In order to encourage more multinational companies to set up regional headquarters in the capital, the Beijing Municipal Government recently issued general rules and implementing regulations (the "New Rules”) to establish detailed policies on the treatment of regional headquarters. The New Rules not only lower the application requirements for regional headquarters, but also offer generous subsidies and rewards, and other preferential policies. Some highlights include the following:
Recognition of Regional Headquarters
The New Rules relax the requirements for recognition as a regional headquarters. Whereas previously, only foreign-invested holding companies could be recognized as regional headquarters, now both foreign-invested holding companies and foreign-invested management companies may qualify. The latter, however, must meet the following conditions: (i) the total assets of the parent company may not be less than $400 million; (ii) the registered capital of the foreign-invested management company may not be less than $2 million; (iii) the aggregate contributed capital by the parent company in China may not be less than $10 million and the parent company must invest in at least three domestic or overseas companies; or alternatively, the parent company must invest in at least six domestic or overseas companies; and (iv) the foreign-invested management company must be the sole top operating and management body of the parent company in China. These conditions may be relaxed for well-known multinational companies.
The New Rules also establish a shortened approval process. The Beijing Municipal Commission of Commerce, which has the authority to approve regional headquarters, must make decisions within 10 business days following the submission of all required application materials. The prior deadline was 30 business days.
Subsidies and Rewards
The New Rules introduce government subsidies and reward policies that are more detailed and generous than the old policies and apply retroactively to regional headquarters that have been newly established or relocated to Beijing since January 1, 2009. The details are as follows:
- Regional headquarters are entitled to a 5 million RMB subsidy if they have registered capital between 100 million RMB and 500 million RMB; an 8 million RMB subsidy if they have registered capital between 500 million RMB and 1 billion RMB; and a 10 million RMB subsidy if they have registered capital of 1 billion RMB or more. The subsidy will be granted over three years with 40%, 30% and 30% of the subsidiary amount granted each year respectively.
- Regional headquarters whose annual revenue reaches between 100 million RMB and 500 million RMB for the first time will receive a one-time reward equal to 1 million RMB; the reward increases to 5 million RMB for regional headquarters reaching annual revenue between 500 million RMB and 1 billion RMB for the first time; and 10 million RMB for regional headquarters reaching annual revenue at or above 1 billion RMB for the first time. The cumulative reward may not exceed 1 billion RMB and it will be granted over three years with 40%, 30% and 30% of the reward amount granted each year respectively.
- Regional headquarters and their research centers are entitled to a 1,000 RMB per square meter annual subsidy, up to 5,000 square meters, for purchased and self-constructed office space. The subsidy will be recaptured, however, if the office is sold, leased or used for the other purposes within 5 years. The subsidies also cover office rentals if the lease term exceeds 3 years. The subsidy will be granted over three years in an amount that equals 30% of the first year’s rent, 20% of the second year’s rent and 10% of the third year’s rent respectively. The maximum rental space for the subsidy may not exceed 3000 square meters, and the subsidy will be recaptured if the office is subleased or used for the other purposes within the period in which the subsidy is granted.
- A reward in the name of the Beijing Municipal Government will be granted annually to one chief executive of a regional headquarters. The reward waives 80% of the individual’s personal income tax liability (not to exceed 500,000 RMB) for three years following the year in which regional headquarters status is recognized. Additionally, one chief executive of a regional headquarters whose annual enterprise income tax increment is ranked among the top 10 will be rewarded with 500,000 RMB. Persons with the status of deputy general manager or a higher management position who have held the position for two consecutive years at the regional headquarters will also be rewarded pursuant to certain policies of the Beijing Municipal Government designed to attract management talent.
Visa and Residency Permit
The New Rules also provide favorable policies with respect to the visa eligibility of foreign employees of regional headquarters in Beijing. High-level managers and technicians are eligible for a multiple-entry visa valid for five years; mid-level employees are eligible for a multiple-entry visa valid for three years; and regular employees are eligible for a one-year multiple-entry visa. Foreign employees are permitted to apply for a PRC visa in the Beijing Capital Airport upon arrival in Beijing, rather than being required to obtain a visa at the consulate. Foreign employees will also enjoy simplified residency permit application procedures. High-level managers and technicians will be eligible to obtain long-term residency permits valid for five years; mid-level employees will be eligible for residency permits valid for four years; and regular employees will be eligible for residency permits valid for three years.
Additionally, the New Rules provide that preferential treatment will be given to regional headquarters with respect to foreign exchange and capital management, customs clearance and the posting of bonds. The Beijing Municipal Government did not specify these preferential policies in the New Rules, but will implement the policies in accordance with related State regulations.
Although there is still some uncertainty regarding the implementation and operation of the New Rules, the new preferential policies may encourage multinational companies to consider Beijing when deciding to establish regional headquarters. By comparison, Shanghai amended regulations to encourage regional headquarters in October 2008 and, as of March 2009, boasted 224 regional head offices of multinational companies. Beijing is currently home to 121 regional headquarters.