Free trade zones transform foreign trade and push economic growth

There are more than 3,500 free trade zones in 165 countries around the world. The number of people who work in free trade zones exceeds 8 million.

A free trade zone refers to a geographical region of a particular country where preferential taxation (such as bonded measures, preferential income tax measures, etc), special regulatory measures and convenient financial and foreign exchange measures are implemented.

The China (Shanghai) Pilot Free Trade Zone was officially established in September 2013. During more than a year of operation of the Shanghai FTZ, a number of “replicable and promotable” experiences have been generated.

On this basis, the State Council established three more free trade zones — Guangdong, Tianjin and Fujian — in 2014. In April 2017, another seven free trade zones were established. A year later, Hainan free trade zone was launched, and hence the club now has 12 members in total.

These free trade zones carry forward the joint task of promoting the transformation and upgrading of China’s foreign trade and push up economic growth.

As young as they are, they need to learn from their foreign predecessors. The advanced experience of foreign free trade zones are great reference for their further development and may help them make their own choice of a future path.

The main characteristics of foreign free trade zones are as follows:

Zero import tax

One of the essential characteristics of an FTZ is not to impose import tariffs and circulation taxes on goods entering the zone (or get bonded).

Most foreign free trade zones are free of import turnover taxes and tariffs. In Singapore, 90 percent of goods imported are duty free. Additionally, foreign free trade zones have various functions. New forms of business, such as bonded warehousing, bonded logistics, international transit, bonded exhibition, inspection and maintenance and international procurement are widely carried out in the zones.

Moreover, in foreign FTZs, domestic products will enjoy export tax rebates.

Adequate income tax preferences

In foreign FTZs, there are not only preferential policies on bonds, but also preferential income tax. It is mainly manifested in the preferential treatment of corporate income tax and personal income tax. In this way, they can attract foreign investment and excellent talent.

The income tax preferences in some FTZs, such as Hong Kong, are more convenient. Hong Kong’s corporate tax rate is not high. In addition, Hong Kong implements territorial jurisdiction. Income earned by Hong Kong taxpayers outside Hong Kong is not subject to corporate tax in Hong Kong. This makes Hong Kong a world-renowned offshore financial center.

Some free trade zones, such as the Cologne Free Trade Zone, give special tax preferential policies to enterprises in the zone. Singapore gives a lower tax rate of 5 percent to 10 percent for regional operation centers set up by large trading companies in Singapore. All these have greatly enhanced the attractiveness of FTZs.

Trade facilitation system

A typical feature of FTZs is the convenient customs clearance system. Customs supervision in free trade zones in developed countries and regions is complete and high efficient. They promote trade facilitation through simplified customs procedures and temporary non-payment schemes.

At the same time, they also carry out the trade-related provisions of the Free Trade Agreement and implement the protection of intellectual property rights.

In Singapore, for example, a one-stop customs clearance service was provided to enterprises in 1989. It takes only about 10 seconds to complete the customs clearance procedure for the full approval.

The customs clearance procedures of the Hong Kong Customs are complete, which can effectively reduce the time needed for customs clearance and significantly improve the customs clearance efficiency.

Developed financial system and free foreign exchange system

The financial industry is usually well developed in foreign free trade zones. With a considerable number of domestic and foreign banks, they can provide a variety of financial services. The most advanced foreign free trade zones generally do not have foreign exchange control, which allows foreign capital to enter and leave the free trade zones freely.