Officially approved by China’s State Council on August 26, 2010, the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone (Qianhai) was established with the aim of serving as an experimental business zone for better interaction between Mainland China and Hong Kong in the financial, logistics, and IT services sectors. The zone, which is still in the process of setting up, covers 15 km² and provides various incentives and preferential finance policies for foreign investment.
By the end of April 2014, a total of 6,470 companies with a combined registered capital of RMB 450 billion had already registered in the zone. Major industries in the zone include:
- Financial and information services
- Modern logistics
- Cultural and creative industries
- Professional services
Finance, the dominant sector in the zone, constitutes over 60 percent of resident enterprises such as HSBC, Hang Seng Bank and Standard Chartered.
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The Qianhai Bay Bonded Port Area, set up inside the zone to liberalize services trade between Hong Kong and Guangdong, includes seven warehouses and provides services such as international procurement, selling and distribution, international transit, R&D, and processing and manufacturing. Also, the China Securities Regulatory Commission (CSRC) has established an operational office in Qianhai, overseeing the management of financial institutions and the implementation of preferential policies.
Preferential Tax Policies for Select Industries
Qianhai provides preferential tax policies for select industries, including:
- Technology Service Enterprises
- Hi-tech enterprises, integrated circuit enterprises and software and IC enterprises are exempt from corporate income tax (CIT) for two years starting from their first profitable year and taxed at a half-rate for the following three years.
- Technology transfers are granted a preferential tax reduction.
- Environmentally Friendly Enterprises
- Investments in energy- and water-conservation equipment are tax deductible.
- Enterprises engaging in environmental protection projects such as energy- and water-conservation are exempt from CIT for the first two years and taxed at a half-rate for the following three years.
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- Technical Innovation Enterprises
- R&D investments in new technologies, products and processing are tax deductible.
- Animation enterprises are exempt from CIT for the first two years of operations and taxed at a half-rate for the following three years.
- Financial Services Industry
- Preferential policies are provided to promote the development of securities and investment funds.
- Preferential CIT policies are provided to Qualified Foreign Institutional Investors (QFII).
- Venture Capital (VC) enterprises that make equity contributions to small and medium-sized enterprises (SMEs) for over two years are eligible for tax reductions.
Other Preferential Tax Policies
Qianhai also provides enterprises with special tax policies such as reduced CIT and individual income tax (IIT) rates. Details of these preferential tax policies can be found below.
Preferential CIT Policies
According to “Announcement No.26 ” released by the Ministry of Finance (MOF), enterprises engaging in the types of businesses encouraged in the “Catalog for Preferential Tax Policies List” will be taxed at a reduced CIT rate of 15 percent starting on January 1, 2014 until December 31, 2020. The Catalog mainly includes four industrial sectors, namely technology services, modern logistics, the cultural and creative industry and information services. The following conditions must be met for enterprises to enjoy the preferential rate:
- The enterprise must be engaged in business activities categorized as eligible in the Preferential Catalog;
- The income of these business activities should account for more than 70 percent of the enterprises’ total income, which itself can only include income from the company’s primary business activities;
- In the case that a company has branches or representative offices (RO) both inside and outside the zone, the reduced 15 percent CIT rate shall only apply to the branches and ROs located within the zone.
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It should also be noted that if enterprises are eligible for both the CIT rate of 15 percent as stated in the Catalog as well as other preferential treatments in accordance with CIT law, they can simultaneously enjoy multiple such benefits. Also, the “taxed at a half-rate” policy only applies based on a 25 percent CIT rate.
Preferential IIT Policies
According to the “Circular on Financial Subsidies for Individual Income Tax on Foreign High-end Talent and Talent in Short Supply in the Qianhai Zone (Shen Fu  No. 143),” foreign high-end talent engaged in encouraged industries in the Qianhai Zone are eligible for IIT reductions. Financial Subsidies will be provided by the Shenzhen municipal government if the amount of IIT income paid by the foreign talent on his/her salary exceeds 15 percent of his/her total taxable salary income.
Preferential BT Policies
Starting on August 1, 2014, factoring service enterprises established in Qianhai, Shenzhen are included in a preferential business tax (BT) program. A factoring enterprise’s income generated through interest shall be taxed based on the difference between the obtained interest and the interest paid to financial institutions (such as banks). Other income gained from factoring shall be taxed on the full amount.
Preferential Stamp-tax Policies
Contracts signed for outsourcing activities between companies within a corporate group are regarded as agency appointment contracts and shall be exempt from stamp-tax.
Furthermore, tax declaration procedures have been substantially simplified in the zone, enabling taxpayers to complete their tax declarations within only 10 minutes.
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