After Closure, Hainan Is an Expansion Base for Businesses That Change Things
Island-wide closure reorganised what Hainan is good for. It rewards transformation on the island and is largely neutral towards businesses that simply pass through it.
HainanInc Regulatory Advisory
· 4 min read
Expansion into a new jurisdiction is usually assessed on market size, cost and talent. Hainan since 18 December 2025 requires a fourth question, because island-wide independent customs operation changed what the location is structurally good at. The regime now discriminates sharply — and deliberately — between businesses that do something substantial on the island and businesses that merely route through it. Which of those a given expansion is determines whether Hainan is an advantage or an overhead.
What closure actually reorganised
Island-wide closure implemented a design of freer access at the first line, controlled access at the second line, and free circulation within the island. Zero-tariff treatment moved from a positive list to a negative list, reaching approximately 6,600 tariff lines or about 74% of the schedule, against roughly 1,900 lines and 21% before. Ten second-line ports were established, and second-line declaration fields were reduced from 105 to 42. Tax treatment across both lines is set by 财关税〔2025〕 12号, issued by the Ministry of Finance, the General Administration of Customs and the State Taxation Administration, which superseded the notices governing the position since 2020.
Beneficiary status also widened. Where the earlier regime was oriented to registered legal persons, the entities that may benefit now extend broadly across enterprises, public institutions and qualifying non-profit organisations with genuine import needs.
The closure instruments, as published
- State Council policy briefing on island-wide independent customs operation — launch 18 December 2025; zero-tariff coverage moved from a positive list to a negative list reaching approximately 6,600 tariff lines or about 74%, against 21% and roughly 1,900 previously; ten second-line ports; second-line declaration fields reduced from 105 to 42.
- 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 — supersedes the 2020 to 2025 notices.
- Same notice — goods produced by encouraged-industry enterprises containing no imported materials, or containing imported materials with value added in the Free Trade Port of 30% or more, enter the mainland exempt from import duty, with import value-added tax and consumption tax collected as normal.
- 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159号) — General Administration of Customs — the calculation, which divides the domestic sale price less imported and domestically purchased materials by the total of those material costs.
- Announcement publishing the Hainan Free Trade Port prohibited and restricted import and export lists (商务部公告2025年第43号) — Ministry of Commerce.
- Notice on Enterprise Income Tax Preferential Policies for the Hainan Free Trade Port (财税〔2020〕31号), continued by 财税〔2025〕3号 to 31 December 2027.
- All positions above verified against the issuing bodies' published texts in September 2026.
The expansion question is whether 30% is reachable
For a goods business expanding into China through Hainan, the decisive number is not the 74% headline. Zero-tariff relief on the way in is settled again on the way out: when zero-tariff goods cross the second line into the mainland, import duty, import value-added tax and consumption tax become payable on the imported materials. The exception is the value-added processing rule, under which goods produced by an encouraged-industry enterprise with 30% or more value added on the island enter the mainland free of import duty.
So the expansion analysis reduces to a single testable proposition: can this business's Hainan step reach 30% on the published calculation, and evidence it consignment by consignment? If yes, Hainan is a genuine structural advantage for mainland market access. If no, the island is a detour with costs and no duty benefit on the leg that matters.
Seventy-four per cent is the headline. Thirty per cent is the number that decides whether the expansion works.
For services businesses the calculus is different
Much of what expands into Hainan is not goods at all. For a services business the customs architecture is largely irrelevant and the relevant instruments are the cross-border trade in services negative list and the corporate income tax regime — the 15% rate for encouraged-industry enterprises in substantive operation, running to 31 December 2027. The analysis there turns on catalogue eligibility, the 60% main-business revenue test, and whether the substance the relief requires is affordable at the headcount the expansion actually justifies.
What to test before committing to the location
- Whether this is a goods business, a services business, or both, since the governing instruments differ entirely.
- For goods: the realistic value-added percentage of the Hainan step, tested against the published calculation.
- Whether the products are on a current prohibited or restricted list, checked rather than assumed.
- For services: catalogue eligibility, the 60% revenue test, and the substance cost at the intended headcount.
- Where the customers actually are — Hainan, the mainland, or export — since the tax answer differs at each.
- The position after 31 December 2027, stated as an explicit assumption.
How we approach an expansion
Our business expansion work is that testing, done before a location is committed rather than after a lease is signed: which regime the business actually falls under, whether the thresholds it depends on are reachable, and what the first year costs including the substance the tax position requires. Where the answer is that Hainan adds nothing for this particular business, that is the conclusion we deliver — and it is worth considerably more at the assessment stage than a formation engagement would be.
This is general commentary on published policy, not advice on a specific expansion or product. Confirm the current position, including product-specific treatment, before relying on any figure. Positions were verified against published sources in September 2026.