Processing Value-Added After Island-Wide Closure: What Changed and What Still Has to Be Proved
The route that lets goods processed in Hainan enter the mainland free of import duty became useful to more businesses at closure. It did not become easier to claim without evidence.
HainanInc Regulatory Advisory
· 2 min read
The processing value-added route lets goods made in Hainan enter the mainland free of import duty where the processing has added enough value. After island-wide closure on 18 December 2025 it became more useful to more businesses, and no easier to claim without evidence.
What the route does, and what it does not
Goods produced by an encouraged-industry enterprise in the Free Trade Port enter the mainland across the second line exempt from import duty where they contain no imported materials, or where processing in Hainan has added value of 30% or more. Import value-added tax and consumption tax remain payable in the ordinary way. The route reduces duty on the mainland leg; it does not remove the other taxes, and it does not apply to goods that merely pass through the island.
The calculation is on your own numbers
The published calculation takes the domestic sale price of the goods, subtracts the imported materials and the domestically purchased materials, and divides that figure by the total of those same material costs; a result of 30% or more qualifies. The inputs are the entity's real bill of materials and real prices, so the rate moves when a supplier, a price, or a product mix moves. A rate modelled once at the start and never revisited is an assumption, not a position.
What closure changed
Closure widened the route in ways the official policy interpretation describes: the requirement tying the benefit to a share of the enterprise's income from encouraged activities was removed, the range of imported materials that can be used was widened, and value that the island itself contributes can be counted towards the added value. Which inputs count in a given case, and how the stages of related entities are treated, are matters for the current published text, which we confirm for each engagement rather than summarise here.
The evidence an inspection will ask for
- A calculation file for each consignment that reproduces the rate from invoices and the bill of materials.
- Records tying each domestic and imported input to the consignment it went into.
- For Hainan-origin inputs counted towards the added value, evidence that they are Hainan-origin.
- The declaration made at the second line, reconciled to the calculation.
- An annual comparison of the modelled rate against what actually happened.
Where the positions come from
- Interim Measures of the Customs on Tax Administration of Value-Added Processing Duty-Free Goods in the Hainan Free Trade Port (海关总署公告2025年第158号) — General Administration of Customs — administration and calculation of the value-added processing relief.
- Notice on Tax Policies for Goods Entering and Leaving the "First Line" and "Second Line" and Circulating within the Island (财关税〔2025〕12号) — Ministry of Finance, General Administration of Customs and State Taxation Administration — import value-added tax and consumption tax remain payable on goods entering the mainland.
- Official policy interpretation on island-wide independent customs operation (National Development and Reform Commission, December 2025) — removal of the encouraged-revenue share condition, widened imported materials, and counting of Hainan-origin value. Identified from the interpretation's summary; confirm against the current published rules before relying on it.
This is general commentary on published policy, not advice on a particular product or consignment. Confirm the current position, including product-specific treatment, before relying on any rate.