Hainan Free Trade Port   New Opportunities for German Companies

As the official cooperation partner of the Haikou Integrated Free Trade Zone for Germany, Austria, and Switzerland (the DACH region), the bdp China Desk is committed to promoting investment and cooperation between companies from German-speaking countries and Hainan. This article discusses the most important policy measures of the Haikou Integrated Free Trade Zone that may be relevant to companies from Germany.

Where is Hainan?

Hainan Province is located in the southernmost part of China. Separated from Guangdong Province by the Qiongzhou Strait, it faces the South China Sea and is situated close to Vietnam as well as Southeast Asian countries such as the Philippines, Malaysia, Brunei, and Indonesia. This makes Hainan one of the Chinese provinces geographically closest to Southeast Asia.

The province has a permanent population of around 10 million people, and its capital city is Haikou. Hainan was established as a province in 1988 and at the same time designated as one of China’s largest Special Economic Zones. With its tropical climate, high-quality coastline, and tourism resources, Hainan has long been regarded as one of China’s most important island tourism destinations.

In a European context, Hainan is sometimes compared to Mallorca in Spain — an island that is particularly popular among travelers from Germany as a holiday destination. Although the two regions differ in terms of their stage of development and industrial structure, this comparison may help people better understand Hainan as both a travel destination and a place to live.

Location and Infrastructure

Hainan currently has three international airports:

• Haikou Meilan International Airport
• Sanya Phoenix International Airport
• Qionghai Bo’ao International Airport

Flight times from Haikou:

• around 1 hour to the Guangdong–Hong Kong–Macao Greater Bay Area
• around 3 hours to Shanghai
• around 4 hours to Beijing
• 59 countries and regions, including Turkey and Australia, can be reached within 8 hours

These transportation links enable Hainan to connect efficiently with China’s major economic regions and the global market. At the same time, they provide the foundation for a flow of capital, technology, and talent.

Overview of the Hainan Free Trade Port Policy Framework

The central objective of the Hainan Free Trade Port is to further open up China’s economic system at the highest level. Its institutional focus lies on trade liberalization, investment facilitation, as well as the optimization of cross-border capital flows, the free and convenient movement of people, transportation, and the secure and orderly flow of data.

This article outlines the key policy measures of the Haikou Integrated Free Trade Zone that may be relevant for companies from Germany:

(1) “First-Line Liberalization”

The “first line” refers to the flow of goods between the Hainan Free Trade Port and overseas markets (such as Germany).

At this stage, customs authorities apply more open and efficient clearance procedures for imports and exports. Except for goods that are explicitly prohibited or restricted by laws and regulations, goods crossing the “first line” may not only benefit from zero-tariff policies, but can also, to a considerable extent, enjoy simplified declaration procedures and fast-track customs clearance.

Key Advantages

For large volumes of imported goods — such as equipment, machinery, or raw materials — traditional customs procedures can be reduced when entering the Integrated Free Trade Zone. Through intelligent and non-intrusive inspection methods, customs authorities enable more efficient clearance processes, helping companies reduce both customs processing time and capital tied up during clearance procedures.

(2) “Second-Line Control”

The “second line” refers to the flow of goods between the Hainan Free Trade Port and mainland China, meaning other cities and regions within the Chinese domestic market.

Key Advantages

Based on an operational “big data platform”, the declaration process for ordinary goods that do not fall under key regulatory supervision has been simplified. Instead of requiring declarations from both companies inside and outside the zone, the process has been reduced to a single declaration by the company outside the zone. This allows for more efficient and lower-intervention circulation of goods while still meeting regulatory requirements.

In addition, goods can be stored within Hainan’s Integrated Free Trade Zone with relatively high flexibility, generally without fixed storage time limits.

(3) Significant Expansion of the “Zero-Tariff Product” Scope in Hainan

The product catalog has been expanded from around 1,900 to approximately 6,600 items, increasing coverage from 21% to 74%.

As a result, more company-used production equipment, raw and auxiliary materials, as well as operational transport vehicles are now included in the duty-free scope. Import tariffs, import value-added tax, and consumption tax are exempted for these goods, helping companies reduce initial investment costs.

