Doing Business In Hainan China, One Stop Foreign Investment Services In Hainan, Establishing China Operations In Hainan, Set Up Business, Company Registration, Accounting, Tax Planning, Tax Advisory, Legal, Product sourcing, Packages Tour, Chinese English Translation Services In Hainan
Foreign investors should develop a Hainan investment strategy to take advantage of tax cuts, access to ASEAN, and RCEP.
Op/Ed by Chris Devonshire-Ellis
Tax incentives kick in for foreign investors from January 2021
Entire island is to become a Free Trade Port
Being positioned as an alternative Singapore
Huge opportunities in medical tourism
Free trade agreements with ASEAN & RCEP
Horse racing, golf clubs, and attractive climate
Branch offices of Hainan WFOEs can operate throughout China
Slightly flying under the radar in terms of its attractiveness to foreign investors has been Hainan Island, off the southern China coast of Guangdong province and near the eastern coast of Vietnam. However, as costs in primary cities like Beijing and Shanghai increase, the need for a less expensive destination, with warmer weather, outdoors sub-tropical climate and with little heavy industry pollution begins to appear more attractive. However, Hainan has an inherent problem – its perception as a low-end Chinese tourist destination, sometimes touted as ‘China’s Hawaii’. (It is not).
Although beach resorts, such as Sanya, do attract Chinese tourists in their millions – Hainan Airlines has China’s longest internal flight, servicing tourists in search of winter sun from Harbin – the regional government has been looking at ways to diversify from this staple and into other business and trade areas. These will be of interest to any CEO of a foreign-invested enterprise in China, and to China investors themselves.
Hainan Free Trade Zone
We first reported back in April 2018 that the entire Island was to become a free trade zone(FTZ).
According to guidance issued by the State Council, China announced plans to establish the Hainan FTZ by 2020 and build Hainan Free Trade Port by 2025. By 2035, Hainan’s free trade system should be fully developed. Well, we are in 2020 now and what has happened?
At the beginning of June this year, the Central Committee and the State Council jointly released the Hainan Masterplan, which laid out a series of special policies for Hainan – scrapping import duties, lowering income tax rates for high-level talent, capping company tax at 15 percent for encouraged enterprises, and relaxing visa requirements for tourist and business travelers. These will take effect in six weeks – from January 1, 2021.
Collectively, the policies are designed to diversify Hainan’s reliance on traditional industries and to function as a strategic trade and investment destination in China. For foreign firms, Hainan will provide broader market access – particularly for industries like telecommunications, tourism, and education – in addition to a phased plan for capital account opening and free flow of money between Hainan and overseas markets.
Hainan Free Trade Port
In addition to the free trade status of the Island, China is also positioning the entire island as a strategic free trade port, meaning developments in several port locations are being ramped up, including the Hainan’s capital, Haikou. That will position Hainan as a major duty-free shopping hub and offer facilities for consolidation of component products being brought in for additional work and assembly from ASEAN and beyond. China already has a free trade agreement with ASEAN, meaning duty free movement of most goods. Vietnam, for example, offers lower production costs than China and its main Ho Chi Minh City Port is just 725 nautical miles, or three-days shipping away. Vietnam, in turn, is connected to landlocked Cambodia and Laos where basic manufacturing costs are lower still. Myanmar, with its low-cost workforce of about 25 million is also nearby. As many readers will know, China last week signed off the RCEP free trade agreement, which also includes Australia, Japan, New Zealand, and South Korea. Companies from these countries will be setting up factories in Hainan to take advantage.
Medical tourism
China has been eying the medical tourism industry for some time, and Hainan is perfectly positioned to become a wellness centre with detox, spa resorts, therapy as well as plastic, cosmetic, and reconstructive surgery. We discussed Hainan’s Medical Tourism Zone plans here. However, it is also positioning itself to cater for serious diseases, such as cancer with treatments not available elsewhere in China. The Boao Lecheng International Medical Tourism Pilot Zone in Hainan has launched a special drug insurance that covers 70 anti-cancer drugs, including 49 medicines not yet approved for sale anywhere else in China. We discussed this here. Qualified foreign doctors and nursing professionals will also be encouraged to live and work in Hainan while the Island’s duty free status and medical tourism zone plan combine to allow importation of medical equipment, and drugs that may not otherwise be easily available. With mainland China’s massive population on the doorstep, the opportunities are huge.
