Known for its white sand and clear water, Hainan is commonly recognized as the “Hawaii of China.” Soon, the southern Chinese province will reach an important milestone: The Hainan Free Trade Port (Hainan FTP), launched in June 2020, is scheduled to implement a full island-wide customs closure starting on 18 December 2025. This means that the Hainan Free Trade Port will operate as a unique customs territory within China. This setup provides global businesses with a new and exciting opportunity to enter the Chinese market, thanks to reduced barriers and enhanced policy support.
Hainan Free Trade Port’s Overall Design
In June 2020, China’s central government issued “The Overall Plan for the Construction of Hainan Free Trade Port” as the blueprint for building the island into a globally competitive free trade hub by 2035.
Based on this Plan, the design of Hainan FTP has been structured around the following three pillars:
- Zero Tariffs, Low Tax Rates, Simplified Tax System
- Gradual removal of tariffs on a wide range of goods.
- Preferential income tax rates for enterprises and individuals.
- Streamlined, transparent taxation to lower compliance costs.
- Phased Development with Customs Closure
- Hainan follows a step-by-step path toward liberalization.
- Full island-wide customs closure is scheduled for December 18, 2025, after which Hainan will operate as a separate customs territory within China.
- Institutional Innovation and Global Standards
- Integration of international trade and investment rules.
- Negative list for foreign investment with expanded market access.
- Enhanced governance, legal frameworks, and dispute resolution mechanisms.
In the long run, the aspiration is for Hainan to serve not merely as a conduit for China’s global integration but also as a pivotal hub for international trade, financial services, travel, and innovation.
Taxation Policies in Hainan Free Trade Port
Among the most compelling aspects of the Hainan FTP is its advantageous tax framework, established to mitigate costs for corporations and individuals, in line with global conventions. This framework is grounded in a triad of principles: zero customs duties, decreased tax percentages, and a streamlined tax system.
Enterprises registered in the Hainan Free Trade Port may qualify for a reduced corporate income tax rate of 15 percent, a significant reduction from the standard national rate of 25 percent.
This incentive was first introduced in the Notice on Preferential Corporate Income Tax Policies in Hainan Free Trade Port (财税〔2020〕31号) and has since been extended under the Notice on Extending the Implementation of Hainan FTP Corporate Income Tax Incentives (财税〔2025〕3号), confirming its validity through December 31, 2027.
To qualify, an enterprise must be registered in Hainan FTP and demonstrate substantive operations within the Free Trade Port. Substantive operation means that the enterprise’s actual management institution is located in Hainan and exercises comprehensive control over business activities, personnel, accounts, and assets. Simply registering in Hainan without relocating management and operations is insufficient.
Another requirement is that the company’s business activities fall within the official Encouraged Industry Catalogue. The catalogue covers a wide range of industries including tourism, modern services, high-technology, healthcare, marine economy, aerospace, renewable energy, and tropical agriculture. To ensure that the incentive benefits enterprises aligned with policy goals, at least 60 percent of the company’s total income must be generated from these encouraged industries.
The scope of application depends on where the enterprise’s headquarters is located. For companies with headquarters in Hainan, both the head office and their branches established in Hainan can apply the 15 percent rate. For companies headquartered outside Hainan, only their Hainan-based branches are eligible, while income from operations outside the Free Trade Port is excluded from preferential treatment. In addition, non-resident enterprises that set up institutions or premises in Hainan and carry out substantive business activities on the island may also qualify.
In practice, this means that only enterprises that are registered, substantially managed, and primarily revenue-driven by encouraged industries in Hainan can access the reduced 15 percent CIT rate. This framework ensures that the incentive targets genuine investment and development in the Free Trade Port rather than paper-based or nominal registration.
In addition to the reduced 15 percent corporate income tax rate, Hainan Free Trade Port offers a full exemption from corporate income tax on certain offshore income.
The exemption applies specifically to enterprises established in Hainan FTP that are engaged in tourism, modern services, or high-technology industries. If such enterprises make new outbound direct investments (ODI) during the incentive period, the income derived from those investments is exempt from corporate income tax.
