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Shanghai Issues New Regulations to Encourage “Functional RHQs”



On 14 July 2014, the Shanghai Government issued the Supplementary Regulations for Implementation of the Opinions on Encouraging the Establishment of Regional Headquarters by Multinational Companies (the “Regulations”). The Regulations took effect on 14 July 2014 and are valid till 30 June 2017 (and may be extended afterwards).

The Regulations extended certain incentives which are granted to Regional Headquarters of multinational companies (“RHQs”) to so-called “Functional RHQs”. The term “Functional RHQs” is newly introduced by the Regulations and refers to wholly foreign owned enterprises (“WFOEs”) or their branch companies located in Shanghai, which do not fulfill the conditions of formal RHQs (e.g. total group assets of above USD 400 million, total capital investment in China of above USD 10 million and more than 6 companies to be managed by the RHQ), but carry out actual RHQ functions.

Conditions for Functional RHQs

To qualify as a Functional RHQ, the following conditions shall be met:

  1. The multinational company group (to which the WFOE belongs) has asset of above USD 200 million and has invested in no less than 3 foreign invested enterprises (“FIEs”) in China (with at least one FIE being registered in Shanghai);
  2. The person who is generally in charge of the RHQ function and the relevant functional in-charge personnel are based in Shanghai; and
  3. The relevant WFOE or its branch in Shanghai has an office of more than 500 square meters and more than 50 employees for the RHQ function.
Application Procedures

The application for the Functional RHQ status shall be made with the Shanghai Municipal Authority of Commerce. The Regulations provide a document list for such application. The Regulations also mention that the Municipal Authority of Commerce shall be responsible for extension review of the Functional RHQ status. This indicates that such status has a validity period. Further detailed measures will be issued in this regard.

Incentives applicable to Functional RHQs

A formal RHQ in Shanghai is eligible to certain financial incentives (e.g. establishment bonus, rental subsidies, etc). However, these financial incentives do not apply to Functional RHQs. The incentives offered to Functional RHQs are rather of a soft factor nature and all relate to facilitations/ green lights for the personnel of Functional RHQs.

  1. Multi-entry temporary visits to China of expatriate employees A business visa with a validity period of one year and multi-entry (at the maximum 180 days stay in China) can be applied for by foreign employees who need to come to China for business trips very often. 
  2. Long-term residence A 3-5-year long-term residence permit of foreigners can be applied for by expatriate employees of the Functional RHQ, depending on their hierarchy levels. The spouse, parents and children less than 18 years' old of the above mentioned expatriates can also obtain residence permits with the same validity period of that of the expatriates. 
  3. Permanent Residence Expatriate senior managers can apply for PRC Permanent Residence Permit with a priority over other expatriates. 
  4. Shanghai Residence Permit (Type B) Personnel with origin in China who have received advanced education abroad and talent from outside Mainland China and abroad, either holding a foreign passport or still holding a Chinese passport but without Chinese permanent residence permit ("Hukou") as well as their spouse and children less than 18 years old will have priority to apply for a Shanghai Residence Permit, if such personnel are employed by a Functional RHQ in Shanghai. The Shanghai Residence Permit can be used by the holders for the purpose of opening bank accounts, participating in social insurance in Shanghai or arranging their children to get education in Shanghai, etc. 
  5. Emergency Entry to China Functional RHQs can be granted with a qualification of Units Being Filed for Obtaining On-site Visa at the Customs. If any foreigner being invited by RHQs comes to China for an urgent case without obtaining a visa abroad in time, such foreigner can apply for an on-site visa at the competent visa department of the Exit and Entry Administration Bureau of the Shanghai Public Security Bureau at the Customs. 
  6. Health Certification The entry-exit inspection and quarantine departments shall provide green channels for handling the health certification for the legal representatives and senior management of Functional RHQs. 
  7. Business trips to Taiwan, Hong Kong and Macau Chinese employees of Functional RHQs can obtain a Travelling Permit for business trips to Hong Kong and Macau with multi-entry. Chinese employees of Functional RHQs can obtain a Travelling Permit for business trips to Taiwan with priority. 
  8. Business trips to foreign countries Chinese employees of Functional RHQs (with or without Shanghai Hukou) can apply with the Shanghai Entry and Exit Administration for passports for business trips to foreign countries. 
  9. Work Permit Expatriate employees of Functional RHQs can apply for a work permit with a validity period of 2 – 5 years. The foreign senior management and senior technicians can apply for a Foreign Expert Certificate with the Shanghai Labor Resources and Social Security Bureau. 
  10. Shanghai Residence Permit Green lights are provided to Chinese employees of Functional RHQs to apply for Shanghai Residence Permit (上海市居住证). Chinese employees of Functional RHQs without Shanghai Permanent Residence Permit ("Hukou") can obtain Shanghai Hukou in accordance with the Shanghai local regulations.
CMS comments

Although no financial incentives are provided to a Functional RHQ, the Regulations provide various conveniences to their employees (both expatriates and Chinese) in terms of work, residence and travelling. With these measures, Functional RHQs may find themselves in a better position to keep their employees and attract new ones. For such benefit, companies which fulfill the relevant conditions may consider applying for the Functional RHQ status.

China Insight - Corporate
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Portrait of Ulrike Glueck
Dr. Ulrike Glueck
Managing Partner