Briefing on the new rules of Regional Headquarters of Multinational Companies

PrefaceAs the pioneer of China’s opening-up to the outside world, Shanghai, in early 2002 introduced interim regulation to encourage multinationals to set up regional headquarter in Shanghai which was then supported by some relevant policies and regulations such as Measures for the Use and Management of Special Funds for Shanghai Municipality Encouraging the Development of Regional Headquarters of Multinational Companies, etc.  In 2011, Provisions of Shanghai Municipality on Encouraging Establishment of Regional Headquarters of Multinational Companies (hereinafter referred to as “Provisions on Regional Headquarters”) was promulgated which systematically combs relevant definitions, identification criteria and procedures, as well as related preferential policies with regard to regional headquarters of multinationals. Such series of encouragement and preferential policies has made the headquarters economy gradually become an important part of Shanghai's economic development.  According to official statistics, as of the end of July 2019, Shanghai has attracted 696 regional headquarters and 450 R&D centers of multinationals, and Shanghai has always been the city with the largest number of regional headquarters and foreign R&D centers in mainland China.

The revised Provisions on Regional Headquarters was implemented on September 1 of 2019, just a few days ago.  Meanwhile, in order to better support such provisions, Shanghai Municipal Government has issued detailed rules, namely, Several Opinions of Shanghai Municipal People's Government on Promoting Development of Regional Headquarters of Multinational Companies in the Municipality(hereinafter referred to as “Several Opinions of Regional Headquarters”) which was taken effectiveness on the same day as Provisions on Regional Headquarters. This article intends to introduce the latest relevant regulations in order to provide some reference for those enterprises that plan to set up regional headquarters/head offices of multinationals in Shanghai.1．Relevant definitionsProvisions on Regional Headquarters define Regional headquarters of multinational companies and Regional head offices of multinational companies as follows:

1.1 Regional headquarters of multinational companies(hereinafter referred to as “Headquarters”) means the only head office which is established in Shanghai by a parent company registered overseas in the form of investment or authorization to perform management and service functions for enterprises within the regions of one or more countries and which shall be independent legal persons.

1.2 Regional head offices of multinational companies(hereinafter referred to as “Head offices”)  means such foreign enterprises or branches thereof which do not attain the standards for regional headquarters of multinational companies, but actually undertakes multiple functions in supporting services such as management decision-making, fund management, procurement, sale, logistics, settlement, research and development, training etc. of its parent company within the regions of one and more countries.2．QualificationsAccording to Provisions on Regional Headquarters, hope to become Headquarters or Head offices, the following conditions must be met:

2.1Hope to become Headquarters, the following conditions must be met:(1)Foreign investment enterprise and independent legal person;(2)With its parent company’s asset no less than US$200 million;(3)Authorized by the parent company to perform headquarters functions within the regions of one and more countries;(4)With registered capital no less than US$2 million.

2.2 Hope to become Head offices, the following conditions must be met: (1)Foreign investment enterprise or the branch thereof and independent legal person;(2)With its parent company’s asset no less than US$100 million;(3)Authorized by the parent company to perform headquarters functions within the regions of one and more countries;(4)With registered capital no less than US$1 million, where the applicant is a branch, the working capital allocated by its parent company shall not be less than US$1 million.

2. Procedures for identification

According to Provisions on Regional Headquarters, the procedures for identification of Headquarters or Head offices is mainly for materials submission and review.

3.1The following materials are required to submit an application：(1)The application; (2)The power of attorney issued by the parent company;(3)Photocopy of the business license, where the regional head office is a branch, the photocopy of business license of the Shanghai branch and proof document for allocation of working capital by the parent company shall also be provided;(4) The parent company's audit report in the recent one year;(5)The photocopy of business license and registration certification of both domestic and overseas enterprises to be authorized to be managed(6)Any other materials as requested by laws, regulations and rules

3.2Review: According to Provisions on Regional Headquarters, The Municipal Commerce Commission shall complete review within 8 working days from the date of receipt of application materials and make its decision (either to approve or reject).

2. Preferential policies

According to Provisions on Regional Headquarters, Headquarters or Head offices will enjoy the following preferential policies. (The content below shall be applied to both headquarters and head offices if there is no special note)

4.1 Funding and Rewards: (1)Regional headquarters can be entitled to funding for starting up and property lease;(2)Those regional headquarters with comprehensive trading functions and significant contributions to economic development as well as good benefits can be entitled to rewards;(3)Those Asia, Asia Pacific or larger regional headquarters matching relevant criteria can be entitled to funding including starting-up funding within the first 3 years, 30% office rental funding within the first 3 years, one-off cash reward when the annual revenue reaches certain amount.

