Hengqin Cooperation Zone in Zhuhai, Guangdong Releases Rules for Preferential Income Tax Policy

The Hengqin Guangdong-Macao In-Depth Cooperation Zone in Zhuhai City, Guangdong, has released a new set of rules for a preferential individual income tax policy for employees working in the area. The policy is available to both foreign and domestic high-end and in-demand talent. We discuss the eligibility requirements for the Hengqin individual income tax policy based on the available information and how the local authority will process the applications.

The Hengqin Guangdong-Macao In-depth Cooperation Zone (the “Hengqin Cooperation Zone”) has released a set of interim implementation measures for the preferential individual income tax (IIT) available for certain employees working in the area.

The interim implementation measures detail specific eligibility for foreign and domestic high-quality and in-demand talent working in the Hengqin Cooperation Zone to enjoy the preferential IIT policy, and how the executive committee of the zone will implement a quota and list system to identify and approve talents for the preferential IIT policy.

Under the preferential IIT policy, high-end and in-demand talent working within the eligible industries can be exempt from paying IIT on the portion of their taxable income that is in excess of 15 percent. The income can be derived from sources such as comprehensive income (including wages and salaries, labor remuneration, author remuneration, and royalties), business income, and talent subsidy income, but must be garnered in the Hengqin Cooperation Zone.

The eligible industries are listed in the Catalogue of Encouraged Industries in the Hengqin Cooperation Zone (the “Encouraged Industries Catalogue”), which was released on April 3, 2023 by the National Development and Reform Commission (NDRC), China’s macroeconomic planner.

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The Hengqin Cooperation Zone is an area of 106 square kilometers in the Hengqin New Area in the city of Zhuhai, Guangdong. Hengqin New Area is an island district located next to Macao, to which it is connected across a narrow strip of water by various transport links, including bridges, tunnels, and ferry routes, and will soon be further connected through a line of the Macao Light Rapid Transit system.

The zone was officially launched in 2021 as a development zone with the aim of deepening the integration of Macao with the wider Greater Bay Area (GBA) and developing strategic industries, such as high-tech, advanced manufacturing, tourism, and finance, among many others. In order to achieve this, the area has released a broad range of incentive policies, including IIT incentives for certain employees and a reduced 15 percent corporate income tax (CIT) incentive for companies in certain industries.

The interim implementation measures came into effect on April 11, 2023, and will be implemented retroactively from January 1, 2021. Meanwhile, the preferential IIT policy itself will be implemented retroactively from January 1, 2021 to December 31, 2025.

Who is eligible for the 15 percent IIT policy?

To be eligible for the preferential IIT policy in the Hengqin Cooperation Zone, both “high-end” and “in-demand” talent must the following requirements:

1. Abide by laws and regulations and pay taxes in good faith and in accordance with law.
2. Work within one of the industries listed in the Encouraged Industries Catalogue or be engaged in the public management and service fields facilitating the livelihoods and employment of Macao residents.
3. Work in the Hengqin Cooperation Zone, and have signed a labor contract, employment agreement, service contract, or other relevant certification documents of at least one year with companies or institutions that have substantial operations in the Hengqin Cooperation Zone.
4. Have continued to pay basic pension insurance and other social insurance in the Hengqin Cooperation Zone for at least six months within a given tax year (must include December of the current year, does not include lump-sum payments or payment of social insurance in different regions). This excludes overseas high-end and in-demand talent who are already exempt from paying social insurance in the Chinese mainland, and domestic high-end and in-demand talent that is over the statutory retirement age and cannot pay social insurance.

To meet the threshold for “substantial operations” in the Hengqin Cooperation Zone, the actual managing body of the company must be located in the Hengqin Cooperation Zone, and this body must have substantive and comprehensive management and control over the production and operation, personnel, accounting, property, and other aspects of the company. This is defined in the Notice of the Ministry of Finance and the State Administration of Taxation on the Preferential CIT Policies of the Hengqin Guangdong-Macao In-Depth Cooperation Zone (Cai Shui [2022] No. 19). The interim implementation measures also state that further details will be implemented by the executive committee of the Hengqin Cooperation Zone.

The executive committee of the Hengqin Cooperation Zone will implement a quota system for the high-end and in-demand talent that can enjoy the IIT policy, and the quota will depend on the current talent needs in the zone.

Meanwhile, high-end talent must also meet the below requirements:

1. Be at a “leading level” in a certain field or profession and have made outstanding contributions and have received societal recognition (specific identification methods for these criteria will be formulated separately by the executive committee); and
2. Have an annual income of at least RMB 500,000 (approx. US$72,682) in the Hengqin Cooperation Zone.

Finally, in-demand talent must meet the below criteria:

1. Hold a bachelor’s degree or above (including equivalent overseas educational certificates and degrees recognized by China’s Ministry of Education);
2. Possess professional and technical qualifications at the assistant level or above or overseas equivalent professional qualifications that have been filed ; and
3. Obtain a national vocational qualification certificate or vocational skill level certificate for a technician or above, or an equivalent overseas professional qualification that has been filed.

How can candidates apply for the IIT policy?

The interim rules state that “high-end” and “in-demand” talent that meets the eligibility requirements need to apply to the talent work department of the Hengqin Cooperation Zone and provide relevant certification materials. Both the talent and their employers must also make a commitment to the authenticity, accuracy, and completeness of the registration information.

As the IIT policy was implemented retroactively from January 1, 2021, the applicants who have worked in companies or organizations in the Hengqin Cooperation Zone are exempted from providing materials evidencing social insurance payments from January 1, 2021 to the date that the interim implementation measures were released (April 11, 2023).

The talent work department of the Hengqin Cooperation Zone will identify the high-end and in-demand talent that is eligible for the IIT policy and compile a list, solicit feedback from relevant members of the management committee of the Hengqin Cooperation Zone, and then finally publicize the list of eligible talent. The Hengqin Cooperation Zone tax department is then responsible for handling the corresponding tax waiver.

The interim implementation measures do not mention a timeline for the application process or the release of the list of eligible talent.

Preparing for the preferential IIT policy application

The Hengqin Cooperation Zone has yet to finalize some details for the implementation and eligibility criteria of candidates for the IIT policy, such as the specific scope and definition for being at a “leading level” in a given field.

As the eligibility criteria for the IIT policy are still being developed, it may be challenging for companies to determine if an employee meets all the requirements, making it difficult to use the policy as a recruitment tool. To avoid misleading candidates, it is crucial to be transparent about the application process and quota system when discussing the possibility of the IIT policy with both existing employees and potential hires.

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Companies should start preparing for the new preferential policy by identifying potential candidates and gathering the necessary documentation to ensure a smooth application process. Some criteria are already clear, such as the required salary and education levels for high-level talent, so companies can begin evaluating potential candidates who meet these thresholds and have a prominent position in their field.

Another important factor to consider is whether the company qualifies as having a substantial operation within the Hengqin Cooperation Zone. This can involve collecting information about the company’s operations, personnel, accounting, property, and other relevant factors that demonstrate its presence in the zone.

Based on the experiences of other regions in China with preferential tax policies, eligibility thresholds and criteria may be rigorously assessed by authorities. Therefore, it is recommended that companies and their employees begin documenting the necessary information as early as possible to avoid delays in the application process.

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