Shanghai Raises the Stakes to Attract Multinational Headquarters
SHANGHAI — With a recent set of provisions, Shanghai has pushed further ahead in the competition among China’s first-tier cities to attract multinational corporations (MNCs) to set up their regional headquarters in the city. On July 14, the Shanghai Municipal Commission of Commerce, Shanghai Human Resources and two other related Shanghai departments jointly released the “Supplementary Provisions on Encouraging the Establishment of Regional Headquarters by Multinational Corporations (Hu Shang Wai Zi  No. 348),” which took immediate effect and will be valid for five years.
The Provisions officially launched the “Quasi-HQ Policy,” expected to relax the requirements for establishing a regional headquarters. Under the new Policy, eligible WFOEs (including their branches) not meeting the standards for a MNC HQ may still enjoy the preferential policies for MNC headquarters offered by the Shanghai Government if meeting the following conditions:
- Provide HQ services such as administrative decision-making, fund management, procurement, sales, logistics and training for more than one country;
- Cover an area of 500 square kilometers with over 50 staff managing the above-mentioned administrative work;
- Have already set up more than three foreign-invested enterprises (FIEs) in China, among which at least one is registered in Shanghai;
- Have total assets of no less than US$200 million; and
- The WFOE’s regional manager and senior managers are based in Shanghai.
The Provisions detailed several incentives offered to qualifying enterprises. For example, newly-registered investment holding companies and management companies identified as regional HQs can receive start-up and rental subsidies. Regional HQs that have made a prominent contribution to local economic development shall receive bonuses. Unlike Beijing, Shanghai offers financial support to encourage MNCs to upgrade their existing regional HQs to pan-Asia, pan-Asia-Pacific or global HQs. Other incentives include easier customs clearance, simplified exit and entry formalities and simplified employment permit formalities.
The race to attract regional HQs started in 1999, when the Beijing Government released “Several Provisions on Encouraging the Establishment of Regional Headquarters by Multinational Corporations (Jing Guo Shui Wai  No. 160).” The Provisions granted exemptions/refunds on corporate income tax (CIT) to newly-established regional HQs. Three years later, the Shanghai Government released a similar document to boost the city’s “headquarters economy,” offering even greater incentives and financial support to MNCs. As a result, Ciba Specialty Chemicals (a Fortune 500 company) moved its regional HQ from Beijing to Shanghai in 2003. And it wasn’t the only company to do so—in 2003, 56 MNCs established their regional HQs in Shanghai, versus only 24 in Beijing.
By the end of 2013, 445 MNCs (three times the number in Beijing) had set up their regional HQs in Shanghai, including FedEx, General Electric Company (GE) and Roche. Over the past decade, the Shanghai Government has twice revised the Provisions, substantially enlarging the applicability of its preferential policies. The most recent expansion of this policy to include “quasi-HQs” only further emphasizes Shanghai’s commitment to attracting the world’s biggest companies to set up in the city.
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