Hongda will explain what you need to understand about the Hainan Free Trade Port closure and things to pay attention to as the closure date approaches.
In our previous blog, Hongda has explained that the Hainan Free Trade Port is not a port in the usual sense, but rather the entire Hainan Island being developed as a special economic zone. Since the release of the Master Plan for the Hainan Free Trade Port in June 2020, the region has undergone significant reforms in customs, free trade, and logistics. According to the latest announcement by the Chinese government, Hainan Free Trade Port will officially implement “Island-wide Customs Closure” starting December 18, 2025.
In this blog, Hongda will explain what you need to understand and pay attention to as the closure date approaches.
Does ‘Customs Closure’ Mean ‘Island Closure’?
After the policy was announced, some businesses and travelers worried that entering and leaving Hainan might become inconvenient—e.g., would a special pass be required for tourism, or would the island be sealed off entirely?
No. “Customs closure” means turning Hainan Island into a special customs supervision area, with freer and more convenient policies than the rest of China:
- First line (Hainan ↔ overseas): Freer import/export measures.
- Second line (Hainan ↔ mainland China): More precise regulation to balance first-line openness.
- Island-wide freedom: Within Hainan FTP, production factors and resources flow more freely.
After customs closure, most goods, as well as all personnel and vehicles, will enter and leave Hainan largely as before. Travelers for business or leisure can still come and go freely without additional permits.
Key Incentives to Remember
1. Expanded Zero-Tariff Coverage
Hainan FTP applies a zero-tariff regime to goods entering from overseas via the first line—exempting customs duties, import VAT, and consumption tax. With customs closure, the framework shifts from scattered positive lists to a negative-list approach using the Import Taxable Goods Catalog as the boundary: items outside the catalog generally qualify if the importer is an eligible beneficiary and compliant. Eligible tariff lines expand from ~1,900 to ~6,600 (coverage ~21% → ~74%). Beneficiaries now include enterprises, public institutions, and qualified private non-enterprise entities. Zero-tariff goods (and their processed products) may circulate within the island among beneficiaries without back-tax. Items under quotas or trade remedies remain subject to national rules, and electronic ledger requirements apply.
2. Optimized Processing Value-Added Duty Exemption
For processing trade, the mechanism for duty-free entry into the mainland where value added in Hainan is ≥30% has been significantly optimized. The core rule remains: if un-tax-cleared imported materials undergo substantive processing within the Hainan FTP, and the product achieves no less than 30% value added in Hainan, that product may enter the mainland exempt from import duties (import VAT and consumption tax remain payable). Compared with earlier pilots, key improvements include:
- removal of the ‘encouraged-industry income ≥60%’ precondition for this customs duty benefit;
- permission for zero-tariff inputs to be used in the processing flow, increasing flexibility in production scheduling and procurement;
- permission to count the value of “Hainan-origin goods” toward value added and to accumulate value added across the entire island rather than limiting it to a single enterprise/specific zone—better reflecting multi-enterprise collaboration;
- explicit exclusion of “minor processing” (e.g., mixing, relabelling, simple repackaging/cutting) to prevent arbitrage.
Note: The ≥30% value-added duty-free entry is a customs (tariff) preference and is independent of the 15% corporate income tax (CIT) and other income-tax policies.
3. Corporate and Individual Income Tax Preferences Remain Unchanged
Enterprises registered in Hainan with substantive operations whose principal business falls within encouraged industries and meets the income-composition threshold are subject to 15% CIT on Hainan-sourced income (qualifying Hainan branches likewise). For individuals, qualifying high-end and urgently needed talent have the portion of IIT above 15% exempt, subject to current-year Hainan rules (e.g., residence days).
Outside the Hainan Free Trade Port, China’s statutory CIT is 25%. A 15% rate is available elsewhere mainly via HNTE recognition (strict R&D/technology/revenue metrics) or Western Development (through 2030, with geographic/industry and income-mix limits). Hainan’s 15% is a region + industry + substance regime designed to run in parallel with the customs system. For individuals, nationwide comprehensive IIT is progressive (3%–45%); in Hainan, eligible talent are effectively capped at 15%, which materially improves net income and hiring competitiveness.
What Preparations Should Enterprises Make in Advance?
The customs closure is a major institutional change, and businesses should act early to maximize the benefits of Hainan FTP policies:
1. Establish a Real Presence in Hainan
To enjoy the 15% corporate income tax or tariff exemptions, companies must be registered and operating in Hainan with substantive business activities, not just a shell entity. Hongda recommends securing office space, hiring staff, and ensuring “substance requirements” are met.
2. Financial & Tax Planning
Compare tax burdens between Hainan and the mainland in advance, and plan your future profit centers and capital flows accordingly. For individuals, Hainan offers preferential personal income tax for high-level and urgently needed talent (exempting the portion above 15%). Enterprises should consider setting up R&D or HQ functions in Hainan to attract talent.
Conclusion
The upcoming customs closure of the Hainan Free Trade Port will bring multiple benefits for enterprises in tariffs, taxation, and talent policies. At the same time, it introduces new compliance requirements. Companies that prepare early in terms of supply chain adjustment, tax planning, use of financial tools, and regulatory compliance will be better positioned to capture opportunities and minimize transition risks.
Hongda has extensive hands-on experience in company establishment, tax & financial planning, and foreign exchange account setup in China. If you plan to leverage the policy advantages of the Hainan FTP, now is the best time to prepare. Contact Hongda’s consulting team for customized solutions to help you successfully establish in Hainan and seize the Free Trade Port opportunities.
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