"Customs Closure" and "Zero Tariff": Are Leading Imported Beauty Brands Facing a Major Transformation?

For cosmetics companies, the Hainan market holds strategic significance. According to Haikou Daily, fragrance and beauty products have consistently accounted for over 50% of total duty-free sales on the island. Numerous international beauty brands such as L'Oréal, Estée Lauder, and Shiseido have opened duty-free stores in Hainan, with some even relocating their China headquarters there.

With the launch of the comprehensive customs closure of the Hainan Free Trade Port, this vital duty-free channel is expected to bring notable changes to the cosmetics industry. At a press conference on July 23, Wang Changlin, Deputy Director of the National Development and Reform Commission, announced that, with the approval of the Central Committee, Hainan Free Trade Port will officially commence island-wide customs closure on December 18, 2025, marking the full establishment of China’s largest free trade port. In the context of the cosmetics industry, the policy's impact is considerable, especially on the highly represented cosmetics segment.

"Customs closure" refers to a specialized customs term that establishes a distinct regulatory zone of "within-country but outside-customs," rather than sealing off the island. According to China Business News, within this specific area, the term "customs closure" denotes open regulation at the "first line," strict control at the "second line," and internal freedom on the island. The "first line" connects the Hainan Free Trade Port with other countries and regions outside China's customs territory, facilitating the free movement of goods, capital, and people. The "second line" refers to the boundary between the Free Trade Port and other inland areas of China. "Internal freedom" allows for relatively unrestricted flow of elements within Hainan.

Yu Tao, Head of Public Diplomacy and Hainan Opening-up Studies at the China South China Sea Research Institute and Director of the Free Trade Port Research Center, stated that after customs closure, many goods from outside China will be able to enter Hainan duty-free. However, a list of prohibited and restricted goods as well as a negative list for zero tariffs will still apply. Some goods will remain subject to tariffs even after entry.

It is important to note that "zero tariff" is a core feature of Hainan Free Trade Port’s policy framework, eliminating import duties. The familiar offshore duty-free policy also includes preferential exemptions from consumption tax and VAT. According to a joint notice by the Ministry of Finance, the General Administration of Customs, and the State Taxation Administration, the "first line" will adopt a catalog-based system for tariff-imposed goods. Goods listed in the catalog are subject to import duties, import-stage VAT, and consumption tax.

Therefore, after customs closure, consumers purchasing imported goods in Hainan will be exempt from tariffs but still need to pay consumption tax and VAT. In contrast, duty-free shopping within the allowance exempts all three taxes. The scope of tax reductions thus differs substantially.

Currently, three zero-tariff import lists include approximately 1,900 tariff items. After the full customs closure, this scope will expand to approximately 6,600 tariff items, accounting for 74% of all tariff items—a nearly 53 percentage point increase from pre-closure levels.

For the cosmetics industry, the imported taxable goods list includes skincare and other beauty products, perfumes and colognes, lip cosmetics, shampoos, and toothpaste. The MFN tariff rate is 1% for skincare and beauty products, 3% for perfumes, colognes, and shampoos, and 6.5% for surface-active agents and soaps. Yu further explained that goods entering Hainan duty-free under the "second line" regulation cannot circulate inland without paying duties again. Moreover, the policy will broaden the range of eligible beneficiaries. Liao Min stated during the same press conference that eligibility will extend to all island-based entities with legitimate import demand.

According to the same notice, if eligible entities bring zero-tariff goods or their processed products into inland China via the "second line," they must complete customs procedures and pay the corresponding import duty, VAT, and consumption tax based on the original imported materials. However, products made by encouraged industries in Hainan that achieve over 30% local value-added processing are exempt from import duty upon entry to the mainland, though VAT and consumption tax will still apply.

This policy has been welcomed by some beauty enterprises. Zhou Shuo, Managing Director of Haikou Jinrun Pearl Co., Ltd., told People's Daily, "A 21% duty exemption is a major benefit to sales." The company imported over 2,000 golden and white South Sea pearls in Q1 2025 and plans to expand to 30,000 by year-end. With a procurement cost of RMB 12 million, they expect to save over RMB 2.5 million in tariffs under the policy.

