Beijing's New Regulations on Multinational Corporations' Regional HQ

China accounting firm LehmanBrown explains the advantages of setting up in Beijing and recent regulatory changes that affect the establishment of worldwide headquarters in China's capital city.

Beijing, with a favorable geographical location and thriving economic activities, has become one of the major cities in China where multinational corporations set up regional headquarters from which to manage their onshore and offshore subsidiaries.

To encourage the setting up of regional headquarters, the eight municipal authorities in Beijing recently issued "Implementations of Several Provisions to Encourage Multinational Companies to set up Regional Headquarters in Beijing". The Implementation Rules explain recognition criteria and details of the incentives available to Multinational Corporations' Regional Headquarters in Beijing.

Definition of the Multinational Corporations' Regional Headquarters:

For the purposes of these Regulations, the term 'Regional Headquarters of a Multinational Corporation' means the sole head office registered and established, by investment or authorization, in Beijing by a foreign multinational corporation to exercise management and service functions for enterprises located in one or more state administrative jurisdiction. Regional Headquarters registered and established in Beijing by multinational corporations from Hong Kong, Macao and Taiwan shall be handled with reference to these Regulations.

Here the 'Regional Headquarters of a Multinational Corporation' includes the following two types of companies:

1. Foreign investment holding companies. The investment holding companies established in accordance with the regulation of 'Establishment of Companies with an Investment Nature by Foreign Investors Provisions.'
 
2. Foreign investment management companies. The legal entity engaged in the provision of management, decision-making, research and development, fund management, logistics, sales, planning, consulting and training services to companies invested by the foreign parent companies and other related parties.

The Investment Management Companies shall satisfy the pre-conditions as follows:

1. The total assets of the parent company shall be no less than USD 400 million;

2. The total injected Registered Capital in China by the parent company in China shall be no less than USD 10 million AND the parent company shall invest (or authorize the management to manage) at least three companies; alternatively, the parent company shall invest (or authorize the management to manage) at least six companies;
 
3. The Registered Capital of the Investment Management Company shall be no less than USD 2 million;

4.The management company shall be the unique management authority with the highest power over all the Chinese subsidiaries of the parent company;

The requirements listed above could be eased for well-known multinational corporations.

Supporting Fields and Incentives

Compared with previous policies, some adjustments and improvements on the supporting fields and incentives have been made in the New Implementations and the New Provisions. The main aspects are as follows:

1. Regional Headquarters either newly established in Beijing or relocated to Beijing on or after 1st January 2009 would be granted for the one-off subsidy depending on the registered capital of the Regional Headquarters:

Chart I

The subsidy will be given over a three-year period according to the following structure: Year 1 - 40%, Year 2 – 30% and Year 3 - 30%. In addition, existing Regional Headquarters that reach the above capital thresholds through capital increases may also be eligible for these incentives depending on the extent of the capital increase. The accumulated subsidy would not be more than RMB 10 million.
 
2. From 2009, a reward will be given to eligible Headquarters depending on the business income registered capital as follows:

Chart II

The reward will be given over a three-year period according to the following structure: Year 1 - 40%, Year 2 – 30% and Year 3 - 30%, and the accumulated subsidy would not be more than RMB 10 million.

3. The government will give a subsidy to the Headquarters and their R&D Centers established on or after 1st January 2009 to aid them in the construction or purchasing of appropriate operating space for their business. The standard for the disposable subsidy will be RMB1, 000 per square meter, and limited to a total of 5,000 square meters. Headquarters that receive this subsidy cannot sell, rent or change the use of the space for five years. Violators would have to return any subsides they have received.

4. Starting from 1st January 2009, a reward may be given to the eligible persons in charge of the Headquarters. The reward to this person will be 80% of the local financial income contributed by the person in one year, limited to RMB500,000. This reward will be given over three years to eligible persons from the year that the headquarters had been recognized. The person in charge of each top 10 tax paying enterprises will receive a one-off reward of RMB500,000 that would be fee of IIT.

5. Eligible Headquarters that have leased space in Beijing after 1st January 2009 will receive rental subsidies from the government for three years starting from 2009. The following structure to distribute the subsidy will be applied: Year 1 - 30%, Year 2 - 20% and Year 3 - 10% of the annual rent, and the maximal space would be no less than 3000 square meters. A maximum of lease term cannot be claimed for, and at the time of application the lease term cannot be less than three years. During the period in which this subsidy is being received, the enterprises cannot rent, sublet or change the use of their operating space. Violation of the above-mentioned terms would result in the subsidy return.

