Member Article

On 16 October 2006, the People’s Government of Guangzhou Municipality promulgated the Regulations of Guangzhou Municipality on Encouraging the Establishment of Headquarters and Regional Headquarters with Foreign Investment. The Regulations, which are effective for five years from the date of promulgation (i.e. until 16 October 2011), offer various preferential tax policies and financial incentives to foreign investors and those from Hong Kong, Macao, and Taiwan that establish headquarters in the Guangzhou municipal area.

Definition
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. The two types of headquarters may • be set up as investment companies, management companies, research and development (R&D) centres or even manufacturing enterprises.

Business scope
In addition to its original business scope, a headquarters may engage in the following activities:

• investment and business planning in sectors that are open to foreign investment;

• 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 services as allowed by related laws and regulations.

Conditions
The Guangzhou Commission for Foreign Trade and Economic Cooperation (COFTEC) is responsible for approving and administering headquarters and regional headquarters. Existing holding 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 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.

Incentives
An enterprise recognised as a headquarters or regional headquarters shall be rewarded with an incentive of RMB 5 million or RMB 2 million, respectively. The purchase, rental or construction of office space shall be subsidised. Headquarters in Guangzhou that have been granted recognition 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. Headquarters and regional headquarters shall enjoy preferential tax policies, including those for local enterprise income tax, urban real estate tax, business tax and import duties and VAT. They may also be entitled to other favourable policies, such as those available to exporters, R&D centres and hightech enterprises. 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 to assist in the restructuring of other enterprises in Guangzhou by means of equity participation, merger and acquisition, contracting, trusts, leases and other methods.