Why is Hainan gaining momentum and why does it feel like Hong Kong 2.0?

Strategic Free Trade Vision
The master plan for Hainan’s Free Trade Port is bold. The aim is to build a high-level gateway for trade, investment, and talent combining low taxes, simplified customs, and more relaxed market access. Starting from December 18, 2025, the entire island will operate under a special customs supervision regime, which greatly improves its connectivity with global markets.

Zero-Tariff Regime
One of the most striking features is the zero-tariff policy: many imported goods will qualify for duty-free treatment.  According to official plans, roughly 6,600 product categories (about 74% of all taxable items) will be exempt from import duty, VAT, and consumption tax, underlining Hainan’s ambition to be a deeply open trade hub. For businesses, this means dramatically reduced supply-chain costs especially for companies that import raw materials or components, process them in Hainan, and then re-export.

Attractive Corporate Income Tax (CIT)
Perhaps one of the biggest draws for businesses: Hainan’s FTP offers a reduced corporate income tax rate of 15% for companies in “encouraged industries” (such as tourism, modern services, high-tech) that carry out substantive operations on the island.  This preferential rate has been extended to December 31, 2027, providing a stable window for businesses to plan long-term.  What's more, for eligible firms, profits from new overseas investments (e.g., dividends from overseas subsidiaries) are exempt from CIT. This effectively positions Hainan as both an operational base and a hub from which companies can expand abroad.

Highly Skilled Talent Incentives
Attracting talent is central to Hainan’s strategy. The FTP regime provides a capped individual income tax (IIT) of 15% for “high-end and urgently needed” professionals.  Recent policy updates have made this more flexible: individuals can now count reasonable days spent off island (e.g., business travel, training, vacation) toward residency, as long as they physically spend at least 90 days a year in Hainan.  This creates a truly competitive environment to attract global talent in sectors such as aerospace, shipping, high tech, and more.

Relaxed Market Access
Hainan is not just reducing taxes, it's rethinking regulation. Through a negative list mechanism, the FTP grants more liberal market access for foreign firms in sectors that are restricted elsewhere in China.  This means that for some industries (education, telecommunications, business services, private equity), the FTP can function with far fewer constraints than typical Chinese jurisdictions.

Simplified Tax & Customs System
The tax regime is being streamlined. Rather than a complex overlay of VAT, consumption tax, and other surcharges, the FTP master plan envisages a simplified system, replacing many of these with a combined “sales tax” for goods and services. Meanwhile, customs processes are being modernised with digital platforms (such as the China (Hainan) International Trade Single Window), making cross-border trade smoother.

Why Hainan is attracting overseas investors - beyond just tax

• Global Expansion Hub: The exemption on foreign income for certain sectors encourages enterprises registered in Hainan to build or acquire overseas operations, making it a springboard for international expansion.
• Real Estate & Infrastructure: With Hainan’s rising profile, more investors are eyeing real estate, hospitality, and infrastructure development. The free trade port’s ambitions overlap heavily with tourism and modern services, making it a fertile ground for long-term capital.
• Consumer Market Access: Duty-free shopping is already a major draw. Hainan aims to expand its duty-free regime, boosting retail and luxury sectors.
• Talent Magnet: For multinational companies looking to embed R&D, regional HQs, or innovation labs, the IIT incentives make Hainan compelling for relocating or hiring global talent.

How Hudson McKenzie can help - Your partner in navigating Hainan

At Hudson McKenzie, we recognize that while Hainan offers tremendous promise, navigating the regulatory, tax, and operational landscape requires careful expertise. Here’s how we support clients:

Strategic Advisory

We help assess whether your business model aligns with Hainan’s “encouraged industries.” We also advise on the most effective corporate structure (on-island entity, branch, holding company) to maximize tax benefits and legal compliance.

Relocation & Establishment

We guide you through company incorporation in Hainan, ensuring your business meets the “substantial operations” requirement for tax incentives.  We also assist with immigration and visa strategies for key personnel, leveraging Hainan’s flexible stay policies for talent.

Tax Planning & Compliance

With assistance from a network of tax advisors, we help design tax-efficient strategies to leverage Hainan’s reduced CIT, IIT, and overseas income exemptions. Our tax partner network supports tax filings and help with the application and maintenance of preferential tax status.

Talent Acquisition & Retention

We advise on how to attract and retain high-end talent, given the favourable IIT regime. We also support HR and compensation planning to align with Hainan’s tax benefits while ensuring alignment with local labour laws.

Risks & Considerations

Of course, we should also be realistic. Hainan is not without challenges:

• While the tax incentives are generous, companies must truly operate in Hainan (“substantial operations”) to benefit - shell companies will not qualify. 
• Some of the preferential policies have sunset dates (e.g., currently extended to the end of 2027), so timing matters.
• The regulatory regime is still evolving; as the FTP matures, there may be changes, and local compliance is non-trivial.
• For certain industries, competition is heating up: early movers may gain advantage, but later entrants should plan carefully.

Final thoughts

In many ways, Hainan is not just an emerging free trade port,  it’s a statement. With its low tax rates, open customs regime, talent incentives, and global ambitions, Hainan is carving out a role as a strategic gateway for international business in the Asia-Pacific and beyond.

At Hudson McKenzie, we see Hainan as one of the most exciting opportunities in the world right now. For overseas investors, entrepreneurs, and talent considering their next move, now is the moment to engage. If you’re looking to explore setting up in Hainan, relocating key personnel, or structuring cross-border investments, we’d love to help. Please get in touch to discuss how we can support your strategic ambitions.

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Contact and Disclaimer

Should you have any questions regarding the above information, or require assistance with your immigration or global mobility matters, please don’t hesitate to contact our legal team at Hudson McKenzie. You can reach us by email at londoninfo@hudsonmckenzie.com or by telephone at +44 (0) 20 3318 5794.

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For office locations, please visit our Our Offices page.

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The information provided in this blog is for general guidance only and does not constitute legal advice.