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Shanghai Free Trade Zone Latest Updates

Shanghai FTZ Latest Updates

Its been two months since the establishment of Shanghai Free Trade Zone (FTZ) and over a month since I wrote my last article Shanghai FTZ Updates - Summary of Administrative Measures. In Shanghai FTZ so far there are total 1400 Chinese Domestic companies and 38 Foreign companies according to ChinaDaily [1]. Foreign investors are cautiously optimistic about Shanghai FTZ and waiting for policy clarification and advatanges compared to existing special economic zone (SEZ). In this article will summarize the updates known about Shanghai FTZ so far.

December 4 th 2013 - Liberalized Financial Measures

According to the head of People’s Bank of China (PBOC) [3], central banking regulator in China, Shanghai will implement liberalized financial measures in Free Trade Zone in a year and will support openness. PBOC outlined a set of 30 measures for Shanghai FTZ covering:

  • Cross-border investment and transactions.
  • Expanding yuan cross-border usage.
  • Promoting interest rate liberalization.
  • Simplyfying foreign exchange management.
  • Allow free fund transfer between free trade zone and offshore bank accounts.
  • Qualified foreigners working in Shanghai FTZ to trade domestic equities.
  • Enable qualified residents in the Shanghai FTZ to invest in the foreign securities market.
  • Allow foreign companies with branches in SHanghai FTZ to issue yuan bonds onshore.

November 18 th 2013 - Procedures and Future Plan for Shanghai FTZ

During November various departments and government authorities in China unveiled their respective plans for Shanghai FTZ. Below are some of the highlights of those plans:

Procedures on Administration of Filing Foreign-funded Enterprises in Shanghai FTZ [5]

This document contains all the details for establishment of foreign-funded enterprises in Shanghai FTZ and outlines the relevant regulations applicable. If you want to open a foreign enterprise in Shanghai FTZ, you should read this document.

Procedures on Filing Administration of Foreign Investment Projects in Shanghai FTZ [6]

This document outlines the administrative procedurs and details for Foreign Funded Investment projects in Shanghai FTZ. If you are a company and would like to invest in Shanghai FTZ for your business needs, you should read this document. The scope of projects under filing administration within the Pilot FTZ includes: all kinds of foreign investment projects including all Chinese-foreign funded joint ventures, Chinese-foreign cooperative ventures, wholly foreign-funded ventures, foreign-funded partnership ventures, foreign investors’ acquisition and merger of domestic enterprises, and foreign-funded enterprises’ capital increase, which are not stated in the Special Administrative Measures for Foreign Investment Access Within the Pilot FTZ (the Negative List) (with the exception of foreign investor’s domestic investment projects of which the approval is retained as required by the State Council).

Filing Administration of Investment in Businesses Overseas [7]

In order to open up further and reform the administration of overseas investment this document provide the details of the procedures and relevant regulations for Chinese enterprises to invest overseas. This document is targeted towards Chinese Domestic enterprise setup in Shanghai FTZ and wants to invest overseas (i.e. internationally).

Filing Administration of Overseas Investment Projects [8]

The procedures and regulations in this document are tergeted towards helping the management of overseas investment, especially improving the facilitation of overseas investment by Chinese Domestic enterprises. This document is relevant for Domestic Chinese Enteprises in Shanghai FTZ, who wants to do investment in international market like land acqusition, manufacturing plant, mergers and acquisitions etc.

Circular of China Banking Regulatory Commission on Issues Concerning Banking Supervision in Shanghai FTZ [9]

This document is more targeted towards financial industry and provide details on issues concering the banking supervision in Shanghai FTZ.

Polices and Measures on Capital Market for Supporting and Promoting Shanghai FTZ [10]

Following are the highlights of the Capital Markets for supporting and promoting Shanghai FTZ (this is also covered in the above article)

  • Establishment of Bulk Commodity Trading Platform
  • Trading Platform for Bill of Exchange
  • Allow qualified individuals and entities to make investments in foreign and domestic securities and futures markets.
  • Foreign parents of enterprises in FTZ may issue RMB bonds in domestic markets.
  • Allow specialized subsidiaries like for risk management, assets management in FTZ.
  • Allow securities and futures institutions to carry out over-the-counter (OTC) transaction on commodities and financial derivatives for China domestic clients.

Opinions by China Insurance Regulatory Commission (CIRC) to Support Shanghai FTZ [11]

This is targeted towards strengthening the role of insurance functions in Shanghai FTZ. According to it CIRC will support the following:

  • Establishment of foreign-invested specialized health insurance institutions in FTZ.
  • Establishment of FTZ branches by insurance companies, development of cross-border RMB-denominated reinsurance business in the FTZ, and research on catastrophe insurance system by the CIRC Shanghai Bureau.
  • Outbound investment pilot by FTZ insurance institutions, and research for expanding the scope of permitted outbound investments and relaxing the relevant outbound investment restrictions for FTZ insurance institutions.
  • Allow to carry out business in the FTZ by world-known specialized insurance intermediaries as well as social organizations or individuals engaged in reinsurance business to provide support for the development of insurance industry;
  • Development of shipping insurance business in Shanghai.
  • Innovation in insurance products by insurance companies, and continuous expansion of the service scope of liability insurance business.
  • Improvement of the insurance market system in Shanghai, and promoting the establishment of functional insurance institutions like shipping insurance pricing center, reinsurance center, insurance fund management center.

