Hainan – Not your ordinary Free Trade Zone

Covid-19 continues to produce complicated ripple effects globally and on the Chinese economy. China decided to confront these effects by offering a number of unique and unprecedented preferential policies to be applied on Hainan. On June 1, 2020, China’s government released “the Plan” for the Hainan Free Trade Port (“Hainan FTP”), with the aim of building Hainan into a top-notch global free trade port.

Under the Plan, the Hainan FTP will take the following steps designed to facilitate both market entry and business operation for various enterprises, many of which will only be available there – this list is absolutely worth your attention when making your decision about investing in China:

i.Preferential Taxes: Zero Tariff, Lower EIT and IIT Rates, Immediate Expensing.
The Hainan FTP will have many more tax preferences than other traditional free trade zones in China. This includes a zero tariff, import VAT, and consumption taxes for various production facilities, materials, and goods. Certain goods originally made or assembled with necessary value-adding in the Hainan FTP for domestic China will also be exempt of customs duties.. Other notable preferential tax rates include:

  • 15% enterprise income tax (“EIT”) rate for certain enterprises registered and operating in the Hainan FTP. This sort of geographical reduction is extremely rare.
  • Individual income tax (“IIT”) rate for high-profile and talented people will be capped at 15%.
  • 100% immediate tax expensing for capital expenditures – you will be able to write off these expenditures immediately, instead of portioning it out over many years.

ii.Foreign Investment & Trade Regulation: Liberalization and Protection
Market entry for foreign investment and trade will be remarkably facilitated and simplified in Hainan FTP. For example, foreign investment even in telecommunication services, as well as financial securities and futures will be gradually opened up. You will recognize these as sensitive areas, and the fact that China is willing to loosen restrictions speaks to its perspective on opening its markets. Moreover, foreign invested companies will receive national treatment, with greatly reduced prohibitions and restrictions. All of these developments are huge.

iii.Capital Flows: Important Moves Towards More Liberal Capital Movement
We are all aware of the capital and foreign exchange controls that remain in place in China, but even within that framework the Hainan FTP aims to create higher capital mobility. One of the most important of these moves is allowing entities to set up multi-functional free trade accounts in multiple currencies to facilitate trade, which might also ultimately facilitate movement of capital. Other interesting developments:

  • Support for overseas listing of companies in the Hainan FTP.
  • Non-residents will be able to access A-trade shares.

iv.Individual Mobility
The Hainan FTP will implement highly preferential entry-exit policies, in order to bring in as many internationals as possible to travel, work, and reside there. Perhaps the most relevant of these developments will be a visa-free system for people coming to Hainan for business, family visits, medical attention, exhibitions, and athletic events.

In light of the above, the Hainan FTP is not just a powerful response at the present circumstances, but also a firm signal to companies and investors all over the world that China is serious about opening up further. While these policies are still in the nascent stages, DaWo Law Firm will keep you posted, and we are available to answer any questions you may have.

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