New Facilitated Pick-up (Duty-Free) Policy in Effect in Chinese Province of Hainan

Starting April 1, 2023, Hainan has introduced two new ways to collect offshore duty-free items, with associated tax benefits. We discuss the facilitated pick-up policy provisions and their potential impact on the island province’s duty-free industry and business environment. 

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On March 21, 2023, China’s General Administration of Customs (GAC), Ministry of Finance (MOF), and State Administration of Taxation (SAT) jointly announced that Hainan province will introduce two new ways to collect offshore duty-free items starting from April 1, 2023. With the new policy in place, non-local tourists who buy duty-free items from physical duty-free stores and provide valid identification or travel documents, as well as information about leaving the province, can either collect their goods from designated areas in airports, railway stations, or wharves or have them delivered to their doorstep. In this article, we discuss provisions of the facilitated pick-up policy and its potential impact on Hainan’s duty-free industry and related businesses.

Hainan offshore duty-free policy

The Chinese government has taken continuous steps to boost tourism and stimulate domestic consumption. Among these is the Hainan offshore duty-free policy. First introduced in 2011, it allows visitors to the island province of Hainan to purchase duty-free goods at designated shops. The original policy allowed visitors to purchase up to RMB 30,000 (US$4.332,50) worth of goods duty-free per year. In 2020, the policy was expanded to allow for an annual duty-free shopping limit of RMB 100,000 (US$13,782.46) per person, and the range of duty-free goods was expanded to include items such as electronic products and luxury watches.

The Hainan offshore duty-free policy has been a major success, with sales at duty-free shops in the province skyrocketing in recent years. In 2020, despite the COVID-19 pandemic’s impact on the tourism industry, sales at duty-free shops in Hainan reached RMB 32.7 billion yuan (US$4.74 billion), an increase of 127 percent from the previous year. In the first quarter of 2023, the revenue from the island’s duty-free shopping reached RMB 16.9 billion, a year-on-year increase of 14.6 percent. This aligns with Beijing’s plan to transform the 35,000 square kilometer island into the largest free-trade port in the world. The government currently provides financial incentives and has lowered visa requirements for visitors and business travelers to Hainan.

What is the facilitated pick-up policy?

Hainan’s new ‘pick-up’ regulations allow customers with valid identity documents or travel documents and departure information to choose between ‘Guaranteed pick-up’ and ‘Buy and pick-up’ methods, meaning picking up the purchased goods directly at the spot with a guarantee (guaranteed pick-up) or without guarantee (buy and pick-up), in addition to previously adopted picking up the goods at designated places, such as railway stations, airports, and ports or by delivery. The former is applicable for purchases with a unit price of over RMB 50,000 (US$7,265), while the latter can be selected for goods whose unit price does not exceed RMB 20,000 (US$2,900). The regulations also add that the purchased goods cannot be resold. Passengers can pick up their goods at the following locations:

• Haikou Meilan Airport or Sanya Fengli Airport
• Haikou Railway Station or other platforms where the train stops
• New Harbour Area
• Via mail, to a designated pick-up location outside the island
• Haikou Nangang Island Ferry

Guaranteed pick-up

Under the Guaranteed pick-up method, customers must provide a deposit equivalent to the tax payable for the purchased goods, and the deposit will be refunded upon the presentation of the goods when leaving the island province. The refund of the deposit is also subject to the customs officer’s verification and signature. However, there are circumstances under which Customs will not process verification and signature, including:

• where the duty-free goods to be verified have been used or consumed;
• where the duty-free goods to be verified do not match what is stated on the shopping voucher;
• where the information of the shopper is inconsistent with the information of the traveler themself;
• when the purchased goods do not match the quantity and type stated in the pick-up list; and
• when the customer does not have a valid exit document.

The Guaranteed pick-up method is not applicable for certain categories of goods, including tobacco, alcohol, luxury watches, jewelry, gold and silver products, and other high-value goods. Customs shall refund the guarantee if the shopping passenger has left the island after the physical inspection by Customs. If the shopping passenger does not leave the island for more than 30 days from the date of shopping, does not take the initiative to apply to the customs authority for the verification of duty-free goods, or fails to pass the verification, the relevant guarantee will be directly converted to tax.

Buy and pick-up

Under the Buy and pick-up method, customers can purchase duty-free goods included in the list below and pick them up upon departure. However, the quantity of duty-free goods for each category per person is restricted, and the excess amount will be subject to customs duties and taxes, as specified below. The procedures for picking up goods under the Buy and pick-up method include presenting the pick-up list and the original purchase invoice. The Customs authority is not required to verify the goods.

List of applicable goods
Product types	Number of allowed items
Cosmetics	5 pieces (limited to 1 different piece per each type)
Perfume	1 bottle
Sunglasses	1 pair
Clothing and accessories	1 item
Scarf	1 item
Shoes and hats	1 item
Bags and suitcases	1 item
Disposable diaper	3 packs
Infant formula	3 cans/packs
Candies	3 items
Razor	1 item
Conversion plug	1 item
Sports goods	1 item
Toys	1 piece/set
Belt	1 item

Relevant legal liability

Customers who fail to leave Hainan Island within 30 days from the date of purchase and cannot give a valid reason will be subject to customs duties and taxes and are not allowed to buy duty-free goods from the province for three years. Acts constituting smuggling or violations of customs supervision regulations will be subject to penalties according to relevant laws and regulations. Offshore duty-free shops that fail to sell duty-free products in accordance with the regulations will be subject to punishment according to relevant laws and regulations.

Policy impact on Hainan’s business environment

The new policy on pick-up regulations for duty-free goods in Hainan’s duty-free shops presents several advantages for the Hainan duty-free market.

On the one hand, the increase in Guaranteed pick-up and Buy and pick-up methods will provide customers with more flexibility and convenience when picking up their purchases. This could potentially attract more customers and increase sales for duty-free shops in Hainan. Moreover, the policy could also help to prevent tax evasion and smuggling, as it sets clear restrictions and requirements for picking up duty-free goods. The consequences of failing to comply with the regulations are severe, which will discourage illegal activities and protect the integrity of the Hainan duty-free market.

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