Free Trade Port Policies: Understanding the Benefits

Free Trade Port Policy · Interpretation of Dividends

On December 18, 2025, Hainan officially launched island-wide customs closure operations, marking the transformation of the Hainan Free Trade Port into a special regulatory area shifting from "inside the customs territory within the border" to "outside the customs territory within the border," and fundamentally completing the reconstruction of the underlying system. As the first full operating year following the customs closure, 2026 sees the comprehensive implementation of core policies such as zero tariffs, low tax rates, and a simplified tax regime, with data across foreign trade, market entities, and cross-border capital showing positive growth across the board. How can the broad membership of enterprises seize the policy dividends after the customs closure to achieve transformation and development? This article systematically interprets the opportunities for readers from three dimensions: tax incentives, cross-border facilitation, and industrial opportunities.

Comprehensive Expansion of the Zero Tariff Policy

The zero tariff policy has achieved a qualitative leap following the customs closure. Before the closure, the zero tariff list covered only 19 categories of goods; after the closure, it has expanded to cover approximately 74% of commodity tariff lines (6,637 items), far exceeding the initial standards of RCEP and moving towards a 90% target. The beneficiaries have expanded from a few enterprises in industrial parks to all independent legal entity enterprises, public institutions, and specific private non-enterprise units across the island with actual import needs. From December 2025 to April 2026, the import value of "zero tariff" goods reached 2.26 billion yuan, a year-on-year increase of 99.6%, indicating that policy dividends are being released at an accelerated pace.

Three categories of zero tariff lists cover the core needs of enterprise production and operation. The production equipment list covers major equipment and instruments required for manufacturing and processing; the raw materials and auxiliary materials list covers key raw materials for agriculture, forestry, animal husbandry, fishery, food processing, and biomedicine; the vehicles and yachts list covers vehicles and ships used by enterprises for transportation and tourism reception. As long as an enterprise is registered as an independent legal entity in Hainan and has good credit, it can apply for "zero tariff beneficiary status" through the China (Hainan) International Trade Single Window before the 15th of each month. Upon approval, it can enjoy full exemption from import duties, value-added tax, and consumption tax.

Core Data of the Zero Tariff Policy

• Zero tariff commodity tariff lines after customs closure: 6,637 items (covering approximately 74% of commodities)

• Zero tariff import value in the first quarter after closure: 2.26 billion yuan, a year-on-year increase of 99.6%

• 30% processing value-added tariff exemption policy: Domestic sales value of 510 million yuan in the first quarter, with tariff reductions amounting to 24.573 million yuan

• Newly registered foreign trade enterprises: 7,503 (in the 100 days since closure), a year-on-year increase of 65.7%

• Cumulative number of beneficiary market entities: Over 11,000

Low Tax Rates: 15% Corporate Income Tax and Individual Income Tax Incentives for Talent

The "Double 15%" tax incentive, the most closely watched policy of the Hainan Free Trade Port, continues to be executed after the customs closure and has been explicitly extended until December 31, 2027. regarding Corporate Income Tax (CIT), encouraged industrial enterprises registered in the Hainan Free Trade Port that engage in substantive operation are subject to a reduced CIT rate of 15%, representing a 40% discount compared to the statutory rate of 25% in the mainland. The catalog of encouraged industries has expanded to over 1,100 items, covering the four leading industries: tourism, modern services, high-tech industries, and tropical efficient agriculture.

Regarding Individual Income Tax (IIT), the portion of the actual tax burden exceeding 15% for high-end and scarce talents working in the Hainan Free Trade Port is exempted. In 2026, the policy further optimized the talent recognition process, simplified recognition criteria, and added recognition channels, allowing more entrepreneurs and core employees to benefit. For enterprises needing to recruit high-end talents from the mainland, this policy significantly reduces labor costs and the difficulty of talent retention.

It is particularly important to emphasize the requirement for "substantive operation." To enjoy the 15% CIT incentive, enterprises must meet the following conditions: having an actual office space in the Hainan Free Trade Port, production and operation personnel actually working in Hainan, independent accounting, and main assets actually used in Hainan. Branches and liaison offices cannot enjoy this incentive; non-local enterprises must register an independent legal entity in Hainan. Enterprises that fail to meet the substantive operation requirements will be subject to retroactive payment of back taxes plus late fees.

