What does customs closure in Hainan, China mean?

GACC issued two announcements on July 23:

• No. 158: Interim Measures of the Customs of the People's Republic of China on the Collection and Administration of Taxes on Value-added Duty-free Goods in Hainan Free Trade Port.
• No. 159: Measures of the Customs of the People's Republic of China on the Supervision of Hainan Free Trade Port.

It should be noted that the main difference after the closure of the Customs lies in the changes in import duties, personal and corporate taxes. The quarantine requirements for importing agricultural products and food from abroad will not change.

Specific operations and impact

"First-line liberalization" refers to the relationship between Hainan and foreign countries:

• 74% of imported goods are subject to zero tariffs (the number of the tax-free items increased from current 1,900 to 6,600), covering luxury goods, cars, digital products, etc.
• The number of countries with visa-free entry will be increased to 85, and the approval authority for working permits for international talents will be delegated to Hainan Province.
• More international flights will be launched. The foreign airlines can operate passenger and cargo flights in Hainan via the third countries.

"Second-line control" refers to the relationship between Hainan and the mainland of China:

• Goods entering the mainland must be controlled according to import regulations.  However, goods that undergo more than 30% value addition within Hainan are exempt from tariffs.
• Mainland residents can enter and exit freely with their ID cards, without the need for additional documents. The flights and ferries will operate as current. The annual off-island duty-free quota of 100,000 yuan per person is retained. A new "buy now and pick up" mode is added (goods can be picked up immediately after the payment).

"Freedom within the island":

• Zero-tariff goods can circulate freely among enterprises on the island, without additional tax; the flow of funds and talents will be more convenient.
• Residents of Hainan can purchase imported daily necessities (such as milk powder and cosmetics) duty-free, with prices about 25% lower than those in the mainland. Imported fruit and seafood may drop in price by more than 20% due to tariff reductions and logistics optimization.
• Individual income tax will have a ceiling of 15%. For example, those with an annual salary of 1 million RMB will pay about 110,000 RMB less tax than those in the mainland.
• Corporate income tax is 15%, 10% less than in the mainland, hoping to attract technology and financial companies.
• Career opportunities will increase, such as live broadcasting and offshore financial advisors.
• Improved living standards, through the opening of more international schools (such as Harvard cooperative campuses) and faster import of overseas new medicines.

The goal of Customs closure in Hainan

1. Processing and manufacturing have exploded. Enterprises can reduce costs by 30% (such as semiconductor packaging and biomedicine) by taking advantage of the policy of "tax exemption for imported raw materials + duty exemption for goods that undergo more than 30% value addition".
2. Create a diversified international consumption scenario of "duty-free shopping plus international performing arts plus yacht economy". Currently,Hainan's offshore duty-free sales have grown rapidly, accounting for over 8 percent of the global duty-free market.
3. Data and financial innovation: pilot cross-border data flow, offshore RMB settlement, and providing a controlled environment to test reforms in taxation, investment approval etc..

Customs closure does not mean Hainan will be closing up, rather Hainan will be more open internationally.

More information

For more information, you can reach out to the Netherlands Agricultural Network team in China via PEK-LVVN@minbuza.nl.