Preferential Policies in Hainan – A Guide for Foreign Investors

Over the past five years, the Hainan Free Trade Port has introduced a wide range of preferential policies to build a globally competitive and investor-friendly hub. We provide a comprehensive overview of the preferential policies in Hainan, including zero-tariff trade, sector-specific support, and measures to attract foreign investment, talent, and technology ahead of the launch of whole-island customs in December 2025.

Since the release of the Overall Plan for the Construction of Hainan Free Trade Port in June 2020, which set out a roadmap for turning the entire island into a free trade port (FTP), Hainan has steadily built a policy and institutional framework aimed at creating a globally competitive, open, and investor-friendly environment.

In the five years leading up to the official commencement of the “whole-island customs” operations on December 18, 2025, the Hainan FTP has introduced a range of preferential policies to attract global capital, talent, and technology while promoting high-quality development in a range of focus industries. In this article, we provide a comprehensive overview of the different policies aimed at promoting business and investment in Hainan FTP, from trade and tax incentives to sector-specific support, financial facilitation, investment protection, and service optimization.

Hainan “customs closure” zero-tariff policy

On December 18, 2025, the Hainan FTP will officially implement zero-tariff and “customs closure” system, establishing a highly efficient, open, and digitally managed trade environment designed to accelerate its development into a globally competitive trade hub. These reforms, a cornerstone of the Hainan Free Trade Port Overall Plan released in 2020, represent a key milestone in the island’s transformation, reflecting over five years of strategic innovation and institutional development in the FTP.

Central to these measures are two zero-tariff initiatives, known as the “first line” and “second line” of the port:

• The first line exempts import duties for exports to the Chinese mainland of goods processed in Hainan that contain imported materials and achieve at least 30 percent added value.
• The second line allows eligible entities to import certain goods from overseas into the Hainan FTP without paying import tariffs, VAT, or consumption tax.

The value-added percentage is calculated based on the domestic sales price minus the cost of imported and domestic materials relative to the total material costs, and contributions from multiple Hainan enterprises in the production chain can be combined.

The policies establish a structured registration and customs approval process, supported by a public information platform and the China (Hainan) International Trade Single Window, enabling smart, streamlined customs supervision and trade clearance. Zero-tariff goods circulating within Hainan or moving to the mainland are subject to specified tax management rules, ensuring that import duties and domestic VAT are collected appropriately while avoiding double taxation. Certain minimal processing or goods under tariff quotas, trade remedies, or retaliatory measures are excluded.

For foreign-invested enterprises, these measures significantly reduce operational and supply chain costs by allowing tariff-free import of raw materials and components and zero-tariff export of value-added goods to the mainland. Simplified customs procedures, digitalized platforms, and differentiated trade policies between Hainan, the Chinese mainland, and overseas markets provide predictable, transparent, and flexible mechanisms for cross-border trade. Strategically, the reforms position Hainan as a competitive location for regional headquarters, manufacturing bases, or logistics hubs serving China and the broader Asia-Pacific region, offering FIEs an attractive long-term platform for growth and integration.

Also read: Hainan to Launch Independent Customs Operations Dec 18: Why It Matters

Interim zero-tariff policies for medicines, medical devices, and raw materials

Hainan’s zero-tariff policies for both medicines and medical devices in the Boao Lecheng Pilot Zone and for raw and auxiliary materials across the Free Trade Port are designed as interim measures ahead of the island-wide customs regime. The Boao Lecheng policy, announced in September 2024, exempts import duties and VAT for eligible medical institutions, education and research entities importing approved drugs and devices for use or sale within the pilot zone, with strict rules on usage and resale. Similarly, the zero-tariff positive list, effective since December 2020, allows Hainan-registered entities to import certain raw and auxiliary materials for self-use, processing trade, or service trade “with both ends abroad” without import taxes, subject to customs supervision and positive list restrictions.

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Both policies are explicitly time-bound and will be nullified once Hainan implements full island-wide independent customs operations on December 18, 2025. At that point, all imported goods – except those restricted under the negative list or prohibited by law – will generally be exempt from import duties, VAT, and consumption taxes, rendering the current zone-specific exemptions for medical and industrial imports redundant. These transitional measures have facilitated sector growth, innovation, and trade efficiency in the lead-up to the broader zero-tariff framework across the Free Trade Port.

