The Shanghai Municipal Government has revised, for the fourth time, its regional headquarters (RHQs) regulations providing more impetus to multinational companies (MNCs) to run their RHQs in the city. The new regulations have taken effect from 1 November 2022. So far, Shanghai is home to 877 RHQs since the launch of its RHQ regulations in 2002, making Shanghai the city with the most RHQs in China.
The main amendments bought by the 2022 regulations are summarized below.
The 2022 regulations have added a third type of RHQ entity, called the RHQ business unit, and introduced some relaxation to the shareholding requirements for RHQ entities. RHQ business unit refers to a Shanghai registered entity set up by an MNC (or its Chinese investment holding company) based on its line of functions, business, products, brands or services, authorized to oversee its investment, management, and servicing in China or the region. The following table highlights the latest changes to the RHQ recognition requirements.
Changes are made to delegate more rights to district-level authority and to clarify the assessment mechanism.
The 2022 version provides further clarifications on the application documents for RHQ recognition, especially the application form. An applicant is required to provide a more comprehensive description of its shareholding and management structure. In addition, an enterprises seeking an “RHQ – business unit” recognition is required to provide special audit materials on its parent company's business units and operating revenue.
The regulations have added more supportive measures to the 2019 version, as summarized below.
Existing and new RHQs applicants should note the favorable changes, and consider how to optimize their operations to maximize the benefits, notably the following:
It should be noted that new tax implications may arise while adjusting the operation to meet Shanghai’s RHQ requirements. For instance, tax revenue reallocation will result due to intra-group business restructuring. Therefore, a detailed tax implication study is advised prior to the implementation.
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