For more details, please refer to Measures for Shanghai Municipality on Encouraging Establishment of Regional Headquarters of Multinational Companies Development of Special Funds for Use and Management.

4.2 Fund Operation and Management: (1)May establishing a unified fund management system,  and foreign exchange operations shall comply with relevant foreign exchange controlregulations；(2)Those eligible regional headquarters and regional head offices may conduct  centralized management business of cross-border capital;(3)Investment companies may establish finance companies to provide centralized finance management services for its domesticinvested enterprises;(4)Tax counseling and services will be strengthened and green channel for processing of filing of non-trade foreign currency payment contracts and tax assessment will be provided;(5)May pen a free trade account and may process cross-border Renminbi-foreign currency payments and domestic Renminbi payments based on the convertibility principle.

4.3 Simplified Exit and Entry Formalities:(1)Eligible Chinese staff may apply for APEC business travel card, and enjoy  exit convenience for their overseas business travel;(2)Expatriates who need to have multiple temporary entries may apply for multiple entry visa valid for up to one year with each stay not exceeding 180 days; expatriates who need to have temporary entry shall apply for an entry visa from the China Embassy in their countries; for urgent case, an expatriate may apply to entry-exit  for a port visa;(3)Expatriates who need to stay in Shanghai for long time may apply for a Foreigner Residence Permit with a validity period of three to five years;(4)Senior executives such as legal representatives may be given priority in applying for a "Foreigner Permanent Residence Permit";(5)Shanghai Customs will provide green channel to go through health certificate for legal representatives and those senior executives with relation to headquarters’ functions.

4.4 Introduction of Talents: (1)The human resources and social security authorities and technology administration shall facilitate introduction of talents by regional headquarters and regional head offices to work in Shanghai and to apply for the relevant permits and certificates;(2)Those eligible domestic talents brought in may apply for Shanghai Hukou;(3)Overseas-educated persons with foreign nationality holding a university degree and above or equipped with special skills, overseas-educated persons and other professionals with foreign permanent residence who hold Chinese passports but have no Chinese Hukou, as well as professional from Hong Kong , Macau and Taiwan,  may apply for "Shanghai Residence Permit" (B Pass) . The aforesaid persons' spouse and children below 18 years or attending high school may apply for dependent pass;(4)The district where talents are located will provide convenience for the introduced talents in all respects such as school enrolment of children, medical insurance, application for talents' apartment etc.

4.5 Trade Facilitation: (1)For eligible regional headquarters and regional head offices, the Customs shall innovate regulatory system and model to enhance Customs clearance efficiency for their imports and exports;(2)Authorities such as Customs and foreign exchange  shall adopt regulatory measures to facilitate logistics consolidation by distribution centers established by regional headquarters and regional head offices.5．Supporting RulesSeveral Opinions of Regional Headquarters have refined and supplemented Provisions of Regional Headquarters as follows:

5.1 Intensifying encouragement of cluster effect of regional headquarters of multinational companies.

5.2Improving investment convenience for multinational companies.

5.3Improving fund use liberty and convenience of multinational companies. (Concretize Fund Operation and Management policy in Provisions of Regional Headquarters,for example ,allow them to centrally operate domestic and overseas funds of member enterprises under the multinational company's cross-border funds central operation and management business; Facilitate regional headquarters foreign Exchange Purchase and Settlement; Remove the restriction pertaining to the number of cooperating banks and domestic main accounts for cross-border fund pool business.)

5.4Improving trade and logistics convenience for multinational companies. (Concretize Trade Facilitation policy in Provisions of Regional Headquarters, for example; For chain enterprises implement the pilot scheme of "one permit multiple outlets" in the Municipality; Support launch of tariff guarantee insurance pilot scheme)

5.5Promoting R&D convenience for multinational companies.

5.6Strengthening complementary protection for headquarter function of multinational companies.ConclusionIn the context of global economic slowdown, many multinationals are proactively seeking change in response to the economic recessions. From the perspective of cost reduction and efficiency improvement, it will be a smart choice to set up regional headquarters/head offices in areas with more preferential policies.  As an oriental pearl which has early been among one of the cosmopolitan cities, Shanghai has unique advantages in attracting foreign investment. Coupled with the above-mentioned many preferential policies, we firmly believe that more and more multinationals will move into Shanghai.

Recently we have provided professional legal advice to a number of multinationals on setting up regional headquarters/head offices in Shanghai. Those multinationals which intend to set up regional headquarters/head offices may us to acquire professional legal supports.