Qualifying offshore income includes two main categories:
Profits from newly established overseas branches, and
Dividend income distributed from overseas subsidiaries in which the Hainan enterprise holds at least a 20 percent equity stake.
Additionally, the foreign jurisdiction where the investment is located must apply a statutory corporate income tax rate of at least 5 percent, ensuring the exemption does not facilitate transfers to low-tax or no-tax jurisdictions.
For purposes of this policy, new outbound direct investment refers to foreign investments made from January 1, 2020 through December 31, 2027. These include setting up new branches or subsidiaries abroad, injecting capital into existing overseas entities, or acquiring equity in foreign enterprises.
This policy is designed to encourage enterprises headquartered in Hainan to expand into global markets and participate in international value chains while avoiding double taxation. It positions Hainan FTP as both a domestic operations hub and a launchpad for international business expansion.
Enterprises established in the Hainan Free Trade Port also benefit from favorable rules for the treatment of fixed assets and intangible assets.
Under the Notice on Preferential Corporate Income Tax Policies in Hainan FTP (财税〔2020〕31号), newly acquired (including self-built or self-developed) fixed assets or intangible assets with a unit value of RMB 5 million or less may be fully deducted as a cost expense in the year of acquisition, without the need to spread deductions over future years through depreciation or amortization.
For newly acquired assets with a unit value exceeding RMB 5 million, enterprises are allowed to adopt accelerated depreciation or amortization methods. This may include shortening the depreciation or amortization period or applying an accelerated schedule. The policy applies to fixed assets other than buildings, and to intangible assets once they are ready for use, including self-developed intellectual property rights and technologies.
To ensure policy continuity and investor confidence, the Ministry of Finance and the State Taxation Administration confirmed in the Notice on Extending the Implementation of Hainan FTP Corporate Income Tax Incentives (财税〔2025〕3号) that this preferential treatment will remain valid until December 31, 2027. This extension allows enterprises in Hainan to continue benefiting from improved cash flow and reduced tax burdens, particularly when making large-scale investments in infrastructure, advanced equipment, and technology upgrades.
To attract and retain global professionals, Hainan Free Trade Port offers a preferential individual income tax (IIT) regime for qualified talent. According to the Notice on Extending the Implementation of Hainan FTP Preferential IIT Policies for High-End and Urgently Needed Talent (财税〔2025〕4号), individuals meeting the eligibility criteria enjoy an effective tax burden capped at 15 percent. Any portion of their calculated IIT liability above this threshold is exempt from payment, a significant reduction compared to China’s statutory top marginal rate of 45 percent.
The policy applies to a wide range of income categories. These include comprehensive income (wages, salaries, service remuneration, author’s remuneration, and royalties), business income from operations within Hainan FTP, and talent subsidies officially recognized by the Hainan provincial government. Only income sourced in the Free Trade Port qualifies, and the preferential treatment is applied during the annual IIT settlement process in Hainan.
Eligibility is limited to individuals classified as high-end talent or urgently needed talent, based on industry demands and development priorities. This classification is subject to list-based management, jointly maintained by Hainan’s provincial finance and tax authorities. Both foreign nationals and Chinese citizens may qualify, provided their skills and expertise align with the industries prioritized by the Free Trade Port.
In addition to talent recognition, there are residency and employer requirements. Beneficiaries must reside in Hainan for at least 183 days within a tax year. Furthermore, their employing enterprise must demonstrate substantive operations in Hainan. Where an enterprise already qualifies for corporate income tax incentives, no additional filing is required to validate IIT benefits for its employees.
This preferential IIT policy will remain in effect until December 31, 2027. By reducing the effective tax burden to a competitive international level, the measure strengthens Hainan FTP’s ability to attract experts in technology, healthcare, tourism, finance, and other modern service industries, aligning tax policy directly with the Free Trade Port’s talent-driven growth strategy.
Hainan Free Trade Port also provides targeted relief in the area of stamp duty, specifically to encourage the growth of offshore trade. Under the Notice on Preferential Corporate Income Tax Policies in Hainan FTP (财税〔2020〕31号) and its extension confirmed by the Notice on Extending the Implementation of Hainan FTP Corporate Income Tax Incentives (财税〔2025〕3号), contracts for qualifying offshore re-invoicing transactions are exempt from stamp duty during the period from April 1, 2025 through December 31, 2027.