Haikou Customs data show that as of the end of March, the value of processed goods sold domestically in Hainan reached RMB 7.546 billion, with tariff exemptions totaling RMB 601 million. Under this policy environment, Hainan is expected to further relax market access and implement a negative list for cross-border services and foreign investment, attracting more international enterprises and talent.

For the cosmetics sector, the customs closure offers tangible benefits. Hainan has long been a major destination for luxury and cross-border beauty product purchases. In 2023, imports of cosmetics and skincare products totaled RMB 16.678 billion. According to Haikou Daily, by March 16, 2025, Haikou Customs had supervised duty-free purchases totaling RMB 250.1 billion by 45 million consumers across 318 million items. Fragrance and beauty products consistently represent over 50% of duty-free sales.

After the customs closure, international beauty brands will benefit from significantly reduced operating costs. Guo Yaohua, Founder of Meguier (Hainan) International Trade Co., Ltd., stated that before the closure, a high-end imported foundation could cost RMB 200 due to tariffs and sell for over RMB 300. After implementation, the cost could drop to RMB 150.

International beauty brands such as L'Oréal, Estée Lauder, and Shiseido have already invested in Hainan. In May 2025, Li Li, Senior Director of Corporate Communications at Shiseido China, said in an interview with Hinews that Shiseido began duty-free operations in Hainan in 2010 and sees the island as a strategic region. In 2022, its travel retail net sales rose 15.3% year-on-year, with Hainan driving growth. Shiseido is actively preparing for the opportunities brought by the 2025 customs closure.

Other companies have followed suit. In 2021, Kao Group opened its first duty-free cosmetics store in China in Hainan. That same year, Coty opened its first store at GDF Plaza. In April 2023, Estée Lauder announced the establishment of its Asia-Pacific travel retail logistics center and China headquarters in Hainan. In September 2024, Procter & Gamble's SK-II opened its first global duty-free flagship store in Hainan.

According to Haikou Daily, internationally renowned firms such as LVMH Group, Dun & Bradstreet, Polène, The Ascott Limited, and Ohsong have also set up operations in Haikou. In April, Hainan News reported that Emmanuel Goulin, President of L'Oréal Travel Retail, emphasized Hainan's key role in the group’s global strategy, stating, "Our vision is to make travel retail a global hub for tourism and consumption, and Hainan is one of our critical markets."

The importance of Hainan to international beauty giants is evident, despite recent downturns in global travel retail revenue. From financial statements, companies such as L'Oréal, Estée Lauder, and Shiseido continue to prioritize Hainan. Li Li from Shiseido noted that in 2022, Hainan welcomed 60 million tourists, 67% of whom purchased new brands or products. Hainan Free Trade Port provides a suitable platform for introducing new products and brands to consumers.

According to KPMG’s Hainan Free Trade Port Travel Retail White Paper, the customs closure, along with tax reductions and policy incentives, offers brands greater profit margins and pricing control, encouraging long-term strategic investment. The recent establishment of Estée Lauder’s logistics center and headquarters in Hainan is a case in point.

The customs closure will also benefit domestic beauty brands, which will gain direct access to international consumers. In December 2024, Chinese brand YOSEIDO opened a new store at Atlantis Sanya Resort, and previously, Florasis opened its first standalone store at CDF Sanya International Duty-Free Shopping Complex.

Industry experts told Jumeili that a strong presence in China’s duty-free channels can significantly boost domestic brands' growth and support international expansion. If domestic brands can utilize the policy allowing tax-free sales of goods with over 30% local value-added processing, they will gain considerable market advantages. From a broader perspective, the customs closure marks a new starting point and competitive opportunity for the cosmetics industry in duty-free retail. As international, luxury, and domestic beauty brands compete side by side, Hainan’s transformation may reshape the sector’s competitive landscape.