Until the new regime takes effect, the Boao Lecheng policy remains in force for medical goods within the pilot zone, while the positive list framework continues to govern raw and auxiliary material imports for production and trade. After December 18, 2025, the simplified, island-wide customs system will standardize zero-tariff treatment for all eligible imports, subsuming these provisional policies into a unified, port-wide framework.

Also read: Hainan’s New Zero-Tariff Policy on Drugs and Medical Devices in Boao Lecheng Pilot Zone

Preferential tax policies

Reduced corporate income tax

The Hainan FTP offers a reduced 15 percent corporate income tax (CIT) rate for companies in certain encouraged industries that are registered in the FTP. China’s standard CIT rate is 25 percent.

In February 2025, the Ministry of Finance (MOF) and State Tax Administration (STA) extended this preferential policy – set to expire at the end of 2024 – until the end of 2027.

To qualify for the reduced CIT rate, companies must be registered in the Hainan FTP and have “substantial operations” (see below) within one of the encouraged industries in the Hainan FTP. Companies can include resident enterprises registered in the Hainan FTP, branches of resident enterprises established in the Hainan FTP, as well as institutions and premises established in the FTP by non-resident enterprises.

The encouraged industry catalogues are:

Companies that qualify for the reduced CIT rate that have their head office in the Hainan FTP can apply the 15 percent rate only on the income of the head office and any branch offices located in the FTP.

Companies that have their head offices outside the Hainan FTP can still enjoy the 15 percent rate on the income of any branches located in the Hainan FTP that meet the requirements for the preferential treatment.

Also read: Hainan Renews Preferential CIT and IIT Policies, Bolstering Free Trade Port Competitiveness

Changes to the CIT policy in 2025

In August 2025, Hainan’s provincial tax, finance, and market regulation bureaus issued a notice refining the scope of “substantial operations” in order to ensure the preferential CIT policy is applied only to companies with genuine operations in the Hainan FTP, and to prevent shell companies from exploiting the incentive. The notice applies retroactively from January 1, 2025, until the end of 2027.

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Previously, to qualify for “substantial operations”, a company only had to prove it derives at least 60 percent of their main business income from industries in the encouraged industries catalogue.

While companies still need to provide evidence they derive 60 percent of their main business income from an encouraged industry, they now also need to show they meet other criteria for production or management over the operations.

Substantial operation is now defined by two different criteria. Any company that meets either of the two criteria qualifies as having substantial operations within the Hainan FTP.

These are:

1. Business-level criterion: The company’s primary location of production and operations is within the Free Trade Port. This means the company’s production and operation, personnel, accounting, assets, and other resources are located in the FTP. The notice provides specific parameters and thresholds for operations (fixed premises and main decision-making located in the FTP), personnel (minimum number of employees based on total headcount residing at least 183 days in the FTP), accounting (vouchers, books, and bank accounts maintained in the FTP), and assets (necessary operating assets physically or legally located in the FTP).
2. Management and control-level criterion: The institution exercising substantial and comprehensive management and control over production and operations is located within the FTP. This means that production and operations decisions (such as planning, control, assessment, and evaluation), financial decisions (such as borrowing, lending, financing, and financial risk management), and personnel decisions (such as appointments, dismissals, and remuneration) are made or executed by the institution established within the FTP.

The notice also emphasizes that companies that are registered in the FTP, but have any of their production and operation, personnel, accounting, or assets located outside the FTP, are not considered to have substantial operations and are therefore not eligible for the preferential CIT policy.

Individual income tax policy

High-end and in-demand talent working in the Hainan FTP are exempt from paying individual income tax (IIT) on the portion of their income in excess of 15 percent. In China, comprehensive income is generally subject to a progressive tax rate of three to 45 percent on the whole. As with the CIT policy, the preferential IIT policy was extended until the end of 2027 in early 2025.

Income that is eligible for the policy includes the comprehensive income obtained in the FTP (including wages and salaries, labor remuneration, royalties, and franchise royalties), business income, and talent subsidy income recognized by Hainan Province.

Individuals can receive this IIT benefit when handling their annual IIT settlement in Hainan Province. This means eligible individuals will first need to pay IIT according to China’s general IIT rate in the current year. When the final settlement is made the next year, the Hainan tax bureau will refund the portion of the IIT that exceeds 15 percent of the actual taxable income.

