Page 8 - The South China Business Journal

D EPTH
“Imported materials” refer to goods entering the
Hainan FTP from abroad that have not completed
import tax payment procedures, including bonded
goods and zero-tariff goods. Bonded supervision
measures shall be implemented for goods declared
for export into the Hainan FTP’s special customs
supervision areas.
Calculating the value-added content
of goods
The value-added content of goods is calculated
using the following formula:
Value-added percentage = [(Domestic sales
price – ∑ price of imported materials – ∑ price
of domestically purchased materials) ÷ (∑ price
of imported materials + ∑ price of domestically
purchased materials)] × 100%
If the result is 30 percent or higher, the goods are
eligible. The de昀椀nitions are as follows:
• Domestic sales price: The actual transaction price
when the goods are sold to the Chinese mainland. where the materials or processed products
• Imported materials: The total cost of materials
imported into China used in making the product,
including transport and insurance costs up to the
point of entry.
• Domestic materials: The cost of materials
bought within China (excluding VAT). If the
material was produced within Hainan, its value can
be subtracted from the domestic material cost.
If several registered companies in Hainan are
involved in processing the product at different
stages (for example, one company does
assembly, another does packaging), their value-
added contributions can be combined. In that
case, the same formula applies, but the material
costs and prices from all involved companies are
added together.
Process to benefit from the zero-
tariff policy
To bene昀椀t from the zero-tariff policy, companies
must go through a structured registration and
customs approval process jointly overseen by
provincial authorities and the GAC.
The Hainan government will establish a public
information service platform to support the
registration of enterprises, materials, processed
products, and related value-added processing
activities. This platform also facilitates
information sharing between the GAC and
relevant local departments.
For a company to apply for the 昀椀rst time, it must
submit an application and required documentation
5 AMCHAM SOUTH CHINA
to a designated unit under the Hainan Provincial
Department of Commerce. After a preliminary
review at the city or county level and approval by
relevant provincial departments, Haikou Customs
assesses whether the enterprise meets customs
supervision criteria. Once approved, the company
is registered through the platform, including
information on the enterprise itself, the materials
and 昀椀nished products involved, the production
process, and other participating upstream or
downstream entities.
Before transferring goods from Hainan to the
Mainland under this policy, the registered
company must declare the value-added process to
the GAC. If the processing results in a value-added
increase of 30 percent or more, the customs
system automatically generates a con昀椀rmation
number that allows the company to complete its
import declaration and tax procedures without
paying import duties.
In certain cases, even when the value-added
threshold of 30 percent is met, the zero-tariff
bene昀椀t does not apply. These include situations
fall under tariff quotas, trade remedy actions,
suspended concessions, or retaliatory tariffs
(unless such tariffs are explicitly exempted). The
policy also excludes products that have undergone
only minimal or super昀椀cial processing, such as
blending, labeling, simple cutting, or packaging,
which are de昀椀ned by the provincial commerce
authorities. Other legal or regulatory grounds may
also require that import duties be paid regardless
of value-added status.
Tax policies for goods entering and
leaving the Hainan FTP
On July 18, 2025, the GAC, State Tax
Administration (STA), and Ministry of Finance
(MOF) jointly released the Notice on the tax policy
for goods entering and leaving the “昀椀rst line”
and “second line” of Hainan Free Trade Port and
circulating on the island (hereinafter, the “Notice”).
Among the tax policies outlined in the Notice,
certain eligible entities are permitted to import
goods from outside of China at a zero percent
tariff rate, provided the goods are not included in
a catalog of taxable imported goods.
First line: Established between the Hainan FTP and
other countries and regions outside the customs
territory of the People’s Republic of China.
Second line: Established between the Hainan FTP
and other areas within China’s customs territory.
More broadly, the Notice outlines the import duties
and tax policies for goods entering and exiting the
Hainan FTP from outside of China, called the “昀椀rst
line”, and those entering the Hainan FTP from the
Chinese mainland, called the “second line”.
