6 February, 2013

To increase economic competitiveness, Shanghai and Shenzhen, both major cities in China, issued preferential policies in August 2012 to attract multinational corporations ("MNCs") to establish headquarters in these cities.

Shanghai Policy

On August 8, 2012, Shanghai government issued the "Implementing Opinion on the Shanghai Municipality, Provisions on Encouraging the Establishment of Regional Headquarters by Multinational Corporations" ("Implementing Opinion","《关于<上海市鼓励跨国公司设立地区总部的规定 >的实施意见》") to encourage MNCs to set up regional headquarters in Shanghai. Key points are summarized below:

• Allowance. Qualified regional headquarters, upon establishment as an investment holding company, would be entitled to a cash allowance or subsidy of rental payments, which would be made by installments.

  For MNCs recognized as the national regional headquarters of MNCs, regional headquarters of management company or regional headquarters of investment company, cash reward in the range from 5 million to RMB 10 million would be granted (by installments), provided that certain turnover volume has been achieved. For newly established Asian headquarters in Shanghai meeting certain requirements, cash reward of RMB 8 million is available (by installments). Cash reward of RMB 3 million is available for upgrading existing headquarters in Shanghai to cover operations in other part of Asia / Asia-Pacific / World when certain other criteria are met.

• Centralized Financial Management: Regional headquarters are encouraged to establish centralized financial management system for domestic investment in China. Commercial banks are encouraged to provide financial settlement service in Shanghai.
• Flow of Personnel: The immigration process, including the temporary entry of foreign personnel, long term or permanent residence of the management or personnel of the regional headquarters, residence and work permits, emigration entry, etc have been simplified. The personnel hired by research and development centers of the regional headquarters may be eligible for "household registration" ("办理户籍") of Shanghai.
• Customs, Quarantine and Inspection: Qualified regional headquarters are eligible to apply for simplified and prioritized procedure for customs clearance and duty assessment.

Shenzhen Policy

On August 31, 2012, Shenzhen government issued the "Provisional Measures on Encouraging the Development of Enterprise Headquarters" ("Provisional Measures",《深圳市鼓励总部企业发展暂行办法》）. According to the Provisional Measures, "Enterprise Headquarters" means headquarters that perform functions including investment, investment holding, operation decision, centralized sales and financial management.

Standards for Enterprise Headquarters

Companies registered and operated in Shenzhen for less than 1 year may be granted the status of "Enterprise Headquarters" if:

• For newly set up companies: (1) the paid-up registered capital is no less than RMB 500 million, (2) the total assets of the parent company is no less than RMB 10 billion; (3) the operating revenue taken into statistical accounting of Shenzhen for the preceding year is no less than RMB 10 billion; (4) the newly set up company committing to operating revenue for the next year of no less than RMB 5 billion and financial contribution to Shenzhen of RMB 60 million;
• For companies relocated to Shenzhen: (1) the operating revenue taken into statistical accounting of Shenzhen for the preceding year is no less than RMB 5 billion; (2) the registered paid-up capital is no less than RMB 500 million, and (3) committing to operating revenue for the next year of no less than RMB 5 billion and financial contribution to Shenzhen of no less than RMB 60 million;
• Companies registered and operated in Shenzhen for more then 1 year may be granted "Enterprise Headquarters" status if the operating revenue of the preceding year is no less than RMB 2 billion and financial contribution to Shenzhen is no less than RMB 40 million.

Governmental Support

The following major governmental support would be provided to an Enterprise Headquarters:

• A lump sum reward of RMB 10 million. If the operating revenue taken into statistical accounting of Shenzhen for the year subsequent to the grant of Enterprise Headquarters status exceeds RMB 5 billion, RMB 5 million will be rewarded for every RMB 2 billion in excess of such threshold, subject to a cap of RMB 50 million.
• The company may apply for a "contribution award" since the third year of the grant of Enterprise Headquarters status. The award amount will be calculated by reference to the financial contribution to Shenzhen City, subject to a cap of RMB 20 million.
• If the company does not own office premise, allowance of rent in the standard of RMB 500 per square meters (capped at RMB1.5 million) will be granted within the first 3 years since the grant of Enterprise Headquarters status.
• If the company purchases office premise within 3 years, a lump sum of 5% of the purchase price will be rewarded. If the operating revenue taken into statistical accounting of Shenzhen is no less than 10 billion and the financial contribution to Shenzhen is no less than RMB 100 million, the company may apply to build a "headquarters building"(solely or jointly with other companies, depending on the operating revenue and financial contribution to Shenzhen).