Hainan’s local economy
Hainan’s economy has a small industrial sector and leans heavily towards resource extraction and services. In 2019, its primary industry constituted 20.3 percent of GDP – the highest among any Chinese province – while its secondary industry accounted for only 20.7 percent, which is less than half that of most other provinces. Resources that contribute to its sizable primary industry include the extraction of products, such as seafood, tropical fruit, tea, and rubber, while its tertiary sector is strongly linked to the tourism industry.
Much of Hainan’s secondary industry, meanwhile, is associated with the processing of petroleum and other natural resources like rubber, as well as transport equipment and pharmaceuticals, among others.
Expat attractions
Golf
Please see a map of the current locations of golf courses in Hainan.
Horse racing
China will permit horse racing on mainland China for the first time, while limited forms of gambling – namely betting and sports lotteries – will be permitted in Hainan. Hong Kong and Macao are currently the only jurisdictions in China that allow horse racing and Macao is the only one to permit casinos and gambling. The latter are not yet on the agenda for Hainan, but it cannot be far behind.
Hainan as China HQ for expat CEOs
In addition to the increasingly attractive lifestyle, foreign investors, especially those in the services industries, may establish wholly foreign owned enterprises in Hainan to take advantage of the 15 percent corporate income tax rate. Although duty will be payable on various goods from Hainan exported to mainland China, services are a different matter and especially when combined with sound tax planning.
WFOEs may establish branch offices in China, meaning a Hainan-based business can take advantage of the lower tax rate and lifestyle while still developing a network across China.
Additionally, a WFOE owned by a nearby Hong Kong or Singapore holding company will find it easy, via that entity, to establish subsidiaries elsewhere, such as in Vietnam or other ASEAN countries.
What is the Hainan Free Trade Zone, overview, opportunities and challenges.
April 2018, President Xi Jinping announced the establishment of the Hainan Free Trade Zone to mark the 30th anniversary the establishment of Hainan as a province.
According to the plan, the entire island of Hainan is to be transformed into a free trade zone (FTZ) – the country’s 12th and the first to cover a whole province.
The Hainan government aims for the Hainan FTZ to open in 2020 with a longer-term view for the development of the Free Trade Port by 2035.
Economic profile:
As the only tropical island off China’s southern coast, Hainan is often referred to as “China’s Hawaii”. The province is a popular destination for mainland Chinese tourists, who flock to its many beaches, tropical rainforests and year round and warm climate.
In 1988, Hainan was designated as one of China’s first special economic zones (SEZs), putting it at the forefront of the opening-up campaign spearheaded by the architect of China’s economic reforms, Deng Xiaoping.
Forty years ago, Deng Xiaoping adopted the philosophy of “crossing the river by feeling the stones” in his approach to opening up China’s economy. That idea—which refers to cautiously testing out new methods before expanding them—shaped the reforms that turned China into an economic giant and has been directing China’s development since.
If Shenzhen was one of the earliest pilots for attracting foreign investment, now it’s the turn (again) of Hainan which president Xi Jinping aims to turn into a more liberal economy than any other part of China.
Despite these previous advantages however, Hainan is still relatively underdeveloped compared to other regions in China.
Its GDP per capita of RMB 51,955 (US$7,851) in 2018 for example, ranked 17th out of mainland China’s 31 regions.
Hainan’s economy has a small industrial sector and relies heavily on resource extraction and services.
Resources that contribute to its sizeable primary industry include products such as seafood, tropical fruit, tea, and rubber, while its tertiary sector is strongly linked to the tourism industry.
Much of Hainan’s secondary industry, meanwhile, is associated with the processing of petroleum and other natural resources like rubber, as well as transport equipment and pharmaceuticals.
