradicts the operating narrative.

The policy-first launch

The company is registered solely because someone promised 15%, before the activity, customers, team or premises are decided. The tax preference becomes an assumption rather than the result of a qualifying operation.

A compliance calendar for the first year

Before registration, screen the business scope and encouraged catalogue, map expected revenue, choose premises and define the initial team. During incorporation, align the articles, governance, capital and address with the operating plan.

In the first month, activate bookkeeping, bank controls, document collection, invoice procedures and payroll planning. In each monthly close, reconcile transactions and update the revenue classification. Quarterly, review the evidence matrix, operating changes and forecast ratio. Before year-end, test all three gates and resolve missing records. During annual settlement, retain the calculation, catalogue analysis, substantive-operation file and management approvals supporting the tax treatment.

The file should remain available after the return is submitted. Tax positions may be reviewed later, and employee turnover should not erase the company’s institutional memory.

Treat 15% as an operating outcome

The Hainan 15% corporate income tax rate can be commercially meaningful, but it should be the outcome of an encouraged business genuinely run from Hainan—not the reason evidence is created after the fact.

Start with three tests. Confirm the exact catalogue entry. Build accounting that can prove the qualifying revenue ratio. Establish management and control over operations, people, accounts and assets in Hainan. Then review the evidence throughout the year.

If the company cannot yet support one of those tests, the responsible answer may be “not this year.” That conclusion protects the company from treating a conditional policy as guaranteed and provides a concrete plan for building a stronger position in the future.

This article provides general information and does not constitute tax, legal, accounting or investment advice. Eligibility and filing treatment should be confirmed with qualified advisers and the current rules for the relevant tax year.