Offshore re-invoicing refers to transactions where a Hainan-registered enterprise purchases goods from one non-resident and resells them to another non-resident, without the goods physically entering China’s customs territory. In practice, these activities are a core component of offshore trade and are central to Hainan FTP’s ambition of becoming an international trading hub.
By eliminating stamp duty on such contracts, the policy directly reduces transaction costs for enterprises engaged in offshore trade. This measure strengthens Hainan’s competitiveness in hosting re-export activities, global trade finance, and supply chain management services, positioning the Free Trade Port as a leading base for international trading companies in Asia.
Island-Wide Customs Closure and Customs Flows
As Hainan FTP transitions into a separate customs territory by 18 December 2025, the entire island will operate under independent customs supervision.
Before the island-wide closed operation, various temporary “zero tariff” policies are in effect, exempting Customs Duties, Import VAT, and Consumption Tax for specific categories of goods imported into the FTP.
The post-closure system establishes two border control lines: the “First Line” (between Hainan FTP and overseas) and the “Second Line” (between Hainan FTP and Mainland China)
Goods Entering the FTP via the "First Line" (Overseas Import)
- Taxable Imports: Goods listed in the Import Taxable Commodity List are subject to Import Duties, Import VAT, and Consumption Tax.
- “Zero Tariff” Imports: Goods outside the Import Taxable Commodity List, imported by “Eligible Entities” (registered enterprises, specific public institutions, etc.), are generally exempted from Import Duties, Import VAT, and Consumption Tax. Eligible Entities can apply to voluntarily pay these taxes.
- Other Imports: Other imported goods (not explicitly subject to “zero tariff” or existing bonded/reduction policies) are taxed normally.
Goods Entering Mainland China via the "Second Line" (Export to Mainland)
- General Principle: Goods entering the Mainland from the Hainan FTP are generally taxed as imports.
- Processing Trade Exemption: Goods produced by “Encouraged Industry” enterprises that incorporate imported materials and have a processing value-added ratio reaching or exceeding 30% are exempted from Import Duties when entering the Mainland.
- VAT and Consumption Tax: Even with the duty exemption for value-added goods, Import VAT and Consumption Tax are levied normally on these goods upon entry into the Mainland.
Goods Entering the FTP from Mainland China
- Goods entering the FTP from the Mainland are managed according to domestic circulation regulations.
- VAT and Consumption Tax that were previously collected on these goods in the Mainland shall be refunded according to relevant regulations.
Island Circulation (Within the FTP)
- Between Eligible Entities: “Zero Tariff” goods circulate freely, maintaining exemption from import taxes (Customs Duties, Import VAT, Consumption Tax), although domestic VAT and Consumption Tax are levied normally.
- To Non-Eligible Entities/Individuals: Retrospective payment of Import Duties, Import VAT, and Consumption Tax (based on the imported components) is required, and domestic VAT/Consumption Tax is levied normally.
Supporting Trade Facilitation and Refunds
- International Shipping VAT Refund: A VAT refund policy is applied to domestically built vessels registered in “China Yangpu Port” and used for international transportation.
- Port of Departure Tax Refund: This policy allows qualified exporters to apply for export tax refunds at the port of departure when container goods are shipped from specific mainland ports and leave the country via the Yangpu Port Area in Hainan Province (the Port of Exit). Hazardous goods are excluded from this policy.
Sector-Specific Incentives
The Hainan Free Trade Port (FTP) is designed to attract foreign capital by focusing on four major strategic pillars:
- Tourism
- Modern Services
- High-tech Industries
- Tropical Characteristic and Efficient Agriculture
Foreign investors targeting the encouraged sectors benefit from significant tax and regulatory advantages, such as:
- Corporate Income Tax (CIT) Reduction: Enterprises in the Encouraged Industry Catalog that conduct substantive operation in the Hainan FTP are subject to a reduced CIT rate of 15%. This preferential rate has been extended through December 31, 2027.
- CIT Exemption on Foreign Income: Companies registered in the Tourism, Modern Services, or High-tech Industries are exempt from CIT on income derived from new direct overseas investment. This includes profits from newly established overseas branches or dividends corresponding to new foreign investment from subsidiaries where the enterprise holds more than 20% equity.