Changes to the IIT policy in 2025

As with the preferential CIT policy, the Hainan provincial government released a new set of measures in August 2025 which aim to crack down on shell companies exploiting the preferential treatment while also expanding the scope of legitimately eligible talent. The new rules apply retroactively from January 1, 2025 until the end of 2027, and will apply to the 2024 annual IIT reconciliation.

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Under the previous rules, an individual had to live in the Hainan FTP for a minimum of 183 days in a year to qualify. Now, individuals may also count reasonable days spent on business trips, vacations, and training outside the island as days of residence in FTP, with the minimum number of actual days of residence being 90 days.

In addition to the residency requirements, individuals must also meet one of the following requirements (unchanged from before):

• Be a talent recognized by talent management departments at all levels in Hainan Province; or
• Have an income of over RMB 300,000 (US$41,390) in the Hainan FTP in a given tax year (this threshold will continue to be adjusted based on economic and social developments).

As was previously the case, people working in the fields of aviation, shipping, offshore oil and gas exploration, and aerospace (newly added) who have lived in the Hainan FTP for less than 183 days in a tax year due to being required to work away from the area, but still meet the other requirements, may still be able to receive the preferential treatment if they also meet the following conditions:

• They have continuously paid basic pension insurance for employees in Hainan FTP as an employee of a company (except for those exempted from payment in countries that have signed social security agreements with China) for more than six months (including December of the current year) in a tax year; and
• They have signed a labor contract or employment agreement for more than one year with a company or unit registered and with substantial operations in the Hainan FTP.

Individuals that can provide other labor and personnel relationship certification materials to prove the above requirements can also be considered eligible. To be found eligible, these individuals must submit an application to the tax department within the prescribed time and explain the situation. Their application will be reviewed and approved by the Hainan Provincial Human Resources and Social Security Department.

Additionally, the individuals’ employers must meet the criteria for substantial operations within the FTP outlined above in order to be eligible for the preferential treatment. This is to ensure that employees of shell companies cannot avail of the policy.

Moreover, the new measures state that the companies’ business activities must “promote the development of relevant industries in Hainan and shall be commensurate with the IIT tax preferential treatment enjoyed”. This means the scope of eligible talent may potentially be broader than before. Previously, only in-demand talent working within one of 17 specified fields was eligible for the policy.

Trade and investment access policies

Encouraged industries in Hainan

On March 1, 2024 Hainan’s 2024 Catalogue of Encouraged Industries (the “2024 catalogue”) took effect, replacing the 2020 version. Encouraged industry catalogues outline the industries prioritized for growth and investment within the Hainan FTP, with the aim of guiding industrial development, attracting domestic and foreign investment, and channeling resources into strategic sectors that align with Hainan’s long-term economic vision. Being listed in the catalogue is also a prerequisite for companies to access preferential policies, including the preferential CIT and IIT policies discussed above, as well as some of the interim zero-tariff policies.

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The 2024 catalogue introduced 33 new entries, bringing the total to 176 across 14 major categories. The updates focus on diversifying the regional economy and strengthening strategic sectors, with emphasis on tourism, modern services, advanced manufacturing, high technologies, and ecological sustainability.

Key new inclusions cover areas such as pharmaceuticals and biopharmaceutical equipment manufacturing, green building materials, deep processing of agricultural and forestry products, offshore wind power technology and operations, new energy storage technologies, optoelectronics, metaverse applications, satellite communications and navigation, smart transportation, marine environmental governance, recycling of agricultural waste, and aero-medical rescue.

Negative list for overseas service providers

Hainan introduced China’s first negative list for cross-border trade in services on August 26, 2021, under the Special Administrative Measures for Cross-Border Service Trade at the Hainan Free Trade Port. The list sets out 70 measures across 11 industries, defining which services overseas providers are prohibited from offering through cross-border supply, consumption abroad, or the movement of natural persons. Unlike the negative list for foreign investment, this framework regulates service provision without requiring a commercial presence, while unlisted activities are presumed open, ensuring a level playing field for domestic and overseas providers.

