China: Better Business Environment - Growing Your Business in Shanghai

The Regulations state that enterprises may freely choose the location of their main office within the city and register it as their domicile in accordance with the law. All districts and authorities shall facilitate enterprises' cross-district relocation of domiciles, and shall not place obstacles during the change of domiciles. Matters relating to the cross-district relocation of enterprises that are difficult to coordinate and resolve at the district level shall be coordinated and resolved by the relevant departments, who shall also promote their implementation.

Enterprises often make the decision to relocate within the city to meet their own development needs. In practice, the local tax authorities often set up obstacles to the tax deregistration of enterprises moving across districts for fear of losing tax sources, resulting in difficult and time-consuming administrative approval processes for cross-district relocation of enterprises.

Back in 2009, Shanghai had already issued regulations to standardize the order of tax collection and administration on matters relating to the cross-district relocation of enterprises and to protect the legitimate interests of enterprises relocating across districts. The Regulations are a further clarification on this requirement and take into account the issues that occur in practice to facilitate implementation.

As for the inter-provincial relocation, it is currently not feasible to fully refer to of Shanghai’s practice. It is recommended to communicate with the tax authorities of both cities. At present, enterprises with tax credit ratings of A and B in the Yangtze River Delta region (i.e. Shanghai, Jiangsu Province, Zhejiang Province, Anhui Province and Ningbo City, the same below) can retain their tax credit ratings and other qualifications, as well as the non-deducted input VAT at the end of the period after cross-provincial relocation. But for the time being, there are no explicit preferential provisions for enterprises moving across other provinces.

The Regulations state that industries outside of the negative list for foreign investment access will be administered in accordance with the principle of consistency between domestic and foreign investment, aiming to create a fair business environment for foreign-invested enterprises. We find out that the new negative list in 2020 has been further reduced compared to the 2019 one, especially in the manufacturing sector, where the restriction of no more than 50 percent foreign equity in commercial vehicle manufacturers has been removed. In addition, from 2022 onwards, the restriction that the foreign shareholding in passenger car manufacturers should not exceed 50 percent will be cancelled, and one foreign company will be allowed to establish two or more joint ventures in China to produce the same kind of vehicle products.

For further changes in service sector, please refer to the article “Shanghai New Regulation to Foreign Investment”.

In addition, the Regulations provide concrete benefits to enterprises in terms of government services and regulatory enforcement:

In recent years, there have been numerous positive policies for attracting and retaining foreign investment in China, including temporary exemption from withholding tax on foreign reinvestment with distributed profits in areas other than those on the negative list, flexibility in the selection of foreign debt quota (investment - registered capital difference or macro and prudent administrative policies for full-caliber cross-border financing), and the continued streamlining of the negative list of access for foreign investment. Meanwhile, various areas have also introduced a number of policies to optimize the business environment (for more details in Beijing).

Obviously, in response to the impact of the epidemic on foreign investment in China, the Chinese government's preferential policies to stabilize and attract foreign investment are accelerating and advancing on all fronts.