Beijing challenges Shanghai to win regional HQs

(i) the total assets of its parent company are no less than US$400 million and the registered capital of the investment management company is no less than US$2 million; and

(ii) the registered capital contributed by its parent company in China in aggregate is no less than US$10 million and its parent company has authorised it to manage at least three enterprises, whether in China or abroad; or its parent company has authorised it to manage at least six enterprises, whether in China or abroad.

The conditions set out in the New Rules are flexible compared with the requirements under the previous rules which require that the registered capital contributed by the parent company in China in aggregate is no less than US$30 million.

Business scope

The New Rules allow a regional headquarters to engage in a broad range of business activities. Compared with the previous rules, the scope of business of the regional headquarters has been expanded to cover certain new business activities, which include, among others, import and export, distribution within the PRC, logistics and delivery, and service outsourcing.

Matters concerning foreign exchange control and cash management are pivotal to a foreign-invested enterprise in China. The New Rules make a breakthrough in this respect by stipulating that qualified regional headquarters “may, in accordance with relevant provisions, participate in pilot projects for the centralised management of foreign exchange funds, extensions of loans abroad, etc. by multinational corporations …” (Article 8)

Incentives for regional headquarters

Compared with the previous rules, the New Rules provide various incentives for setting up regional headquarters in Beijing; they also set out explicit, comprehensive and detailed rules to implement these incentives.

Important incentives granted to regional headquarters include:

a. Financial subsidies of between Rmb5 million (US$732,000) and Rmb10 million depending on the regional headquarters' registered capital and annual revenue. The government will provide the subsidy in instalments over three years.

b. A regional headquarters will be entitled to a financial subsidy for office rental for a consecutive three-year period.

c. If a regional headquarters intends to purchase or build its own office premises, it will be entitled to a financial subsidy of Rmb1,000 per square metre for a total area not exceeding 5,000 square metres.

The New Rules also provide other preferential policies to regional headquarters, including long-stay permits for foreign employees.

Comparison with Shanghai and previous rules

The Shanghai municipal government promulgated the Provisions on Encouraging the Establishment of Regional Headquarters by Multinational Corporations (上海市鼓励跨国公司设立地区总部的规定) in July 2008 and the Several Implementing Opinions on the《Provisions on Encouraging the Establishment of Regional Headquarters by Multinational Corporations》 in December 2008. Beijing's New Rules and the Shanghai rules contain approximately identical provisions in various aspects (such as qualifications and business activities of regional headquarters, primary incentives and other preferential policies). However, in respect of issues including the details and amount of the incentives, Beijing's New Rules seem to be more favourable to regional headquarters compared with those of Shanghai.

Compared with the previous rules promulgated 10 years ago, the New Rules remove provisions no longer applicable to regional headquarters, grant various new incentives and preferential policies, expand the business scope, and lower the threshold for establishing regional headquarters. The New Rules offer more encouraging and attractive policies and explicit implemental guidance to foreign investors.

Zhang Wei, Jun He Law Offices