6. To attract talent, the Implementation Rules set out several policies as follows:

- High-level managers and technicians can apply the Beijing Working and Residence Certificate;

- To simplify the employment application procedures for expatriates, Regional Headquarters can simultaneously file applications for Working Permit and Working Certificate with the Labor and Social Security Bureau;

- Senior Managers working for not less than two years consecutively in the Regional Headquarters as deputy general managers, an equivalent post, or higher shall qualify for the special award stipulated in the ‘Implementation Provisions of Rewards for Attracting Senior Talent to Beijing.’

7. To simplify visa applications, the Implementation Rules sets out politics on Entry-Exit Procedures and Residence Permit as follows:

- Higher-level managers and technicians will be eligible to obtain a multi-entry F visa for five years, mid-level employees will be eligible for the three-year multi-entry F visa, and common employees will be eligible for the one-year multi-entry F visa. And the family members of the above-mentioned persons would also be eligible to apply for the F visa with the same duration. L or X visas could be changed into F one within China and Port-issuing visas could be applicable.

- Residence Permit: higher-level managers and technicians will be eligible to obtain the five-year Residence Permit, mid-level employees will be eligible for the three-year Residence Permit and common employees for one-year. And the family members of the above-mentioned persons would also be eligible to apply for the Residence Permit with the same duration. The higher-level managers would be eligible for the preferential to apply for the Permanent Residence Permit.

- Preferences on the application for the Exit-entry Permit to Hong Kong, Macao and Taiwan for the Chinese staff.

Additional Incentives in Chaoyang District

By the end of September, there were a total of 17 regional headquarters for multinational companies in the Chaoyang district of Beijing, accounting for 85% of all multinational companies with headquarters in Beijing. To support the location of the regional headquarters of multinational companies, Chaoyang district will offer additional incentives.

A total of RMB 15M will be made available every year to support other modern service enterprise industries, the public service platform construction, and special training projects. And the number of this kind of subsidy cannot surpass the total amount of fund. Details of the fund quoted in article 9 are given below:

1. A one-time fund of RMB500,000 to RMB1,000,000 will be given to new eligible enterprises located in Chaoyang District. Eligible enterprises include, but are not limited to, the top 20 accountants, audit firms, law firms, and consultation/market survey agencies. In addition, other modern service enterprise industries that can benefit the region’s economy, development, and promote the region’s image will be subsidized.
 
2. A disposable subsidy may be given to new enterprises that continuously hold large-scale exhibitions in Chaoyang District. This fund will be used for paying the site fees for the exhibitions on condition that the enterprises are registered and pay taxes in the Chaoyang District.

3. The fund aims to encourage wholesale chains and retail headquarters to merge their sales. The top 10 tax paying enterprises will receive 10% of the area’s financial increase as a disposable reward.

4.The fund aims to encourage well-known international brands to locate in the Consumption Concentration Zone and make international fashion center. The Consumption Concentration Zone will get 10% of the area financial contributed by those international well-known brands as the disposable reward.

5. In order to aid the development of independent brands and encourage enterprises to create “famous brands” a subsidy will be given on the following terms: enterprises categorized as a “Chinese famous trademark” will receive RMB1,000,000; and enterprises categorized as a “Beijing famous trademark” will receive RMB500, 000.

6. Eligible public service construction platforms that provide technical support and improve the modern service industry will receive a subsidy of 30%-40% of the actual investment costs. The subsidized amount will not surpass RMB5M for a single project. The subsidy should be applied for and used by the enterprises that are in charge of the project implementation.

7. Modern service enterprises will be supported by way of a reward to establish: experiment bases, professional training agencies, employment training, and researching. The developing of these sectors will enable promotion of training projects and new occupations to be developed, which are urgently needed by the modern service industry. Pending the eligibility of the application, each project will receive 50% of the expenses incurred as a reward. The reward is limited to RMB500,000 for each enterprise every year.

8. Other modern service enterprises that significantly contribute to Chaoyang District may be supported pending the decision of the area industry promotion-leading group. 

Conclusion

When it comes time for a multinational company to choose a place to set up their regional headquarters, these new preferential policies provided by the New Provisions and the New Implementations are one of many important factors to consider. Setting up Regional Headquarters in Beijing can help multinational corporations to promote their company’s image, enhance their relationship with the government authorities and enjoy the relevant financial subsidies offered by local government. 

For more information
Please contact Russell Brown at LehmanBrown.