2018 Major industries:
Agriculture, Internet industry, Medical care, Financial industry, Exhibition industry, Crude oil, Modern logistics, Manufacturing, Real estate and High and new technologies.
Major export commodities:
Machinery equipment, Biotechnology, Computer and communications Technology, Agricultural products, Refined oil, Minerals, Chinese patent medicine and Steel.
RMB 29.767 billion, an increase of 0.7% over 2017.
Total value of imported goods and services:
55.129 billion, decrease by 15.3%
Data sources:
People’s Government of Hainan Province：http://www.hainan.gov.cn
Department of Commerce of Hainan Province：http://dofcom.hainan.gov.cn
Hainan Provincial Bureau of Statistics: http://stats.hainan.gov.cn
The Hainan FTZ blueprint:
In need of new drivers of growth that go beyond natural resources and tourism, China’s economic planners aim to give Hainan’s economy a boost by leveraging its clean, service-driven tropical environment to showcase a China that is proficient in renewable energy and value-added services as opposed to the labor-intensive and export-driven manufacturing that characterise other free trade zones and previous periods of economic development.
Hainan is far from China’s first FTZ, it is however the first that covers a whole province and it will have its own unique policies to attract foreign investment not found elsewhere.
Due to its nature as a self-contained island, Hainan also provides a unique testing ground for planners to trial new pilot policies.
With these goals in mind, China’s central government and the Hainan provincial government have released a slew of documents outlining their plans to build the Hainan FTZ since the original announcement.
The Plan, together with other documents, set forward a timeline for the development of the Hainan FTZ.
Key goals in the blueprint include:
2020
Become an operational FTZ;
Significantly improve international openness;
Build investment and trade facilitation; legal environment regulation; financial services improvements; a first-class ecological environment; and
Lay a foundation for the construction of the Hainan Free Trade Port.
2025
Have the Hainan Free Trade Port basically in place;
Establish a leading business environment in China; and
Ensure that quality and efficiency of economic growth has significantly improved.
2035
Have mature operation of the Hainan Free Trade Port;
Establish a world-leading business environment; and
Be at the forefront of socialist modernisation.
China’s economic planners envision the Hainan Free Trade Port, which will become operational in 2025, to be an economic area with trade and investment incentives akin to Hong Kong and Singapore – two regions known for their business-friendly policies.
In this vein, Hainan will cut the time needed to set up a business to three working days, reduce administrative approval items, and fully implement China’s national negative list.
Planners hope that Hainan’s geographic position in the south of China near the Pearl River Delta mega-region and Vietnam will make it an important port to connect China with South and Southeast Asia.
This also ties in with China’s Belt and Road Initiative, where Hainan will be an important hub on the “Maritime Silk Road”.
Target industries:
Beyond establishing a free trade port and streamlined business environment, Hainan aims to develop and internationalise leading industries from where it already has strengths.
The Opinions state that rather than focusing on transit trade and processing and manufacturing, the FTZ will focus on developing tourism, modern service industries, and high-tech industries.
Tourism:
Hainan already has a large tourism industry, but are looking to make it more international and tailored to specific services and markets.
Authorities had set a target of two million foreign visitors by 2020 – almost double 2018 levels, before the global coronavirus pandemic brought worldwide tourism to a standstill.
Policies aimed at boosting tourism include expanding duty-free shopping, promoting medical tourism, and potentially allowing sports lotteries.
One way that Hainan has already done so is through the introduction of visa-free travel to the island for up to 30 days for tourists from 59 countries.
The visa free policy has had its share of criticism for being over complicated and confusing and is due further reforms and simplification.
In a further effort to boost tourism, Hainan will ease market access requirements for foreign investors to host temporary exhibitions and festivals, as well as to invest directly in cultural and art institutions.
To jump-start the initiative, the Hainan International Film Festival was one of 12 major pilot projects created in the Hainan FTZ in 2018.
Modern services:
Besides traditional tourism, Hainan will seek to promote “modern services” in the FTZ, including healthcare and elder care. These industries interrelate with tourism plans, as Hainan seeks to establish itself as China’s leading medical tourism hub.
