China: Financial Incentives For Multinationals Setting Up Regional Headquarters In Beijing

Last Updated: 5 June 2009
Article by John Shi

Hoping to attract more multinational companies to invest in Beijing, the city issued new rules in May providing financial incentives for multinational companies to set up regional headquarters (RHQ) in Beijing. Detailed rules on implementation of those incentives are expected to be issued this month.

What can a RHQ do?

A RHQ is allowed to manage and provide services to the investments of a multinational company in China and / or in other countries or administrative regions. It is able to carry out the following activities:

  • decisions making on regional investment and operation
  • regional production and operation management
  • regional capital and financial operation management
  • technology support, research and development
  • marketing
  • import / export and domestic distribution
  • logistics services
  • information services
  • services contracted from the multinational company or its offshore affiliates, and
  • employees training and management.

A RHQ may also implement a consolidated management on capital operation and foreign exchange matters for the companies invested by the multinational company in the region.

Eligibility to be a RHQ

A RHQ can be either a foreign invested holding company or a foreign invested management company:

(1) A foreign invested holding company must invest USD 30 million and satisfy other requirements set forth under the holding company rules.

(2) To be eligible as a RHQ, a foreign invested management company needs to satisfy the following requirements:

  • The total assets value of its parent company should be no less than USD 400 million;
  • The accumulated capital contribution in China by the parent company is no less than USD 10 million and the number of companies that the parent company invested or managed in the region is no less than three, or no less than six, in which case there will be no accumulated capital contribution requirement;
  • The registered capital of the company is no less than USD 2 million; and
  • The company will be the sole highest management entity of its parent company in China.

Financial incentives for setting up a RHQ in Beijing

The following financial incentives are available under the draft implementing rules:

  • Government bonus (RMB 5 million - RMB 10 million) for a RHQ newly set up after January 1, 2009 with a registered capital of more than RMB 100 million.
  • Lease subsidy for three consecutive years, if the lease is more than three years. The amount of the subsidy is capped for a leased area of no more than 3,000 m˛ and at an amount of 50% of annual rent. This is currently on trial basis in Chaoyang District.
  • A lump sum subsidy to a RHQ for building or purchasing its own office (RMB 1,000/m˛). The amount of the subsidy is capped for an office area of no more than 5,000 m˛.
  • Government bonus (RMB 1 million - RMB 10 million) for a RHQ's turnover exceeding RMB 100 million. The bonus is available only for the first RMB 100 million turnover of a RHQ.
  • Government bonus (RMB 500,000) bonus for a principal of a RHQ, if the RHQ ranks within top 10 in terms of local tax contribution increment of a year.
  • Government bonus (capped at RMB 500,000) to one principal of a RHQ. The bonus will be given in 3 consecutive years starting from the following year after the RHQ status is granted and it is tax free.
  • Government bonus (RMB 300,000) to senior management of a RHQ holding a position of vice general manager or above for 2 consecutive years.

Preferential treatments for expat employees of a RHQ

Under the new rules, expat employees of a RHQ will be granted with preferential treatments on visas and working permit. The draft rules implement the preferential treatments as follows:

  • Multiple-entries visa - 5 years multiple-entries visa for senior management personnel, 3 years for middle level management personnel and 1 year for ordinary expat employees.
  • Working permit - 5 years working permit for senior management personnel, 4 years for middle level management personnel and 3 years for ordinary expat employees.

Simplified application procedures

The Beijing Commerce Bureau remains the authority in charge of granting the RHQ status. It will also act as a leading agency to coordinate with other government agencies (forex, customs and taxation, etc.) to simplify various application procedures and to implement various incentives for a RHQ.

The timing for the Beijing Commerce Bureau to issue a RHQ status is likely to be shortened from 30 working days to 10 working days.

How the new rules may affect investments of multinational companies in China

Before the new rules, foreign companies used to set up holding companies as its RHQ. The minimum registered capital of a holding company is USD 30 million.

The new rules provide an alternative for foreign companies to set up a RHQ at a much less capitalisation of USD 2 million.

The views set out in this publication are based on our experience as international counsel representing clients in their business activities in China. As is the case for all international law firms licensed in China, we are authorised to provide information concerning the effect of the Chinese legal environment. However we are not admitted to practice Chinese law and so are unable to issue opinions on matters of Chinese law. The content of this article is intended to provide a general guide to the subject matter.
The publication is only a general outline. It is not legal advice. You should seek professional advice before taking any action based on its contents.

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