Hengqin Cooperation Zone Releases Catalogue of Industries Encouraged for Investment
China’s macro planner has released a new catalogue of industries that are encouraged for investment in the Hengqin New Area cooperation zone in Zhuhai, Guangdong. Industries in the catalogue are eligible for various preferential policies, including an individual income tax waiver for eligible employees. The new catalogue is part of a broader drive to boost the local economy and further integrate Macao with the mainland by attracting investment and developing key industries in the region.
On April 3, 2023, the National Development and Reform Commission (NDRC), China’s macro planner, released the Catalogue of Encouraged Industries in the Hengqin Guangdong-Macao In-Depth Cooperation Zone (the “Encouraged Industries Catalogue”), a list of industries that are encouraged for investment and whose workers are eligible for certain preferential tax policies in the Hengqin Guangdong-Macao In-Depth Cooperation Zone (the “Hengqin Cooperation Zone”).
The Hengqin Cooperation Zone is a development zone located in Hengqin New Area, an island district in the southern city of Zhuhai in Guangdong Province. The area is separated from the Macao Special Administrative Region (SAR) by a narrow strip of water, and the two regions are connected by a series of transport links, including bridges, tunnels, and ferry routes. An extension of the Macao Light Rapid Transit is currently being built to reach Hengqin Island and is expected to open in 2025, further facilitating cross-border travel.
The Hengqin Cooperation Zone was officially launched in 2021 with the release of a development plan for the region. This plan seeks to, among other goals, deepen economic ties between Macao and the mainland by facilitating the movement of people across the border and developing strategic industries in the region.
The Encouraged Industries Catalogue lists the industries in which workers are eligible for the zone’s exclusive preferential individual income tax (IIT) policies, which were implemented in early 2022 to attract high-end and in-demand talent to the area.
Moreover, companies operating within the encouraged industries included in the catalogue may also be eligible for other supportive policies, such as land and funding allocation and utility guarantees. However, apart from the preferential IIT policy, the relevant authorities have not yet clarified the specific support policies that are associated with the Encouraged Industries Catalogues.
The release of the new Encouraged Industries Catalogue is the latest move to boost the area’s development and further integrate Macao’s economy with the rest of the Greater Bay Area (GBA) by fostering key industries and attracting high-level talent.
Encouraged industries in the Hengqin Cooperation Zone
The Encouraged Industries Catalogue includes 185 different sectors organized into the following five categories:
- Technology R&D and high-end manufacturing (70 sectors, including integrated circuits, internet and software services, and new polymer functional materials);
- Macanese industries such as Chinese traditional medicine (24 sectors, including Chinese medicine and new drug development and production);
- Culture, tourism, exhibition, and business and trade (59 sectors, including R&D of digital cultural products, commodity trading, and cross-border e-commerce);
- Modern finance (16 sectors, including securities and futures brokerage, asset management, investment (trading) consulting, investment banking, and other securities and futures service system construction); and
- Other (16 sectors, including higher education, international education, vocational skills training, and sports schools).
The Encouraged Industries Catalogue as a prerequisite for preferential IIT policy
In January 2022, the Ministry of Finance (MOF) and State Tax Administration (STA) released the Preferential Individual Income Tax Policies for the Hengqin Guangdong-Macao In-Depth Cooperation Zone. This document introduced a new preferential IIT policy for in-demand and high-end talent in specific industries in the Hengqin Cooperation Zone that waives the IIT burden on the portion of the income exceeding 15 percent.
In addition to other requirements, in order to be eligible for this IIT policy, the talent must work in one of the 185 sectors in the Encouraged Industries Catalogue, and the income must be generated within the Hengqin Cooperation Zone, as defined in the development plan (covering a 106 square kilometer area). This catalogue therefore replaces the temporary catalogue of in-demand talent, which was previously used to delineate the sectors with in-demand and high-end talent eligible for the preferential IIT policy.
The income that is eligible for the IIT waiver under this policy includes comprehensive income (including wages and salaries, labor remuneration, author remuneration, and royalties), business income, and talent subsidy income recognized by the local government.
The preferential IIT policy is in effect from January 1, 2021 to December 31, 2025.
Difference between the Encouraged Industries Catalogue and the Corporate Income Tax Preferential Catalogue
The Encouraged Industries Catalogue is not to be confused with the 2021 edition of the Guangdong-Macao In-Depth Cooperation Zone in Hengqin Corporate Income Tax Preferential Catalogue (the “CIT Preferential Catalogue”), which lists the industries that are eligible for a reduced 15 percent corporate income tax (CIT) rate in the Hengqin Cooperation Zone.