The restrictions cover areas such as finance, education, information services, and legal and business services, while easing rules in sectors like professional services, transport, and financial services. In many respects, Hainan’s negative list provides a higher level of openness than China’s WTO accession commitments. For example, it permits representative offices of foreign law firms to handle certain commercial legal affairs in Hainan and removes work experience requirements for foreign education providers. It also scraps restrictions on over 10 vocational exams for overseas citizens, expanding access to professional qualifications and encouraging talent mobility.

Hainan FTP data export negative list

On February 8, 2025, the Hainan FTP released the Data Export Management Negative List (2024 Edition). This data negative list outlines the types of data and volumes of personal information that must undergo certain compliance procedures before they can be exported. Any data within the specified industries that is not included in the negative list can be freely exported.

The negative list was formulated following the issuance of the Regulations on Promoting and Regulating Cross-Border Data Flow, a year earlier, which established a framework allowing free trade zones to independently develop data export negative lists within the national data classification and protection system.

The aim of the negative list is to facilitate the export general, non-protected data and smaller volumes of personal information, in order to reduce compliance burdens for companies.

The Negative List outlines specific business scenarios and data categories within certain industries, as well as defined volumes of personal information, that are subject to varying levels of compliance procedures – such as a security assessment or entering into a standard contract – in order to be exported. Any data not included on the list can be freely exported from the Hainan FTP.

The Hainan Negative List covers different data categories across five industries: important data in the deep sea, aerospace, and seed industries, and personal information in the tourism and duty-free goods industries.

Sector-specific policies and pilot reforms

Independent establishment of qualified foreign universities

In April 2023, Hainan introduced new interim regulations allowing foreign universities to independently establish and operate institutions in the FTP. This is the first time overseas institutions can do so on the mainland without local partners, though domestic organizations and individuals may provide land, facilities, or funding.

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Institutions are limited to programs at undergraduate level or above in science, engineering, agriculture, and medicine, with exceptions for vocational education if necessary. Under the regulations, qualified foreign universities and vocational colleges can set up independent legal entities, enjoy autonomy in governance, curriculum, staffing, and fee systems, and benefit from preferential FTP policies such as tax breaks and tariff exemptions on educational equipment. Applications involve a two-stage approval process, with oversight shared between the Ministry of Education and Hainan’s provincial government.

The provisions require inclusion of courses on Chinese law and civic education, a mix of foreign-language and Chinese instruction, and encourage student exchanges and credit recognition with overseas institutions. Principals must reside in China for at least six months annually, and decision-making bodies must include diverse representatives.

Facilitated pick-up policy for duty-free purchases

From April 1, 2023, Hainan introduced two new collection methods for duty-free purchases by non-local tourists: “guaranteed pick-up” and “buy and collect”. The policy builds on Hainan’s offshore duty-free regime, first launched in 2011 and significantly expanded in 2020, which raised annual individual quotas to RMB 100,000 and broadened product categories.

These two new collection methods seek attract more customers and increase sales for duty-free shops in Hainan by providing more flexibility and convenience when collecting purchases. The policy could also help to prevent tax evasion and smuggling, as it sets clear restrictions and requirements for picking up duty-free goods.

The two collection methods are as follows:

• Guaranteed pick-up: Applies to high-value goods (over RMB 50,000 / US$6,989), requiring a refundable deposit equal to the tax payable. Customs verifies the goods when travelers depart, refunding the deposit if conditions are met. Certain categories, such as tobacco, alcohol, luxury watches, and jewelry, are excluded.
• Buy and collect: Applies to goods priced under RMB 20,000 (US$2,795), such as cosmetics, perfume, clothing, and infant products, with strict per-person quantity limits. Goods are collected upon departure without customs verification.

Tourists may collect their purchases at airports, railway stations, ferry terminals, or by designated delivery. Purchases must be for personal use only and cannot be resold. Travelers who fail to leave Hainan within 30 days face tax liabilities and a three-year ban on duty-free shopping.

Encouraging foreign investment in the Hainan FTP

In July 2025, the Standing Committee of the Hainan Provincial People’s Congress released the Hainan Free Trade Port Foreign Investment Regulations, aiming to promote foreign investment, protect the rights and interests of foreign investors, and optimize foreign investment services in the province.

