Encouraged Industry Eligibility: Why 60% of Revenue Decides the Rate
Qualifying for the Hainan FTP's 15% corporate income tax rate turns on a revenue ratio, not on an approval. Understanding which of three catalogues your activity sits in — and what counts as main business — is the whole exercise.
HainanInc Regulatory Advisory
· 4 min read
There is no application form for encouraged-industry status in the Hainan Free Trade Port, and no certificate to hang on a wall. There is a definition, and an enterprise either falls inside it for a given tax year or does not. That makes eligibility a question of how revenue is classified and recorded across twelve months, which is a harder thing to manage than an approval and a considerably easier thing to lose.
A two-part definition, and both parts bite
The Notice on Enterprise Income Tax Preferential Policies for the Hainan Free Trade Port (关于海南自由贸易港企业所得税优惠政策的通知, 财税〔2020〕 31号), issued by the Ministry of Finance and the State Taxation Administration on 23 June 2020, defines an encouraged-industry enterprise as one whose main business is an industry project specified in the Hainan Free Trade Port encouraged industries catalogue, and whose main-business revenue accounts for more than 60% of total enterprise revenue. Both limbs have to hold. An enterprise doing catalogue work as a minority of its turnover is not an encouraged-industry enterprise, however genuinely encouraged that work is.
Where the 60% figure comes from
- Notice on Enterprise Income Tax Preferential Policies for the Hainan Free Trade Port (财税〔2020〕31号) — Ministry of Finance and State Taxation Administration — 23 June 2020 — source of the encouraged-industry definition and the 60% main-business revenue threshold.
- Notice on Continuing the Hainan Free Trade Port Enterprise Income Tax Preferential Policies (财税〔2025〕3号) — Ministry of Finance and State Taxation Administration — 12 February 2025 — extends the relief to 31 December 2027.
- Hainan Free Trade Port encouraged industries catalogue (海南自由贸易港鼓励类产业目录) — National Development and Reform Commission with the Hainan Provincial Development and Reform Commission — comprising the Guiding Catalogue for Industrial Restructuring (2019 edition), the Catalogue of Industries Encouraging Foreign Investment (2019 edition), and Hainan's own supplementary encouraged-industries catalogue; expanded in 2024.
- All positions above verified against the issuing bodies' published texts in September 2026.
Three catalogues, read together rather than in the alternative
The Hainan catalogue is not a single document. It is built from the national Guiding Catalogue for Industrial Restructuring in its 2019 edition, the Catalogue of Industries Encouraging Foreign Investment in its 2019 edition, and a supplementary catalogue specific to the Hainan Free Trade Port. An activity can qualify through any of the three, and in practice the Hainan supplement is where the island's own priorities — tourism, modern services, high technology — are expressed most directly. Reading only the national catalogue and concluding that an activity is not encouraged is a common and expensive shortcut.
The catalogue is also not static. It was expanded in 2024, which means an activity assessed as outside it two or three years ago may sit inside it now. Eligibility is worth re-testing on any material change of business, and worth re-testing periodically even without one.
'Main business' is a classification decision made all year
The 60% test compares main-business revenue against total enterprise revenue. That comparison is only as reliable as the revenue coding behind it, and revenue coding is done by whoever books the invoices, month by month, usually without anyone framing it as a tax-rate decision. An enterprise that ends the year at 58% did not usually make a strategic error. It made a series of small classification choices, none of which looked material at the time, and discovered the aggregate at reconciliation when nothing could be done about it.
The related trap is diversification. A Hainan entity that adds a profitable but non-catalogue revenue line can push itself below the threshold precisely because the new line succeeded. The rate is lost for that year on the strength of good commercial news, which is not a sequence anyone plans for.
Eligibility is not decided in a meeting. It is decided by twelve months of revenue coding, and read once, at the end.
Eligibility and substantive operation are separate hurdles
Clearing the catalogue and the 60% ratio establishes that the enterprise is an encouraged-industry enterprise. It does not establish that the enterprise may take the reduced rate, because the same notice imposes a second and independent condition: substantive operation in the Free Trade Port. The two are routinely conflated, and an enterprise comfortable on eligibility can still be disqualified on substance. They need to be tracked as separate positions with separate evidence.
What testing eligibility properly involves
- Mapping the actual activity — not the registered business scope — against all three constituent catalogues, including the Hainan supplement.
- Checking the business scope on the licence expresses that activity, since a mismatch between what is done and what is registered creates a question nobody wants at reconciliation.
- Setting the revenue coding rules at the start of the year, so main-business revenue is identifiable monthly rather than reconstructed annually.
- Running the 60% ratio at each quarter, early enough that a drift towards the threshold is still commercially actionable.
- Re-testing on any new revenue line, acquisition, or change in the catalogue itself.
Where we come in
Our encouraged industry eligibility work is the catalogue mapping and the ratio monitoring, run as a position held through the year rather than a question asked at filing. Where the mapping shows an activity falls outside all three catalogues, we say so — that answer is more valuable before a structure is committed than after. Where eligibility holds but the substance position is thin, the work continues into Substantive Operation Compliance, because passing one test and failing the other produces the same rate as failing both.
This is general commentary on published policy, not entity-specific tax advice. Figures cited are drawn from the instruments listed above and were verified against the issuing bodies' published texts in September 2026. Validity periods are stated as published; confirm currency before relying on any figure.