Hainan's Two-Way Capital Channels: QFLP, QDLP and an Overlooked Exemption
Hainan runs pilot regimes for inbound and outbound fund capital, and a corporate income tax exemption on new outbound direct investment that most structuring conversations never reach.
HainanInc Capital Markets Advisory
· 4 min read
Cross-border structuring discussions about China tend to focus almost entirely on getting money in. Hainan is unusual in that its policy design addresses both directions, through two pilot regimes and a tax exemption that attaches specifically to outbound investment — and the third of those is the one most often absent from the conversation, despite sitting in the same instrument as the headline corporate income tax rate everyone does discuss.
Inbound: the QFLP pilot and balance management
Hainan operates a Qualified Foreign Limited Partner regime under interim measures issued in October 2020, allowing overseas institutional investors, once qualified, to convert offshore capital into renminbi for domestic private equity investment. The Master Plan for the Construction of the Hainan Free Trade Port contemplated going further, permitting qualified foreign limited partners in the Free Trade Port to remit funds in and out under a balance-management model with simplified foreign exchange registration, subject to risk controls.
That model was implemented by measures for a balance-management pilot issued in March 2023 jointly by Hainan's local financial regulator, the State Administration of Foreign Exchange's Hainan branch and the provincial market regulator, with the Yangpu Economic Development Zone as the pilot area. The distinguishing features of Hainan's version, as published, are low access requirements relative to other pilot regions, simplified registration, and administration of foreign-invested equity investment enterprises under ordinary foreign investment rules with negative list management.
The pilot measures and the tax exemption
- Interim Measures of Hainan Province for Conducting Qualified Foreign Limited Partner (QFLP) Domestic Equity Investment (海南省关于开展合格境外有限合伙人（QFLP）境内股权投资暂行办法) — Hainan local financial regulator — October 2020.
- Measures of Hainan Province for the QFLP Balance-Management Pilot (海南省关于开展合格境外有限合伙人（QFLP）余额管理制试点办法) — Hainan local financial regulator, State Administration of Foreign Exchange Hainan branch and Hainan market regulator — March 2023 — pilot area Yangpu Economic Development Zone.
- Interim Measures of Hainan Province for the Qualified Domestic Limited Partner (QDLP) Outbound Investment Pilot (海南省开展合格境内有限合伙人（QDLP）境外投资试点工作暂行办法) — April 2021.
- Notice on Enterprise Income Tax Preferential Policies for the Hainan Free Trade Port (财税〔2020〕31号) — Ministry of Finance and State Taxation Administration, 23 June 2020, continued by 财税〔2025〕3号 to 31 December 2027 — exempts from corporate income tax the income derived by tourism, modern services and high-technology enterprises established in the Free Trade Port from new outbound direct investment.
- Notice on Further Simplifying and Improving Foreign Exchange Administration Policies for Direct Investment (汇发〔2015〕13号) — State Administration of Foreign Exchange, in force 1 June 2015 — banks handle direct investment foreign exchange registration in both directions.
- All positions above verified against the issuing bodies' published texts in September 2026.
Outbound: QDLP, and the exemption in the tax notice
The outbound counterpart is the Qualified Domestic Limited Partner pilot, established by interim measures in April 2021, which allows qualifying domestic capital to invest overseas through the pilot channel. Alongside it sits something that is not a fund regime at all and is easy to miss because it lives inside a corporate income tax notice: 财税〔2020〕31号 exempts from corporate income tax the income that tourism, modern services and high-technology enterprises established in the Free Trade Port derive from new outbound direct investment.
For a group using a Hainan entity as a platform for investment beyond China, that exemption is a structural feature rather than a marginal relief — and it is subject to the same conditions as the rest of the notice, including its extension to 31 December 2027. It applies to new outbound direct investment, which makes the timing and characterisation of an investment relevant to whether it qualifies.
Most structuring work asks how capital gets in. Hainan's policy design is unusual in having been written for both directions.
The pilot framing is the constraint people underweight
Both fund regimes are pilots. Pilots have designated areas, defined quotas or balance limits, and administering bodies exercising judgement — the balance-management pilot names Yangpu as its area, which means the regime is not simply available anywhere on the island. A structure designed on the assumption that a pilot is a general entitlement will meet that assumption at the qualification stage, which is late. The correct sequence is to confirm eligibility and current capacity with the administering bodies before the structure depends on it.
What a two-way structure needs to hold together
- Confirmation that the intended vehicle is eligible for the specific pilot, in the specific area, under the current measures.
- Foreign exchange registration filed at the bank in each direction, matched to what the bank actually processes.
- For the outbound exemption, an entity that genuinely falls within tourism, modern services or high technology, with the investment characterised as new outbound direct investment.
- The substance position tested against the wider conditions in the same notice — the exemption travels with the rest of the regime, not separately from it.
- A view on what happens after 31 December 2027, stated as an assumption rather than assumed silently.
Designing against the channel, not around it
Cross-border structuring work is the design of the holding and vehicle chain against these channels rather than around them: which pilot, which area, which registration path, and whether the outbound exemption is genuinely reachable for this group's activity. It runs into Registered Capital and Foreign Exchange Registration on the inbound leg, and into Family Entity Governance where the capital is family rather than institutional and the governance question matters as much as the channel.
This is general commentary on published policy, not advice on a specific structure or fund. Pilot regimes change in scope, area and capacity; confirm current eligibility with the administering bodies before relying on any of the above. Positions were verified against published sources in September 2026.