September 01, 2009

Encouraging Multinationals to Headquarter in Beijing

Provisions Encouraging Multinational Corporations to Establish Regional Headquarters in Beijing

Issuing Body: Beijing Municipal People's Government
Issuing Date: May 21, 2009
Effective Date:         January 1, 2009

Implementing Measures for the Provisions Encouraging Multinational Corporations to Establish Regional Headquarters in Beijing

Issuing Bodies: Beijing Municipal Commission of Commerce, Beijing Municipal Commission of Development and Reform, and other agencies
Issuing Date: June 24, 2009
Effective Date:                  June 24, 2009

Following in the footsteps of Shanghai, which in July 2008 enacted rules providing a incentives to encourage multinational corporations to establish their regional headquarters (RHQ) in that city, the Beijing Municipal People's Government has established a similar set of financial and regulatory incentives to lure multinational corporations to China's capital—which, despite its political importance, is home to fewer multinationals than Shanghai. The city government passed the Provisions Encouraging Multinational Corporations to Establish Regional Headquarters in Beijing (Regional Headquarters Provisions) in May, with various government agencies providing more detailed implementing rules a month later. Read more . . .

Both the Regional Headquarters Provisions and the Implementing Measures for the Provisions Encouraging Multinational Corporations to Establish Regional Headquarters in Beijing (RHQ Implementing Measures) are of course intended to promote economic development in Beijing. China Law Update has previously summarized Shanghai's Provisions Encouraging the Establishment of Regional Headquarters by Multinational Corporations (see the October 2008 issue) and the Implementing Rules for the Provisions Encouraging the Establishment of Regional Headquarters by Multinational Corporations (China Law Update, March 2009).

According to news reports, more than 700 RHQs had been established in Shanghai as of July 2009, but only 205 in Beijing.

Qualification Requirements

Under the Regional Headquarters Provisions and the RHQ Implementing Measures, either a foreign-invested holding company or a foreign-invested management company may be recognized as an RHQ.

In order to achieve RHQ status and qualify for the financial and other incentives that are available, a foreign-invested management company must meet the following requirements:

  • The RHQ must be the sole highest management entity of the parent company in China;
  • The total value of the parent company's assets must be at least US$400 million;
  • The accumulated capital investment of the parent company in China must be at least US$10 million, with the parent company having invested in or managing at least three companies in the region; or, regardless of the amount of paid-in capital, the parent company has invested in or is managing no fewer than six companies in the region; and
  • The registered capital of the foreign-invested management company is at least US$2 million.

In order to qualify as an RHQ, a foreign-invested holding company must have invested at least US$30 million in China.

Permissible Activities

Under the Regional Headquarters Provisions, RHQ are permitted "to manage and provide services to the investments of a multinational company in China and/or in other countries or administrative regions."

The rules allow RHQs to engage in the following types of activities:

  • decision-making about regional investments and operations;
  • manage operations and production;
  • financial management, including the management of investments in other companies;
  • technology support, research and development;
  • marketing;
  • import and/or export;
  • domestic distribution;
  • logistics and dispatching services;
  • information services;
  • services under contract from the multinational corporation or its offshore companies; and
  • training and management of employees.

Financial Subsidies and Bonuses

Under the RHQ Implementing Measures, an RHQ that is newly established after January 1, 2009, is eligible to receive the following financial payments and incentives:

  • a one-time subsidy ranging from RMB5 million to RMB10 million if the RHQ has a registered capital of more than RMB100 million;
  • a government bonus ranging from RMB5 million to RMB10 million if the RHQ reaches an annual turnover of RMB100 million or more for the first time;
  • a lump-sum subsidy of RMB1,000 per square meter to an RHQ for building or purchasing its own office, with a limit of RMB5 million (for 5000 square meters);
  • a 30 percent, three-year subsidy for a lease on office space, with the Chaoyang District as the pilot area; and
  • beginning the year the RHQ is established and continuing for three consecutive years, a tax-free government bonus to one principal of the RHQ, with a limit on payments of RMB500,000.

Preferential Treatments on Visas and Work Permits for Employees

In addition to providing financial incentives, the new RHQ rules make it easier for companies to obtain visas and work permits for foreign employees:

  • Foreign employees may apply simultaneously for an Employment License and Work Permit.
  • Employees may be granted a multiple-entry visa for up to five years.
  • An employee may be granted a residence permit with a duration of three to five years.

Conclusion

In order to determine an appropriate location for its regional headquarters, a multinational corporation must of necessity consider numerous factors, such as the location's market size and regulatory environment, in addition to available incentives. As such, multinational corporations will need to conduct a prudent comparison among available major cities in China before making a final decision. Certainly the Regional Headquarters Provisions and the RHQ Implementing Measures offer significant, if not necessarily decisive, advantages to locating in Beijing.

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