Caixin
Jun 22, 2021 08:01 AM
ECONOMY

Hainan Won’t Turn Into the Cayman Islands, Governor Says

According to the plan released last June by the State Council, China’s cabinet, the Hainan free trade port will exempt certain imported goods from tariffs
According to the plan released last June by the State Council, China’s cabinet, the Hainan free trade port will exempt certain imported goods from tariffs

Southern China’s Hainan province vowed to tighten scrutiny to prevent businesses from using preferential policies to evade taxes after the central government unveiled plans to turn the tropical island into a free trade port.

“We will not let Hainan free trade port become a tax haven,” provincial Governor Feng Fei said Monday at a press briefing. A tax haven is a place that allows wealthy individuals and business owners to avoid paying taxes. The Cayman Islands, Bermuda and the Bahamas are well known as tax havens.

Feng said the province will tighten oversight of business registration and operations, setting up mechanisms to identify and monitor risks to keep companies from taking advantage of policy loopholes.

The number of companies registered in Hainan surged since last year as policies unfold to build the island into a free trade port, including some dodgy players, Feng said.

“We need to clarify the preferential tax policies and thresholds,” Feng said. Companies registered in Hainan to benefit from preferential tax policies must have actual management operations in the province, Feng said.

“We will not let a single shell company in,” he said.

Since July 2020, Hainan has launched 12 rounds of crackdowns on tax policy breaches and smuggling, according to Feng. The province also works with other localities to tighten supervision and punishment of misconduct.

China’s central government last year outlined ambitious plans to transform Hainan into a duty-free shopping hub with relaxed tax, visa and capital flow rules.

According to the plan released last June by the State Council, China’s cabinet, the Hainan free trade port will exempt certain imported goods from tariffs, import VAT and consumption taxes in the first phase. In the next phase after the island is declared a special customs territory at some point before 2025, it will exempt all imported goods from tariffs that are not included in a special list. Also, taxes and fees including VAT, consumption tax and vehicle purchase tax will be streamlined and merged, according to the plan.

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60 Measures in Hainan’s Planned Free Trade Port Policy

To attract talent and financing, Hainan has reduced the income tax for selected individuals and companies to 15%, far lower than the mainland and closer to the average of 17% in Hong Kong.

The island province has already benefited immensely from supportive policies over the past year as authorities allowed tourists to buy more duty-free goods and issued approvals for more duty-free shops. Sales of duty-free goods on the island increased 236% year-on-year to 45.5 billion yuan ($7.1 billion) between June 2020 and May following the release of the plan, state broadcaster CCTV reported, citing data from Hainan local commerce bureau. The number of duty-free shoppers rose by 144% during the same period.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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