Provincial authorities hope that Hainan’s warm climate and clean environment will help it attain this goal, becoming somewhat like Florida is in the US for elder care.
Medical tourism plans go beyond elder care, however, with cosmetic surgery, rehabilitation, and beauty care among the other medical tourism sub-sectors being developed.
Besides treating patients directly, planners hope to develop an associated ecosystem proficient in medical, pharmaceutical, and biotech R&D.
For example, the Boao Lecheng International Medical Tourism Pilot Zone will provide expanded incentives like tariff cuts on medical devices to spur R&D.
In December 2018, the State Council granted the Hainan Provincial Government the right to approve imported drugs for use in the medical pilot zone. This special preferential policy allows patients to use drugs from developed countries and regions such as Europe and the United States, which had been marketed but not yet approved in China.
To attract top talent to the zone, May 5th, 2020 the Boao Lecheng International Medical Tourism Administration announced interim measures to attract doctors and talents in the innovation of medicine and medical equipment.
Doctors, experts and teams practicing in the pilot area can be awarded a total bonus of 25 million yuan.
Other services highlighted in the plan include telecommunications and internet services, finance, and cross-border trade. To stimulate modern services, Hainan authorities have pledged to offer greater market access for foreign investors and lower tax rates for qualified sectors.
High-tech:
As opposed to the more conventional high-tech industries found in China’s most economically advanced regions, such as Guangdong, Hainan will focus its high-tech investments in sectors where it holds unique advantages.
Accordingly, the province’s tech plans will largely tie in with its geography, focusing on agritech, biotech, deep-sea technology and industries such as aerospace.
Qualified tech startups may also enjoy free rent and access to government venture capital funding. Hainan has already set up a modest RMB 500 million (US$63.7 million) fund for startups.
Challenges:
The development of both modern services and high-tech in Hainan is seen as being impeded by the lack of reputed universities.
As seen with the Boao Lecheng International Medical Tourism zone, Hainan is currently prioritising attracting talent from overseas and other provinces to make up for its lack of local expertise.
In April 2020, the Hainan provincial government announced that it would provide more than 30,000 job vacancies for talented individuals from home and abroad this year in a step to gather greater manpower.
Hainan introduced a plan in May 2018, to attract a million talented individuals from home and abroad by 2025, offering them preferential policies including loans, free housing and other welfare arrangements.
The plan provides a large number of high-level talent posts from government bureaus, public institutions, State-owned enterprises, industrial parks, legal institutions and private companies.
In 2018, foreign investment in Hainan grew by an enormous 112.7 percent and trade revenue grew by a sizeable 20.8 percent.
Besides stimulating the economy, Hainan still has its work cut out to improve its business environment.
The Hainan FTZ calls for streamlining bureaucracy and administrative costs, as has been done in the Shanghai FTZ and elsewhere.
In a March 2019 interview with SCMP, Mao Chaofeng, the deputy governor of Hainan province and one of the top 13 provincial committee members, acknowledged that the province still has a lot of work to do to transform Hainan into a modernised economy comparable with Shanghai or Shenzhen.
Setting Up A Business in Hainan Free Trade Zone
Hainan Free Trade Zone company registration is also referred to as Hainan corporate formation, Hainan business setup, Hainan company incorporation. Hainan is the smallest and southernmost province of the People's Republic of China, consisting of various islands in the South China Sea. Being China’s largest Special Economic Zone, nominal GDP of Hainan province has been increasing steadily. In simple words, Hainan provides many opportunities for foreign businesses.
To facilitate people who want to invest and set up business in Hainan Free Trade Zone , here is an introduction of Types of business presence in China:
Before starting up a business in China, you have to know what are the options. Foreign Investors generally establish a business presence in China in one of five modes: Wholly Foreign Owned Enterprise (WFOE); Representative Office; Foreign Invested Partnership Enterprises (FIPE); Joint Venture and Hong Kong HoldingCompany.
