The Shanghai Municipal Government has again revised the Provisions on Encouraging Multinational Companies to Establish Regional Headquarters (RHQs) in Shanghai

Introduction

On October 28, 2022, the Shanghai Municipal Government issued the revised Provisions on Encouraging Multinational Companies to Establish Regional Headquarters in Shanghai (the "Provisions"). This is the fifth revision of the Provisions since they were first introduced in 2002. The revised Provisions came in to effect on November 1, 2022, and shall remain valid until October 31, 2027.

This revision is aimed at implementing the Several Opinions on Promoting Development of "Five Economies" in Shanghai and encouraging multinational companies to establish their regional headquarters in Shanghai. They further clarify the identification criteria, the supporting measures and the evaluation mechanisms for headquarter enterprises. 

I. Newly Added Headquarters of  Multinational Companies

Before this revision, there were only two types of headquarter enterprises : the regional headquarters of  multinational companies (“Regional Headquarters”) and headquarter-type organizations of multinational companies (“Headquarter-type Organizations”). The Provisions add a new type of headquarter enterprise, the division headquarters of  multinational companies (“Division Headquarters”) and further specify the conditions for identification. 

(The definition and identification conditions of Division Headquarters)

Enterprises that satisfy the identification conditions of the Division Headquarters are eligible to apply for the corresponding funding and rewards and may enjoy the supporting policy benefits as other types of headquarter enterprises.

II. Optimized Identification Criteria for Headquarter Enterprises

This revision has also optimized the original identification criteria for Regional Headquarters and Headquarter-type Organizations, including:

• Relaxing the overseas parent company’s shareholding ratio, i.e., the direct or indirect shareholding of the overseas parent company shall be not less than 50%;

• Allowing foreign-invested enterprises (including branches) established by foreign-invested companies to apply for  identification of Headquarter-type Organizations; and 

• No serious dishonest acts are committed by the applicant enterprise and the applicant enterprise does not appear on the Serious Dishonest Operator  List.

（Comparison of the identification conditions between the original Provisions and the  revised Provisions）

III. Enhanced Supporting Measures for Headquarter Enterprises

The revised Provisions have enhanced and promoted supporting measures with respect to fund operation and management, the simplification of entry and exit procedures, trade facilitation and talent introduction. They have also added supporting measures in scientific and technological innovation, commercial registration, project investment, intellectual property protection and service support. In the table below we have categorized and summarized the key information for easy reference:

A.Optimized Original Supporting Measures

B.Four Newly Added Categories of Supporting Measures

IV. Improved Application Procedures and Evaluation Mechanisms

The approval procedures for headquarter enterprises have been changed from the original single-layer approval by the Shanghai Commission of Commerce to the updated double-layer approvals by both the municipal and district-level commerce authorities. This improves the functions of the commerce authorities at both the municipal and district levels. Specifically, the district-level commerce authorities where the enterprise is registered, (the Lingang New Area Administrative Committee and the Administration of Hongqiao International Central Business District) shall conduct a preliminary assessment within five working days upon receipt of the complete application. The Shanghai Commission of Commerce shall complete the review of the application within five working days upon receipt of the application materials and decide on identification or non-identification.

The revised Provisions specify that the evaluation mechanism of headquarter enterprises will adopt a combination of “identification and encouragement” and “dynamic evaluation.” For any headquarters which no longer satisfy the identification conditions, the relevant departments will cancel the applicant’s headquarter enterprises qualification.

V. Our Observations

We believe that the revised Provisions convey a positive signal from the Shanghai Municipal Government to empower Shanghai's headquarter economies, and it is worth noting the following:

• Added Division Headquarters as a new type of headquarter enterprise. Multinational companies may apply to establish different Divisional Headquarters in Shanghai that assume different functions to complete a strategic layout within domestic industries at multiple layers and in multiple fields. If there is more than one qualified Division Headquarter, multinational companies may enjoy the relevant policy benefits simultaneously.

• Credit requirements for applying for headquarter enterprises. The revised Provisions  clarify that  corporate credit is one of the conditions for headquarter enterprises assessment. Applicants may not be approved by the competent authorities due to improper dishonest acts. It is worth mentioning that according to the regulatory requirement of "dynamic evaluation", an enterprise should pay close attention to its own credit situation to avoid being disqualified due to subsequent dishonest acts even if the enterprise has been approved as a headquarter enterprise.

• Enriched structures for headquarter enterprise establishment. Multinational companies have more flexibility to apply for headquarter enterprises. For instance, with the more relaxed requirements for overseas parent company’s shareholding ratios, Sino-foreign joint venture groups are also eligible to apply for headquarter enterprises in Shanghai.

• The implementation of the support measures remains to be seen. Due to the lack of clear guidance on the specific implementation for supporting measures such as funding and rewards, it remains to be seen how enterprises may benefit in practice. It is advised that enterprises pay close attention to the relevant policies in their districts and the Shanghai Municipal Government during the application process and keep close and timely communication with the competent authorities.

The revision of the Provisions on Encouraging Multinational Companies to Establish Regional Headquarters in Shanghai  promotes the development of global multinational corporations and  accelerates and innovates Shanghai’s   business environment. This is undoubtedly good news for multinational companies in Shanghai, China and the Asia-Pacific region who anticipate long-term development in China. We will continue to pay close attention to the newly issued policies relating to headquarter enterprises and provide updates on any new information. 

[1] Regional Headquarters refer to the sole head organization that assumes the functions of investment, management and services on a large scale (more than one country) in the form of investment or authorized management, which shall be established in Shanghai by the overseas-registered parent company. A multinational company shall establish the Regional Headquarters in the form of a corporate organization of an independent legal person in Shanghai.

[2] Headquarter-type Organization refers to a foreign-invested enterprise (including a branch thereof) that assumes the functions of investment, management, sales, accounts settlement, supporting services, etc. on a large scale (more than one country), which shall be established by the overseas-registered parent company or a foreign-invested company in Shanghai and such enterprise cannot satisfy the conditions of the Regional Headquarters.