China's Ministry of Finance, General Administration of Customs, and State Taxation Administration have jointly issued a new tax policy to support the integration of Hong Kong into national development strategies and to promote high-quality growth in the Guangdong-Hong Kong-Macao Greater Bay Area. The policy, effective February 10, 2026, targets the Shenzhen campus of the Hong Kong-Shenzhen Innovation and Technology Cooperation Zone in the Lok Ma Chau Loop (Hebaotuo) area.

The framework establishes two levels of customs oversight:

• “First Line”: between the Shenzhen customs-controlled zone and Hong Kong, allowing preferential treatment for eligible enterprises and research institutions.

• “Second Line”: between the zone and mainland China, where standard import tax obligations apply when goods enter broader domestic markets.

Key provisions include:

1. Tax Exemptions for R&D Imports
   Eligible entities—registered enterprises, research institutions, and non-profit technology organizations within the customs zone—can import research equipment and materials from Hong Kong for self-use without paying import duties, VAT, or consumption taxes. A designated “white list” tracks eligible entities, and digital records manage compliance and monitoring.

2. Internal Circulation Rules
   Research materials and their R&D outputs circulating within the customs zone may be exempt from taxes if transferred between eligible entities or in cases of bankruptcy or deregistration. Once goods cross the second line into the rest of China, import taxes are applied.

3. Alignment with Trade Measures
   Items subject to tariff quotas, trade remedy actions, or other special customs measures follow prescribed rules without duplicate taxation.

4. Export Considerations
   Goods leaving the customs zone to international markets remain subject to applicable export duties and taxes.

The policy is designed to reduce the cost and administrative friction of cross-border R&D logistics, enabling faster collaboration between Hong Kong and Shenzhen. By lowering barriers for the movement of research equipment, materials, and intermediate products, authorities aim to strengthen innovation linkages, accelerate commercialization of technologies, and support Hong Kong’s role in national innovation strategies.

Officials emphasize robust supervision and compliance mechanisms, with customs and tax authorities empowered to prevent misuse and report significant issues to central agencies. The list of eligible tax-exempt research goods will be periodically updated to reflect evolving technology and industry needs.

For international companies and investors, the policy signals enhanced facilitation for cross-border innovation projects within the Greater Bay Area, potentially improving supply chain efficiency for R&D-intensive industries, from biotech to advanced electronics, while supporting integrated regional development.