Reporter (R): Recently, EY and Hainan held the 2025 Hainan FTP Fiscal and Tax Policy Summit in Shanghai, drawing more than 100 enterprises, a number of which were foreign-owned. What was their response to the upcoming Hainan FTP special customs operations? 

Shirley Shen (S): There was a real buzz at the event. After it concluded, a number of firms approached us seeking to adjust their domestic layout and wanting to know which operations they could shift to Hainan and which policies they might benefit from. Many firms are looking to do this once special customs operations launch. 

Foreign-owned firms are primarily concerned about the detailed implementation of certain policies, particularly to which elements "freer access at the first line" actually applies to, and whether the scope of duty-free goods will be adjusted, that is to say, factors that would impact their bottom line. They also want to know about implementation timelines and pathways, which link back to their investment and deployment timelines. Finally, they want to know how preferential tax treatment works in practice, with many enquiring about eligibility requirements for policies like the dual 15% cap on corporate and individual income tax and income tax exemptions on new overseas direct investment. These are core issues affecting enterprises' costs and profits.

R: In its work as an international advisory firm, which aspects of Hainan has EY found that are of greatest concern to enterprises? 

S: Over the past few years, we have found four primary concerns that firms have repeatedly raised regarding the Hainan Free Trade Port. 

First is the restructuring of manufacturing supply chains. Firms want to know whether Hainan can help them optimize their tax costs. Advanced manufacturing firms we have worked with care a lot about the policy permitting the "zero-tariff" import of raw materials and how they can restructure their supply chains through Hainan to lower their tax burdens.

Second is the global expansion of trading firms. These firms view Hainan as a key trade entrepôt, especially those looking to expand into the Southeast Asian and Belt and Road markets. They want to learn more about the FTP's positioning and policy advantages.

Third is the consumer goods industry. Hainan's island-departure duty-free policy is a huge market opportunity. Many large consumer goods firms have set up shop in Hainan and are reaping the benefits of the duty-free shopping policy. 

Fourth is the strategic restructuring of overseas investment platforms. They hope to benefit from preferential policies through Hainan's investment platforms and added convenience when processing paperwork. 

R: After the launch of special customs operations, which sectors do you think are set to become the prime choice for investors? 

S: The launch of special customs operations will bring about opportunities across the board. Sectors such as consumer goods, tourism, manufacturing, and cross-border e-commerce boast excellent development prospects. 

In the retail consumer goods sector, there will be a number of duty-free sales channels covering departing domestic and international passengers and Hainan residents, complemented by traditional duty-paid sales and cross-border e-commerce. Particularly for consumer goods, massive reductions in tax costs can be translated into price advantages.

The import tariff exemption policy for products with no less than 30% added value after processing and zero-tariff" import of equipment, alongside the dual 15% income tax cap, provide strong policy support for the manufacturing sector. For manufacturing firms that need to import lots of equipment and raw materials, the cost advantage is obvious.

The cross-border e-commerce sector also has strong potential, with enterprises able to leverage FTP policies to increase their profit margins.

In short, if enterprises can identify the right entry point and fully leverage FTP policy benefits in line with their positioning, they can differentiate themselves within the Chinese mainland market and maximize their investment.

Complementary Policies Form Closed-Loop Framework Bringing Tangible Benefits to Enterprises

R: Policies such as "zero tariffs" and low tax rates are obvious strengths for Hainan. How will these strengths benefit enterprises specifically?

S: After the launch of special customs operations, Hainan will become a special customs supervision zone that is still fully within the Chinese mainland. All goods, except 2,323 specified goods, will be subject to zero tariffs. For goods that are currently listed on the list of zero-tariff imports, this has already proven to be an effective cost-cutting policy. Once access at the first line has been relaxed, the "zero-tariff" policy will be extended to beneficiaries across the island. We hope that even more goods can be included on the list.

R: You work a lot with enterprises, many of which have already set up operations or invested in Hainan. Can you tell us some success stories?

S: In the course of our work, we have helped many companies set up in Hainan, and have quite a few success stories. 

In terms of restructuring manufacturing supply chains, we have been able to help firms achieve this in Hainan, giving them an edge when it comes to costs.

In international trade, we have also assisted various large manufacturers in setting up trading companies in Hainan. In addition to enjoying the dual 15% income tax cap, they have also been able to reduce their logistics and time costs.

In the consumer goods sector, we have helped introduce numerous world-famous brands to Hainan that have seen rapid growth thanks to island-departure duty-free sales channels, transforming policy benefits into commercial value.

