chapter ii establishment and registration of enterprises

chapter iii fields of investment

chapter iv import and export of materials

chapter　v　foreign exchange control　

　　　　
chapter　vi　preferential treatments

chapter vii business management and operations

chapter viii protection of investment

chapter ix settlement of disputes

chapter x supplementary articles

chapter i general provisions

PART ONE　GENERAL PROVISIONS
Article 1　These Regulations are formulated in accordance with the relevant laws and regulations of the PRC and the specific circumstances of the Hainan Special Economic Zone， in order to attract foreign investment and accelerate the development of the Hainan Special Economic Zone.

Article 2　For the purposes of these Regulations， the term “foreign business entities” shall refer to foreign companies， enterprises， other economic entities or individuals that invest in the Hainan Special Economic Zone.

Article 3　Foreign business entities are encouraged to invest in and develop Hainan Island and to establish all kinds of economic and social projects.

Article 4　Hainan province protects the lawful rights and interests of foreign business entities according to law.

Article 5　All activities of foreign business entities must comply with the laws and regulations of the PRC and the local regulations of Hainan province.

Article 6　The administrative department of Hainan province in charge of economic cooperation shall be the authority in charge of foreign investment in the Hainan Special Economic Zone.

Article 7　The forms of capital contribution provided for in these Regulations include the following：

1. freely convertible foreign currencies;

2. Renminbi profits derived by foreign business entities from Sino-foreign equity joint ventures， Sino-foreign co-operative joint ventures and wholly foreign-owned enterprises established in the PRC；

3. machinery， equipment， raw materials and other materials；

4. leaseholds， and the structures on such land， that may be used as co-operation conditions pursuant to the Hainan Special Economic Zone， Granting and Assigning Leaseholds for Value Regulations；

5. Industrial property and proprietary technology.

Article 8　The methods of investment provided for in these Regulations include：

1. establishment of Sino-foreign equity joint ventures， Sino-foreign co-operative joint ventures and wholly foreign-owned enterprises （hereafter， “foreign investment enterprises”）， and of other types of enterprises permitted by law；

2. engaging in compensation trade， processing and assembly of supplied materials and co-operative production；

3. participating in and buying existing enterprises；

4. purchasing negotiable securities such as stocks and bonds；

5. obtaining leaseholds according to law， and developing and engaging in business relating to large tracts of land；

6. Other internationally current methods of investment.

PART TWO　ESTABLISHMENT AND REGISTRATION OF ENTERPRISES

Article 9　Unless the State provides otherwise， the establishment of foreign investment enterprises in the Hainan Special Economic Zone shall be examined and approved by the administrative department of Hainan province in charge of economic cooperation and the agency authorized by the Hainan Provincial People's Government (hereafter，collectively referred to as the “examination and approval authorities”). Approval certificates shall be issued by the administrative department of Hainan province in charge of economic cooperation.

Article 10　When applying for permission to establish a foreign investment enterprise， the applicant must submit the following official documents to the examination and approval authorities：

1. an application for permission to establish a foreign investment enterprise；

2. the written replies from the relevant departments to the project proposal （including special reports on operation of special industries）；

3. the project feasibility study；

4. the agreement，contract and Articles of association signed by the legal or authorized representative of each party to the equity or co-operative joint venture （in the case of a wholly foreign-owned enterprises， only the Articles of association need be submitted）；

5. in the case of an equity or co-operative joint venture, the Chinese party must submit its business licence and the foreign party must submit its foreign certificate of enterprise registration or the individual identity papers of the investor. An applicant applying for permission to establish a wholly foreign-owned enterprise must submit its certificate of foreign enterprise registration or the individual identity papers of the investor；

6. the investors' certificates of creditworthiness；

7. the approval document for the establishment of the equity or co-operative joint venture issued by the department in charge of the Chinese party to the equity or co-operative joint venture;

8. the names of the persons selected for the board of directors or the management organization.

Article 11 The examination and approval authorities shall， within 30 days after receipt of the documents specified in Article 10，decide whether to approve or reject the application.