Application Points for the "Double 15%" Tax Incentives

Corporate Income Tax 15%: Requires registration as an independent legal entity in Hainan, classification as an encouraged industry, and meeting substantive operation conditions. Can be claimed by checking the box during declaration via the Electronic Tax Bureau.

Individual Income Tax 15%: Requires recognition as high-end or scarce talent, applied for by the employing enterprise or the individual to the talent service department. The recognition process has been significantly simplified in 2026.

Policy Validity: Both of the above policies have been explicitly extended until December 31, 2027.

EF Accounts: The "Highway" for the Free Flow of Cross-border Capital

The Multi-functional Free Trade Account (EF Account) is one of the most valuable financial opening policies in the Hainan Free Trade Port. As of 2026, the business volume of EF accounts has exceeded 350 billion yuan, becoming a core tool for corporate cross-border capital management. EF accounts are divided into two types by function: EFE accounts (Free Trade Accounts for In-zone Institutions) are for enterprises registered within the Free Trade Port, while EFN accounts (Free Trade Accounts for Offshore Institutions) are for offshore institutions.

The core advantage of EF accounts is embodied in "liberalization at the first line, limited penetration at the second line." In the first-line direction, transfers between EFE and EFN accounts and offshore accounts, OSA accounts, and NRA accounts can be conducted freely based solely on payment instructions, without prior approval. Under capital account items, except for securities investment, enterprises engaging in offshore lending, cross-border financing, direct investment, and other businesses are no longer subject to quota and approval restrictions such as foreign debt limits based on the investment gap or full-caliber cross-border financing, eliminating the need for prior registration and filing with foreign exchange administration departments.

In the second-line direction, between EFE accounts and ordinary accounts with the same name in the mainland, two-way renminbi penetration is possible within a limit of 1 times the owner's equity, used to meet the operational funding needs of the enterprise. For enterprises adopting the "offshore material sourcing, on-island processing, nationwide sales" model, the rules for cross-second-line transfers between different names in EF accounts effectively open up the capital flow channels between the Free Trade Port and the mainland market. Additionally, EF accounts support the autonomous selection between offshore and onshore exchange rates, allowing enterprises to settle at their preferred rates based on market conditions to effectively hedge against exchange rate fluctuation risks.

Typical Application Scenarios for EF Accounts

Scenario 1: Cross-border Trade Settlement — Settlement time compressed from 1-2 working days to 2-3 hours, processed entirely online, saving significant manpower and exchange costs annually.

Scenario 2: Offshore Lending — Exempt from prior foreign exchange registration; multi-million dollar transactions can be applied for and completed on the same day, suitable for group enterprises with overseas subsidiaries.

Scenario 3: Processing Value-Added Fund Collection — Supports cross-second-line fund transfers, matching the capital turnover needs of the entire "import-processing-domestic sales" chain.

Scenario 4: Cross-border Payments for SMEs — Simplifies review materials and removes multiple offline procedures, effectively lowering the threshold for cross-border operations for micro, small, and medium-sized enterprises.

Tariff Exemption on Processing Value-Added and Industrial Opportunities

"30% Value-Added Tariff Exemption" is a core industrial policy unique to the Hainan Free Trade Port. Enterprises import materials into Hainan for processing, and if the value-added exceeds 30%, they are exempt from import duties when sold to the mainland. This policy creates a unique cost advantage for manufacturing enterprises. In the first quarter after the customs closure, the domestic sales value of processed goods reached 510 million yuan, with cumulative tariff reductions of 24.573 million yuan. Industries such as precision processing, high-end equipment, and cross-border assembly are accelerating their establishment in Hainan.

