Report Regarding The Establishment of Operations in Chinese Free Trade Zones

Report regarding the
establishment of operations in
Chinese Free Trade Zones
April 23, 2024

Content
Preface ..................................................................................................................................1
China’s Free Trade Zones ...................................................................................................2
Benefits of Free Trade Zones ...................................................................................... 3
Business set up in China ..................................................................................... 3
Industry clusters ...................................................................................................3
Requirements for registration in an FTZ ........................................................... 3
A Closer Look at the 21 Free Trade Zones in China ................................................ 4
Shanghai Free Trade Zone .................................................................................. 4
Guangdong Free Trade Zone ............................................................................... 5
Tianjin Free Trade Zone ...................................................................................... 6
Fujian Free Trade Zone ....................................................................................... 7
Chongqing Special Economic Zone ......................................................................8
Sichuan Free Trade Zone .....................................................................................8
Shaanxi Special Economic Zone ..........................................................................9
Henan Free Trade Zone ..................................................................................... 10
Zhejiang Free Trade Zone ..................................................................................11
Hubei Free Trade Zone ...................................................................................... 12
Liaoning Special Economic Zone .......................................................................12
Hainan Free Trade Port .....................................................................................14
Jiangsu Free Trade Zone ................................................................................... 14
Shandong Free Trade Zone ................................................................................15
Hebei Free Trade Zone .......................................................................................15
Heilongjiang Free Trade Zone ...........................................................................16
Guangxi Free Trade Zone .................................................................................. 16
Yunnan Free Trade Zone ................................................................................... 16
Beijing Free Trade Zone .................................................................................... 17
Anhui Free Trade Zone ...................................................................................... 17
Hunan Free Trade Zone .....................................................................................17
Tax Overview Outside Free Trade Zones ........................................................................18
Tax Overview ............................................................................................................. 18
Tax administration .................................................................................................... 18
Corporate income tax .................................................................................................18
Concept of Tax resident enterprise (TRE) ........................................................18
Tax rate ............................................................................................................... 19
Tax incentive policies ......................................................................................... 19
Reduced tax rate .................................................................................................20
Value-added tax (VAT) .............................................................................................. 20
China’s Export Fees and Refunds ............................................................................ 20
Export tax rebate ................................................................................................20
Benefits of Using Hong Kong Company When Setting up WFOE in China ................22
Recommendation ............................................................................................................... 23
I
II
China Fiscal Falcon (Kingbridge Advisory)
23/F, G Tower, GT Land Plaza, No.16 Zhujiang East
Road, Guangzhou, PRC
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Preface
In response to your request, this report aims to provide a detailed overview

of the current situation in Chinese FTZs. It will encompass crucial aspects
such as geographical locations, policy incentives within the FTZs,
industries of interest, an overview of taxation in China, and the benefits of
utilizing a Hong Kong holding company when establishing Wholly
Foreign-Owned Enterprise WFOE in China.
Drawing upon our expertise and extensive research, we will offer tailored
recommendations to you. Based on the analysis presented in this report,
we will conclude with strategic advice suggesting the establishment of a
WFOE in Guangzhou or Shenzhen within Guangdong FTZ. Furthermore,
we will advocate for the utilization of a Hong Kong-based company as a
shareholder in the WFOE, leveraging the unique advantages offered by
this structure.
This report serves as a roadmap for you to navigate the complexities of the
Chinese market and capitalize on the opportunities presented within FTZs.
We are confident that the insights provided herein will empower you to
make informed decisions and achieve sustainable success in its endeavors
within China's dynamic business landscape.
We express our gratitude to you for entrusting us with this important

analysis, and we remain committed to delivering value-driven solutions
that drive growth and prosperity.
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China’s Free Trade Zones
Special Economic Zones (or Free Trade Zones) is a Chinese government