November 13 th 2013 - Foreign Owned Foreign Medical Institutions in Shanghai FTZ

Shanghai Government released a circular on 13 th November 2013 Provisional Measures on Administration of Wholly Owned Foreign Medical Institution in Shanghai Free Trade Zone, China (沪府办发〔2013〕63号) [2]. Some of the basic provisions in the circular are:

Requirements

  • Establishment should be done by independent legal persons who are engaged in investment and management of medical institutions for more than five years (its not necessary to be in China).
  • Able to provide advanced medical services.
  • Able to provide advanced medical technologies and equipments.
  • Able to help improve the local medical services in terms of capacity, technology, funds and facilities.
  • Investment shall be no less than RMB 20 million.
  • Its operations will not exceed 20 years (can be renewed)

Application Procedure

Foreign investors can apply to set up wholly owned foreign medical institution entity in Shanghai FTZ to Administration of Industry and Commerce (AIC) in the zone. In the application they need to include the following:

  • Application form for the medical institution entity.
  • Detailed project proposal with feasibility study.
  • Registration certificate of foreign investors
  • Identification certificate of legal representative.
  • Bank credit certificate.
  • Project site selection report.
  • Project land use and lease certificate.
  • Project construction plan.
  • Certificate to prove foreign investors have engaged in investment and management of medical institution for more than five years.
  • Articles of Association of the legal entity for the medical insitution.
  • List of board of directors of the legal entity.
  • Pre-approval notice of the medical institutions name.
  • Application materials for the establishment of the enterprise.
  • Other materials as required by laws and regulations.

The authorities will decide in 40 days and issue approval certificate for medical institution to qualified applicants.

October 15 th 2013 - Import Tax Policies for Shanghai FTZ

China’s ministry of Finance, The General Administration of Customs, and the State Administration of Taxation jointly release the Circular on Relevant Import Tax Policies for Shanghai Free Trade Zone [4]. Following are some of the highlights of the measures:

  • Domestic leasing companies in Shanghai FTZ and their subsudiary are entitled to 5% import value-added tax (VAT) rate for purchase of overseas aircraft after approval from relevant administrative departments. The inert weight of such aircraft should be more than 25 tons and are to be leased to domestic airlines.
  • Goods produced and processed by company established in Shanghai FTZ and sold to the domestic market via the gate between Shanghai FTZ and other areas are still subject to import VAT and consumption tax. Also at the request of the enterprise, a pilot tariff policies will be implemented for goods sold to domestic market based on their corresponding imported materials or actual declaration status.
  • The import of machines, equipment and other goods by manufacturing companies and manufacturing service companies in Shanghai FTZ are entitled to tax exemption.
  • Establishment of bonded display trading platform is allowd in Shanghai FTZ.
  • This circulars provisions are not applicable for goods imported by consumer service companies and for other goods that are not entitled for tax exemptions as per laws, administrative regulations and relevant rules.

However its not yet clear what will be the tax benefits of establishing an enterprise in Shanghai FTZ. Based on the information available there are no special tax incentive for companies in Shanghai FTZ.

Conclusion

So far this are the details available on Shanghai FTZ. If there are somethings missed or need to be updated please let me know, will update it accordingly. Hopefully this is useful for people looking for consolidated information on Shanghai FTZ so far.

Footnotes

[1]Domestic companies outnumber offshore firms in FTZ so far
[2]Provisional Measures on Administration of Wholly Foreign Owned Medical Institution in Shanghai Free Trade Zone, China (沪府办发〔2013〕63号)
[3]Shanghai FTZ to introduce liberalized financial measures
[4]Circular on Relevant Import Tax Policies for Shanghai Free Trade Zone (关于中国(上海)自由贸易试验区有关进口税收政策的通知)
[5]Procedures on the Administration of Filing Foreign-funded Enterprises Within the China (Shanghai) Free Trade Zone
[6]Procedures on the Filing Administration of Foreign Investment Projects Within the China (Shanghai) Pilot Free Trade Zone
[7]Procedures of China (Shanghai) Pilot Free Trade Zone on Filing Administration of Investment in Businesses Overseas
[8]Procedures of China (Shanghai) Pilot Free Trade Zone on the Filing Administration of Overseas Investment Projects
[9]Circular of China Banking Regulatory Commission on Issues Concerning Banking Supervision in China (Shanghai) Free Trade Zone
[10]Polices and Measures on Capital Market for Supporting and Promoting China (Shanghai) Pilot Free
[11]Opinions by China Insurance Regulatory Commission to Support China (Shanghai) Pilot Free Trade Zone