New tax management measures to be implemented in Hainan on 1 November

By Andrew Pentol |

New administrative measures on tax declarations in Hainan Island will be implemented on 1 November.

The Ministry of Finance and State Taxation Administration in China are to officially implement administrative measures relating to the exemption of VAT and consumption tax on duty free items sold in Hainan, effective 1 November 2020.

According to State Taxation documents which were seen by TRBusiness, the purpose of the new measures is to regulate VAT and consumption tax management on duty free commodities sold in shops across the  province and promote the construction of Hainan’s Free Trade Port.

It is widely believed that the increased number of duty free shops on the island, raised purchasing allowance from RMB30,000/$4,452 to RMB100,000 and expanded duty free product category list has made it more difficult to manage tax-related issues in the various duty free stores. This has led to the creation and imminent introduction of new administrative measures.

Under the new measures, duty free goods sold in Hainan outlets (the number of permitted duty free product categories which can be sold in Hainan rose from 38 to 45 on 1 July) will be exempt from value-added tax (VAT) and consumption tax.


After 1 November, Hainan duty free shops must declare VAT and consumption tax on a monthly basis. Retailers must also provide documentation from relevant authorities indicating they have permission to sell duty free products in Hainan.

The purpose of the new measures is to regulate VAT and consumption tax management on duty free commodities sold in shops, according to State Taxation Administration documents.

If a retailer has its right to sell duty free products in Hainan revoked or its qualification period comes to an end, it must contact the tax authority within 15 days.

Retailers selling off-island duty free goods (items not within the aforementioned 45 duty free product categories) must declare and pay VAT and consumption tax in accordance with current regulations.

Operators simultaneously selling taxable products and commodities permitted under the island’s duty free policy, must make separate declarations. Otherwise, they will not be exempt from VAT and consumption tax on applicable items.

An exterior shot of the China Duty Free Group Haitang Bay complex.

Any operator selling products within the 45 permitted duty free product categories must issue ordinary VAT invoices. They must also submit details of what they are selling (including prices) to the tax authorities, along with customers’ personal information.

Those operating under the offshore duty free policy for some time, must adhere to the new administrative measures in the month following their implementation.


Meanwhile, August offshore duty free sales in Sanya grew more than 200% (Source: Department of Tourism, Culture, Radio, Television and Sports of Hainan Province) compared to the same month last year.

The significant increase was driven by the implementation of the raised purchasing allowance and expanded duty free category list a month earlier. Duty free sales in Hainan during August subsequently reached $440 million, a year-on-year growth rate of 217.6%.

Sanya Phoenix International Airport handled 1.6237 million passengers in August, an increase of 4.09% compared to August 2019. Passenger numbers between January and August amounted to 8.4 million, a decrease of -37.68%.

Promoting the development of the Hainan Free Trade Port is another reason for the imminent implementation of the new administrative measures.

Sales during the Golden Week period beginning on 1 October exceeded RMB149m (Source: Hainan Provincial Bureau of International Economic Development).

This represents an increase of more than 148.7% compared to the same period last year, according to the General Administration of Customs of the People’s Republic of China.

During the Golden Week period, more than 146,000 people (+43.9%) made over 998,000 (+97.2%) purchases in Hainan’s duty free stores. The Hainan authorities are expecting total sales in Hainan’s duty free shops to amount to around RMB30bn by the end of the calendar year.


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