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Print articleGuangzhou Municipal Provisions for Encouraging the Investment in the Establishment of Headquarters and Regional Headquarters by Foreign Investors
March, 2007 - Myles Seto, Partner, Deacons Hong Kong Wei Minning, Legal Executive, Deacons Guangzhou
Guangzhou, in its eleventh five-year plan for the development of foreign trade, made the commitment to encourage foreign investors to set up headquarters and regional headquarters in its municipal area in order to upgrade the quality of foreign investments in Guangzhou. Recent surveys of thirty five cities across China on the ability to support headquarters placed Guangzhou at third following Beijing and Shanghai, both of which already have regulations encouraging foreign investors to set up regional headquarters. To attract more multinational companies and talent, the People’s Government of Guangzhou Municipality promulgated the Provisions for Encouraging the Investment in the Establishment of Headquarters and Regional Headquarters by Foreign Investors on 16 October 2006. The Regulations, which are in effect for five years from the date of promulgation, offer preferential tax policies and financial incentives to foreign investors and those from Hong Kong, Macau and Taiwan that establish headquarters or regional headquarters in the Guangzhou municipal area.
Terminology
Guangzhou allows investment-type companies, management companies, research and development (R&D) centres or even manufacturing enterprises set up by foreign investors in Guangzhou municipality to apply for recognition as “headquarters” or “regional headquarters”.
Under the Regulations, a “headquarters” is defined as the sole head office established by a foreign investor in Guangzhou municipality that performs operational and management functions for enterprises invested in by the foreign investor in China or regions outside China. A “regional headquarters” is defined as the head office established by a foreign investor in Guangzhou municipality that performs operational and management functions for all or some of the enterprises invested in by the foreign investor in a certain region of China.
This terminology may lead to some confusion, as similar headquarters regulations of Beijing and Shanghai only provide for “regional headquarters”, which is similar to the one referred to as “headquarters” under the Guangzhou regulations. The Beijing and Shanghai regulations do not provide a term similar to that of “regional headquarters”, which remains unique to the Guangzhou Regulations.
From a literal interpretation of the Guangzhou Regulations, “regional headquarters” appears to refer to a foreign investment enterprise which only operates and manages other associated enterprises established in China. In other words, a “regional headquarters” under the Guangzhou regulations is not required to have the authority to operate and manage other associated enterprises outside China. However, similar regulations of Beijing and Shanghai provide that “regional headquarters” shall enjoy the authority to manage its associated enterprises in more than one country. Therefore, foreign investment enterprises only managing their associated enterprises inside China, which cannot be recognised as a “regional headquarters” under the regulations in Beijing and Shanghai, may now apply for recognition under the Guangzhou Regulations.
Conditions
The Guangzhou Commission for Foreign Trade and Economic Cooperation (COFTEC) is responsible for the approval of and administration over headquarters and regional headquarters. Existing investment-type companies may apply for recognition as a headquarters or regional headquarters. For a management company, R&D centre, or manufacturing enterprise to be approved or recognised as a headquarters or as a regional headquarters, the following conditions must be satisfied:
• Its parent company must have a good credit standing and assets of at least US $300 million one year prior to the application;
• It already manages or services at least three enterprises inside or outside China (either invested in by itself or pursuant to authorisation), whose combined paid up registered capital must total at least US $30 million;
• It has registered capital of at least US $2 million;
• It has independent legal person status.
The conditions are quite similar to those provided under similar regulations of Shanghai, except that the required asset value of the parent company under the Guangzhou Regulations is lower than the one provided under the Shanghai Regulations (i.e. US $ 400 million).
Extended Business Scope
Recognised headquarters and regional headquarters are entitled to engage in a variety of activities. In addition to their original business scopes, headquarters and regional headquarters may engage in:
• Investment and business planning in sectors that are open to foreign investment in China;
• Marketing, including acting as an agent for the import/export business and commodity distribution, or after-sales services for enterprises under its management;
• Capital operation and financial management, including foreign exchange balancing;
• Technical support and R&D;
• Employee training and management and providing human resources assistance to enterprises under its management;
• Information and logistics services;
• Outsourcing services for overseas companies;
• Other business, management and service activities as allowed by laws and regulations.
Incentives
Much like the Beijing and Shanghai headquarters regulations before it, the Guangzhou Regulations offer various benefits to the foreign investor establishing headquarters or regional headquarters in the Guangzhou municipal area.
In addition to other traditional benefits, the Guangzhou Regulations provide for some incentives which are not found in the regulations of Beijing and Shanghai. Firstly, enterprises recognised as headquarters shall be rewarded with an incentive of RMB 5 million, and those recognised as regional headquarters shall be rewarded with RMB 2 million from the municipal government.
Furthermore, investors who purchase or build office space shall also receive subsidies of RMB 1,000 per square metre over a period of three years; those renting office space shall receive annual subsidies of 30% of the rental price for three years. Recognised headquarters or regional headquarters in Guangzhou that have been established prior to the promulgation of the Regulations shall also receive subsidies for additional office space development at 50% the rate of that for newly recognised headquarters.
Apart from the above, other benefits that shall be enjoyed by headquarters and regional headquarters include:
• Preferential tax policies, including the partial or complete exemption from local enterprise income tax, urban real estate tax, business tax and import duties, and VAT;
• Local and national favourable policies for R&D centres, exporters and technologically advanced enterprises, for headquarters and regional headquarters recognised as such;
• Discounted rates for public utilities and services fees;
• Multiple-entry business visitor visas for senior personnel and technicians and one to five year employment visas for long-term foreign personnel; and
• Convenient exit permit policies for Chinese employees needing to travel outside Mainland China for business.