economic policy that was introduced in 2013 in a grand plan to bolster and
promote foreign direct investment in various industries varying by region.
The first special economic zones (SEZ) were created with the intent of
promoting international trading. The first designated Free Trade Zones
(FTZ) opened in Shanghai in 2013, followed by Guangdong, Tianjin and
Fujian in 2015.
Free Trade Zones are areas where goods may be landed, handled,
manufactured or reconfigured, and re-exported without the intervention of
the local customs authorities. Only when the goods are moved to
consumers within the province in which the zone is located do they become
subject to the prevailing customs duties.
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Benefits of Free Trade Zones
Companies registered (location of registered address) within the
boundaries of these SEZ enjoy:
 Lower corporate tax rates
 Import tax exemption until goods are moved out of the SEZ (out of the
warehouse)
 Free currency exchange rate (no fees for converting major currencies)
 A fast and streamlined customs clearance.
 A hub of transportation, pick and pack and logistic service providers to
choose from. All nearby.
 A faster VAT Refund
The nature of free trade zones is to assist importers who are at an early
stage of doing business in China or want to access the Chinese market and
free trade zone policies are subject to each individual zone. As a result,
potential investors shall examine a number of additional factors when
deciding where to invest.
Business set up in China
In the past, WFOE registration in a FTZ was much simpler compared to
other areas throughout China. Nowadays, however, setting up a WFOE in
China is quite similar nationwide.
Industry clusters
FTZs are known to approach specific industries and attract certain sectors.
For instance, Shanghai FTZ focuses on financial services and
pharmaceuticals, Sichuan FTZ promotes advanced manufacturing, Henan
FTZ specializes in automobiles, etc.
Companies from a certain industry operating in the relevant FTZ enjoy not
only financial benefits but also the cluster’s side effects: knowledge sharing,
networking, shared R&D facilities, local resources, and more.
Requirements for registration in an FTZ

Assuming the industry is not listed in the negative list for foreign
investment, there are several requirements the investors need to meet,
mostly pertaining to licenses, initial registration capital and professional
management personnel qualifications. However, these requirements vary
between different provinces and FTZs.
Concerning the goods which your company engaged in the business was not
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listed in the negative list for foreign investment, then your company is
allowed to sourcing and exporting from China.
A Closer Look at the 21 Free Trade Zones in China

We know that information on most of the newer Free Trade Zones in China
is hard to find.
In this report, we take a deep dive into every Special Economic Zone in
China. We research and report each trade zone’s economic policy,
industries of interest, purpose, location and more!
Shanghai Free Trade Zone

The Shanghai Free Trade Zone (SHFTZ) is a pilot project launched by the
Chinese government in September 2013 to promote foreign investment and
international trade. It covers an area of 120 square kilometers in the
Pudong district of Shanghai and is divided into three areas: the
Waigaoqiao Bonded Area, the Yangshan Bonded Port Area, and the
Shanghai Pudong Airport Free Trade Zone.
The SHFTZ is designed to simplify trade procedures, reduce bureaucracy,

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and create a more attractive investment environment for foreign
companies. It offers a range of incentives for businesses, including reduced
tariffs, simplified customs procedures, and the ability to convert foreign
currency more freely. The zone also allows for more flexible regulations on
foreign investment, allowing foreign businesses to operate in a wider range
of industries.
In addition to its economic benefits, the SHFTZ also serves as a testing

ground for economic and financial reforms in China. It has implemented a
number of innovative policies, such as the creation of a negative list system
that limits foreign investment only in industries that are explicitly
restricted by the government.
Since its establishment, the SHFTZ has attracted many multinational

corporations, including General Electric, IBM, and Pfizer. The success of
the SFTZ has encouraged the Chinese government to establish additional
free trade zones in other parts of the country.
 Started: 2013
 Locations: Shanghai, Pudong District
 Waigaoqiao Free Trade Logistics Park – end of metro line 6
 Yangshan Free Trade Port Area – metro line 2
 Pudong Airport Comprehensive Free Trade Zone – metro line 2
 Shanghai Jinqiao Economic and Technological Development
Zone – metro line 6
 Zhangjiang Hi-Tech Park – metro line 2
 SHFTZ Website: http://english.pudong.gov.cn/chinashftz/
 Industries of interest: International trade and finance
 Policies:
 Lower corporate tax rates between 15% and 9%
 Import tax exemption until goods are moved out of the SEZ (out of
the warehouse)
 Free currency exchange rate (no fees for converting major
currencies)
 A fast and streamlined customs clearance.
 A hub of transportation, pick and pack and logistic service
providers to choose from. All nearby.
 Faster VAT refund
Guangdong Free Trade Zone

