Following the announcement of the Overall Construction Plan for Hainan Free Trade Port (FTP), the Ministry of Finance, the General Administration of Customs, and the State Administration of Taxation have made a joint announcement of the first zero-tariff product list for the Hainan FTP.

Earlier this year, the Chinese government has announced preferential income tax policy plans for companies and individuals in the southern island province of Hainan, with the goal to turn it into a globally influential free trade port. The Overall Construction Plan for Hainan FTP aims to eliminate tariff rates on a large variety of imports. The FTP is therefore treated as a special custom bonded area. Moreover, a tax system which consolidates several turnover taxes into one sales tax has also been mentioned as part of the reform. 

However, before these new policies come into full effect, the Chinese authorities issued a Notice describing which categories of imports would first be entitled to import duties, import VAT, and consumption tax exemptions. This Notice takes effect on the 1st of December 2020 applying the afore-mentioned exemptions.

The raw and auxiliary materials that are subject to the zero-tariff policy are classified in the catalogue system. The catalogue specifies a total of 169 items using their HS codes. The items covered by the catalogue include:

• Industrial raw materials (ores, petroleum oil, wood, coal, liquefied natural gas, etc.);

• Agricultural products (coconuts, barley, etc.);

• Chemical raw materials (xylene, methanol, etc.);

• Base metal mountings;

• Components for repair of aircraft and vessels;

• Other items.

Furthermore, the Notice sets the regulatory requirements on the use of raw and auxiliary materials, which are subject to zero tariff rates. They must be used for production by the importer in Hainan FTP and cannot be transferred outside of the FTP. If those materials are used in production and the processed goods are sold in China, the import VAT, import duty, and consumption tax will be applied, as well as the national VAT and consumption tax. 

The Notice is the first of a series of reforms regarding the Hainan FTP, as additional lists with more items subject to zero tariff rates are to be released in future. The current announcement is expected to benefit businesses engaged in agriculture, energy, and industrial manufacturing, as well as those in the aircraft and vessel repair industries.

Should you want to know more about these preferential tax policies, our team of experts at PHC Advisory are at your service to explain all of the details. Please, feel free to contact us at info@phcadvisory.com, as well as to know more about us and how we can assist you.