Economic data for the first quarter of 2026 strongly confirms that the customs closure dividends are being converted into economic growth momentum. Hainan's total import and export volume of goods trade reached 82.01 billion yuan, a year-on-year increase of 32.9%, a growth rate far exceeding the national average. The number of new market entities increased by 96,800, a year-on-year increase of 45.86%, with a significant rise in the proportion of enterprise entities, completely moving away from the low-end market structure dominated by individual businesses in the past. The four core industries—tourism upgrading and quality improvement, modern services accelerating agglomeration, high-tech industries developing in the "Twin Cities of North and South," and processing value-added in port-adjacent manufacturing landing on the ground—indicate that Hainan's diversified industrial system is taking shape.

In terms of industrial layout, the northern Haikou Jiangdong New Area focuses on headquarters economy, cross-border finance, and digital trade; the southern Sanya Yazhou Bay Science and Technology City cultivates deep-sea technology and seed industry innovation. Key parks such as the Haikou Fuxing City Internet Information Industry Park offer exclusive supports including rent subsidies, R&D rewards, and talent apartments in addition to provincial policies. The Boao Lecheng International Medical Tourism Pilot Zone, relying on the "Four Special Permits" policy (special medical use, special research, special operations, and special international exchanges), has become a unique growth pole for the healthcare industry.

Core Economic Data for Q1 2026

Total Import and Export Volume of Goods Trade: 82.01 billion yuan, a year-on-year increase of 32.9%

New Market Entities: 96,800, a year-on-year increase of 45.86%

New Foreign-Invested Enterprises: Year-on-year increase of 33.5%

Entry-Exit Passengers: 653,000 trips, a year-on-year increase of 35.1%, with 158,000 visa-free entries, an increase of 53.7%

Institutional Innovation: Cumulative 22 batches and 181 items, of which 41 have been replicated and promoted nationwide

Simplified Tax System Reform and Business Environment Optimization

Following the customs closure, Hainan is advancing a simplified tax system reform transitioning from the co-levy of Value-Added Tax (VAT) and Consumption Tax to a single Sales Tax. Although this reform is still in a transitional stage, the direction is clear: gradually phrasing out turnover taxes such as VAT and Consumption Tax and replacing them with a unified Sales Tax collected at the retail stage, significantly reducing corporate financial accounting costs and tax management burdens.

Regarding the business environment, Hainan is fully implementing the "commitment-based entry" system for market access. Except for special areas involving national security and ecological red lines, enterprise registration follows "commitment-based entry": operations can commence by submitting a written commitment of compliance and filing materials. The entire process is handled online via the Hainan Government Service Network or the "Haiyiban" APP, with registration completable in as fast as one day and the business license mailed to the address. 128 administrative licensing items no longer require waiting for approval, with 6 items directly canceled and changed to record management. Foreign investment adopts the shortest negative list in the country, with the vast majority of fields following the principle of "allowed unless prohibited."

Regarding personnel entry and exit, Hainan implements a visa-free entry policy for 86 countries, the most favorable in the country. Since 2026, visa-free entries have reached 158,000 trips, an increase of as much as 53.7%, providing great convenience for international talent exchange, business negotiations, and tourism consumption. For enterprises requiring frequent business travel between Hainan and international markets, this policy significantly reduces time and visa costs.

Operational Considerations for Enterprises Settling in Hainan

1. It is recommended to register an independent legal entity enterprise in Hainan; branches and liaison offices cannot enjoy the 15% Corporate Income Tax incentive.

2. Apply for zero tariff beneficiary status before the 15th of each month via the "China (Hainan) International Trade Single Window."

3. Ensure compliance with substantive operation requirements: actual office space, personnel working in Hainan, and independent accounting.

4. Establish complete ledgers for goods flow; entry into the mainland via the second line must be declared according to regulations and accept customs and tax inspections.

5. Prioritize industries within the catalog of encouraged industries to obtain more policy support and tax incentives.

Currently, the Hainan Free Trade Port is in a critical stage transitioning from a construction period to a harvest period. The institutional framework has been fully implemented, core dividends are being released rapidly, and the industrial skeleton has basically taken shape. Although there are still shortcomings in industrial scale, talent supporting facilities, and regional balance that need to be addressed, for visionary entrepreneurs, this precisely implies huge first-mover advantages and room for strategic layout.