The Guangdong Free Trade Zone (GDFTZ) is a special economic zone
located in the southern province of Guangdong, China. Established in 2015,
the GDFTZ covers an area of over 116 square kilometers and includes
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three separate zones: Nansha in Guangzhou, Qianhai and Shekou in
Shenzhen.
The GDFTZ aims to promote trade, investment, and financial cooperation

between China and the rest of the world. The zone offers a range of
preferential policies and measures, such as simplified customs procedures,
tax incentives, and relaxed regulations on foreign investment. The GDFTZ
is becoming an increasingly popular destination for foreign investors
looking to enter the Chinese market, particularly in the sectors of finance,
logistics, and technology.
 Started: 2015
 Location: 3 major cities in Guangdong province
 Guangzhou: Nansha District, New Area and port
 Shenzhen: Qianhai District, Development Zone
 Zhuhai: Hengqin District, New Area
 Guangdong FTZ website:
https://com.gd.gov.cn/zggdzymysyq/zjzmq/qygk/qyjj/index.html
 Policies:
the warehouse)
currencies)
Tianjin Free Trade Zone

The Tianjin Free Trade Zone (TJFTZ) is a special economic zone
established in China in 2015, covering an area of 119.9 square kilometers.
Located in the Binhai New Area of Tianjin, the TJFTZ is designed to
facilitate international trade and investment by offering tax breaks,
streamlined customs procedures, and other incentives to businesses
operating within its borders.
The zone is divided into several areas, including a bonded logistics park, a
comprehensive bonded zone, and a financial services area. It is home to a
wide range of industries, including manufacturing, logistics, finance, and
high-tech sectors. The TJFTZ has become an important gateway for foreign
businesses looking to expand their operations in China and tap into the
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country’s rapidly growing market.
 Started: 2015
 Location and industries:
 Tianjin Airport Economic Area: high-end manufacturing industries,
aviation, aerospace, equipment manufacturing, IT, R&D, design
and aviation logistics
 Tianjin Dongjiang Free Trade Port Zone: shipping logistics,
international trade, and financial leasing.
 Tianjin Binhai New Area Central Business District: financial
services and commerce.
 Tianjin FTZ website: https://www.tjftz.gov.cn/english/
 Policies:
the warehouse)
currencies)
Fujian Free Trade Zone

The Fujian Free Trade Zone (FTZ) is one of the first free trade zones
established in China, located in the southeastern province of Fujian. The
zone covers an area of approximately 118 square kilometers and comprises
three parts: the Pingtan Area, Fuzhou Area, and Xiamen Area. The FTZ
was established in 2015 to promote economic development and
international trade by offering tax incentives, relaxed regulations, and
streamlined customs procedures to businesses operating within its borders.
It is home to a diverse range of industries, including electronics, machinery,

and logistics, among others. The Fujian FTZ is strategically located on the
Maritime Silk Road and serves as a gateway to Southeast Asia, making it
an attractive destination for foreign investors looking to expand their
businesses in China.
 Started: 2015
 Location and industries of interest: 3 cities in Fujian province
 Fuzhou: international trade and finance
 Xiamen: international trade and finance
 Pingtan: international trade and finance
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 Fujian FTZ website:
http://www.china-fjftz.gov.cn/html/en/index.html
 Policies:
the warehouse)
currencies)
Chongqing Special Economic Zone

The Chongqing Special Economic Zone (CSEZ) is a special economic zone
located in the southwestern part of China. It was established in 2016 to
promote economic development in the region, and it covers an area of over
82,000 square kilometers. The CSEZ is made up of several districts,
including the Chongqing Liangjiang New Area, the Chongqing Jiangjin
District, and the Chongqing Bishan District.
The CSEZ has become an important hub for trade, logistics, and
manufacturing, and it is home to a wide range of industries, including
automotive, electronics, and chemicals. The zone has attracted significant
foreign investment over the years, and it continues to be a popular
destination for businesses looking to expand their operations in China. The
CSEZ is strategically located near major transportation routes, including
the Yangtze River, making it an ideal location for businesses looking to tap
into China’s domestic market.
 Started: 2016
 Locations: Chongqing
 Liangjiang new area: new technologies and biotechnologies
 Xiyong: Microelectronic activities and high tech
 Guoyang port: logistics and trade
 Policies:
Sichuan Free Trade Zone

The Sichuan Free Trade Zone (SFTZ) is a special economic zone located in
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southwestern China, covering an area of over 120 square kilometers. The
SFTZ was established in 2017 to promote economic development and
encourage international trade by offering tax incentives, relaxed
regulations, and streamlined customs procedures to businesses operating
within its borders. The zone is made up of several areas, including the
Chengdu Area, the Suining Area, and the Luzhou Area. The SFTZ is
strategically located along the “Belt and Road” initiative, and it is home to
a diverse range of industries, including electronics, machinery, and food
processing.
The SFTZ has become an important hub for foreign investment and has
attracted significant attention from companies looking to expand their
businesses in China. With its convenient location and business-friendly
environment, the SFTZ is poised to become one of China’s most important
economic zones in the years to come.
 Started: 2016
 Location and industries of interest:
 Chengdu: IT & communications, logistics, vehicle import, financial
services, high-end manufacturing, high-tech Industries,
air-transportation related economy and port services
 Chengdu FTZ website: http://ftz.chengdu.gov.cn/FTA/home.shtml
 Policies:
 A faster and streamlined customs clearance depending on HS
code of product.
Shaanxi Special Economic Zone