WhollyForeign Owned Enterprise (WFOE) is a Limited liability company wholly owned by the foreign investor. WFOE requires no registered capital and it's liability of equity , can generate income, pay tax in China and it's profit could be repatriate back to investor's home country. Any enterprise in China which is 100 percent owned by a foreign company or companies can be called as WFOE.
RepresentativeOffice (RO) is a Liaison Office of it's parent company. It requires no registered capital. It's activities would be: product or service promotion, market research of it's parent company's business, Quality Control liaison office etc in China. RO generally is prohibited to generate any revenue nor generating contracts with local businesses in China.
SinceMarch 1, 2010: Measures of Establishment of Foreign Invested PartnershipEnterprises (FIPE) in China is taking effect. The regulation, which take effect since March 1, 2010, are known as the Administrative Measures for the Establishment of Partnership Enterprise in China by Foreign Enterprises or Individuals. There's no required minimum registered capital for a Foreign Invested Partnership Enterprise (FIPE) in Shanghai, Beijing, Guangzhou, Shenzhen, Hangzhou and rest cities of China
HongKong Company usually been used as a Special Purpose vehicle (SPV) to investMainland China. Hong Kong is one of the quickest locations to Incorporate a business. Although a HK company is not a legal entity in Mainland China (MainlandChina and Hong Kong, See Wiki 1 country, 2 systems), lots foreign investors, especially investors from Europe and North America still chose to setting up a Hong Kong company as SPV to invest China.
After China's entry to WTO, most industries in China welcome foreign investment, WFOEsetting up in China becomes the first option of foreign investment's entitystructures instead of Rep. Office setting up in China. At the mean time, for tax purpose, effective licensing system etc more and more investors use Hong Kong as the holding company to invest China mainland, using this offshore company to hold their operations in China.
Business set-up in Hainan is a big project by itself, which requires financial and time commitments, business management knowledge and China expertise. Identifying a competent agent to manage the complex process will be a cost and time effective way to avoid potential pitfalls . Tommy China Business Consulting has direct connections in the local government
Since 2006, TCBC has been focusing on consulting services for our clients to invest in Haikou, Sanya Hainan China. We are specialized in establishment of wholly foreign owned enterprises (WFOEs), setting up of offshore companies, trading services,tax minimization, Assist in obtaining government approvals and certificates for running business, negotiate and draft various legal documents provide legal advice, negotiate government officer for Land acquisition. Advising on formation of WOFE and business structures, managing and controlling WOFE in Hainan China, drafting privacy policies and structuring commercial transactions
South China's Hainan has continued to deepen comprehensive reform in business services and as a result, business registration procedures can now be completed in Sanya within one day.
"The Hainan Free Trade Port is really efficient in handling business registration affairs," said a businessman surnamed Li from Tianjin.
Attracted by the opportunities brought by construction of the Hainan FTP, Li sought to start a business in Sanya and the business registration agency Company Steward helped him finish all the procedures, such as business license application, company seal making, invoice application, social security registration, and bank account opening, on Nov 27.
Company Steward was established by several university graduates in March this year to provide services to enterprises in the Sanya Central Business District.
The Hainan FTP has attracted a large number of investors from home and abroad, with more than 170 new companies like Company Steward being established, most of which are from outside the island and some are even run by foreign investors.
According to statistics, a total of 14,629 companies have been registered in Sanya as of Nov 25 since the launch of the master plan for the construction of the Hainan FTP on June 1, up by 117 percent year-on-year.
The comprehensive reform of Hainan's business services is an important reason for the growing number of investors in Sanya, according to Li Junfeng, a registrar from the Sanya administration for market regulation.
According to Li, business entities can now log on to an online platform to apply for business registration at any time. They can submit application forms and the system will process them instantly without the need for registrar review. After confirmation of registration, an electronic business license will be issued and then the entire process of business license, official seal making, invoice application, social security registration, as well as bank account opening can be completed without having to show up in person.
A staff member (R) from Sanya guides an investor on the online business registration process. [Photo/hinews.cn]
Horse racing
