To attract more FIEs that actually function as regional headquarters to settle in Shanghai, the Provisions for the first time specify that a foreign entity recognized as a “regional head office” is qualified for the same treatment as regional headquarters. (Detailed treatments for regional head offices and regional headquarters may vary in practice.) FIEs unable to meet the requirements for regional headquarters can now apply for the recognition of regional head offices of multinational companies, provided that they are actually undertaking various functions of regional headquarters, such as management decision-making and fund management, and satisfy a series of requirements under the Provisions.

Only FIEs established in the form of investment holding companies or management companies could be recognized as regional headquarters under the previous rules. The new Provisions no longer impose this restriction. Generally speaking, all FIEs that satisfy the requirements are now eligible to qualify as regional headquarters, regardless of their forms of business. FIEs in the trading or service industries are now able to be recognized as regional headquarters.

The Provisions set different standards of recognition for regional headquarters and head offices, and also for FIEs engaged in different businesses for regional headquarters. For example, the total asset requirement for a service company to be recognized as a regional headquarters has been lowered to $300 million (compared with $400 million for other industries such as manufacturing). By unifying the recognition standards for FIEs and retaining flexibility for investors in different industries, the Provisions are a welcome upgrade to the old regulations and are more appealing to foreign investors.

Streamlined processes and approvals

The Provisions have clearly listed the government authorities responsible for management and services for regional headquarters. The Shanghai Municipal Commerce Commission is the approval authority that is also responsible for coordinating all the agencies to carry out their duties. Authorities such as the Administration for Industry and Commerce, Ministry of Finance, Administration of Taxation, Foreign Affairs Offices, Ministry of Human Resources and Social Security, Administration of Exit and Entry, Administration of Foreign Exchange, the People's Bank of China (PBOC), Administration of Customs, Entry-exit Inspection and Quarantine Bureau will jointly perform their management and service functions for regional headquarters.

Also worth noting is that the PBOC is a new addition to the list of governing authorities for regional headquarters. The purpose is to facilitate the implementation of fund and foreign exchange policies, such as centralized operations of foreign exchange funds and cross-border renminbi businesses.

District governments in Shanghai are empowered to pass district-level regulations on regional headquarters within their own territory, which is another important breakthrough under the Provisions. Shanghai district governments may soon begin formulating their own rules on regional headquarters, which may go further than the Provisions by offering greater flexibility and preferential treatment for headquarters registered locally. Rules may vary by district.

The Provisions also streamline the process for recognition by reducing the amount of required application documents and simplifying the examination process to a great extent. For instance, the legal representatives of foreign investors no longer need to provide a signed power of attorney as part of the submission, and the legal representatives of regional headquarters no longer need to submit their resumes and identification cards for review. The review period has been shortened from 10 to eight working days as well.

Added preferential policies

The Shanghai government has revised the old rules and framed the new Provisions in a more specific and detailed manner. For example, for the first time, the Provisions permit employees of Chinese nationality at regional headquarters and regional head offices to apply for an APEC business travel card, and foreign workers to apply for a Shanghai residence permit (B Pass). These exit and entry benefits will help attract domestic and international talent.

Details and specifics

Criteria for recognition

As mentioned above, there are two different sets of criteria for recognition of regional headquarters and regional head offices, which are as follows:

Recognizing regional headquarters:

- Form of business

The applicant company must be a wholly foreign-owned enterprise (WFOE) that qualifies as an independent legal person.

- Total assets of parent company

The total assets of the parent company must be no less than $400 million; the total assets of the parent of a service company that is applying must be no less than $300 million.

- Investment scale of parent company

The total amount of registered capital paid by the parent company in China must be no less than $10 million, and the applicant company manages at least three companies in China and overseas under the authorization of the parent; or the applicant company manages at least six entities under the parent company.

An applicant company may be reviewed on a discretionary basis if it generally satisfies these criteria and has significantly contributed to the economic development of the area it is located.

- Registered capital

The registered capital of the applicant company must be no less than $2 million.

Recognizing regional head offices:

- Form of business

The applicant company must be a wholly foreign-owned company that qualifies as an independent legal person, or a branch of one.

- Investment scale of parent company

The total assets of the parent company must be no less than $200 million; the parent company must have invested and established at least two FIEs in China, with at least one registered in Shanghai.

- Registered capital

The registered capital of the applicant company must be no less than $2 million; where the applicant is established in the form of a branch, the working capital allocated by the parent company must be no less than $2 million.

The benefits

The Provisions have detailed the preferential policies and convenient measures for regional headquarters and head offices as follows:

Kenneth Kong, Partner Llinks Law Offices Shanghai