The regulations provide a blueprint for facilitating foreign investment. They call for the Hainan FTP to gradually relax foreign ownership caps and senior management restrictions, implement a specialized negative list system for market access, and make local regulations more accessible by publishing foreign-language summaries where appropriate. They also set out a range of concrete measures to encourage and support foreign investment, including:

• Allowing FIEs to establish wholly foreign-owned hospitals, conduct stem cell and gene therapy R&D, and set up regional headquarters or R&D centers.
• Permitting qualified foreign financial institutions to establish wholly owned or joint-venture entities, with financial facilitation measures such as multi-functional free trade accounts, cross-border capital pooling centers, tailored insurance products, and intellectual-property-based financing.
• Exempting reinvested profits from foreign exchange registration and providing coordinated support across approvals, land use, environmental compliance, energy, construction, foreign exchange, and talent introduction.
• Supporting FIEs in setting up open innovation platforms, accessing publicly funded scientific instruments, and establishing regional functional offices.

The regulations also seek to strengthen investment protection through initiatives such as:

• Allowing capital, profits, royalties, and employee earnings to be freely remitted without restrictions.
• Safeguarding intellectual property through cross-department enforcement, customs registration, guidance on overseas disputes, and penalties for infringement.
• Establishing multi-channel dispute resolution, including conciliation, mediation, arbitration, administrative review, and litigation, with access to international arbitration and professional legal services.

Finally, the regulations seek to optimize FDI support services. These include:

• A government-led system, involving professional institutions, chambers of commerce, and associations to provide service guides, streamlined electronic enterprise registration, and clear channels for consultation.
• Visa-free entry and extended stays for investors and their families, with relaxed terms for senior managers establishing subsidiaries or branches.
• Customs facilitation programs, including eligibility for Authorized Economic Operator (AEO) status, fast-track clearance, and support for cross-border trade operations.
• Establishing chief service officers, integrated online complaint platforms, and coordinated project support to assist FIEs across approvals, planning, and operational matters.

Foreign investment access negative catalogue

In December 2020, Hainan released the Hainan Free Trade Port Foreign Investment Negative Catalogue (2020 Edition), effective from February 2021. This catalogue sets out the industries where foreign investment is either restricted or prohibited within Hainan. With only 27 items, the list is shorter than both the national and other free trade zone negative lists, signaling the higher degree of openness and liberalization for foreign investors offered in Hainan.

The list eases restrictions in key areas: foreign investors can establish data centers and content distribution networks in telecommunications, set up independent universities and vocational schools in education, and provide legal and business services such as market surveys under joint-venture structures. Manufacturing and mining have also opened further, with early removal of limits on passenger car production and the lifting of prohibitions on investment in rare-earth and other mineral industries.

Visa-free travel to the Hainan FTP

Hainan’s visa-free entry policy was first significantly expanded in May 2018, when the National Immigration Administration, with State Council approval, introduced a 30-day visa-free stay for tourists from 59 countries. This marked a major upgrade from earlier policies that began in 2000 with a 15-day visa-free entry for tour groups from 21 countries, later expanded to 26 in 2010. The 2018 policy not only broadened the eligible country list to 59 but also extended the maximum stay to 30 days and, for the first time, allowed individual visa-free entry in addition to travel agency-arranged group visits. The move was designed to boost inbound tourism and support Hainan’s role as a pilot zone for deeper reform and opening up.

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Building on this foundation, the policy has since evolved to align with the development of the Hainan FTP. Recent reforms extend visa-free entry beyond tourism to include purposes such as business, family visits, medical treatment, exhibitions, and sports events, while also introducing greater flexibility. By 2025, foreigners will be able to apply for visa-free entry independently or through organizational invitations, no longer relying solely on travel agencies. The scheme now applies to nationals from the same 59 countries, including the US, EU member states, Russia, Japan, South Korea, Australia, and many ASEAN countries, with entry permitted at all open ports in Hainan.

Creating a gateway for foreign trade and investment

With its combination of trade, tax, and sector-specific incentives, streamlined approvals, investment protection, and service facilitation, Hainan FTP is becoming an increasingly attractive destination for foreign inventors in a range of fields. With its efforts to promote openness, efficiency, and targeted support for key industries, the island seeks to become a hub for talent, capital, and innovation, positioning itself as a potential destination for businesses exploring growth and international opportunities.