- Individual Income Tax (IIT) Cap: High-end and urgently needed talents working in the Hainan FTP are exempt from the portion of IIT that exceeds 15% of their actual tax burden, making talent recruitment highly competitive.
- “Zero Tariff” on Capital Goods: Before the island-wide closed operation (scheduled for December 18, 2025), certain imported self-use production equipment and transportation tools/yachts are exempt from import duties, import VAT, and consumption tax.
- Raw Materials “Zero Tariff”: Raw materials and auxiliary materials imported by eligible enterprises for self-use in manufacturing or service trade under the “two ends outside” model are exempt from import duties, import VAT, and consumption tax.
- Expanded Market Access: The FTP is gradually relaxing or removing restrictions on foreign equity ratios and requirements for senior management personnel in key industries. It operates under the pre-establishment national treatment plus negative list management system.
- Profit Reinvestment Incentives: Reinvestment of profits by foreign-invested enterprises is encouraged and receives the same supporting policies as new foreign capital, including exemption from foreign exchange registration for reinvestment within the FTP.
Key Sectors for Foreign Investment
Tourism Industry
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Sub-Sector Focus
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Specific Investment Opportunities
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Tourism Operations & Infrastructure |
Investment in hotels, specialized small/medium family hostels, and rural guesthouses. Development of various tourism products: cultural, health, sports, marine, and forest tourism. Construction and operation of international exhibition facilities. |
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Duty-Free Retail |
Encouragement for duty-free operators to build modern shopping facilities, introduce international high-end brands, and enrich product variety. |
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Marine Tourism |
Development of products related to cruises, yachts, and marine sightseeing/sports. Encouragement for yacht tourism facilitation, including simplified entry procedures and relaxed requirements for self-driving foreign yachts. |
Modern Services Industries
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Sub-Sector Focus
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Specific Investment Opportunities
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Finance and Investment |
Establishment of wholly-owned or joint venture financial institutions by eligible overseas securities, fund, and futures operating entities. Foreign investors are encouraged to set up investment companies. Support is given to multinational corporations for establishing cross-border capital centralized operation centers. The FTP streamlines management for Qualified Foreign Limited Partners (QFLP). |
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Trade & Logistics |
Development of global/regional novel offshore international trade centers. Services related to international shipping (arbitration, brokerage, consulting, crew services). International logistics, air freight, and container transit services. Development of regional headquarters and functional institutions for multinational corporations. |
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R&D and Professional Services |
Establishment and development of foreign-funded R&D centers. Services in industrial design, consulting (economic, legal, accounting, tax). |
High-tech Industries
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Sub-Sector Focus
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Specific Investment Opportunities
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Aerospace & Aviation |
R&D, manufacturing, maintenance, and operation services for aircraft, aero engines, and airborne products. Manufacturing and R&D for satellites, launch vehicles, and related ground facilities. Commercial space launch and satellite control services. |
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Advanced Manufacturing & Repair |
R&D, manufacturing, and maintenance of yachts and cruise ships. Manufacturing of new energy and clean energy powered vessels. R&D and manufacturing of specialized, autonomous, and unmanned marine vehicles. |
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New Energy & Green Tech |
Development and manufacturing of new energy vehicles and related parts. R&D of marine renewable energy equipment. Manufacturing of 8 MW and above offshore wind power units. R&D and manufacturing of hydrogen energy and storage equipment. |
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Digital Economy & IT |
R&D and commercial application of 5G and 6G technologies. R&D of core software (OS, databases) and hardware (processors, storage). Digital content services (animation, gaming, VR/AR, etc.). The FTP supports the establishment of a safe and orderly data cross-border flow management system. |
Tropical Characteristic and Efficient Agriculture
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Sub-Sector Focus
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Specific Investment Opportunities
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Primary Production & Breeding |
Seed industry & agricultural technology, resource management & development, modern farming & technology. |
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Processing & Manufacturing (Deep Value-Added) |
Tropical agri-product processing, imported food processing, aquatic processing, green technology & biomaterials |
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Logistics Infrastructure |
Operation of cold chain logistics collection and distribution centers for agricultural, forestry, and fishery products, food, and pharmaceuticals. |
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Trade Marketing & Services |
Construction of agricultural and forestry product trade marketing centers, provision of agricultural and forestry products entering supermarket series services. |
Health and Medicine
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Sub-Sector Focus
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Specific Investment Opportunities
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Boao Lecheng Pilot Zone |
Medical institutions and research institutes are supported in importing tax-free drugs and medical devices. This includes products already registered in China and licensed drugs/devices (excluding vaccines) not yet approved nationally but approved by the Hainan government for use in the Pilot Zone. |
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General Health & Medical Services |
Establishment of wholly foreign-owned hospitals. Engagement in R&D and application of technologies for human stem cells, gene diagnosis, and therapy for product registration and production. High-end professional medical, rehabilitation, and nursing services. R&D and manufacturing of domestically proprietary medical instruments. |
Foreign Investment Environment: A Modern Framework for Openness and Investment
At the core of the Hainan Free Trade Port (FTP) is a commitment to building a world-class business environment—open, rules-based, and aligned with international standards. The goal is not just to lower market access barriers, but to foster an economic system that is guided by market forces, governed by law, and attractive to global investors.