However, there is some overlap between the two lists—many of the industry sectors included in the Encouraged Industries Catalogue are also in the CIT Preferential Catalogue, such as those in the technology R&D, Chinese medicine and other traditional Macanese industries, and culture, tourism, and exhibitions, among others. Businesses engaging in sectors listed in both catalogues are eligible for both the reduced 15 percent CIT rate and the 15 percent IIT incentives (for qualified personnel).
Meanwhile, sectors in the modern financial industry and “other” industries such as the educational sector are mainly only eligible for the preferential IIT policy and not the CIT policy.
The CIT Preferential Catalogue contains 150 different sectors (compared to the 185 sectors in the Encouraged Industries Catalogue that are eligible for the preferential IIT policy), across nine different categories. These categories are:
- High-end technology (56 sectors);
- Science and technology R&D (seven sectors);
- Chinese traditional medicine (four sectors);
- Pharmaceuticals and healthcare (21 sectors);
- Other Macanese industries (three sectors);
- Cultural, exhibition, and business (seven sectors);
- Tourism (10 sectors);
- Modern services (36 sectors); and
- Modern finance (six sectors).
Below we list some examples of sectors included in the catalogues and their eligibility for the preferential IIT and CIT policies.
|Examples of Sector Eligibility for Preferential IIT and CIT Policies|
|Sectors||Eligible for preferential IIT policy||Eligible for preferential CIT policy|
|R&D, innovation, entrepreneurship, and cooperation centers, such as national laboratories, research centers, industrial innovation centers, enterprise technology centers, technology innovation centers, science and technology infrastructure, and so on||✓||X|
|Integrated circuit design, advanced packaging and testing, characteristic process R&D and manufacturing, semiconductor equipment and key material R&D and manufacturing, integrated circuit chip design platforms (EDA tools), related software R&D, and so on||✓||✓|
|Smart vehicles, new energy vehicles, and key components R&D||X||✓|
|New energy vehicle charging station technology and equipment development||✓||✓|
|Design and production of diamond, pearl, gold, and silver jewelry||X||✓|
|Development and production of cosmetics (with mercury content not exceeding one part per million)||✓||✓|
|Creation and production of radio and television programs and stage art dramas (programs)||✓||X|
|Yacht R&D and manufacturing, sports boat manufacturing||✓||✓|
|Operation of movie theaters, culture and art, press and publication, popular culture, and popular science facilities||X||✓|
|Securities companies and funds||✓||X|
|Cross-border database services||X||✓|
|Professional comprehensive services provided by contract research organizations (CRO), contract manufacturing organizations (CMO), and contract research production organizations (CDMO)||✓||✓|
|Construction of RMB cross-border settlement system||X||✓|
|Higher education, international education, vocational skills training, sports schools||✓||X|
|Non-academic language training for adults||✓||X|
Promoting economic development and further integration of Macao with the GBA
The Encouraged Industries Catalogue and associated preferential IIT policy is only one among many preferential policies that regional governments have implemented to boost the local economy and develop key industries. In addition to the preferential CIT policy discussed above, the area has introduced a CIT waiver on income generated from new ODI in tourism, modern services, and high-end technology industries.
In addition, Macao residents that work in Hengqin can have the portion of their tax burden raised in the Hengqin Cooperation Zone that is in excess of Macao standards exempted from IIT. In September 2021, the Hengqin Cooperation Zone also implemented a reward program for special talent, which has recently been extended, according to a Q&A from the Hengqin government.
The effort to further integrate Macao with Zhuhai and the wider GBA is also an effort to diversify its economy away from tourism and gaming. Macao’s economy is currently highly reliant on these two sectors, making it extremely vulnerable to fluctuations in the world economy, as evidenced by the 26.8 percent decline in GDP experienced in 2022 as a result of the COVID-19 pandemic. Encouraging more cross-border exchange with Zhuhai and building up industry in the Hengqin New Area is hoped to provide new economic opportunities for residents of Macao, which in turn can help to boost the island’s economy.
According to a Q&A issued by the NDRC, the Encouraged Industries Catalogue serves to “guide investment directions, manage investment projects, and formulate and implement industrial development policies, such as talent and land”. The catalogue can therefore also serve as an investment guide for foreign investors, as it clearly reveals the priority areas for the local government and the industries that may be eligible for more preferential policies in the future.
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