Establishment of Regional Headquarters by Multinational Corporations
| Issuing Body: | Shanghai Municipal Commission of Commerce, Shanghai Municipal Finance and Tax Bureau, Shanghai Municipal Human Resource and Social Security Bureau, Entry-Exit Administration of Shanghai Public Security Bureau, Shanghai Branch of People's Bank of China, Shanghai Bureau of State Administration of Foreign Exchange, Shanghai Customs, Shanghai Entry-Exit Inspection and Quarantine Bureau |
| Issuing Date: | December 3, 2008 |
| Effective Date: | November 15, 2008 |
Following China's 2001 entry into the World Trade Organization, Shanghai has positioned itself as an international business center, taking the lead, among mainland cities, in offering more attractive corporate structures and other incentives for multinational companies that have extensive and multiple investments in China. In 2002, for example, Shanghai issued the Tentative Provisions on Encouraging the Establishment of Regional Headquarters by Foreign Multinational Companies in order to allow the establishment of Shanghai regional headquarters companies (RHQs).
To further encourage multinational companies to establish RHQs in Shanghai, in July 2008 the Shanghai Municipal Government issued the Provisions on Encouraging the Establishment of Regional Headquarters by Multinational Corporations (the Multinational Provisions), which replaced the Tentative Provisions. The Multinational Provisions established more benefits for Shanghai RHQs and lowered the threshold of establishment requirements. (For more detailed information, please refer to the October 2008 issue of China Law Update.)
The Shanghai municipal government recognizes the establishment of an RHQ as a long-term commitment by the multinational company to the development of Shanghai and China. The establishment of an RHQ can also raise the image of the multinational company and get greater exposure in Chinese media. It has been reported that as of December 8, 2008, a total of 223 Shanghai RHQs had been established by multinational corporations such as GE, Citigroup, Kodak, Procter & Gamble, General Motors, Nike, Panasonic, Hewlett-Packard and many other Fortune 500 corporations.
To further stimulate foreign investment in Shanghai, on December 3, 2008, the municipal government and various municipal agencies jointly issued the Implementing Rules for the Provisions on Encouraging the Establishment of Regional Headquarters by Multinational Corporations (the Implementing Rules). According to the Implementing Rules, the Shanghai government will provide subsidies both to national RHQ companies recognized by the Ministry of Commerce (MOFCOM) and RHQ companies recognized by a provincial government (e.g., the Shanghai Municipal Commission of Commerce).
The most important feature of the Implementing Rules is the fact that they provide specific figures for the monetary subsidies available:
- RMB 5 million to any newly established or relocated investment company that applies for and receives recognition as a Shanghai RHQ company;
- RMB 10 million to any national RHQ company (which must be an investment company recognized by MOFCOM) with an annual business turnover of more than RMB 1 billion; and
- RMB 5 million to any already-recognized Shanghai RHQ company that is a management company and has an annual business turnover of more than RMB 500 million.
Subsidies will be paid over a three-year period, in increments of 40 percent, 30 percent and 30 percent.
In addition, the Shanghai government will provide an additional three-year subsidy to newly registered RHQs for office rental. This subsidy amounts to RMB 2.4 per square meter per day, approximately 30 percent of the average cost of office rental for a multinational company located in Shanghai.
The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.
Meet the Authors
