On October 28, 2022, the municipal government promulgated the Notice of Shanghai Municipal People's Government on Promulgation of the Revised Provisions on Encouraging Multinational Companies to Establish Regional Headquarters in Shanghai (Hu Fu Gui [2022] No. 17) (the “Notice”), which has already taken effect on November 1, 2022 and has a validity term until October 31, 2027. The Notice has simultaneously repealed the 2019 version of the regional headquarters provisions (the “2019 RHQ Provisions”).

The Notice mainly aims at further opening for foreign investment, including speeding up the development of regional headquarters in Shanghai. According to the publicly available information, at the end of September 2022, Shanghai had already attracted 877 regional headquarters of multinational companies and 523 foreign-invested Research & Develop (“R&D”) centers.

By comparing the 2019 RHQ Provisions with the Notice, we have identified and summarized several key development points:

I. Entry Conditions for RHQ Has Been Further Enriched and Eased (Articles 2 and 7)

1. In addition to the Regional Headquarter (“RHQ”) and the Headquarter Institution (“HI”) defined in the 2019 RHQ Provisions, the Notice introduces a new type of regional headquarters of multinational companies, namely Division Headquarters (“DHQ”). As defined in Article 2 of the Notice, The DHQs shall mean the only head office of a parent company registered overseas, which has a divisional organization structure subdivided based on, among others, functions, businesses, products, brands, and services, and is established by its parent company with an investment nature, to be responsible for the division's investment, management, and service functions within the scope of more than one country or region, in the form of investment or authorized management. DHQs may, therefore, be understood as quasi-RHQs.

2. The competent authorities shall complete the RHQ application process within 5-10 working days upon the receipt of the application and other materials and decide on approval or non-approval. A certificate shall be issued if the applicant is determined to be qualified.

II. Fund Operation and Management (Article10)

1. RHQ may establish a unified fund management system. If it involves the operation of foreign exchange funds, relevant provisions on foreign exchange management shall be implemented.

2. RHQ can carry out centralized operation and management of cross-border capital.

3. Strengthen tax guidance and services and provide a green channel for filing foreign exchange payment contracts.

4. RHQ is allowed to open a free trade account and handle the cross-border CNY receipts and payments of domestic and foreign currencies in accordance with the convertibility principle.

III. Subsidies and Rewards (Article 9)

1. In accordance with relevant regulations, the RHQs may obtain subsidies for establishment and rent. HIs and DHQs may obtain rewards if substantive contributions to economic development and specific conditions have been met.

2. The specific procedures for the implementation of subsidies and rewards shall be further formulated by relevant government departments and district governments.

IV. Intellectual Property Protection (Article 17)

1. With regard to the inadequate protection system of intellectual property rights in China claimed by foreign media, many R&D-oriented foreign-invested enterprises have encountered difficulties in making profits. The Notice provides strong support measures in this regard as well. For instance, the foreign-related trademarks of RHQ that have a higher reputation and are vulnerable to infringement may be included in the local key protection directory. Furthermore, RHQ may apply to the authorities for special administrative protection across provinces.

V. Bringing in Talents (Article 15)

1. Senior management personnel with outstanding contributions from RHQ may be recommended for the highest awards set up for foreign experts (“Magnolia Friendship Award”).

2. For professionals in the fields of finance, planning programming and shipping, etc., who have obtained international professional qualifications or professional qualifications in specific countries or regions, their overseas work experience may, under certain conditions, be deemed as their domestic work experience (except for special requirements in the industry). These professionals will be entitled to assume certain positions and lead major national scientific and technological projects.

VI. Trade Facilitation (Article 11)

1.The Customs Department shall innovate the supervision system and mode, focus on improving the clearance efficiency, and provide customs clearance convenience for their import and export goods.

2. For the distribution centers established for logistics integration by RHQs, the Departments of Customs and Foreign Exchange shall adopt facilitating regulatory measures.

3. The Customs Department is developing a new pilot tariff guarantee insurance that can be extensively applied to the R&D materials of RHQs and facilitate the import and export thereof.

4. RHQs may provide maintenance and repair services for aerospace, ships, rail transit, engineering machinery, numerically-controlled tools, communication equipment, precision electronics, high-end medical equipment, and other products in the comprehensive bonded zone.

VII. Service Support (Article 13)

1. A government liaison has been appointed for each RHQ to keep abreast of the difficulties and pain points faced by RHQ in its daily operations.

2. The municipal government has also held around a dozen roundtable meetings since this year to listen to the demands of foreign-invested companies, respond to their concerns and stabilize their prospects of overseas development and confidence in Shanghai.

The coronavirus wave in Shanghai this year and the ensuing closed-loop management have caused production to be suspended for some time in many businesses, including for foreign-invested companies. However, the Notice shows that Shanghai’s determination to attract global businesses and entrepreneurs remains unchanged. It is certain that the municipal government will continue to formulate favorable policies and measures to improve the business environment, and in so doing, support the development of RHQs.