Where a Hainan Entity's Books Have to Live, and Why It Is a Tax Question
Accounting records are usually treated as an administrative matter. In the Free Trade Port, where the vouchers and ledgers are physically kept is one of four elements deciding whether the 15% rate survives review.
HainanInc Tax Advisory
· 4 min read
When a group centralises bookkeeping into a shared service centre, nobody frames it as a tax decision. It is an efficiency decision, taken by finance operations, and it is normally the right one. For a Hainan entity claiming the Free Trade Port's reduced corporate income tax rate, it is also a decision that can quietly remove one of the four elements the relief depends on — because the accounting element of the substantive operation test is about physical location, not about who does the work.
The accounts element, stated plainly
Substantive operation requires the enterprise's actual management body to be in the Free Trade Port, exercising substantive and comprehensive management and control over production and operation, personnel, accounts and property. On the accounts element, published guidance is specific: the accounting vouchers, accounting books and financial statements are to be kept in the Free Trade Port, and both the basic deposit account and the account through which main-business settlement runs are to be opened there. Guidance also makes the structure of the test explicit — the four elements must all be in the Free Trade Port, and if any single one is not, the enterprise does not have substantive operation.
The rules placing the records here
- 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, continued by 财税〔2025〕3号 of 12 February 2025 to 31 December 2027.
- Announcement on Continuing the Substantive Operation Policy for Encouraged-Industry Enterprises in the Hainan Free Trade Port (2025年第3号) — Hainan Tax Service, Hainan Provincial Department of Finance and Hainan Provincial Administration for Market Regulation — 14 August 2025.
- Notice on Administration and Service Work for Substantive Operation of Encouraged-Industry Enterprises (琼税发〔2022〕102号) — Hainan Tax Service — self-determination, declaration by undertaking, and post-hoc verification.
- Measures for the Administration of Bookkeeping Agencies (代理记账管理办法, 财政部令第98号) — Ministry of Finance — keeping another enterprise's statutory books is a licensed activity; see the note on delivery below.
- All positions above verified against the issuing bodies' published texts in September 2026, save the bookkeeping measures, which are named for identity only.
Opening balances are where inherited problems become yours
The other moment when accounting stops being administrative is at the start of a set of books — a newly formed entity, an acquisition, or a migration from a previous provider. Opening balances carry forward whatever judgements were made before, and those judgements are rarely documented in a form the receiving accountant can test. Assets recognised on a basis nobody can now reconstruct, accruals released without a note, related-party balances with no supporting agreement: each is inherited silently and each becomes the new provider's problem at the first review.
In a Hainan entity there is a second reason to take opening balances seriously. The revenue classification embedded in them feeds the 60% main-business revenue test that decides encouraged-industry status. A set of books that codes revenue inconsistently across a provider transition can produce a ratio that moves for reasons that have nothing to do with the business.
Centralising the ledger is an efficiency decision everywhere else. In Hainan it is also a decision about whether one of four elements still holds.
Reconstruction after the fact is the expensive path
The administrative model is self-determination, declaration by undertaking, and post-hoc verification: the enterprise assesses its own position, signs an undertaking at annual reconciliation, and takes the relief. Nothing is approved at that point. Verification comes afterwards, against a year that has already closed — which means the accounting records either were in the Free Trade Port during that year or were not. There is no way to relocate a year's vouchers retrospectively, and an attempt to assemble the position after an enquiry arrives is visible as exactly that.
What keeping the accounts element sound looks like
- Vouchers, books and financial statements physically kept in the Free Trade Port, whoever prepares them.
- The basic deposit account and the main-business settlement account opened locally, and payroll paid through a Free Trade Port account.
- Revenue coding rules fixed at the start of the year so the 60% ratio can be read monthly rather than reconstructed annually.
- Opening balances documented at the point of transition, with the basis for each material judgement recorded while the previous provider is still reachable.
- A group cash-management design that has been checked against the substance requirements rather than assumed compatible with them.
Who keeps the books, and what we own
Keeping another company's statutory books is a licensed activity in mainland China, and HainanInc does not hold that licence. Our transactional accountancy work is the scoping against the transaction documentation and the coordination with the deal's advisers; the statutory entries and anything landing in filed accounts are carried by a licensed bookkeeping firm. What we own is the part that decides the outcome here — where the records sit, how revenue is coded, and whether the accounts element of the substance position would survive being looked at.
This is general commentary on published policy, not entity-specific accounting or tax advice. Figures and requirements cited are drawn from the instruments listed above and were verified in September 2026, except where noted. Confirm currency before relying on any of the above.