Shanghai Attracts MNCs To Establish Regional Headquarters
Shanghai Attracts MNCs To Establish Regional Headquarters
Shanghai Attracts MNCs to Establish Regional Headquarters
Mia Tan, European-American Desk
Photography source: Shanghai Daily
Since 2002, Shanghai has formulated various regulations and policies which make it an ideal place for Multinational Corporations (MNCs) to establish regional headquarters. According to public information, at the end of 2016, there were collectively 580 MNCs with Regional Headquarters and Regional Quasi-Headquarters gathered in Shanghai, a number larger than that of any other city in China.
In order to further encourage MNCs to consider Shanghai as their first choice for setting-up a Regional Headquarters, Shanghai’s government recently issued the Revised Regulations to Encourage Multinational Companies to Establish Regional Headquarters in the Shanghai Municipality, the effective date of which is February 1, 2017 (“New Regulation”). The New Regulation officially introduces the concept of the Regional Quasi-Headquarters (as defined below), to extend the scope of the wholly foreign owned enterprise (“WFOE”) to enjoy preferential policies granted to traditional Regional Headquarters, and also further optimize the environment for MNCs’ regional headquarters.
Definition of MNC regional headquarters or quasi-headquarters
An MNC Regional Headquarters under the New Regulation refers to the sole head office established in Shanghai by a parent company registered overseas by way of investment or authorization that fulfills functions of managing and providing services to enterprises in a region consisting of more than one Country (inclusive).
An MNC Regional Quasi-headquarters means a WFOE (including any branch thereof) that fails to meet criteria for being an MNC regional headquarters, but assumes several functions in the supporting services of the parent company registered overseas, such as management decision-making, capital management, procurement, sales, logistics, settlement, R&D, and training in a region consisting of more than one Country (inclusive).
Threshold to be an MNC regional headquarters or quasi-headquarters in Shanghai
According to the New Regulation, the following criteria shall be met for an enterprise to be recognized as an MNC Regional Headquarters in Shanghai:
- The enterprise is a WFOE and the registered capital is no less than USD2 million. The parent company thereof has total assets of no less than USD400 million; for the service industry, the parent company has total assets of no less than USD300 million.
- The total amount of registered capital paid to date in China by the parent company is no less than USD10 million and the number of worldwide enterprises managed by such enterprise under the authorization by the MNC is no less than three; or there is no requirement for the total amount of registered capital paid over time in China by the parent company, but the number of worldwide enterprises managed by the enterprise under the authorization of the MNC is no less than six.
Conventionally, the WFOE needs to be an investment company or a management company.
The criteria for being recognized as an MNC Regional Quasi-Headquarters in Shanghai:
- The enterprise is a WFOE with registered capital of no less than USD2 million or a branch thereof with the operation funds appropriated by the WFOE being no less than USD2 million.
- The parent company thereof has total assets of no less than USD200 million, and has established no less than two foreign-owned investment enterprises in China, at least one of which is registered in Shanghai.
Advantages of setting up Regional Headquarters or Quasi-Headquarters
On the one hand, many MNCs will find it difficult to expand into certain regions if they do not have a platform that serves as a bridge between the regional subsidiaries and the parent company overseas. It takes responsibility for corporate governance the overall success of all companies in that region through supporting important tasks such as strategic planning, sales, logistics, marketing, finance, HR, R&D, etc. Setting up a Regional Headquarters or Quasi-Headquarters as such a platform will help an MNC to coordinate group activities and also generate more synergy and opportunities within that region.
Setting up an MNC Regional Headquarters or Quasi-Headquarters will enable the company to enjoy many local preferential policies, as introduced below.
Preferential Policies for an MNC regional headquarters or quasi-headquarters in Shanghai
An MNC regional headquarters and quasi-headquarters in Shanghai is entitled to many preferential policies, among which are the following:
- Subsidies and Awards
An MNC Regional Headquarters may obtain business start-up and lease subsidies, and may be entitled to awards if it possesses such comprehensive operational functions as operation management, capital management, R&D, purchase, sales, logistics and supporting services, and also makes outstanding contributions to local economic development, especially for Asian, Asian-Pacific, or ever larger regional headquarters.
- Centralized Operation of Foreign Exchange Funds
The New Regulation further specifies that the Regional Headquarters and Quasi-Headquarters can centralize the management of foreign exchange funds according to relevant laws, and encourage them to conduct cross-border RMB business. Regional Headquarters and Quasi-Headquarters based in the Shanghai Free Trade Zone can also open free trade accounts.
- Simplification of Entry and Exit Formalities
Chinese employees are given certain convenience in respect of their business trips outside mainland China, and foreigners may apply for visas with a validity period of one year and multi-entry or even residence permits with a validity period of three to five years. Legal representatives and senior executives also have priority to apply for permanent residence permits.
- Customs Matters
Regional Headquarters and Quasi-Headquarters can also enjoy greater convenience in customs clearance. Both customs and entry-exit inspection and quarantine departments offer facilitation in customs clearance.
- Support of District Governments
The New Regulation also formally encourages district governments in Shanghai to develop and implement preferential policies to create a business environment favorable to the development of Regional Headquarters. Many preferential policies such as cash awards already exist in certain districts of Shanghai, and it can be expected that more favorable policies will come to fruition.
