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Hainan Island: An Attractive Place for Foreign Investors

Why Haidan Island?

  • Tax cuts for foreign investors from January 2021
  • Entire island will become a Free Trade Port  
  • Massive opportunities in medical tourism
  • Free trade agreements with ASEAN & RCEP 
  • Horse racing, golf clubs, and pleasant tropical climate
  • Branch offices of Hainan FIEs can operate throughout China

Hainan Island, located in southern China coast of Guangdong province and near the eastern coast of Vietnam. As costs in big cities like Beijing and Shanghai increase, the need for a less expensive destination, with pleasant tropical climate and lessheavy industry pollution is becoming more and more attractive.

Hainan Free Trade Zone

At the beginning of June 2020, the Central Committee and the State Council jointly released the Hainan Masterplan which laid out a series of special policies for Hainan – scrapping import duties, lowering income tax rates for high-level talent, capping company tax at 15 % for encouraged enterprises, and relaxing visa requirements for tourist and business travelers. These has taken effect on January 1, 2021.

The policies are designed to diversify Hainan’s reliance on traditional industries and to function as a strategic trade and investment destination in China. For foreign firms, Hainan will provide broader market access – particularly for industries like telecommunications, tourism, and education.

Hainan Free Trade Port 

In addition to the free trade status of the Island, China is also positioning the entire island as a strategic free trade port, meaning developments in several port locations are being ramped up, including the Hainan’s capital, Haikou. That will position Hainan as a major duty-free shopping hub and offer facilities for consolidation of component products being brought in for additional work and assembly from ASEAN and beyond. China already has a free trade agreement with ASEAN, meaning duty free movement of most goods. China has signed off the RCEP free trade agreement, which also includes Australia, Japan, New Zealand, and South Korea. Companies from these countries will be setting up factories in Hainan to take advantage.

Medical tourism 

Hainan is also positioned to become a wellness centre with detox, spa resorts, therapy as well as plastic, cosmetic, and reconstructive surgery. It is also positioning itself to cater for serious diseases, such as cancer with treatments not available elsewhere in China. The BoaoLecheng International Medical Tourism Pilot Zone in Hainan has launched a special drug insurance that covers 70 anti-cancer drugs, including 49 medicines not yet approved for sale anywhere else in China. Qualified foreign doctors and nursing professionals will also be encouraged to live and work in Hainan while the Island’s duty free status and medical tourism zone plan combine to allow importation of medical equipment, and drugs that may not otherwise be easily available. W

Expat attractions

Horse racing

China will permit horse racing on mainland China for the first time, while limited forms of gambling – namely betting and sports lotteries – will be permitted in Hainan. Hong Kong and Macao are currently the only jurisdictions in China that allow horse racing and Macao is the only one to permit casinos and gambling.

Hainan as China HQ for expats

In addition to the increasingly attractive lifestyle, foreign investors, especially those in the services industries, may establish wholly foreign owned enterprises in Hainan to take advantage of the 15 percent corporate income tax rate. Although duty will be payable on various goods from Hainan exported to mainland China, services are a different matter and especially when combined with sound tax planning.

WFOEs may establish branch offices in China, meaning a Hainan-based business can take advantage of the lower tax rate and lifestyle while still developing a network across China.

Additionally, a WFOE owned by a nearby Hong Kong or Singapore holding company will find it easy, via that entity, to establish subsidiaries elsewhere, such as in Vietnam or other ASEAN countries.