Shaanxi Special Economic Zone is a significant economic zone located in
the northwest region of China. It was established in 2016 by the Chinese
government to promote economic development and attract foreign
investment in the region.
The Shaanxi Special Economic Zone covers an area of approximately

30,000 square kilometers, spanning across four cities in Shaanxi province,
including Xi’an, Xianyang, Weinan, and Yan’an. With a rich history and
abundant natural resources, the zone aims to become a hub for innovation,
technology, and advanced manufacturing industries, as well as a gateway
to China’s Belt and Road Initiative.
The Shaanxi Special Economic Zone has great potential for growth and
presents numerous opportunities for businesses and investors interested in
9
exploring China’s northwest region.
 Started: 2016
 Locations and industries: 2 cities in Shaanxi
 Xi’an: high-end manufacturing, aviation logistics, trade, financial
services, tourism, exhibition services and e-commerce.
 Xianyang: Agricultural science and technology.
 Shaanxi FTZ website: http://ftz.shaanxi.gov.cn/
 Policies:
 A faster and streamlined customs clearance depending on HS code
of product.
Henan Free Trade Zone

The Henan Free Trade Zone covers an area of approximately 120 square
kilometers, including Zhengzhou, the capital city of Henan province.
The zone aims to leverage the advantages of its location, transportation

network, and industrial base to become a hub for cross-border e-commerce,
advanced manufacturing, and modern services. With its strategic position
as a transportation hub connecting China’s east and west regions, the
Henan Free Trade Zone presents significant opportunities for businesses
and investors interested in exploring the Chinese market and expanding
their global reach.
 Started: 2016
 Location & Industries: 3 cities in Henan province
 Zhengzhou: development of advanced manufacturing
industries,such as high‑end equipment, automobile production and
biomedicine. It will also promote a range of high-end services such
as logistics, e ‑ commerce, financial services, service outsourcing,
design and trade conferences/exhibitions.
 Zhengzhou FTZ website: http://en.zzftz.gov.cn/
 Kaifang: Service outsourcing, medical tourism, tourism, cultural
trade, design, fine art trading and logistics equipment
manufacturing, agricultural processing and related trade
activities.
 Kaifang FTZ website: http://www.kfftz.gov.cn/
 Luoyang: High ‑ end manufacturing such as equipment

manufacturing, robotics and innovative materials, R&D, design, e‑
commerce, service outsourcing, tourism, cultural and creative
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industries, cultural trade and cultural exhibitions.
 Luoyang FTZ website: http://www.china-lyftz.gov.cn
 Henan FTZ website: http://en.zzftz.gov.cn/zcfg/143.jhtml
 Policies:
 Foreign capital can be freely invested into suitable manufacturing
in the region.
 Restriction on foreign-owned manufacturing (factory) operations
are lifted in the region.
 IP rights are enforced and foreign manufacturers are protected.
 Issue permanent residency to high-level foreign talents and their
spouses / dependents.
Zhejiang Free Trade Zone

The Zhejiang Free Trade Zone is located in the eastern coastal region of
China. Established in 2016, it covers an area of approximately 119.95
square kilometers, including three cities in Zhejiang province: Hangzhou,
Ningbo, and Zhoushan. The Zhejiang Free Trade Zone aims to deepen
economic reforms, enhance the opening-up of the economy, and promote
international trade and investment in the region.
With its strategic location, well-developed infrastructure, and advanced

manufacturing industries, the zone presents significant opportunities for
businesses and investors interested in exploring the Chinese market and
expanding their global reach. The Zhejiang Free Trade Zone also serves as
a gateway to the Belt and Road Initiative, providing a platform for
cross-border e-commerce, international logistics, and financial services.
With its favorable policies and business-friendly environment, the Zhejiang
Free Trade Zone has become an attractive destination for foreign
investment in China.
 Started: 2016
 Location & industries: 3 cities in Zhejiang province
 Ningbo: international petrochemical and shipping hub for wet bulk
trade. (Oil and gas)
 Ningbo FTZ website:
http://www.nftz.gov.cn/col/col1229026785/index.html
 Hangzhou: AI, fintech, life sciences, e-commerce and high-tech
manufacturing.
 Hangzhou FTZ website: http://www.ehangzhou.gov.cn/index.html
 Jinyi: commodity, logistics, and manufacturing
 Zhejiang FTZ website: https://ftz.zj.gov.cn/
 Policies:
 A more open financial investment sector to foreigners
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 Trade facilitation and innovation
Hubei Free Trade Zone