Market Access: Pre-Establishment National Treatment + Negative List
Hainan FTP fully enforces the principle of pre-establishment national treatment, alongside a negative list approach for foreign investment. This means foreign investors enjoy the same access as domestic investors in sectors not on the restricted list. Regulatory departments are required to review the negative list when approving registrations, projects, or licenses, and to streamline these processes through better coordination and data sharing across agencies.
Opening Key Sectors: Healthcare, Education, Finance
Restrictions on foreign ownership in sensitive sectors are being lifted or relaxed. Foreign investors can now establish wholly owned hospitals and participate in cutting-edge biomedical fields like stem cell research, gene therapies, and related manufacturing and commercialization. In education, high-caliber overseas universities and vocational institutions are encouraged to establish campuses in fields such as science, engineering, agriculture, and medicine.
In the financial sector, qualified overseas firms are permitted to establish wholly owned or joint-venture entities in securities, funds, and futures. The FTP also welcomes foreign reinsurance companies and encourages cross-border collaboration in medical insurance innovation. Across these industries, restrictions on equity ratios and senior management appointments are gradually being eased.
Capital Freedom: Free Trade Accounts and Financial Innovation
Hainan offers a highly open capital regime. Banks can open multifunctional Free Trade Accounts (FTAs) for eligible FIEs, making it easier to manage cross-border funds. Multinational companies are encouraged to set up centralized treasury operations, and there are no unlawful limits on the currency, amount, or timing of capital transfers.
Profits, dividends, and capital gains can be freely repatriated in RMB or foreign currency. Reinvestment by FIEs enjoys the same benefits as new foreign capital, and if reinvested within the FTP, no foreign exchange registration is required.
The Free Trade Port has also rolled out a simplified regulatory framework for Qualified Foreign Limited Partners (QFLP), making it easier to launch and manage investment funds. Meanwhile, financial institutions are encouraged to design sustainable financing tools, including IP-backed lending and securitization instruments, to serve innovation-driven enterprises better.
How CW CPA Supports You
Hainan Free Trade Port is set to become a world-class hub for trade, investment, and innovation. Its tax, tariff, and investment incentives create opportunities for businesses across industries, while its geographical position makes it a strategic bridge between China and global markets.
Navigating Hainan FTP’s regulatory framework requires expert guidance. As a Hong Kong-based CPA firm with a proven track record in supporting foreign investors, CW CPA provides:
- Investment structuring: Advising on entity setup, joint ventures, and tax-efficient structures.
- Cross-border tax planning: Ensuring compliance with Chinese, Hong Kong, and international tax rules.
- Policy navigation: Interpreting eligibility for zero-tariff lists, industry catalogues, and talent incentives.
- Market entry support: Assisting exporters and investors in leveraging Hainan as a gateway to China and the Asia-Pacific.
- Bilingual expertise: Serving clients in English, Spanish, and Chinese to bridge cultural and business gaps.
Contact us today to learn more about doing business in Hainan FTP.