Best location for regional headquarters? Hong Kong vs Shanghai vs Singapore

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1 Best location for regional headquarters? Hong Kong vs Shanghai vs Singapore Clement Yuen and Wilson Cheng 17 June 2013

2 Agenda Criteria Comparison Application Page 2

3 Key Criteria Proximity to markets Business environment Tax and regulatory environment Page 3

4 Comparison Proximity to markets Market concentration Choice of single / multiple locations Market segregation Page 4

5 Comparison Business environment Free market Highly flexible Clear legal framework Sufficient talent supply Transparent market access High costs of operation and living No foreign exchange control Controlled market Specific market openness Developing legal framework Increasing talent supply Increasing costs of operation and living Foreign exchange control Open market Friendly to targeted industries Clear legal framework Foreign talent appreciated Pro-business policies Transparent market access Relatively high costs of operation and living No foreign exchange control Page 5

6 Comparison Tax and regulatory environment Hong Kong Territorial source No VAT/GST Focused incentive schemes Tax free on capital & dividend income Advance tax ruling system in place (tax transparency) Expanding tax treaty network Shanghai Worldwide tax VAT/Business tax Specific incentive schemes Less regulatory administration transparency Wide tax treaty network Singapore Territorial source GST Wide range incentive schemes Tax free on capital & dividend income (with conditions) Advance tax ruling system in place (tax transparency) Wide tax treaty network Page 6

7 Application example Invest into mainland China HK SH SG 1a & 1b 2 French investors HK / SH / SG HoldCo 3 1a Dividend of $100 1b Interest of $50 2 Dividend of $100 No HK WHT No HK WHT No tax deduction in HK PRC WHT of $5 Non-taxable in HK PRC WHT of $10 PRC WHT of $15 Tax deductible in PRC No PRC WHT Non-taxable in PRC No SG WHT SG WHT of $5 Tax deductible in SG PRC WHT of $5 Exempt from tax (with conditions) in SG Legend China investments Shareholding Fund flow 3 Capital gains May not be taxable in HK. May be taxable in PRC at 10%. Taxable in PRC at 25%. May not be taxable in SG. May be taxable in PRC at 10%. Page 7

8 Application example Invest into ASEAN countries (Vietnam) HK SH SG 1a & 1b 2 French investors HK / SH / SG HoldCo 3 1a Dividend of $100 1b Interest of $50 2 Dividend of $100 No HK WHT No HK WHT No tax deduction on interest in HK No VN WHT Non-taxable in HK PRC WHT of $10 PRC WHT of $15 Tax deductible in PRC No VN WHT Taxable in PRC No SG WHT SG WHT of $10 Tax deductible in SG No VN WHT Exempt from tax (with conditions) in SG Legend Vietnam investments Shareholding Fund flow 3 Capital gains May not be taxable in HK. May be taxable in VN at 25%. Taxable in PRC at 25% with tax credit. May be taxable in VN at 25%. May not be taxable in SG. Not taxable in VN. Page 8

9 Discussions

10 Appendices

11 Shanghai Management RHQ vs. Investment RHQ vs. State Level RHQ Items Management RHQ in Shanghai Investment RHQ (CHC) in Shanghai State Level RHQ Minimum Registered Capital and other requirements Requirements on Foreign Investors USD 2 million USD 30 million Paid-in capital is no less than USD 100 million; or paid-in capital is no less than USD 50 million and the total assets of investees of last year is no less than RMB 3 billion with total profit no less than RMB 100 million. The total assets of parent company should be USD 400 million or above; The accumulative China investment amount of parent company should be USD 10 million or above and at least 3 China / overseas enterprises are managed by the RHQ; or at least 6 China / overseas enterprises are managed by the RHQ; CHC has set up R&D center in China The total assets of foreign investor should be USD 400 million or above; and the foreign investor s paid-up capital contribution in the existing China FIEs must be in excess of USD10 million; or The foreign investor must have established more than 10 FIEs in China and the foreign investor s paid-up capital contribution in the existing FIEs must be in excess of USD30 million. Business Scope Investment management and provision of shared services Widest allowed business scope including investment holding, trading, R&D, shared services, etc., but not manufacturing Approval Authority Shanghai Municipal Commission of Commerce Ministry of Commerce ( MOC ) or local Commission of Commerce( COC ) depending on the size of investment Set-up Timeframe Around 2~4 months in practice Approve by MOC: around 6-9 months in practice Approve by local COC: around 3-4 months in practice Page 11

12 Shanghai Incentives Specifically Available to Shanghai RHQs Items Subsides Conditions Establishment / Relocation One-off subsidy of RMB 5 million, to be paid in 3 installments over 3 years Investment RHQ or State Level RHQ newly established in or relocated into Shanghai Number of employees no less than 10 Note 2 Rental 30% of rental for 3 years, capped at an area of maximum 1000 square meters at the rental rate of RMB 8 per square meter per day, or One-off subsidy with the criteria same as the rental above for self established and purchased office RHQ newly established in or relocated into Shanghai Number of employees no less than 10 Note 2 Operation One-off subsidy of RMB 5 million, to be paid in 3 installments over 3 years Management RHQ with annual turnover exceeding RMB 500 million for the first time, or Investment RHQ with annual turnover exceeding RMB 1 billion for the first time Area Capacity One-off subsidy of RMB 10 million, to be paid in 3 installments over 3 years One-off subsidy of RMB 8 million, to be paid in 3 installments over 3 years, for newly established RHQ, or One-off subsidy of RMB 3 million, for upgrade on existing RHQ State Level RHQ with annual turnover exceeding RMB 1 billion for the first time Investment RHQ or Management RHQ with Asia, Asia- Pac, or larger area capacity Note 1 Number of employees no less than 50 Note 2 The legal representative and major senior executives shall reside and work in Shanghai Note: 1. There are no clear guidance on the definition for Asia or Asia-Pac RHQ in the current regulations. Based on our experience, in practice local government authorities may impose additional requirements on the number and location of entities being invested or managed by the RHQ in assessing whether the RHQ has sufficient capacity. 2. There are no clear guidance on the level of employees in the current regulations. Based on our experience, in practice local government authorities may impose additional requirements on the position and role of relevant employees in assessing whether the RHQ has enough employees to meet the qualifying criteria 3. The above subsidies are not mutually exclusive. RHQs that meet the qualifying conditions of different subsidies may enjoy the subsidies simultaneously. Page 12 12

13 Singapore headquarters incentives To encourage multinational companies to set up their regional headquarters in Singapore IHQ RHQ Concessionary tax rate (on income above base income) Base income (taxed at normal tax rate) 10% / 5% 15% Average of past 3 years income Duration Up to 20 years 3+2 years (Non-renewable) Qualifying income Sales / trading, service, royalty / licensing, franchise fees, commissions and management fees Criteria (key conditions) Number of HQ activities Number of related entities (overseas) managed Headcount Total business spending etc Page 13

14 Singapore headquarters incentives Headquarters activities Strategic business planning and development General management and administration Marketing control, planning and brand management Intellectual property management Corporate training and personnel management Research, development and test bedding of new concepts Shared services Economic or investment research and analysis Technical support services Sourcing, procurement and distribution Corporate finance advisory services Page 14

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