Overview on Policy & Advantage of RHQ Setup in Shanghai

#China

Introduction

With the deep evolution of the global economic landscape and the steady growth of the domestic economy, Shanghai’s position as a global economic and financial hub is becoming more and more prominent. With the continued leadership of the Free Trade Zone’s institutional innovation and the solid support of the Yangtze River Delta’s huge and dynamic market, Shanghai is gradually transforming into the core command center for multinational enterprises to reconstruct the Asia-Pacific industrial chain and optimize the allocation of global resources.

For multinational enterprises, locating their regional headquarters (“RHQ”) in Shanghai is undoubtedly a very strategic layout. Enterprises can fully enjoy the rich policy dividends and all-round support provided by Shanghai, and Shanghai’s unique location advantage and market radiation ability enable enterprises to quickly extend their business tentacles to the entire Asia-Pacific consumer market, capture emerging business opportunities, and realize rapid business growth and effective expansion of market share. The purpose of this article is to briefly introduce the process and policy benefits of setting up regional headquarters of multinational corporations in Shanghai for reference.

Definition of RHQ

The regional headquarters of a multinational corporation refers to the highest management decision-making center set up by a multinational corporation in a specific region (e.g., Asia-Pacific, Greater China), which undertakes the following core functions: strategic management: coordinating regional investment, R&D, supply chain and financial decision-making; resource allocation: optimizing the allocation of regional capital, technology and human resources; compliance hub: unifying and coordinating the regional legal, tax and data compliance system; and service hub: providing IT, procurement, training and other shared services for regional subsidiaries. Service Hub: providing IT, procurement, training and other shared services for regional subsidiaries. In recent years, more and more multinational enterprises have chosen to set up their regional headquarters in Shanghai. By the end of 2024, 195 countries and regions have invested in Shanghai, and Shanghai has accredited a total of 1,016 regional headquarters of multinational corporations and 591 foreign-funded R&D centers. During the year, there were 60 new regional headquarters of multinational companies and 30 foreign-funded R&D centers.

Recognition conditions for the establishment of regional headquarters of multinational corporations in Shanghai

According to the Provisions on Encouraging the Establishment of Regional Headquarters of Multinational Corporations in Shanghai (Shanghai Municipal Government Regulation [2022] No. 17), the types of regional headquarters of multinational corporations to be established in Shanghai can be categorized into regional headquarters, headquarter-type organizations, and business-type headquarters, and the conditions for recognizing the different types are as follows:

To apply for the accreditation of regional headquarters, it is necessary to be a foreign-invested legal person enterprise, with no less than 50% shareholding of the overseas parent company, assets of more than 200 million US dollars, registered capital of no less than 2 million US dollars, and outstanding contribution can be accredited at discretion.
Recognized as a headquarters-type organization, which may be a legal entity or a branch, with no less than 50% shareholding by the overseas parent company, assets exceeding US$100 million, and registered capital of no less than US$1 million (the branch head office’s cumulative allocation of operating funds in the last three years should be no less than US$1 million).
To recognize the headquarters of a business division, it is required to meet some of the conditions for regional headquarters, operate for more than 1 year, and meet the revenue share and amount. In addition, the declaring enterprise must not have serious breach of trust or repaired within 3 years.

Shanghai Regional Headquarters Exclusive Policy Bonuses and Processes

According to the Measures for the Administration of Development Funds for Regional Headquarters of Shanghai Multinational Corporations (Shanghai Business Regulation [2024] No. 2), there are a number of benefits for the establishment of regional headquarters in Shanghai, which cover a wide range of aspects. For example: start-up subsidies of RMB 5 million for headquarters identified after November 1, 2022 (paid registered capital ≥US$30 million, etc.) or global R&D centers identified after December 1, 2020 (≥50 full-time R&D staff); rental subsidies of 30% of rent for three years, and one-time subsidies of three years’ total amount for the purchase of buildings with the same standard; high-capacity incentives of RMB 3 million for qualified regional headquarters; operating incentives of RMB 3 million for regional headquarters; and operating incentives of RMB 3 million for multinational corporations with the same standard. High-performance incentives, 3 million yuan for qualified regional headquarters; business incentives for headquarters with different turnovers; and finally, capital increase incentives of 2 million yuan for headquarters that meet specific conditions.

Based on our practical experience in assisting many multinational enterprises to complete their regional headquarters applications, the general timeline and key processes for setting up a regional headquarters in Shanghai can be summarized as follows:

Pre-Decision and Preparation Phase: The headquarters of multinational corporations need to make a comprehensive assessment of the necessity, feasibility and potential value of setting up a regional headquarters in Shanghai in close conjunction with their own strategic planning, and make a decision to set up the regional headquarters on this basis.
Preparation and optimization of materials: Based on the application conditions and specific requirements set by the relevant Shanghai authorities, enterprises need to carry out targeted preparatory work. Make necessary adjustments to the existing corporate structure and business model to meet the criteria for the establishment of regional headquarters, and prepare various application materials.
Application Submission and Evaluation Communication Stage: After completing all the above preparatory work and conditions, the enterprise shall formally submit the application for regional headquarters in accordance with the stipulated procedures. After submitting the application, the enterprise shall actively maintain close communication with the business department and cooperate with the business department in the evaluation of the application materials. During the evaluation process, the company should respond to the questions and requests of the business department in a timely manner, and provide additional materials or necessary explanations in order to promote the successful approval of the application.

Through the orderly promotion of the above three stages, multinational enterprises can complete the application process of setting up regional headquarters in Shanghai more efficiently, laying a solid foundation for the subsequent development of business in Shanghai.

Conclusion

Relying on the system innovation advantages of the Free Trade Zone, the mature and complete industrial ecosystem in the Yangtze River Delta region, and its unique location as a key gateway to the Asia-Pacific region, Shanghai has already become a core hub and an ideal carrier for multinational corporations to implement their regional control strategies.

For multinational enterprises, setting up regional headquarters in Shanghai offers multiple significant advantages. From the dimension of policy support, enterprises can obtain a series of substantive benefits, including but not limited to capital incentives, tax exemptions, enjoying the convenience of customs clearance and trade, and flexible capital operation, which can reduce the burden of operation and enhance competitiveness. From the perspective of the enterprise’s own development, Shanghai has a strong industrial agglomeration effect and a large number of upstream and downstream enterprises, which enables resource sharing and technology exchange, reduces costs and improves efficiency, and helps the enterprise to expand its business and increase its share.

With the above-mentioned, for multinational enterprises aiming to stand out in the global competition, setting up regional headquarters in Shanghai is undoubtedly a forward-looking and strategic decision.

The above content is provided for informational purposes only. The provision of this article does not create an attorney-client relationship between D’Andrea & Partners and the reader and does not constitute legal advice. Legal advice must be tailored to the specific circumstances of each case, and the contents of this article are not a substitute for legal counsel.