The Hubei Free Trade Zone is expected to become a hub for advanced
manufacturing, international logistics, and cross-border e-commerce, as
well as a gateway to the central region of China.
 Started: 2016
 Locations and industries of interest: 3 cities in Hubei province
 Wuhan: International commerce and trade, financial services,
logistics, R&D, design, and emerging industries such as but not
limited to optoelectronics information, advanced manufacturing,
and biomedicine.
 Yichang: Cultural tourism, biomedicine, R&D, shipping logistics,
equipment manufacturing, and the high-tech industry.
 Xiangyang: Manufacturing of high-end equipment, new-energy
vehicles, logistics, trade, product exhibition, e-commerce, big data,
cloud computing and other services.
 Hubei FTZ website:
http://en.hubei.gov.cn/news/newslist/201609/t20160907_894646.shtml
 Policies:
the warehouse)
currencies)
Liaoning Special Economic Zone

 Started: 2016
 Locations and industries of interest: 3 cities in Liaoning province
 Dalian: port and shipping logistics, financial trade, advanced
equipment manufacturing, high-tech and new technology, circular
economy, shipping services and other industries.
 Shenyang: advanced manufacturing, auto vehicles and auto
components, aviation equipment, modern services including
finance, science and technology and logistics.
 Yingkou: services, trade logistics, cross-border e-commerce, finance,
strategic emerging industries, information technology and
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high-end equipment manufacturing.
 Liaoning FTZ website: http://www.china-lnftz.gov.cn/en/index.html
 Policies:
the warehouse)
currencies)
 Foreign capital can be freely invested into suitable manufacturing
in the region.
 Restriction on foreign-owned manufacturing (factory) operations
are lifted in the region.
 IP rights are enforced and foreign manufacturers are protected.
 Issue permanent residency to high-level foreign talents and their
spouses / dependents.
In 2018, China put aside its 120 km2 limitation as for all other FTZs to
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make the entire Hainan province (35400 km2) a free trade port. Then, in
2019, six new zones were established with the focus on specific policy areas
or to facilitate cooperation with certain countries or regions. In 2020, three
more inland FTZs followed, in line with Beijing’s recent “strategic
emerging industries” plan.
Hainan Free Trade Port

 Started: 2018
 Location: Hainan Island/province. Capital: Haikou
 Hainan FTZ website: http://en.hnftp.gov.cn/
 Policies:
the warehouse)
currencies)
Jiangsu Free Trade Zone

 Started: 2019
 Locations and industries of interest: 3 cities in Jiangsu province
 Suzhou: trade and investment, administrative services, legal
system, aerospace and biomedical science.
 Nanjing: semiconductors, life and health industry, AI, IT and
finance.
 Lianyungang: advanced manufacturing such as biomedicine, new
materials, new energy and high-end equipment, logistics,
cross-border e-commerce, technology services, financial services,
health care, leisure, tourism, business support, big data, port and
shipping logistics, distribution and transshipment, warehousing,
port processing, trading and supporting services.
 Jiangsu FTZ website: http://swt.jiangsu.gov.cn/col/col79303/index.html
 Policies:
the warehouse)
currencies)
14
Shandong Free Trade Zone

 Started: 2019
 Locations and industries of interest:
 Qingdao Free Trade Port Zone: marine industries, foreign trade,
shipping logistics, financial services, advanced manufacturing,
exchange market, bonded processing.
 Qingdao FTZ Website: http://bofcom.qingdao.gov.cn/
 Jinan: AI, industrial financial services, health care and elderly care,
tourism and IT.
 Yantai: high-end manufacturing, new materials, IT, green-tech and
biomedicine.
 Policies:
the warehouse)
currencies)
Hebei Free Trade Zone

