Hainan’s Zero Tariff Policy on Medicines and Medical Devices in Boao Lecheng

Hainan’s zero-tariff policy on medicines and medical devices in the Boao Lecheng Pilot Zone exempts import duties and value-added tax to boost medical tourism and technology innovation. The policy lowers costs for qualified entities, stimulates sector growth, and supports Hainan’s goal of becoming a global healthcare hub.

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On September 5, 2024, China unveiled Announcement of Zero Tariff Policy for Medicines and Medical Products at Hainan Free Trade Port (hereinafter referred to as the “zero tariff policy”), a new policy exempting medicines and medical devices from import duties and value added tax (VAT) under Boao Lecheng International Medical Tourism Pilot Zone in Hainan Province (hereinafter referred to as the Boao Lecheng Pilot Zone).

The zero tariff policy, announced by the Ministry of Finance and other key departments, aims to boost regional development and support broader Hainan Free Trade Port (FTP) project. This policy, addressed to medical institutions, educational and research entities with independent legal status, aims to reduce costs for patients, stimulate growth in the healthcare sector and adapt local medical standards to international models.

The zero-tariff policy aims to raise the region’s profile as a major hub for medical tourism and technological innovation and will remain in place until the island province achieves full customs independence in 2025.

Key Details of Hainan’s Zero Tariff Policy on Medicines and Medical Devices

Authorized entities

The zero duty policy applies to the following entities:

• Medical facilities;
• Colleges and universities providing medical education;
• Pharmaceutical research institutes.

To be eligible for exemptions, these entities must be registered as independent legal entities in the Boao Lecheng Pilot Zone.

Special tax exemptions

Under the recently announced zero tariff policy, certain tax exemptions are granted to eligible entities, which significantly impacts the cost structure of imported medical goods. The policy provides complete exemption from both import duties and import VAT for medicines and medical devices.

This comprehensive tax relief is intended to make high-quality medical products more affordable for medical institutions, medical colleges and universities, and pharmaceutical research institutes registered with independent legal status in the pilot zone. In addition, the policy allows for voluntary payment of VAT if desired, providing flexibility to institutions that may prefer this option for administrative reasons.

The range of products covered

The exemption applies to two main product categories, namely:

• Those that have already been approved for import into China; and
• Those, while not yet registered nationally, have been approved for use in the pilot zone by the Hainan provincial government.

This means healthcare providers can import a wide range of essential medicines and devices without the financial burden of customs duties and VAT, thereby reducing operating costs and potentially passing these savings on to patients.

Regulatory and compliance measures

To ensure proper implementation and compliance with the zero tariff policy, a number of regulatory measures have been introduced. The verification process includes the following steps:

• Notification requirements: Entities qualifying for tax exemptions must inform the Haikou Customs Office and the National Administration of Taxation before importing tax-exempt medicines and medical devices.
• Compliance checks: The Boao Lecheng Zone Management Office is tasked with verifying that entities are registered and meet policy requirements. This includes ensuring that entities have independent legal status and are recognized in the pilot zone.

In addition, the zero tariff policy includes a number of restrictions on use and distribution:

• Geographic restrictions: Exempt medicines and medical devices must be used within the Boao Lecheng Pilot Zone. They cannot be transported outside the zone.
• Terms of sale: The sale of medicines and devices may only take place within the Boao Lecheng pilot zone and only on the basis of prescriptions issued by doctors from the same facilities.
• Transfer and Resale Control: There are strict prohibitions on transferring or reselling exempt items to individuals or entities outside the pilot zone. This measure is intended to prevent misuse and ensure that tax breaks are used appropriately for medical and research purposes.

Effects of the zero tariff policy

By exempting eligible entities from import duties and import VAT, the zero tariff policy effectively reduces costs for medical institutions, educational and research institutions, and other eligible organizations. This reduction in financial burden is expected to facilitate access to high-quality medical products and technologies, ultimately improving patient care and treatment outcomes.

In addition, the policy promotes the development and growth of the healthcare sector in the pilot area by making advanced medical technologies more affordable and accessible.

In addition, the zero tariff policy supports the broader goals of establishing Hainan as a major medical tourism destination and a center for medical technology innovation. By aligning local standards with international benchmarks, the policy aims to attract foreign investment and expertise, supporting advances in medical research and education.

The policy also states that exempt drugs and devices should only be used within the pilot zone, ensuring that the benefits are confined to the region and contributing to its status as a world-class medical centre.

Opportunities for Foreign Investors in Hainan’s Healthcare Sector

China’s recent announcement of an exemption from import duties and VAT on medicines and medical devices in the Boao Lecheng International Medical Tourism Pilot Zone opens up significant opportunities for foreign investors. With Hainan’s strategic positioning as a pilot free trade zone and ambitious targets for 2030, the region is poised to become a leading global medical tourism destination and a center for medical technology innovation.

Foreign investors can take advantage of the favorable tax policies and incentives available in Hainan, focusing on key areas such as international hospitals, third-party testing institutions, medical schools, pension insurance companies, and medical tourism services. By investing in these sectors, they can capitalize on the growing demand for high-quality medical products and services, contributing to the expansion of healthcare in the region. These policies not only reduce costs but also position Hainan as a leading location for medical advancement and international healthcare cooperation.