Tax is one of the main reasons foreign founders look at Hainan, but it is also where marketing language causes the most confusion. A company does not receive a 15% tax rate simply because its address is in Hainan.
Start with China’s ordinary tax system, then test whether the company qualifies for a specific incentive.
Corporate income tax
The standard corporate income tax rate for a Chinese resident enterprise is 25% of taxable income. A foreign-owned Chinese company is generally taxed under the same corporate income tax framework as a domestically owned company.
Taxable profit is not the same as cash in the bank. It is calculated from recognised revenue after allowable costs, deductions and tax adjustments. Proper invoices and accounting records therefore matter from the first month of operation.
Value-added tax
VAT treatment depends on what the company sells and whether it is registered as a general or small-scale taxpayer. Common statutory rates include:
- 13% for many goods and processing activities;
- 9% for specified transport, construction and other activities; and
- 6% for many modern services.
Preferential levies for small-scale taxpayers can change through temporary policy. Do not build a long-term business model around a reduced rate without checking the rule in force for the relevant tax period.
Withholding tax on payments overseas
Payments to overseas shareholders or service providers may trigger Chinese withholding tax. Dividends paid to a non-resident corporate shareholder are commonly subject to a 10% enterprise income tax withholding rate, subject to a lower rate under an applicable tax treaty and satisfaction of beneficial-owner and documentation requirements.
Interest, royalties and service fees follow their own source, treaty and VAT rules. The contract wording and actual transaction should be reviewed before the first payment, not after the bank asks for supporting documents.
How Hainan’s 15% corporate income tax rate works
The reduced rate has been extended through 31 December 2027. To qualify, an enterprise generally needs to meet all of the following:
- it is registered or has a qualifying establishment in Hainan;
- its main business falls within an applicable encouraged-industry catalogue;
- revenue from that encouraged main business exceeds 60% of total revenue; and
- it carries out substantive operations in Hainan.
Substantive operations are not proven by a registration certificate alone. Authorities may look at where the company’s production or services, personnel, accounting, assets and day-to-day management are located.
For a foreign founder, the practical question is therefore not “Can I register in Hainan?” It is “Can this business genuinely be run from Hainan, and does its revenue fit a catalogue item?”
What counts as an encouraged industry?
Hainan’s encouraged-industry framework draws from national catalogues and the Hainan Free Trade Port Encouraged Industries Catalogue. It covers a wide range of activities, but eligibility must be matched to a specific catalogue entry.
Broad labels are not enough. “Technology”, “consulting” and “international trade” can describe many different businesses, only some of which may fit an encouraged item. Keep a written eligibility analysis showing the relevant entry and how the company’s contracts and revenue correspond to it.
Profit reinvestment: what changed in 2025
Older explanations often say that foreign investors receive a permanent withholding-tax exemption when they reinvest Chinese profits. That is incomplete.
For qualifying direct investments made from distributed profits between 1 January 2025 and 31 December 2028, an overseas investor may receive a tax credit calculated at 10% of the qualifying investment, or at a lower treaty dividend rate where applicable. The policy has eligibility, reporting and holding-period rules. If the investor withdraws the investment after the required five-year holding period, deferred tax may still need to be reported and paid, with available credit applied.
This can be valuable, but it should be modelled as a documented tax-credit and deferral arrangement, not advertised as “tax-free reinvestment”.
Hainan’s zero-tariff policy is a customs policy
Zero tariff does not mean zero corporate tax or zero VAT on every transaction. Following island-wide special customs operations, qualifying entities may import goods outside the dutiable-goods catalogue without import duty, import VAT and consumption tax, subject to the relevant eligibility and supervision rules.
Goods later moved from Hainan into mainland China may trigger tax at the second line unless a specific treatment, such as the processing value-added policy, applies.
Service companies with no import supply chain may receive little direct benefit from zero-tariff rules. Keep the customs analysis separate from the corporate income tax analysis.
Tax questions to answer before incorporation
- What will generate most of the company’s revenue?
- Which VAT treatment applies to those sales?
- Is there a specific encouraged-industry entry?
- Can the company maintain staff, management, records and assets in Hainan?
- Will it pay dividends, royalties, interest or service fees overseas?
- Does a tax treaty apply to the foreign shareholder?
- Will it import goods into Hainan or sell goods into mainland China?
These answers are more useful than comparing headline tax rates in isolation.
Related reading
- Hainan’s 15% corporate income tax: who qualifies?
- How to repatriate profits from China
- Hainan’s zero-tariff policy for foreign companies
Official sources
- Extension of Hainan corporate income tax incentives through 2027
- Hainan Free Trade Port Encouraged Industries Catalogue
- State Taxation Administration guidance on the 60% revenue test
- Tax credit for foreign investors reinvesting distributed profits
- Hainan first-line and second-line tax policy
Tax eligibility depends on the facts of the business and the rules in force for the relevant year. Obtain a case-specific assessment before relying on an incentive in financial forecasts.
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