 Started: 2019
 Location and industries of interest:
 Xiongan Area: IT, life science, e-commerce, biotechnology and
high-tech related services.
 Zhengding Area: airport economy, biomedicine, logistics, high-end
equipment manufacturing, aviation.
 Caofeidian Port Area: international commodity trade, port and
shipping services, energy storage and distribution and high-end
equipment manufacturing.
 Daxing Airport Area: aviation logistics, aviation technology and
financial leasing.
 Policies:
of product.
15
Heilongjiang Free Trade Zone

 Started: 2019 to boost co‑operation with Russia and Northeast Asia
 Location and industries of interest: 3 cities in Heilongjiang province
 Harbin: next ‑ gen IT, novel materials, high ‑ end equipment,
biomedicine, tech-based services, financial services and tourism.
 Heihe: cross ‑ border energy resources, food cultivation, trade,
logistics, tourism, healthcare and financial services.
 Suifenghe: import processing for materials such as timber, grains
and clean energy, financial services and logistics.
 Heilongjiang FTZ Website: http://ftz.heihe.gov.cn/
 Policies:
of product.
Guangxi Free Trade Zone

 Started: 2019
 Location and industries of interest: 3 cities in Guangxi province
 Nanning: financial services, logistics, digital services, culture and
media and new manufacturing industries.
Nanning FTZ website: http://www.wuxiangxinqu.gov.cn/
 Qinzhou port: port logistics, international trade, ‘green’ chemicals,
new‑energy vehicle parts, electronics and biomedicine.
Qinzhou FTZ website: http://qzftz.qinzhou.gov.cn/
 Chongzuo: international trade, logistics, financial services and
tourism.
 Guangxi FTZ Website: http://en.gxzf.gov.cn/guangxiftz.html
 Policies:
of product.
Yunnan Free Trade Zone

 Started: 2019
 Locations and industries of interest: 3 cities in Yunnan province
 Kunming FTZ: high-end manufacturing, aviation logistics,
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agriculture, biomedicine and health, IT F&B and consumer goods
manufacturing, tourism, logistics, new materials and advanced
equipment manufacturing.
Kunming FTZ website: https://ftz.yn.gov.cn/en-us/
 Dehong: Imports & exports, cross-border e-commerce logistics,
‘green’ food processing, tourism, medical and financial services.
Dehong FTZ website: http://dehong.ynmaker.com/en-us/
 Honghe: Imports & exports, cross-border e-commerce logistics,
tourism, medical and financial services.
Honghe FTZ website: http://honghe.ynmaker.com/en-us/
Beijing Free Trade Zone

 Started: 2020
 Location: Beijing
 Industry of interest: Innovation, fin-tech and services
 Purpose: Development of a world-class innovation hub
 Policies:
 A more open financial sector to foreigners
 Ease of integrated development and international trade
 Easier for high-end talent to obtain visa
Anhui Free Trade Zone

 Started: 2020
 Locations & industries: 3 cities in Anhui province
 Hefei: integrated circuits, AI, fin-tech, and cross-border
e-commerce
 Wuhu: smart home appliances, aviation, robotics, and shipping
 Bengbu: silicon-based materials, green-tech, and green-energy
 Purpose: The area will lead manufacturing of green-tech and high-tech
 Policies:
 A more open financial sector to foreigners
Hunan Free Trade Zone

 Started: 2020
 Locations and industries: 3 cities in Hunan province
 Changsha: Manufacturing of AI, Quantum computing, renewable
energies, and green tech.
 Yueyang: Manufacturing of AI, Quantum computing, renewable
17
 Chenzhou: Manufacturing of AI, Quantum computing, renewable
 Policies:
Tax Overview Outside Free Trade Zones

Tax Overview
The PRC levies a wide range of taxes including income taxes (corporate
income tax and individual income tax), turnover taxes (valued added tax
and consumption tax), taxes on real estates (land appreciation tax, real
estate tax, arable land occupation tax, and urban and township land-use
tax) and other taxes such as deed tax, stamp duty, custom duties, motor
vehicle acquisition tax, vehicle and vessel tax, resource tax, environment
protection tax, urban construction and maintenance tax, vessel tonnage
tax and tobacco tax.
There is no capital gains tax as such in the PRC. Gains on the sale of fixed
assets are taxable as ordinary income.
Tax administration
China’s major tax laws are passed by the People’s Congress, and the
implementation regulations are formulated by the State Council.
The Ministry of Finance (MOF) and the State Taxation Administration

(STA) are delegated to provide interpretation and implementation of the
tax laws and regulations. Meanwhile the STA is also responsible for
supervising the enforcement of the tax collection at the local levels.
Corporate income tax
Concept of Tax resident enterprise (TRE)