(4) Tariff Exemption for Value-Added Processing

Products that undergo substantial processing in Hainan and achieve a value-added rate of no less than 30% (with or without imported materials) may qualify for tariff exemption when sold to the mainland Chinese market:

• Exemption from import tariffs
• Only import value-added tax and consumption tax are levied

Formula for Calculating the Value-Added Rate: [(Domestic sales price - price of imported materials - price of domestically sourced materials) ÷ (price of imported materials + price of domestically sourced materials)] × 100% ≥ 30%

This policy is particularly relevant for:

• Reassembly and upgrading of high-end industrial equipment
• Assembly and processing of high-end components
• Import of core components combined with localized supply chain arrangements to reduce costs and improve efficiency
• Production of premium cosmetics
• Processing and trade of jewelry and gemstones

It should be noted that simple processing activities, such as labeling or packaging, are not recognized as sufficient value-added processing.

(5) Continuation of the “Zero-Tariff” Policy Between Enterprises Within Hainan

If both upstream and downstream companies qualify as eligible entities under the policy, imported raw and auxiliary materials can continue to enjoy zero-tariff treatment when circulating within Hainan after importation. This supports the coordinated development of local industrial and supply chains.

(6) Bonded Maintenance and Repair Services

Hainan’s Integrated Free Trade Zone supports bonded maintenance and repair services. Companies operating within the zone may import products with quality defects or functional failures under bonded arrangements for inspection and repair, and subsequently handle them according to actual business needs:

• Re-export overseas (e.g. shipment back to Germany)

Exempt from import tariffs, import value-added tax, and consumption tax

• Sale to the mainland Chinese market (e.g. shipment to other cities and regions in China)

Import tariffs, import value-added tax, and consumption tax are levied in accordance with relevant regulations

Applicable sectors include:

• Construction machinery, CNC machine tools, precision electronics, and communication equipment
• Aerospace, shipbuilding, and rail transportation
• Cross-border e-commerce and luxury goods

For German manufacturing companies, this policy can provide a practical pathway to optimize after-sales service systems and establish global maintenance and repair hubs.

(7) Corporate Income Tax (CIT) Incentives

Until December 31, 2027, companies meeting certain requirements may benefit from a reduced corporate income tax rate of 15% (compared with the standard rate of 25%).

The main requirements include:

• The company must be registered in Hainan and carry out substantial operations in Hainan
• The company must belong to an encouraged industry sector
• Revenue from the main business must account for at least 60% of total revenue

Companies that have already established limited liability companies in other cities or regions of mainland China may also apply for this preferential policy when setting up subsidiaries or branches in Hainan, provided that the above requirements are fulfilled.

In addition, until December 31, 2027, companies in the tourism, modern services, and high-tech sectors established in the Hainan Free Trade Port may, under certain conditions, be exempt from corporate income tax on income derived from newly added outbound direct investments.

(8) Accelerated Depreciation Policy for Fixed Assets

Companies purchasing equipment may benefit from the following tax treatment:

≤ RMB 5 million (approx. 625,000 EUR): one-time pre-tax deduction

＞ RMB 5 million (approx. 625,000 EUR accelerated depreciation or shortened amortization period

This policy can help German companies shorten their investment payback period.

(9) Individual Income Tax (IIT) Incentives

Until December 31, 2027, highly qualified and urgently needed talent may benefit from the following policy:

• The portion of the actual individual income tax burden exceeding 15% is exempt from individual income tax. (The preferential treatment is implemented through the annual tax settlement process. Taxpayers must apply for the corresponding tax refund in Hainan. Applicable tax rates may be 3%, 10%, or 15%, depending on the specific conditions.)

Key requirements include:

• Residence in Hainan for at least 183 days per year (reasonable periods spent outside the island may be counted, but actual physical presence must not be less than 90 days)
• Annual income reaching a certain threshold (e.g. ≥ RMB 300,000, approximately EUR 37,500) or recognition as qualified talent
• The employing company must meet the “substantial operations” requirement

This policy may help German companies attract international talent to work in China.

(10) Free Trade Account (EF Account)

The EF account system enables integrated management of RMB and foreign currency accounts, allowing companies to avoid opening separate accounts for different currencies.

• More convenient cross-border capital flows

Cross-border payments and receipts under current account transactions can be processed directly based on customer payment instructions.

• Direct foreign exchange conversion for current account transactions

Companies are not required to provide supporting documents to banks regarding the purpose of the transaction, resulting in simplified procedures.

• Significantly relaxed restrictions on cross-border financing

Except for securities investment business, equity and debt financing are no longer subject to previous restrictions related to financing quotas, overall cross-border financing limits, overseas lending quotas, or approval procedures.

This framework can offer advantages in areas such as group treasury management, cross-border settlement, and the optimization of investment and financing structures.