Article 12 Within 30 days after receipt of the approval certificate, the applicant shall, on the strength of the approval certificate, carry out registration procedures at the administration for industry and commerce of Hainan province authorized by the State，in accordance with the State's regulations concerning administration of enterprise registration.

The authorized administration for industry and commerce shall carry out industrial and commercial registration and issue a business licence within 10 days after receipt of the relevant documents. The date of issue of the business licence shall be the date of establishment of the foreign investment enterprise.

Article 13　Foreign investment enterprises shall carry out tax registration with the tax authorities of the places where they are located on the strength of the relevant documents within 30 days after the date of their establishment.

Article 14　A foreign business entity that purchases， or owns at least 25% of the shares of， an existing enterprise in the Hainan Special Economic Zone may apply for the original enterprise to be changed to a foreign investment enterprise. Upon approval of such change by the examination and approval authorities，corresponding changes shall be made in the registrations with the administration for industry and commerce of Hainan province authorized by the State and the tax authorities of the place where the enterprise is located.

PART THREE　SCOPE OF INVESTMENT

Article 15　Foreign business entities are encouraged to invest in sectors such as industry， agriculture， transportation， scientific and technological development and tourism;

Article 16　Foreign business entities are encouraged to invest in infrastructure construction projects such as ports，piers，airports，highways，railroads，power stations，coal mines，water conservancy，as well as in agricultural development projects，using equity or co-operative joint ventures as investment vehicles. Foreign business entities may also operate special facilities through wholly foreign-owned enterprises. Foreign business entities investing in such projects may simultaneously establish enterprises and service institutions that are connected with such projects and that generate large benefits and have short payback periods，and may subsequently conduct comprehensive business operations.

Article 17　Foreign business entities are encouraged to invest in and develop large tracts of land in accordance with unified construction plans. During the periods of validity of the leaseholds vested in foreign business entities for the land developed by them，the foreign business entities may assign and lease such rights as well as mortgage them to banks as security for loans. Specific issues shall be handled pursuant to the methods set forth in the Hainan Special Economic Zone，Granting and Assigning Leaseholds for Value Regulations.

Article 18　Subject to approval by the People's Bank of China，foreign business entities may establish wholly foreign-owned banks，Sino-foreign equity joint venture banks and other financial institutions in the Hainan Special Economic Zone， and may carry on business within their approved scopes of business.

Article 19　Subject to approval by the relevant departments of the Hainan Provincial People's Government，foreign business entities may explore for and mine minerals in Hainan Island in accordance with the principle of reasonable mining for consideration，using equity joint ventures， co-operative joint ventures or wholly foreign-owned enterprises as investment vehicles. However， where the State has other regulations， such regulations shall prevail.

Article 20　Industries and projects in which foreign investment is to be restricted or prohibited shall be separately determined by the Hainan Provincial People's Government in accordance with the relevant regulations of the State Council.

PART FOUR　IMPORT AND EXPORT OF MATERIALS

Article 21　Foreign investment enterprises established in the Hainan Special Economic Zone and enterprises in the Hainan Special Economic Zone whose shares are at least 25% owned by foreign business entities shall have the right to engage in import and export trade in order to import the supplies necessary for their own production and business and to export their own products. Upon approval by the relevant departments，foreign investment enterprises engaged in infrastructure construction and agricultural development may purchase and export products that neither require an export license nor are subject to quotas.

Article 22　The following imports by foreign investment enterprises shall be exempt from customs duties and product or value-added tax：machinery，equipment，raw materials (including building materials), parts and fittings necessary for construction and production by the enterprises; and office Articles, means of transportation and other goods and materials for their own use.

Article 23　Export products produced by foreign investment enterprises shall be exempt from customs duties and, except for crude oil, finished oil products and a small number of other products for which the State has provided otherwise, the product or value-added tax already paid in the Hainan Special Economic Zone on such products shall be refunded.

Article 24　The Hainan Special Economic Zone shall establish bonded zones in accordance with the relevant regulations of the State, subject to approval by the State Council. Foreign investment enterprises may establish bonded warehouses and bonded factories in accordance with the relevant regulations of the State, subject to approval by Customs. The storage, processing and assembly of goods in bonded zones, bonded warehouses and bonded factories and their subsequent re-export shall not require the payment of duty and tax to Customs but shall be subject to Customs supervision.