Tax resident enterprise (TRE) is a concept in the corporate income tax (CIT)
Law. TRE refers to an enterprise established according to the Chinese law
or an enterprise established according to foreign laws but with its effective
18
management located in China.
A non-resident enterprise (non-TRE) is an enterprise that is set up in
accordance with the laws of a foreign country and whose place of effective
management is not located in China, and has an establishment and place
(E&P) in China and receives incomes that have no actual connection its
China-based E&P; or does not have an E&P in China, but derives incomes
sourced from China.
TREs are subject to CIT on worldwide income while non-TREs only on
China sourced income. Enterprises registered in China are always TRE. A
foreign enterprise with effective management in China may also be
regarded as a TRE.
Tax rate
Tax rates for TREs
The standard CIT rate is 25%. Lower tax rates are available for qualified
enterprises
Tax rate for non-TREs
Non-TREs that have E&Ps in China generally applies a CIT rate of 25%. If
a Non-TRE does not have an E&P, or the income obtained in China has no
actual connection with the E&P it has established, 10% tax rate (also
known as "withholding income tax', WHT) shall apply.
This WHT rate is applicable to dividend, interest, rental, royalty, and other
passive income such as the gains from the sale or transfer of real estate
property, land use right and shares in a PRC company.
Tax incentive policies

The CIT regime adopts the “predominantly industry-oriented, limited
geography-based" tax incentive policy. Key emphasis is placed on
“industry-oriented” incentives aiming at directing investments into those
industry sectors and projects encouraged and supported by the State. The
tax incentive polices mainly include: Tax reduction and exemption, reduced
tax rate, investment tax credit, accelerated depreciation, advertising and
business promotion expenses, super deductions, loss carryovers, foreign tax
credit, etc.
19
Reduced tax rate
According to the current policy, qualified small and thin-profit enterprises*
with an annual taxable income of RMB 1 million or less is applicable to the
effective CIT rate of 5%. Where its annual taxable income exceeds RMB 1
million but does not exceed RMB 3 million (inclusive), the RMB 1 million
portion will be subject to an effective CIT rate of 5%, whereas the excess
portion will be subject to the effective CIT rate of 10%.
*Small and thin-profit enterprises refer to enterprises engaged in national

non-restricted and prohibited industries, and simultaneously meeting three
conditions: annual taxable income not exceeding 3 million RMB, number of
employees not exceeding 300 people, and total assets not exceeding 50
million RMB.
Value-added tax (VAT)

The sales or importation of goods, the provision of services and the sales of
intangible properties and immovable properties are subject to VAT.
For general VAT taxpayers, input VAT can be credited against output
VAT.
The applicable VAT rate for general VAT taxpayers from 1 April 2019
range from 0% to 13%, and the rate for small-scale VAT taxpayers is 3%.
China’s Export Fees and Refunds
Export tax rebate

Tax return in China can include export tax. This applies to refunds of
indirect taxes that are paid by exporters during the production and
distribution processes.
VAT rebate
Generally speaking, VAT on export is exempt in China, and if indirect
taxes are imposed on exporters, they are eligible for a tax rebate. Indeed,
most exported goods are subject to this relief, yet, in some categories the
amount of refunded tax would be less than the amount of tax paid.
20
It is worth mentioning that VAT exemption and China VAT refund policies
are available for general taxpayers only (companies that generate an
annual revenue greater than 5,000,000 RMB).
Since March 2020, as China showed first signals of economic recovery amid
COVID-19, the Chinese authorities increased the rate of VAT refund in
China for 1464 products, for the benefit of exporters.
According to the new regulation:

Nearly 75% of the total 1464 items are subject to 13% export VAT rebate.
These include, among others, stainless steel, sanitary ware, etc.
The rest 25% of items are subject to 9% export VAT rebate.
The tax rebate procedure

