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

The zero-tariff policy for medicines and medical devices in Hainan’s Boao Lecheng Pilot Area exempts import duties and value-added tax to promote medical tourism and technological innovation. This policy reduces costs for qualified institutions, promotes industry growth, and supports Hainan’s goal of becoming a global healthcare hub.

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On September 5, 2024, China, Announcement on Zero Tariff Policy for Medicines and Medical Devices at Hainan Free Trade Port (hereinafter referred to as the “zero tariff policy”), a new policy that exempts import tariffs and value added tax (VAT) on pharmaceuticals and medical devices Boao Lecheng International Medical Tourism Pilot Zone in Hainan Province (hereinafter referred to as Boao Lecheng Pilot Area).

The zero tariff policy announced by the Ministry of Finance and other key units is designed to accelerate the development of the region and support it more comprehensively. Hainan Free Trade Port (FTP) The project. Targeting medical institutions, educational and research organizations with independent legal status, the policy is designed to reduce costs for patients, stimulate growth in the healthcare sector and align local medical standards with international benchmarks.

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

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

Eligible organizations

The zero tariff policy applies to the following organisations:

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

To benefit from the exemptions, these organisations must be registered as independent legal entities within the Boao Lecheng Pilot Region.

Certain tax exemptions

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

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

Applicable product scope

The exemption applies to two main categories of products:

• Those already approved for import into China; and
• Although not yet registered domestically, those approved for use in the pilot region by the Hainan provincial government.

This means that medical organisations can import a wide range of essential medicines and devices without incurring financial burdens such as customs duties and VAT, thereby reducing operational costs and potentially passing these savings on to patients.

Regulatory and compliance measures

Various regulatory measures have been taken to ensure proper implementation and compliance with the zero tariff policy. The verification process includes the following steps:

• Notification requirements: Organizations that qualify for tax exemption must notify Haikou Customs and the National Tax Administration before importing exempt medicines and medical devices.
• Compliance checks: The Boao Lecheng District Administration Bureau is responsible for verifying that organizations are registered and comply with the requirements of the policy. This includes ensuring that organizations have independent legal status and are recognized within the pilot area.

Additionally, the zero tariff policy includes various usage and distribution restrictions:

• Geographical limitations: Exempt drugs and medical devices must be used within the Boao Lecheng Pilot Area. They cannot be transferred outside the area.
• Terms of sale: Medicines and devices may only be sold to patients in the Boao Lecheng Pilot Area and only based on prescriptions issued by physicians in the same institutions.
• Transfer and resale controls: There are strict prohibitions on the transfer or resale of exempt substances to persons or entities outside the pilot area. This measure is designed to prevent abuse and ensure that tax benefits are used appropriately for medical and research purposes.

The effects of 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 eligible entities. This reduction in financial burden is expected to facilitate access to high-quality medical products and technologies and ultimately improve patient care and treatment outcomes.

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

Additionally, the zero-tariff policy supports broader goals such as making Hainan a world-class destination for medical tourism and a center for medical technology innovation. By aligning local standards with international benchmarks, the policy aims to attract foreign investment and expertise and promote advances in medical research and education.

The policy also stipulates that exempted drugs and devices will be used strictly within the pilot region, so that the benefits are limited to the region and contribute to the region’s status as a world-class medical hub.

Opportunities for foreign investors in Hainan’s healthcare sector

China’s recent announcement to exempt import tariffs and VAT on pharmaceuticals and medical devices in the Boao Lecheng International Medical Tourism Pilot Zone presents significant opportunities for foreign investors. With Hainan’s strategic location as a pilot Free Trade Zone and ambitious targets for 2030, the zone is set to become a leading global destination for medical tourism and a center for medical technology innovation.

Foreign investors can take advantage of the favorable tax policies and incentives available in Hainan by targeting key areas such as international hospitals, third-party testing institutions, medical schools, retirement 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 the region’s healthcare services. This policy not only reduces costs, but also makes Hainan a prime location for medical development and international healthcare cooperation.