PART FIVE　EXCHANGE CONTROL

Article 25　Foreign investment enterprises may open foreign exchange accounts with the banks of their choice in the Hainan Special Economic Zone. All their foreign exchange revenue and expenditure must be deposited in and made from their foreign exchange deposit accounts with such banks.

Article 26　Foreign investment enterprises shall balance their own foreign exchange revenue and expenditure. Enterprises may adjust their foreign exchange surpluses and deficits in foreign exchange adjustment centers in the Hainan Special Economic Zone. Upon approval by the exchange control departments of the places where the enterprises are located, they may also adjust such surpluses and deficits in foreign exchange adjustment centers outside Hainan province.

Article 27　Foreign investment enterprises may retain in cash both the foreign exchange revenue derived from the export of their own products and that from other business activities. Such foreign exchange shall be administered in accordance with the regulations of the local branch of the People's Bank of China.

Article 28　Foreign investment enterprises may raise foreign exchange loans from inside and outside China. Within 15 days of borrowing funds from abroad， Hong Kong or Macao or from a branch in the PRC of a foreign bank, foreign investment enterprises must carry out foreign debt registration procedures at the exchange control departments of the places where they are located.

Article 29　Foreign business entities may remit the profits they derive from enterprises established in the Hainan Special Zone on the strength of written resolutions on the distribution of foreign exchange profits adopted by their boards of directors or authoritative organizations equivalent to boards of directors. Such remittances shall be made from the enterprises' foreign exchange accounts and be exempt from the income tax on the remitted amounts.

Article 30　Expatriate staff and workers of foreign investment enterprises may remit abroad their foreign exchange wages and other foreign exchange revenue after payment of tax according to law. The remittance procedures shall be carried out by the banks with which such staff and workers have opened accounts， on the strength of the tax payment certificates issued by the tax authorities.

PART SIX　PREFERENTIAL TREATMENT

Article 31　The income from production and business operations and other income derived by foreign investment enterprises from the Hainan Special Economic Zone shall be subject to enterprise income tax at the rate of 15%. Among such enterprises：

1. those engaged in the development and operation of infrastructure facilities such as ports, piers, airports, highways, railways, power stations, coal mines and water conservancy facilities, and enterprises engaged in the development of and business operations in connection with agriculture,  with terms of operation of 15 years or more, shall, commencing from the first profit-making year, be exempt from income tax from the first until the fifth years and be granted a 50% reduction of income tax from the sixth until the tenth year. Among such enterprises, those whose terms of operation are less than 15 years shall, commencing from the first profit-making year, be exempt from income tax in the first and second years and be granted a 50% reduction of income tax from the third until the fifth year;

2. enterprises engaged in productive sectors such as industry and communications and transportation, with terms of operation of 10 years or more, shall commencing from the first profit-making year, be exempt from income tax in the first and second years and be granted a 50% reduction of income tax from the third until the fifth years. Among such enterprises, those that are confirmed by the Hainan Provincial People's Government as technologically advanced shall be granted a 50% reduction of income tax from the sixth until the eighth years. Those enterprises with terms of operation less than 10 years shall, commencing from the first profit-making year, be exempt from income tax in the first and second years;

3. enterprises engaged in such productive sectors as industry and agriculture may pay income tax at the rate of 10% in any year after the expiry of the periods for exemption and reduction of enterprise income tax specified in the preceding two Items, provided that the value of products exported in that year is 70% or more of their output value in that year;

4. enterprises engaged in service sectors, with a total amount of investment of more than US$5 million or its Renminbi equivalent and terms of operation of 10 years or more, shall, commencing from the first profit-making year, be exempt from income tax in the first year and be granted a 50% reduction in income tax in the second and third years. Among such enterprises, those whose total amounts of investment or terms of operation do not comply with the above standards shall, commencing from the first profit-making year, be exempt from income tax in the first year and be granted a 50% reduction in income tax in the second year;

5. enterprises engaged, with approval, in other industries shall, commencing from the fist profit-making year, be exempt from income tax in the first year and be granted a 50% reduction of income tax in the second year;

6. enterprises that use foreign investment to engage in infrastructure construction projects and to establish production enterprises in Sanya and Tongji Municipalities and in autonomous counties of minority ethnic groups, with terms of operation of 10 years or more, shall, commencing from the first profit-making year, be exempt from income tax from the first until the tenth years and be granted a 50% reduction in income tax from the eleventh until the twentieth years.

