With all eyes on taxation policy adjustments linked to the upcoming island-wide customs operations of the Hainan Free Trade Port (FTP), the Department of Finance of Hainan Province provided detailed explanations on key topics on October 28 at the first session of the Hainan Free Trade Port Policy Introduction & Enquiry Seminar for Enterprises. These included the optimization of the "zero-tariff" framework and the eligibility scope and criteria for the "dual 15% cap" on corporate and individual income taxes.

Three "zero-tariff" lists to transition to negative list management

According to the Overall Plan for the Construction of the Hainan Free Trade Port, a tax system suited to high-standard free trade ports will be progressively established. To date, 18 tax policies have been implemented, including three "zero-tariff" lists (for raw and auxiliary materials, self-use production equipment, and vehicles and yachts), a preferential 15% income tax rate for eligible enterprises and individuals, and 14 early-harvest tax measures such as island-departure duty-free shopping.

Additionally, four incremental policies, including duty exemptions for temporary import/export repairs, zero-tariff treatment for pharmaceuticals and medical devices, and stamp duty exemption for offshore trade, have been introduced. Together, they form the initial framework of a unique tax system characterized by "'zero tariffs' facilitating trade and 'low tax rates' driving economic growth."

On July 23, 2025, China's Ministry of Finance and other departments issued six new customs policies, including the "list of taxable import goods and policy relating to the taxation of goods moving into, out of, and within Hainan", to be implemented with the launch of island-wide special customs operations. Once these have come into effect, the number of preferential tax policies will drop from 18 to 17, marking a higher level of openness and more substantial policy incentives that directly enhance public benefits.

Before the launch of special customs operations, the taxation of goods entering Hainan will remain subject to the three "zero-tariff" lists, which contain around 1,900 tariff items, including raw and auxiliary materials, self-use production equipment, and vehicles and yachts. Following their launch, this positive-list management approach will be replaced by a negative-list system under the new list and tax policy framework, together with other policies providing preferential tax treatment for zero-tariff, bonded, and other goods. The system will allow market entities to choose the most favorable option, offering greater flexibility and diversity.

These policies are set to substantially elevate Hainan's level of openness. The new list of taxable import goods encompasses 2,323 taxable items, meaning that 6,637 items, accounting for 74% of all tariff lines, will qualify for zero-tariff import. This significant increase covers nearly all production equipment and raw materials. The scope of eligible beneficiaries will be expanded to include enterprises, public institutions, and private non-profit organizations across the island, as well as the scope of tax-free circulation among beneficiaries, enabling duty-free transfers of zero-tariff goods and processed products.

To ensure smooth policy implementation, Hainan has issued several supporting measures, such as the Administrative Measures for the Certification of Beneficiaries. "Preliminary reviews began on September 1, and approved entities will be able to benefit from day one of special customs operations," said Yang Shaojuan, Director of the Fiscal and Tax Research Institute of the provincial Department of Finance.

Hainan hosts the longest catalog of encouraged industries nationwide

The "low-tax" framework of the FTP consists mainly of the "dual 15% cap" on corporate and individual income taxes, along with corporate income tax exemptions for overseas direct investment income. These policies, which will continue until the end of 2027, have already ushered in the landing of numerous high-quality enterprises and professionals.

To qualify for the 15% corporate income tax rate, enterprises must meet all of the following three conditions:

1. Have substantive operations within the FTP

2. Engage primarily in industries listed in the Catalog of Encouraged Industries

3. Ensure that the primary business income accounts for at least 60% of total annual revenue

The Catalog of Encouraged Industries contains over 1,100 sectors, the most extensive nationwide, covering strategic emerging sectors such as biopharmaceuticals, offshore wind power, and new energy vehicles, as well as key FTP focus areas like high-standard farmland construction, commercial space launches, and international education. The Catalog is designed to align precisely with Hainan’s industrial development goals, ensuring that more businesses consistent with the FTP's positioning can enjoy policy benefits.

For the tax exemption on overseas direct investment income, enterprises also need to satisfy three conditions simultaneously:

1. Operate substantively within the FTP and engage in industries listed in the Catalog of Tourism, Modern Services, and High-Tech Industries, with revenue derived from such business exceeding 60% of total income

2. Derive overseas income from profits of newly established branches or dividends from subsidiaries in which the enterprise holds at least 20% of shares, corresponding to new overseas direct investments since January 1, 2020

3. Ensure that the statutory corporate income tax rate in the investee country or region is not lower than 5%

This exemption reduces the cost of outbound investment, supporting enterprises in expanding global markets and enhancing international competitiveness.

To enjoy the 15% individual income tax rate, individuals must meet the following conditions:

1. Reside in the FTP for at least 183 days in a tax year (business trips, vacations, or training days may be counted as residence, though actual stay must not be fewer than 90 days)

2. Be recognized as a talent by Hainan's talent authorities or earn over RMB 300,000 annually in the FTP

3. Be employed by an enterprise or organization with substantive operations in the FTP

Personnel in specific industries, such as aerospace, shipping, and offshore oil and gas exploration, who have resided in the FTP for fewer than 183 days due to work requirements but meet other conditions, may also qualify. Applicants can submit documentation to the provincial Department of Human Resources and Social Security for review and approval.

Following the commencement of island-wide special customs operations, Hainan will continue to deepen tax reforms and send a clear signal of proactive, confident openness to the world.