Building a business environment based on rights


China’s new Hainan Free Trade Port Law is part of its continued efforts to develop Hainan Island into a free trade port of global influence. The law lays the legal basis for the construction of the Hainan FTP and gives the region greater autonomy to implement comprehensive reforms and market opening.

On June 10, 2021, the Standing Committee of 13e The National People’s Congress adopted the PRC Hainan Free Trade Port Act. The law came into effect immediately.

It happened just a year after China released a master plan last June, which defined a series of policies, which unveiled the roadmap for Hainan to transform into a global free trade hub like Hong Kong and Singapore.

Beijing has realized that for this to happen, a credible rule of law is essential for Hainan, which is why work on formulating the necessary legislation is in full swing. The enactment of the Hainan Free Trade Port Law aims to convert existing policy incentives into legislative reality, provide legal guarantees for various future reforms, and build investor confidence, especially foreign investors.

Highlights of the Hainan Free Trade Port Law

The Hainan Free Trade Port Law has eight chapters covering all areas involved in the construction of the port, including trade and investment liberalization and facilitation, tax and tax systems, environmental protection. , industrial development and talent support, and other comprehensive measures.

Trade liberalization and facilitation

The law guarantees “to establish a special Hainan Free Trade Port (FTP) customs surveillance zone system for independent customs operations throughout Hainan Island.”

According to the master plan, for cross-border trade in goods, Hainan FTP will establish a “first line” to overseas countries and regions, and a “second line” to the Chinese mainland.

In principle, the first line will be open – goods (except those on Hainan’s ban or restriction lists) can be freely imported and exported between overseas regions and Hainan FTP under the special supervision of customs.

And the second line will be more tightly controlled – goods entering mainland China from Hainan will go through procedures that comply with import regulations, tariffs and applicable taxes.

For cross-border trade in services, Hainan will adopt a negative list management system for cross-border trade in services – beyond the negative list, national and foreign market entities should be treated on an equal footing. In addition, Hainan will also implement the payment and funds transfer system that matches cross-border trade.

Investment liberalization and facilitation

Regarding investments, on the basis of the law, Hainan will launch the “most streamlined approval system” for investments, implement negative list for foreign investments and special measures to ease market access, and gradually adopt the “post-commitment market access system”.

Last December, Hainan launched a new negative list for access of foreign investments in the FTP. The negative list, implemented from February 1, 2021, has expanded market access for foreign investment in various sectors, such as telecommunications, education, business services, manufacturing and mining, to Hainan FTP.

Tax and tax systems

The law also helps Hainan FTP to establish its own tax system – based on the master plan, the tax system will stick to the principles of “zero tariffs”, “low tax rate” and ” simplified tax regime “.

Zero tariffs

China aims to launch independent island-wide customs operations and implement a simplified tax regime in Hainan by around 2025.

Before that date, certain goods imported from overseas were subject to list management (a negative list with zero tariffs and three positive lists) may be exempt from import duties, value added tax (VAT) and consumption tax.

After 2025, all goods imported from overseas will be exempt from import duties, except those listed in the list to be formulated Negative list of products subject to import taxes and goods prohibited from importing into Hainan by law.

Note, goods entering the mainland from Hainan FTP will still be subject to import tariffs. However, goods produced by promoted industrial enterprises that do not contain imported materials or contain the imported materials but achieve a certain proportion of value-added processing in Hainan FTP will be exempt from import duties.

In turn, for the goods entering the Hainan FTP from the mainland, the VAT and consumption tax that were levied may be reimbursed in accordance with the relevant provisions.

Low tax rates

The Hainan FTP Law reiterates the favorable corporate income tax (IS) and personal income tax (IIT) policies in Hainan, although it does not contain specific provisions regarding the rates. taxation.

According to the master plan, enterprises registered in Hainan and engaged in substantial business activities in industrial sectors encouraged will be taxed at a reduced corporate tax rate of 15 percent by 2025, compared to the standard rate of 25%.

After 2025, this policy will be extended to all industrial sectors (except those on Hainan’s negative investment list).

In addition, for high-end talents and rare talents working in Hainan FTP who meet certain criteria, the part of their IIT load greater than 15 percent will be exempt. After 2025, Hainan FTP will continue to reduce IIT rates to 3, 10 and 15% (three tax brackets) for taxable income of eligible talents earned in Hainan, but qualified foreign or Chinese talents must reside there for at least at least 183 days a year.

Simplified tax regime

The law stipulates that indirect taxes and duties on the island of Hainan, such as VAT, consumption tax, vehicle purchase tax, urban maintenance and construction tax, as well as educational surcharges should be rationalized into a single sales tax to be collected on the provision of services. This will be implemented when the island begins its independent customs operations, after which Hainan will further simplify its overall tax system in the future.

Environmental Protection

In addition, the law offers the strictest ecological and environmental protection system, implementing the one-voice veto system for environmental protection and lifelong liability for damage to the ecological environment.

Industrial development and talent support

The Hainan FTP law again emphasizes the development of Hainan into an international tourism consumption center, pushing for a deeper integration of tourism, culture, sports, medical care, retirement and health care, etc. This includes the development of Hainan’s medical tourism. China continues to develop an area of ​​20 square kilometers medical tourism zone in Boao with 16 medical establishments.

In addition, to attract and cultivate a strong talent market in Hainan, a more convenient visa policy will be implemented for foreign talent and expatriates. Foreign high-level universities and vocational colleges can establish science, engineering, agriculture and medicine schools in Hainan.

Other comprehensive measures

In addition, the law also called for the establishment of a cross-border fund flow management system that meets the needs of high-level trade and investment liberalization and facilitation and promises to open the capital account. in stages, gradually making the external debts of non-financial companies fully convertible.

Hainan FTP: A Pioneer of Systematic Reform in China

The implementation of Hainan’s FTP law undoubtedly demonstrates China’s strong determination to open up more to the outside world and promote economic globalization.

In the early stages of China’s reform and opening up, the country gradually experimented with new projects first and drafted laws based on their results. As a new region undergoing comprehensive and deep reform at a rapid pace, Hainan is at the forefront in this direction. Unprecedented, Hainan’s FTP law gives Hainan greater autonomy to implement comprehensive reforms and trade openness.

Domestic and foreign investors who wish to settle in Hainan can take full advantage of Hainan FTP’s preferential policies by assessing how these can align with their own business development strategies.

Dezan Shira & Associates paid special attention to the development of Hainan’s CTF and its preferential policies on trade facilitation, import and export duties, customs supervision and financial reforms. For more information, please contact us for help with [email protected].

About Us

China Briefing is written and produced by Dezan Shira & Associates. The practice helps foreign investors in China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the company for assistance in China at [email protected].

Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our commercial research facilities along the Belt and Road Initiative. We also have partner companies that assist foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.

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