Page 9 - The South China Business Journal

D EPTH

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

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