Article 32　The income from production and business operations and other income derived by foreign investment enterprises from the Hainan Special Economic Zone shall be exempt from local income tax.

Article 33　Income from sources in the Hainan Special Economic Zone such as dividends, interest,  rentals and royalties and other income derived there from by foreign business entities that do not maintain establishments in the PRC shall be exempt from withholding tax.

Article 34　Subject to approval by the departments of Hainan province in charge of finance and taxation, foreign investment enterprises that are export-oriented or technologically advanced may adopt such accelerated depreciation methods as are commonly used internationally, in order to accelerate the replacement of their equipment and the progress of their technology.

Article 35　Where a foreign business entity reinvests in the PRC for a period of at least five years profits derived from an enterprise in the Hainan Special Economic Zone, 40% of the enterprise income tax already paid on the reinvested portion shall be refunded after verification and approval by the tax authorities of the place where the enterprise is located. If such profits are reinvested in an enterprise in the Hainan Special Economic Zone that is engaged in the construction of infrastructure facilities or in agricultural development or that is export-oriented or technologically advanced, all enterprise income tax already paid on the reinvested portion shall be refunded.

Article 36　Products produced by foreign investment enterprises that are sold in the Hainan Special Economic Zone shall be exempt from product or value-added tax, except tobacco products,  alcoholic beverages, mineral oils and a small number of other products as determined by the Hainan Provincial People's Government, which shall be granted a 50% reduction of product or value-added tax. Where the above products that contain parts or materials that are imported with an exemption or reduction of duty and tax, the customs duty and the product or value-added tax on such imported parts or materials shall be exempted, reduced or made up in accordance with the relevant regulations of the State.

Article 37　Foreign investment enterprises may independently sell the products they have produced to other regions in the PRC, except for products subject to State import restrictions, whose sale to such other regions shall be submitted for approval in accordance with the relevant regulations of the State. However, in case of such sale, product or value-added tax shall be paid according to regulations and, for those of such products that contain parts or materials that were imported with an exemption or reduction of duty and tax, the customs duty and product or value-added tax on such imported parts or materials shall be made up according to regulations. (promulgated by the standing committee of the hainan provincial people's congress on may 4, 1991)

Article 38　Foreign investment enterprises that require loans in the course of production and circulation may be granted loans by the banks with which they have opened accounts or by other financial institutions on a priority basis in accordance with the Bank of China, Loans to Foreign Investment Enterprises Procedures.

Article 39　Foreign investment enterprises that sell their products on the domestic market may apply for treatment as import substitutes of those products that conform to the provisions of the State's measures for the substitution of importation with production.

Article 40　Foreign business entities are encouraged to invest in and establish export-oriented enterprises and technologically advanced enterprises, which will be granted corresponding preferential treatment. The specific measures for granting such preferential treatment shall be determined by the Hainan Provincial People's Government.

Foreign investment enterprises that are export-oriented and/or technologically advanced shall be examined and confirmed as such by the administrative department of Hainan province in charge of economic cooperation in conjunction with the relevant department.

PART SEVEN　BUSINESS ACTIVITIES

Article 41　Foreign investment enterprises shall enjoy autonomy in their management activities.

Article 42　Foreign investment enterprises may independently decide on the purchase of machinery for use in and the staffing of their own enterprises， as well as on the employment and dismissal of senior management personnel and the increase and retrenchment of staff and workers, as production and business may require. Foreign investment enterprises may advertise for and employ technical personnel， management personnel and workers locally or, if the demand for such personnel cannot be met locally or within Hainan province, in other places in or outside Hainan province (advertisement for and employment of such personnel other than where done locally shall be organized and coordinated by the administrative departments in charge of labor of the places where the enterprises are located). Foreign investment enterprises may impose a range of sanctions, up to expulsion, on staff and workers whose violations of rules and regulations lead to certain consequences, depending on the seriousness of the cases. Foreign investment enterprises shall report for the record their advertisement for and employment, dismissal or expulsion of staff and workers to the administrative departments in charge of labor of the places where they are located.

