What are the Benefits for Foreign Investors to Invest in Shanghai Free Trade Zone?

From Sep., many companies consult about investing in SFTZ, some foreign investors whom have invested companies in Shanghai, are also interested in the benefits of SFTZ. Actually, whether an investor shall invest in SFTZ, the special benefits of SFTZ and its own demand shall be both taken into consideration, which means the investor shall be acknowledged about whether its demand can be satisfied by taking advantage of the policy of SFTZ.

Currently, the released special policies related to foreign investment in SFTZ are mainly focusing on the following aspects:
1.Opening up of investment sectors

Firstly, for 6 sectors, including the financial services, transportation services, commerce and trade services, professional services, cultural services, and public services; and 18 service categories are selected to be opened, limitation on foreign participation and requirements concerning the qualification of investors are cancelled.

Secondly, applying the “Negative List” administrative approach. This is an important policy which has been applied in SFTZ. For those industries which have not been listed in “Negative List”, foreign investors and domestic investors will receive the same treatment, the establishment procedures will be the same too. This policy has brought a new prediction for foreign investors who are searching opportunities in new industries. As for now, “Special Administrative Measures (Negative List) on Foreign Investment Access to the China (Shanghai) Pilot Free Trade Zone (2013)” is almost the same as “Catalogue of Industries for Guiding Foreign Investment (2011 Revision)”, there are no such huge change right now. Although it says that “Negative List” will be adjusted accordingly, however, we presume that SFTZ will not open up some investment sectors recently.

2.Reformation of financial supervision system

“The Framework Plan for the China (Shanghai) Pilot Free Trade Zone” proposes a series of financial reformation goals, including the RMB capital account convertibility, interest rate liberalization and etc.. It also proposes the innovative requirements, such as foreign exchange centralized operation by multinational companies’ headquarters will be enhanced to encourage the setup of regional or global treasury centers.
However, these goals and innovative requirements shall be carried out with the foundation of the specific rules released by the relevant authorities. In addition, the foreign exchange regulations will be applied to the capital flows from inside of SFTZ to outside.
3.To loosen the management of foreign investment

In SFTZ, except those sectors listed in “Negative List”, the establishing procedures of a foreign invested company have been changed from examination to filing. For the registered capital, the minimum registered capital requirements have been removed, the subscribed capital mechanism will be applied; there will be no restrictions on the following items: the amount and proportion of the initial capital contribution of shareholders, the proportion of monetary capital contribution to the total capital by all the shareholders, the period for shareholders to fully contribute the capital. These can save expense and time for foreign investors. “One Window” acceptance mechanism is also applied, which can also save time for foreign investors.

In view of the policies hereinbefore, SFTZ has established a framework of new policies, however, more specific regulations are needed in many aspects. It is hard for us to say whether the preferential income tax rate of 15% will be implemented in the future.
We believe that, except those foreign investors who have to engage in the service of those added new sectors, and who just begin investing in China, it may not be a good choice for other foreign investors to establish a new entity in SFTZ. At the moment, there are not too many benefits for those foreign invested companies outside SFTZ to move inside SFTZ.