China's Pilot Free Trade Zones and the latest preferential policies 解读中国自由贸易试验区最新优惠政策

China's Pilot Free Trade Zones and the latest preferential policies

解读中国自由贸易试验区最新优惠政策

Four decades have passed since the first Special Economic Zones was created as part of the 1979 “reform and opening-up” policies. Free trade zones or FTZ (i.e. selected areas providing preferential policies for cross-border trade and investment) have been a big lever for China’s spectacular growth. This is exemplified by thriving cities such as Shanghai and Shenzhen.

With the addition of several new members, the number of pilot FTZs in China has expanded to 21 regions: Shanghai, Guangdong, Tianjin, Fujian, Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan, Shaanxi, Hainan, Shandong, Jiangsu, Hebei, Yunnan, Guangxi, Heilongjiang, Beijing, Hunan and Anhui.

Thanks to this success, on September 21, 2020, the State Council of China issued a circular on the plan for the Pilot FTZs in Beijing, Hunan and Anhui, as well as the expansion of the Pilot FTZ in Zhejiang. According to the plan, pilot FTZs will be endowed with greater reform autonomy and openness.

Comparison of the characteristics of Beijing, Shanghai and Hainan FTZs

Of the 21 FTZs, Beijing was late in the race but has managed to secure its position in the service sector and the digital economy. At present, the digital economy in Beijing accounts for more than 50% of the city's GDP, ranking first as Digital Center in China and outperforming "web celebrity city" Hangzhou (24.7%). The Beijing FTZ aims to build a high-level opening up platform for the coordinated development of The Beijing-Tianjin-Hebei Region, focusing on building a scientific and technological innovation center with global influence. More importantly, Beijing has become one of the cities with the most developed information services in the world. It has a sound industrial ecology of digital economy and a huge market application base. It is the city with the largest number of High and New Technology enterprises (HNTE) in the "Top 100 Software", "Top 100 Internet" and other important domestic rankings.

Source: bjnews website

On the other hand, Shanghai FTZ is committed to promoting innovation in the financial field by expanding the development of service industry. In terms of trade, it focuses on the areas of import and commodity trade. The Shanghai FTZ leads the integration of the Yangtze River Delta and the construction of the Yangtze River Economic Belt.

Hainan FTZ focuses on becoming an important open door on the Pacific and Indian Oceans. It will give full play to the island's overall advantages to build an open economy and a new system with high international standards.

New Tax preferential policies for FTZs

FTZs are characterized by a business-friendly environment supported by many applicable tax exemptions and non-taxable scenarios, as well as expeditedopti registration process and reduced negative list.

Case study: Hainan Province

In October 2020, the State Administration of Taxation announced 41 cases of exemption from VALUE-ADDED tax (VAT), valid from November 1^st, including the "Administrative Measures for exemption of VAT and Consumption Tax for Off-island duty-free Goods Sold in Hainan Off-island Duty-free Stores".

The Measures shall apply to the off-island duty-free shops qualified to implement the Hainan off-island duty-free policy. Among them, the islands duty free shops selling the islands duty free goods are exempted from VAT and consumption tax according to the regulations.

Reasonable tax planning by taking advantage of the applicable FTZs polices

The establishment of the pilot FTZs is an important strategic measure taken by China to sustain reforms and opening up policies. It facilitates investment and trade liberalization with the focus on promoting free investment, free trade, free capital flow, free transportation and free personnel. Through the implementation of internationally competitive tax policies and an open policy system framework, FTZs can support the development of certain regions, industries, enterprises and products, and promote the adjustment of industrial structure and the coordinated development of social economy. Therefore, enterprises in the FTZs have more opportunities to make optimizedtax planning within the scope permitted by law, which is conducive to reducing tax burden, obtaining time value of capital, realizing tax-free risk and optimizing economic benefits in the actual production and operation process.

President Xi Jinping has delivered a speech at the opening ceremony of the third China International Import Expo (CIIE) on Nov 4, 2020, indicating that China will unswervingly expand opening-up in an all-round way and make the Chinese market a shared market for the world. China will continue to open up to the outside world in areas such as the digital economy and the Internet. In order to boost international trade, China will accelerate the development of cross-border e-commerce and deepen reform of innovation in trade and investment liberalization, as well as continue to improve the business environment by safeguard the equal and legitimate rights & interests of foreign-invested enterprises. President Xi has also emphasized that China will enhance exchanges and mutual learning with high-standard FTZs in the world.

Free trade zones are in their prime. They have demonstrated their ability to promote foreign investments and economic development. With the continuous innovation of various trade, investment and tax preferential policies, they remain a great opportunity in the near future for foreign and local investors.