Article 43　Foreign investment enterprises shall have the right to determine their own business policies and management systems, to determine production, sales and financial plans, to price their products (except for those subject to special regulations of the State), to determine profit distribution plans, and to determine wage scales, forms of wages and award and subsidy regulations, in accordance with their contracts and articles of association.

Article 44　Foreign investment enterprises shall take out all their insurance policies with insurance companies in the Hainan Special Economic zone. Types of insurance that cannot be provided by insurance companies in the Hainan Special Economic Zone may be taken out from insurance companies outside the Hainan Special Economic Zone.

Article 45　Foreign investment enterprises may issue bonds upon approval by the head office or Hainan branch of the People's Bank of China. Foreign investment enterprises that are companies limited by shares may issue shares upon approval by the head office or Hainan branch of the People's Bank of China. The specific measures for such issues of bonds and shares shall be formulated separately.

Article 46　Foreign investment enterprises shall draw up accounting books， conduct independent accounting and submit accounting statements to the relevant departments in accordance with the relevant regulations of the State.

Foreign investment enterprises should submit statistical statements to the relevant departments in accordance with the relevant regulations of the State.

Article 47　Foreign investment enterprises shall be subject to supervision and inspection by the relevant departments of the local governments in such matters as taxation, environmental protection,  labor protection, sanitation, anti-epidemic measures and production safety.

PART EIGHT　INVESTMENT PROTECTION

Article 48　The investments， assets purchased, intellectual property, investment profits and other lawful rights and interests in the Hainan Special Economic Zone of foreign business entities shall be protected under the laws of the State and may be assigned and succeeded to according to law.

Article 49　Investments and other assets of foreign business entities shall not be nationalized or expropriated. Under special circumstances, foreign investment enterprises may be expropriated in accordance with legal procedures if the public interest so requires, in which case appropriate compensation shall be provided. Where the PRC has concluded investment protection agreements with the relevant foreign governments, matters shall be handled pursuant to such agreements.

Article 50　No department or unit may charge fees from foreign investment enterprises other than, or levy fees at rates higher than, those expressly provided for by the State and the Hainan Provincial People's Government. Foreign investment enterprises shall have the right to refuse to be apportioned payment of any unreasonable expenses.

Article 51　Foreign business entities shall have recourse to the Chinese courts if their investments or other lawful rights and interests are unlawfully infringed.

PART NINE　SETTLEMENT OF DISPUTES

Article 52　Disputes between the parties to Sino-foreign equity joint ventures and Sino-foreign co-operative joint ventures over the interpretation or implementation of their agreements, contracts or Articles of association may be settled through consultation between the parties or through mediation by third parties.

Where a party does not wish to attempt to settle the dispute through consultation or mediation or if consultation or mediation is unsuccessful, the dispute may be submitted to a Chinese arbitration institution or another arbitration institution for arbitration, on the basis of the arbitration clause of the contract or a written arbitration agreement reached subsequently.

Where the parties neither include an arbitration clause in their contract nor subsequently reach a written arbitration agreement, any party may institute proceedings in the Chinese court.

Article 53　Disputes among foreign investment enterprises themselves and between foreign investment enterprises and domestic enterprises shall be handled in accordance with the relevant laws and regulations of the PRC and the local regulations of Hainan province.

PART TEN　SUPPLEMENTARY PROVISIONS

Article 54　Matters concerning investment in the Hainan Special Economic Zone by companies, enterprises, other economic organizations or individuals from Taiwan, Hongkong and Macao and by overseas Chinese shall all be handled by reference to these Regulations.

Article 55　The Hainan Provincial People's Government may formulate implementing measures for these Regulations.

Article 56　The Hainan Provincial People's Government shall be responsible for interpreting these Regulations in the event of problems in their application to specific situations.

Article 57　These Regulations shall be implemented as of the date of promulgation