In order to enjoy tax rebate policies, exporters should provide Chinese
authorities with several documents:
 Business license in China
 Export approval documentation
 Monthly tax declaration
 Customs declaration
 VAT declaration form
 And more
The application for a certain year’s rebate must be submitted by April 30th
of the following year. The whole process upon application submission until
tax is refunded lasts between 1-3 months.
Also, please remember that similarly to other national policies, both tax
rebate policies of production and trade enterprises, and compliance
requirements vary across China and across industries.
21
Benefits of Using Hong Kong Company When
Setting up WFOE in China
 It's easy, convenient and fast to open a Hong Kong company - takes
10-14 days.
 Flexibility in changing ownership:
Once a WFOE (wholly foreign owned enterprise) is set up in China,
changing directors and ownership is requires compliance with Chinese
regulations and time consuming. It is easier to change or add
shareholders of your Hong Kong company than a WFOE. If your China
business increases and you add more shareholders, they can be added
to the Hong Kong holding company instead which owns the WFOE.
 Hong Kong legal system is separate from mainland China and based
on English common law. Many investors prefer their contracts and
disputes to be governed by Hong Kong law and subject to the
jurisdiction of the Hong Kong courts.
 Hong Kong holding company of the Chinese investment may offer
foreign investors more protection from liability than a direct
shareholding.
 To sell a Hong Kong holding company involves much less bureaucracy
without triggering any approvals to be received by the Chinese
authorities.
 Banking in Hong Kong has a very high standard in technology and
security, and all major international banks are located in Hong Kong.
In the contrary to China, there are no restrictions or approvals
necessary in Hong Kong to receive or transfer funds or foreign
currencies.
 Tax Benefits:
 Hong Kong corporate income tax is 16.5%, compared to the PRC's
25%.
 Withholding tax on payments to Hong Kong are lower from China,
with Hong Kong benefiting from only a 5% rate, instead of the 10%
levied against other countries.
 There is no tax on dividends in Hong Kong.
 Certain advantages may be granted by the double tax agreement
(DTA) between Hong Kong and China.
22
 To sell Hong Kong company would be much easier than company in
China.
 No approval from the PRC authorities is required. Hong Kong
stamp duty would be levied at 0.2% on the higher of the transfer
consideration and the net asset value of the shares as at the date of
transfer.
 Capital gains are tax exempted in Hong Kong.
 Business conducted outside of Hong Kong is tax free. If Hong Kong
company buys product in PRC and ships those goods to home
country. There is no profits tax applied in Hong Kong. Depending
on home country’s tax codes and the tax authorities views on
transfer pricing, having a Hong Kong holding company can be a
very effective and fully legal tax shelter.
Recommendation and Professional Advice

Taking into consideration the above information, we have found
advantages in registering within the free trade zone compared to non-free
trade zones, particularly in terms of tax incentives, facilitation of goods
import and export, export tax rebate policies, and efficiency in logistics and
transportation. This can effectively reduce operational costs and enhance
competitiveness in global trade.
23
PROSPERING FROM OUR ADVICE
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Report regarding the

April 23, 2024

In response to your request, this report aims to provide a detailed overview

We express our gratitude to you for entrusting us with this important

Special Economic Zones (or Free Trade Zones) is a Chinese government

Requirements for registration in an FTZ

A Closer Look at the 21 Free Trade Zones in China

Shanghai Free Trade Zone

The SHFTZ is designed to simplify trade procedures, reduce bureaucracy,

In addition to its economic benefits, the SHFTZ also serves as a testing

Since its establishment, the SHFTZ has attracted many multinational

Guangdong Free Trade Zone

The GDFTZ aims to promote trade, investment, and financial cooperation

Tianjin Free Trade Zone

Fujian Free Trade Zone

It is home to a diverse range of industries, including electronics, machinery,

Chongqing Special Economic Zone

Sichuan Free Trade Zone

Shaanxi Special Economic Zone

The Shaanxi Special Economic Zone covers an area of approximately

Henan Free Trade Zone

The zone aims to leverage the advantages of its location, transportation

 Luoyang: High ‑ end manufacturing such as equipment

Zhejiang Free Trade Zone

With its strategic location, well-developed infrastructure, and advanced

Hubei Free Trade Zone

Liaoning Special Economic Zone

Hainan Free Trade Port

Jiangsu Free Trade Zone

Shandong Free Trade Zone

Hebei Free Trade Zone

Heilongjiang Free Trade Zone

Guangxi Free Trade Zone

Yunnan Free Trade Zone

Beijing Free Trade Zone

Anhui Free Trade Zone

Hunan Free Trade Zone

Tax Overview Outside Free Trade Zones

The Ministry of Finance (MOF) and the State Taxation Administration

Corporate income tax

Concept of Tax resident enterprise (TRE)

Tax incentive policies

*Small and thin-profit enterprises refer to enterprises engaged in national

Value-added tax (VAT)

China’s Export Fees and Refunds

Export tax rebate

According to the new regulation:

The rest 25% of items are subject to 9% export VAT rebate.

The tax rebate procedure

Recommendation and Professional Advice

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