The tax policies for these two lines are as follows: Goods entering the Hainan FTP from the
Mainland via the second line are managed as
Goods entering the Hainan FTP through this domestic goods, while goods exported from the
昀椀rst line will be subject to varying management Hainan FTP through the first line are subject to
mechanisms to determine taxable or duty-free export regulations.
status. These mechanisms are as follows:
Circulation of zero-tariff goods
1. Goods included in a catalog of taxable imported within Hainan
goods will be subject to import tariffs, import VAT,
and consumption tax.
Zero-tariff goods and their processed products
that circulate within the Hainan FTP are also
2. Goods imported by companies registered in the subject to certain tax and duty rules depending
Hainan FTP with independent legal person status,
as well as public institutions within the Hainan on the status of the entity that is trading in them.
FTP and approved non-pro昀椀t private entities These rules are as follows:
engaged in science and technology or education
registered in the Hainan FTP (herinafter referred 1. When zero-tariff goods and their processed
to collectively as “eligible bene昀椀ciary entities”), products circulate between eligible bene昀椀ciary
are exempt from import duties, import VAT, and entities, they are exempt from paying import
consumption tax, provided the goods are not listed tariffs, import VAT, and consumption tax. Instead,
they will be subject to the domestic VAT and
in the catalog of taxable goods. consumption tax. Eligible bene昀椀ciary entities may
voluntarily choose to pay the import tariffs, import
3. With the exception of the goods listed above, VAT, and consumption tax.
any goods currently subject to bonded or reduced-
tariff imports, as well as other imported goods, 2. When eligible bene昀椀ciary entities circulate zero-
are subject to import duties, import VAT, and tariff goods and their processed products to non-
consumption tax.
eligible entities and individuals within the Hainan
FTP, they must supplement import duties, import
The authorities will also establish customs VAT, and consumption tax based on the imported
electronic accounts for zero-tariff goods. materials, and domestic VAT and consumption tax
Customs procedures for speci昀椀c duty-exempt will also be levied in accordance with regulations.
goods will not be applied, while audits and 3. Goods for which all import taxes have been paid
inspections will be conducted as needed.
or supplemented shall be managed according to
domestic circulation regulations, and domestic VAT
A list of eligible bene昀椀ciary entities will be
determined and dynamically adjusted by the and consumption tax shall be levied in accordance
Hainan provincial government, and 昀椀led with with the law.
relevant departments such as the MOF, the GAC,
and the STA. Simplified customs procedures for trade
through the Hainan FTP
Under the second line, zero-tariff goods and their
processed products entering the Mainland through On July 23, the GAC also released another set of
the “second line” are subject to the following
management mechanisms: measures, titled the Measures for the Supervision
of Hainan Free Trade Port (hereinafter, the
“Supervision Measures”), which aim to establish a
1. Eligible entities shall complete the relevant clear and ef昀椀cient regulatory framework for customs
supervision within the Hainan FTP. The Supervision
customs procedures and make supplementary
payments of import duties, import VAT, and
Measures simplify procedures and outline the
consumption tax on the imported materials. customs processes for zero-tariff policies.
2. Goods for which import taxes have already been
As prescribed in the Supervision Measures, the
paid or supplemented during import through the Hainan FTP will establish advanced administrative
“昀椀rst line” or during circulation within the island
facilities to facilitate customs supervision and
will not be subject to additional import taxes. streamline trade processes. Customs authorities will
3. Goods for which domestic VAT has already been develop a smart customs supervision system and
platform tailored to the needs of the Hainan FTP,
paid during circulation within the island will not be fully utilizing modern technology and information
subject to additional import VAT.
systems to enable intelligent and ef昀椀cient customs
4. Goods for which all import taxes have been paid procedures for enterprises and organizations.
or supplemented will be managed under domestic Additionally, Hainan Province will set up the China
circulation regulations, and domestic VAT and (Hainan) International Trade Single Window,
consumption tax will be levied as prescribed. incorporating specialized application functions
SOUTH CHINA BUSINESS JOURNAL 6