With approval from the relevant authorities, they can centrally manage the foreign exchange capital of the enterprises managed under it in China and abroad. The Regulations further encourage headquarters and regional headquarters to assist in the reform and restructuring of other enterprises in Guangzhou by means of equity participation, merger and acquisition, contracting, trusts, leases and other methods.
Conclusion
Foreign investors intending to establish headquarters in China may find Guangzhou an attractive option. Lower entry requirements, such as the lower required asset value for the parent company, compared to Shanghai’s requirement, higher financial incentives, more preferential policies, and proximity to the major manufacturing area of the Pearl River Delta Region all make Guangzhou an attractive base of operations in China.
Terminology
Guangzhou allows investment-type companies, management companies, research and development (R&D) centres or even manufacturing enterprises set up by foreign investors in Guangzhou municipality to apply for recognition as “headquarters” or “regional headquarters”.
Under the Regulations, a “headquarters” is defined as the sole head office established by a foreign investor in Guangzhou municipality that performs operational and management functions for enterprises invested in by the foreign investor in China or regions outside China. A “regional headquarters” is defined as the head office established by a foreign investor in Guangzhou municipality that performs operational and management functions for all or some of the enterprises invested in by the foreign investor in a certain region of China.
This terminology may lead to some confusion, as similar headquarters regulations of Beijing and Shanghai only provide for “regional headquarters”, which is similar to the one referred to as “headquarters” under the Guangzhou regulations. The Beijing and Shanghai regulations do not provide a term similar to that of “regional headquarters”, which remains unique to the Guangzhou Regulations.
From a literal interpretation of the Guangzhou Regulations, “regional headquarters” appears to refer to a foreign investment enterprise which only operates and manages other associated enterprises established in China. In other words, a “regional headquarters” under the Guangzhou regulations is not required to have the authority to operate and manage other associated enterprises outside China. However, similar regulations of Beijing and Shanghai provide that “regional headquarters” shall enjoy the authority to manage its associated enterprises in more than one country. Therefore, foreign investment enterprises only managing their associated enterprises inside China, which cannot be recognised as a “regional headquarters” under the regulations in Beijing and Shanghai, may now apply for recognition under the Guangzhou Regulations.
Conditions
The Guangzhou Commission for Foreign Trade and Economic Cooperation (COFTEC) is responsible for the approval of and administration over headquarters and regional headquarters. Existing investment-type companies may apply for recognition as a headquarters or regional headquarters. For a management company, R&D centre, or manufacturing enterprise to be approved or recognised as a headquarters or as a regional headquarters, the following conditions must be satisfied:
• Its parent company must have a good credit standing and assets of at least US $300 million one year prior to the application;
• It already manages or services at least three enterprises inside or outside China (either invested in by itself or pursuant to authorisation), whose combined paid up registered capital must total at least US $30 million;
• It has registered capital of at least US $2 million;
• It has independent legal person status.
The conditions are quite similar to those provided under similar regulations of Shanghai, except that the required asset value of the parent company under the Guangzhou Regulations is lower than the one provided under the Shanghai Regulations (i.e. US $ 400 million).
Extended Business Scope
Recognised headquarters and regional headquarters are entitled to engage in a variety of activities. In addition to their original business scopes, headquarters and regional headquarters may engage in:
• Investment and business planning in sectors that are open to foreign investment in China;
• Marketing, including acting as an agent for the import/export business and commodity distribution, or after-sales services for enterprises under its management;
• Capital operation and financial management, including foreign exchange balancing;
• Technical support and R&D;
• Employee training and management and providing human resources assistance to enterprises under its management;
• Information and logistics services;
• Outsourcing services for overseas companies;
• Other business, management and service activities as allowed by laws and regulations.
Incentives
Much like the Beijing and Shanghai headquarters regulations before it, the Guangzhou Regulations offer various benefits to the foreign investor establishing headquarters or regional headquarters in the Guangzhou municipal area.
In addition to other traditional benefits, the Guangzhou Regulations provide for some incentives which are not found in the regulations of Beijing and Shanghai. Firstly, enterprises recognised as headquarters shall be rewarded with an incentive of RMB 5 million, and those recognised as regional headquarters shall be rewarded with RMB 2 million from the municipal government.
Furthermore, investors who purchase or build office space shall also receive subsidies of RMB 1,000 per square metre over a period of three years; those renting office space shall receive annual subsidies of 30% of the rental price for three years. Recognised headquarters or regional headquarters in Guangzhou that have been established prior to the promulgation of the Regulations shall also receive subsidies for additional office space development at 50% the rate of that for newly recognised headquarters.
Apart from the above, other benefits that shall be enjoyed by headquarters and regional headquarters include:
• Preferential tax policies, including the partial or complete exemption from local enterprise income tax, urban real estate tax, business tax and import duties, and VAT;
• Local and national favourable policies for R&D centres, exporters and technologically advanced enterprises, for headquarters and regional headquarters recognised as such;
• Discounted rates for public utilities and services fees;
• Multiple-entry business visitor visas for senior personnel and technicians and one to five year employment visas for long-term foreign personnel; and
• Convenient exit permit policies for Chinese employees needing to travel outside Mainland China for business.
With approval from the relevant authorities, they can centrally manage the foreign exchange capital of the enterprises managed under it in China and abroad. The Regulations further encourage headquarters and regional headquarters to assist in the reform and restructuring of other enterprises in Guangzhou by means of equity participation, merger and acquisition, contracting, trusts, leases and other methods.
Conclusion
Foreign investors intending to establish headquarters in China may find Guangzhou an attractive option. Lower entry requirements, such as the lower required asset value for the parent company, compared to Shanghai’s requirement, higher financial incentives, more preferential policies, and proximity to the major manufacturing area of the Pearl River Delta Region all make Guangzhou an attractive base of operations in China.
