On September 5, 2024, China announced the zero-tariff policy for medicines and medical devices in the Hainan Free Trade Port. This new initiative exempts import tariffs and value-added tax (VAT) on drugs and medical devices within the Boao Lecheng International Medical Tourism Pilot Zone in Hainan Province.
Released by the Ministry of Finance and other key governmental departments, the zero-tariff policy aims to stimulate development in the region and support the broader Hainan Free Trade Port (FTP) project. It specifically targets medical institutions, educational and research entities with independent legal status, intending to lower costs for patients, foster growth in the healthcare sector, and align local medical standards with international benchmarks.
The zero-tariff policy is designed to enhance the region’s reputation as a leading hub for medical tourism and technological innovation. This initiative will remain in place until Hainan achieves full customs independence in 2025.
Key Aspects of Hainan’s Zero-Tariff Policy for Medicines and Medical Devices
The zero-tariff policy applies to several key entities, including:
Medical institutions
Medical education colleges and universities
Pharmaceutical research institutes
To qualify for the exemptions, these entities must be registered as independent legal entities within the Boao Lecheng Pilot Zone.
Specific Tax Exemptions
Under the zero-tariff policy, eligible entities receive significant tax exemptions, directly affecting the cost structure of imported medical goods. The policy completely exempts eligible entities from import duties and import VAT on medicines and medical devices.
This comprehensive tax relief is intended to make high-quality medical products more affordable for medical institutions, educational colleges, and pharmaceutical research institutes within the pilot zone. Additionally, the policy offers the option for voluntary VAT payments, providing flexibility for institutions that may prefer this arrangement for administrative purposes.
Scope of Applicable Products
The exemptions apply to two main categories of products:
Those already approved for import into China.
Those approved for use within the pilot zone by the Hainan provincial government, even if not yet registered domestically.
This provision allows medical entities to import a broad range of essential drugs and devices without incurring tariffs or VAT, thereby reducing operational costs and potentially passing these savings on to patients.
Regulatory and Compliance Measures
To ensure effective implementation and compliance with the zero-tariff policy, several regulatory measures have been established. The verification process includes the following steps:
Notification Requirements: Eligible entities must inform Haikou Customs and the National Taxation Administration prior to importing exempted medicines and medical devices.
Compliance Checks: The Boao Lecheng Zone Management Bureau is responsible for verifying that entities are registered and compliant with the policy’s requirements, including maintaining independent legal status within the pilot zone.
The policy also includes several restrictions on the usage and distribution of exempted products:
Geographic Limitations: Exempted medicines and medical devices must be utilised within the Boao Lecheng Pilot Zone and cannot be transferred outside this area.
Sales Conditions: Medicines and devices can only be sold to patients within the pilot zone 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, preventing misuse and ensuring the tax benefits are directed towards medical and research purposes.
Impacts of the Zero-Tariff Policy
By exempting eligible entities from import duties and VAT, the zero-tariff policy significantly reduces costs for medical institutions, educational facilities, and other qualifying organisations. This reduction in financial burden is expected to enhance access to high-quality medical products and technologies, ultimately improving patient care and treatment outcomes.
Furthermore, the policy promotes the growth of the healthcare sector within the pilot zone by making advanced medical technologies more accessible and affordable. It supports the overarching goal of establishing Hainan as a top 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, thereby advancing medical research and education.
It is essential to note that exempted medicines and devices are to be used strictly within the pilot zone, ensuring that the benefits remain within the region and further contribute to its status as a world-class medical centre.
Opportunities for Foreign Investors in Hainan’s Healthcare Sector
The recent implementation of the zero-tariff policy on drugs and medical devices in the Boao Lecheng International Medical Tourism Pilot Zone presents substantial opportunities for foreign investors. With Hainan’s strategic position as a pilot Free Trade Zone and its ambitious objectives for 2030, the region is well-positioned to emerge as a leading global destination for medical tourism and a centre for medical technology innovation.
Foreign investors can take advantage of the favourable tax policies and incentives in Hainan by focusing on 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 meet the growing demand for high-quality medical products and services, contributing to the region’s healthcare expansion. This policy not only alleviates costs but also enhances Hainan’s appeal as a prime location for medical advancements and international healthcare collaboration.
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