Hainan Free Trade Port offers new business opportunities for foreign investors
In June 2020, China rolled out its master plan to build Hainan, the southernmost tropical island province, into a world-class free trade port by 2050 which can compete with other mature free trade ports like Singapore and Hong Kong. Read on to find out about the advantages for companies and investors.
With China moving forward with its free trade port plans, it’s a good time to learn more about Hainan. The Hainan Free Trade Port (Hainan FTP) has been given a great deal of autonomy to encourage a more open market, where emphasis has been placed on liberalisation and facilitation of trade and investment, alongside the introduction of innovative tax regimes and a legal system to better support these initiatives. The Hainan FTP specifically encourages the sectors of tourism/hospitality, modern services, hi-tech and tropical agriculture.
The zero-tariff regime will be fully established by 2025, allowing a wide range of goods to be imported into the FTP with zero tariff. Import VAT and consumption tax exclusion may also apply. Duty-free shopping with CNY 100,000 (€14,100) per year per visitor will also be introduced.
Similar to other free trade zones like Hong Kong and Singapore, the Hainan FTP is also implementing lower Corporate Income Tax (CIT) and Individual Income Tax (IIT) to attract investment and skilled talent.
Before 2025, a reduced 15% CIT (compared with the current standard CIT at 25%) applies to companies engaged in “encouraged industries” in the Hainan FTP. After 2025, 15% CIT will apply to all companies registered in the Hainan FTP except for the industries/sectors listed in the “Negative List” jointly promulgated by The National Development and Reform Commission and the Ministry of Commerce.
Alongside CIT, a reduced 15% IIT applies to highly skilled professionals and urgently needed talent by 2025. For example, a person with annual salary of more than CNY 300,000 (€42,300) is recognised as a highly skilled professional. After 2025, progressive IIT rates of 3%, 10% and 15% will apply to all residents who reside for more than 183 days in the Hainan FTP in a calendar year. As a comparison, China’s maximum IIT rate applicable to individuals is 45%.
The Hainan FTP is offered autonomy by law to formulate flexible market access. In December 2021, the Hainan FTP authorities released the ‘negative list’ which grants expanded market access to foreign investment in sectors previously restricted in other parts of China, such as education, telecommunications, mining, private equity and certain business services. A more simplified ‘negative List’ for foreign investment can be expected in time to encourage foreign investors to participate in the Hainan FTP across more industries.
In October 2020 and April 2021, the Hainan FTP announced one of the most favorable cross-border assets management pilot programs in China, namely the Qualified Foreign Limited Partnership (QFLP), which allows foreign investors to invest in the private equity market in mainland China, and the Qualified Domestic Limited Partnership (‘QDLP’), which allows domestic investors to similarly invest overseas. In 2021, more than 10 top international private equity firms set up their fund management structures in the Hainan FTP and have launched around 50 funds with assets under management (AUM) topping USD 900 million.
In addition, due to the preferential tax policies and other financial benefits, private funds have seen significant growth in Hainan. A total of 66 private funds were registered in Hainan between March and April 2022, a higher number than any other area in the country. From March 2021 to 2022, the number of private fund management firms registered in Hainan increased from 87 to more than 300, a growth rate of 318.39% in one year.
With its attractive investment proposition, encouraged industries and preferential tax policies, the Hainan FTP will offer new opportunities for foreign investors looking to participate in China’s growth. In 2021 alone, the Hainan FTP welcomed 1,936 new foreign companies, a growth YOY of 92.6%. More international and domestic investors are now making plans to launch their operations on the island to leverage the attractive benefits on offer at the early stages.
TMF Group supports more than 1,000 international companies currently investing and operating safely across 130 cities in China. With close to 500 local experts, we are ready to assist with your Hainan FTP venture via our services and solutions covering corporate secretarial, accounting and tax compliance, and payroll and HR, as well as fund administration services.
Contact our experts today to find out how we can help you grow your business in China.