Hainan’s New Zero-Tariff Policy on Drugs and Medical Devices in Boao Lecheng Pilot Zone

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

On September 5, 2024, China unveiled the Notice on the Zero-Tariff Policy for Medicines and Medical Devices in the Hainan Free Trade Port (hereinafter, the “zero-tariff policy”), a new policy exempting import tariffs and value-added tax (VAT) on drugs and medical devices within the Boao Lecheng International Medical Tourism Pilot Zone in Hainan Province (hereinafter, the Boao Lecheng Pilot Zone).

Announced by the Ministry of Finance and other key departments, the zero-tariff policy is designed to boost the region’s development and support the broader Hainan Free Trade Port (FTP) project. Targeting medical institutions, educational and research entities with independent legal status, the policy is designed to lower costs for patients, stimulate growth in the healthcare sector, and align local medical standards with international benchmarks.

The zero-tariff policy seeks to elevate the region’s status as a premier hub for medical tourism and technological innovation. It will remain in effect until the island province achieves full customs independence in 2025.

Key details of the Hainan’s zero-tariff policy for medicines and medical devices

Eligible entities

The zero-tariff policy applies to the following entities:

• Medical institutions;
• Medical education colleges and universities; and
• Pharmaceutical research institutes.

To qualify for the exemptions, these entities must be registered with independent legal person status within the Boao Lecheng Pilot Zone.

Specific tax exemptions

Under the newly announced zero-tariff policy, specific tax exemptions are granted to eligible entities, significantly impacting the cost structure of imported medical goods. The policy provides complete exemptions from both import duties and import VAT for medicines and medical devices.

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

Applicable products scope

The exemption applies to two main categories of products, namely:

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

This means that medical entities can import a wide range of essential drugs and devices without the financial burden of tariffs and VAT, thus lowering operational costs and potentially passing these savings on to patients.

Regulatory and compliance measures

To ensure proper implementation and compliance with the zero-tariff policy, several regulatory measures have been put in place. The verification process includes the following steps:

• Notification requirements: Entities eligible for tax exemptions must inform Haikou Customs and the National Taxation Administration before importing exempted medicines and medical devices.
• Compliance checks: The Boao Lecheng Zone Management Bureau is tasked with verifying that entities are registered and compliant with the policy’s requirements. This includes ensuring that the entities have independent legal status and are recognized within the pilot zone.

Additionally, several usage and distributions restrictions are covered by the zero-tariff policy:

• Geographic limitations: Exempted medicines and medical devices must be used within the Boao Lecheng Pilot Zone. They cannot be transferred outside the zone.
• Sales conditions: Medicines and devices can only be sold to patients within the Boao Lecheng Pilot Zone, and only based on prescriptions issued by physicians at the same institutions.
• Transfer and resale controls: There are strict prohibitions against transferring or reselling exempted items to individuals or entities outside the pilot zone. This measure is designed to prevent misuse and ensure that the tax benefits are used appropriately for medical and research purposes.

Impacts 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 facilities, and other qualifying 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.

Additionally, the policy encourages the development and growth of the healthcare sector within the pilot zone by making advanced medical technologies more affordable and accessible.

Furthermore, the zero-tariff policy supports the broader goals of establishing Hainan as a premier destination for medical tourism and a hub for medical technology innovation. By aligning local standards with international benchmarks, the policy aims to attract foreign investment and expertise, fostering advancements in medical research and education.

The policy also stipulates that exempted medicines and devices are to be used strictly within the pilot zone, ensuring that the benefits are contained within the region and contributing to its status as a world-class medical center.

Opportunities for foreign investors in Hainan’s healthcare sector

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The recent announcement by China to exempt import tariffs and VAT on drugs and medical devices in the Boao Lecheng International Medical Tourism Pilot Zone opens significant opportunities for foreign investors. With Hainan’s strategic positioning as a pilot Free Trade Zone and its ambitious goals for 2030, the region is poised to become a leading global destination for medical tourism and a hub for medical technology innovation.

Foreign investors can benefit from the favorable tax policies and incentives available in Hainan by targeting key areas such as international hospitals, third-party testing institutions, medical colleges, pension insurance companies, and medical tourism services. By investing in these sectors, they can tap into the growing demand for high-quality medical products and services, contributing to the region’s healthcare expansion. This policy not only reduces costs but also positions Hainan as a premier location for medical advancements and international healthcare collaboration.

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