For overseas shareholding platforms, we have helped them build new platforms by setting up new companies in Hainan that enjoy tax exemptions on income from new direct overseas investment and have achieved the unified management of both domestic and overseas funds in local and foreign currencies across their entire group by setting up EF accounts. 

These successes all have something in common: these enterprises are not merely leveraging individual policies. Instead, they are combining policies to create new business formats. The launch of special customs operations will bring about further improvements and upgrades to Hainan's policy system. We expect that even more enterprises will find a policy layout suited to their own development and turn Hainan into a key hub for their global expansion.

R: China's national agencies have recently issued three policies that will come into effect on December 18 this year, the day that island-wide special customs operations are launched: the list of taxable import goods, the policy on the circulation of goods, and the import tariff exemption policy for products with no less than 30% added value after processing. What benefits will each of these policies deliver for enterprises? 

S: The complementary nature of these three policies will form a closed-loop policy framework that will bring many tangible benefits to enterprises.

Firstly, the relevant "zero-tariff" policies will allow all goods except those 2,323 otherwise specified to enjoy "zero tariffs" when entering and circulating in Hainan. This will be a massive benefit for both processing enterprises and residents in Hainan.

It will also be easier to enjoy the value-added processing import tariff exemption policy, with more than 60% of the original requirements being rescinded, enabling more enterprises to reap the benefits. The 30% added value will also be calculated cumulatively. This means that enterprises along the supply chain will be able to work together in various ways to reach the 30% added value threshold and benefit. This will be a huge boon for enterprises, enabling them to reduce their tax burdens.

Investing Successfully in Hainan is a Three-Step Process

R: In terms of aligning with other international FTZs, in which areas does the Hainan FTP need to continue opening up?

S: The Hainan FTP's policy arrangements make it an institutional highland because of their stability. Under the current unified national market system, other parts of the Chinese mainland can no longer set their own local taxation policies to attract investment. I have been involved in tax policy consulting for many years, and during this time, I have never encountered a so-called "magnet" for tax benefits. Any policies that were in place quickly fell to the wayside. In contrast, Hainan's institutional and policy arrangements are enduring thanks to the Law on the Hainan Free Trade Port and relevant documents issued by central government agencies.

Also, enterprises have their concerns about how the dual 15% income tax cap will be implemented in practice.There's an internationally sound mechanismcalled "advance ruling."It's an important metric that the World Bank considerswhen determining the rating of national or sub-national business environments.Cities like Shanghai and Beijing have already established advance ruling mechanisms.Specifically, before engaging in major projects,enterprises will form a detailed planthat they submit to the tax bureau and other supervisory agencies.Based on the facts and plans outlined in these plans,the government will determine whether such projects fall within the catalog of encouraged industriesand whether they meet relevant actual operating requirements.If they do, then they can enjoy the 15% income tax rate.This provides certainty.If an enterprise then later fails to follow the plan or the tax service finds that the actual situation doesn't correspond to the submitted plan, then the 15% tax rate is off the table. Systematic institutional arrangementswith both advance rulingand dispute resolution mechanismsare extremely attractive to large enterprises. 

Dongfang City in Hainan has issued policies and measures related to advance rulings. We hope this can be trialed throughout the province to give enterprises peace of mind.

R: You just mentioned that many enterprises you work with would like to come and invest in Hainan. Do you have anything you'd like to say to them?

S: From having a dream to it taking root in fertile ground before finally blossoming and bearing fruit, investing successfully in Hainan is a three-step process. Having a dream is the first step. Allowing your dream to take root in Hainan's fertile soil and getting your business plans off the ground is the second step. The third step is seeing that dream blossom and bear fruit as it grows with the Hainan FTP.

For enterprises, I think the first thing is to carefully study the policies. Hainan has many breakthrough policies, such as "zero tariffs," QFLP (Qualified Foreign Limited Partner), and QDLP (Qualified Domestic Limited Partner). Enterprises should seek out relevant policies, fully leverage the incentives, and maximize their benefits.

 Secondly, they should carefully consider how Hainan factors into their overall development strategy, whether it is as a platform for global expansion, a domestic manufacturing base, or a future trading platform. They should also keep themselves apprised of new policies, such as the recently introduced exemption of the Hainan portion of the 3% cultural undertaking development fee, which is extremely attractive.

I hope that Hainan can truly become an investment hotspot where entrepreneurs and the FTP grow together.