(11) Support for Cross-Border Data Flows

Hainan allows qualified companies to apply for dedicated cross-border data connections (VPNs) with direct access to the international internet. This is particularly relevant for:

• Cross-border e-commerce
• Financial services
• Research and data centers

This policy can be especially important for German companies in the digital economy and technology sectors.

Key Business Opportunities for Companies from Germany

1. Supply Chain Restructuring: Leveraging the “Zero-Tariff + Value-Added Processing” Mechanism

The core idea of this strategy is to position the Hainan Free Trade Port as a processing and distribution hub connecting the Chinese and international markets, thereby optimizing supply chain costs and efficiency.

• Tax incentives for imports
  Companies may benefit from “zero tariffs, zero import VAT, and zero consumption tax” on self-used production equipment as well as imported raw and auxiliary materials. This can help reduce initial investment pressure.
• Tariff exemption through “value-added processing”
  Products that undergo substantial processing in Hainan and achieve a value-added rate of more than 30% may be exempt from import tariffs when entering the mainland Chinese market. This mechanism helps connect international supply chain advantages with China’s domestic market.
• Asia-Pacific supply chain hub (“front office – back factory” model)
  Companies may keep R&D and high-end manufacturing operations in other parts of the Asia-Pacific region or within mainland China, while locating assembly, upgrading, and other value-added processing activities in Hainan. This allows for more centralized management of logistics and capital flows.
• Optimization of cross-border e-commerce distribution
  Hainan can serve as a regional distribution center for premium consumer goods such as luxury products, medical devices, and cosmetics, supporting models such as “front store – back warehouse” to improve delivery and distribution efficiency.

2. Optimization of Capital and Treasury Management

Through institutional arrangements such as the EF account system, companies may improve the efficiency and flexibility of cross-border capital allocation and fund management to a certain extent.

3. Optimization of Cost Structures

Tax incentives and simplified customs clearance procedures may help reduce the overall operating costs for companies. At the same time, the relevant policies may also reduce the individual income tax burden of executives from Germany and China.

4. Regional Hub Function

Hainan can serve as a two-way platform connecting the Chinese and Southeast Asian markets, thereby playing an important role as a regional business hub.

5. Practical Relevance for Companies from Germany Already Operating in China

For companies from Germany that have already established limited liability companies in mainland China, setting up a subsidiary or branch in Hainan may represent an attractive option — particularly for companies with the following profiles:

• Trading companies with frequent import and export activities
• Manufacturing companies involved in import processing and re-export business
• Multinational groups seeking to optimize tax and financing structures
• Asset-light business models with a high degree of operational flexibility
• Companies considering establishing a China headquarters in Hainan or operational center in Hainan

Conclusion

The Hainan Free Trade Port represents an important step in China’s new phase of institutional opening-up. Its policy and regulatory framework is designed not only to support local economic development, but also to provide companies from Germany with new pathways for market entry and operational models.

For companies from Germany, Hainan should be understood less as a traditional “alternative market” and more as a complementary platform — particularly for optimizing supply chains, tax structures, and regional business operations.

About Us

As official regional cooperation partner of the Haikou Integrated Free Trade Zone for Germany, Austria, and Switzerland (the DACH region), bdp China Desk helps facilitate investment and cooperation between Hainan and companies from German-speaking markets.

With an established network in Europe and strong intercultural expertise, bdp China Desk provides companies from the DACH region with one-stop support ranging from market entry into China to project implementation, including:

• Investment location selection and market entry planning
• Company establishment and corporate structuring
• Tax filing and accounting services
• Audit and compliance services
• Human resources and payroll services
• Expatriate assignment support and individual income tax planning
• Sino-German cross-border M&A services

We support companies from the DACH region in building a practical and actionable understanding of China’s tax, financial, and regulatory environment, reduce market entry costs, and strategically leveraging the opportunities created by the Hainan Free Trade Port to support long-term and sustainable development.

Providing professional services in German, Chinese, and English throughout the entire process is one of bdp China Desk’s core strengths.

For further information on the policies of the Hainan Free Trade Port and the Haikou Comprehensive Bonded Zone, or to obtain tailored professional advice regarding corporate investment, trade, and cross-border business arrangements, please contact the bdp China Desk at china.desk@bdp-team.de. We will be pleased to provide professional, efficient, and practical consulting services and support based on your specific business needs.

We welcome you to follow our upcoming video series and in-depth policy insights on investment opportunities in Hainan.

Source

Hainan Free Trade Port – Haikou Integrated Free Trade Zone