China’s new Hainan Free Commerce Port Regulation is a part of its ongoing efforts to develop Hainan Island right into a globally influential free commerce port. The regulation lays the authorized basis for the development of Hainan FTP and provides the area higher autonomy for delivering on complete reforms and market opening.
On June 10, 2021, the Standing Committee of the 13th Nationwide Individuals’s Congress adopted the Hainan Free Commerce Port Regulation of PRC. The regulation took impact instantly.
This got here only one yr after China launched a masterplan final June that laid out a collection of insurance policies, which unveiled the roadmap for Hainan to be reworked right into a world-leading free commerce hub like Hong Kong and Singapore.
Beijing has realized that for this to occur a reputable rule of regulation programs is crucial for Hainan, which is why work on formulating crucial laws has been in full swing. The promulgation of Hainan Free Commerce Port Regulation goals to transform present coverage incentives into legislative actuality, present authorized ensures for varied future reforms, and improve the arrogance of traders, particularly international traders.
Highlights of Hainan Free Commerce Port Regulation
The Hainan Free Commerce Port Regulation includes eight chapters protecting all of the areas concerned within the port’s development, together with the liberalization and facilitation of commerce and funding, fiscal and taxation programs, environmental protections, industrial growth and expertise assist, and different complete measures.
Liberalization and facilitation of commerce
The Regulation ensures to “set up a particular customs supervision zone system of Hainan Free Commerce Port (FTP) for impartial customs operations all through Hainan Island”.
In accordance with the masterplan, for cross-border commerce in items, Hainan FTP will arrange a “first line” to abroad international locations and areas, and a “second line” to the Chinese language mainland.
In precept, the primary line can be open – items (besides these on Hainan’s prohibitive or restrictive lists) will be freely imported and exported between abroad areas and Hainan FTP underneath customs’ particular supervision.
And the second line can be extra tightly managed – items getting into the Chinese language mainland from Hainan will undergo procedures in accordance with related import rules, customs duties, and taxes.
For cross-border commerce in providers, Hainan will undertake a adverse record administration system for cross-border commerce in providers – past the adverse record, home and international market entities ought to be equally handled. Apart from, Hainan will even implement the fund fee and switch system that matches the cross-border commerce.
Liberalization and facilitation of funding
Funding-wise, primarily based on the Regulation, Hainan will launch the “most-streamlined-approval system” for funding, implement simplified adverse record for international funding and particular measures for enjoyable market entry, and step by step undertake the “system of market entry upon dedication”.
Final December, Hainan rolled out a brand new adverse record for international funding entry within the FTP. The adverse record, applied from February 1, 2021, expanded market entry to international funding in varied sectors, comparable to telecommunications, schooling, enterprise providers, manufacturing, and mining, in Hainan FTP.
Fiscal and taxation programs
The Regulation additionally helps Hainan FTP to determine its personal taxation system – primarily based on the masterplan, the taxation system will keep on with the ideas of “zero tariffs”, “low tax charges”, and “simplified tax regime”.
China goals to launch island-wide impartial customs operations and implement a simplified tax regime in Hainan by round 2025.
Earlier than that point, some items imported from abroad topic to record administration (one zero-tariffs adverse record and three optimistic lists) will be exempt from import duties, value-added tax (VAT), and consumption tax.
After 2025, all items imported from abroad can be exempt from import duties, apart from these listed within the to-be-formulated Adverse Checklist of Commodities Topic to Import Taxes and items prohibited from importing into Hainan by regulation.
To be famous, items getting into the mainland from Hainan FTP will nonetheless be topic to import tariffs. That mentioned, items produced by inspired industrial enterprises that don’t include imported supplies or include the imported supplies however attain a sure proportion of value-added processing in Hainan FTP can be exempt from import tariff.
In flip, for items getting into into Hainan FTP from the mainland, VAT and consumption tax that have been levied will be refunded pursuant to the related provisions.
Low tax charges
The Hainan FTP Regulation reiterates favorable company revenue tax (CIT) and particular person revenue tax (IIT) insurance policies in Hainan, though it doesn’t make particular provisions for tax charges.
In accordance with the masterplan, enterprises registered in Hainan and engaged in substantive enterprise actions in inspired trade sectors can be taxed at a diminished CIT price of 15 % by 2025, in contrast with the traditional price of 25 %.
After 2025, this coverage can be expanded to all trade sectors (besides these on Hainan’s funding adverse record).
As well as, for high-end skills and skills in brief provide working at Hainan FTP who meet sure standards, the portion of their precise IIT burden exceeding 15 % can be exempt. After 2025, Hainan FTP will proceed to cut back IIT charges to three, 10, and 15 % (three tax brackets) for eligible skills’ taxable revenue earned in Hainan, however certified international or Chinese language skills should reside there for a minimum of 183 days per yr.
Simplified tax regime
The Regulation stipulates that oblique taxes and costs on Hainan Island, comparable to VAT, consumption tax, automobile buy tax, city upkeep and development tax in addition to schooling surcharges ought to be streamlined into one gross sales tax to be levied on the retail level of products and providers. This can be applied when the island begins its impartial customs operations, following which Hainan will additional simplify its general tax system sooner or later.
What’s extra, the Regulation places ahead the strictest ecological and environmental safety system, implementing the one-vote veto system for environmental safety and lifelong accountability for harm to the ecological atmosphere.
Industrial growth and expertise assist
The Hainan FTP Regulation re-emphasizes growing Hainan into a global tourism consumption middle, pushing for the deeper integration of tourism, tradition, sports activities, medical care, pension, and healthcare, and so forth. This contains growing Hainan’s medical tourism. China continues to develop a 20-square kilometers medical tourism zone in Boao with 16 medical services.
Apart from, to draw and domesticate a powerful skills market in Hainan, a extra handy visa coverage can be applied for international expertise and expatriates. Excessive-level abroad universities and vocational schools could set up faculties of science, engineering, agriculture, and medication in Hainan.
Different complete measures
Moreover, the Regulation additionally known as for establishing a cross-border fund movement administration system that meets the wants of high-level commerce and funding liberalization and facilitation and guarantees to open up the capital account by levels, step by step making the international money owed of nonfinancial enterprises totally convertible.
Hainan FTP: Pioneer in China’s systematic reform
The implementation of the Hainan FTP Regulation undoubtedly demonstrates China’s agency willpower to open wider to the surface world and promote financial globalization.
Throughout the early levels of China’s reform and opening up, the nation step by step experimented with new initiatives first and constructed legal guidelines primarily based on their outcomes. As a brand new area present process complete and deepening reform at fast tempo, Hainan is on the forefront on this sense. Unprecedently, the Hainan FTP Regulation provides Hainan higher autonomy for delivering on complete reforms and advertising opening.
Home and international traders who’re keen on organising in Hainan can take full benefit of Hainan FTP’s preferential insurance policies by evaluating how these can align with their very own enterprise growth methods.
Dezan Shira & Associates has been paying shut consideration to the event of Hainan FTP and its preferential insurance policies on commerce facilitation, import and export duties, customs supervision, and monetary reforms. For extra data, please contact us for help at China@dezshira.com.
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