The Shanghai Free Trade Zone (SFTZ), established on September 29, 2013, has undergone institutional reform and innovation in investment, foreign commerce, finance, and post-filing supervision to provide a legal framework for investment and trade inside the zone. It has streamlined foreign trade supervisory processes, implemented the negative list for investment management, pushed for financial system reform, and pushed for post-filing supervision as a strategy to alter government operations.

The Benefits

The Shanghai Free Trade Zone (located in the Pudong district) includes the existing free trade zones in Waigaoqiao, Yang Shan, and the Pudong International Airport. The zone provides numerous benefits to local and multinational businesses looking to establish a branch office or head offices in Shanghai.

The following are some of the most critical advantages of establishing a business in the Shanghai Free Trade Zone:

Capital Movement

● Simplified renminbi settlement procedure across borders

● Capital inflows and exchange less unrestricted, and

● Cross-border banking transaction assistance

Take, for example, the Lingang FTZ. This expansion of China's first free trade zone in Shanghai strongly supports cross-border financial dealings by allowing eligible organizations to offer cross-border bonds and conduct cross-border securities finance and insurance business, showcasing China's firm intention to open up its economy in the new era.

Customs Advantages

Overseas products do not need customs clearance until later, making operations of logistics businesses inside the FTZ easier. In addition, reducing logistics costs and complexity encourages foreign corporations to establish a regional manufacturing and logistics center in Shanghai.

Eased Foreign Investment Restrictions

Foreign investment criteria in many sectors and other regulatory issues sometimes keep foreign investors out. However, the Shanghai Free Trade Zone has fewer restrictions and prohibitions on which foreigners may invest in China.

The SFTZ offers benefits in two critical areas to many international investors. To begin with, the SFTZ has removed restrictions to foreign investment in several places that are still forbidden elsewhere in China. Second, the SFTZ provides an appealing site to launch a business in China for foreign investors in sectors that are prohibited elsewhere.

A Competitive Tax Environment

The export VAT tax rate in China is 17 percent. However, when manufacturers are in the Shanghai Free Trade Zone, the government will give a one-month reimbursement.

There are other tax advantages to operating a business in the SFTZ in addition to the VAT tax refund, such as the fact that you only make tax payments upon entering the Chinese market when working in the bonded region.

Fewer Limits on the Company's Name

The registration of a business's name is somewhat unrestricted. Words such as industrial, group, shareholding, center, investment, and enterprise, may all be freely selected.

Administrative Benefits

The considerable reduction of the administrative complexity of applying for permission and registration inside the FTZ is a crucial change attracting international investment. Moreover, if their company domain isn't on the "Negative List," which requires special permission, a foreign investor in the SFTZ is subject to the same simplified application method and conditions as domestic investors.

Bottom Line

The Chinese government has announced several Shanghai FTZ expansions during the past few years aimed at loosening limitations on foreign direct investment and giving international businesses greater discretion.

Some foreign investors, unfortunately, however, believe that the number of industries being launched and the relaxation policies themselves is not as significant as initially anticipated. While the Chinese government continues to put more measures to ease barriers to foreign direct investment in the Shanghai FTZ, it might take longer to see the full benefits.

Expand into China without setting up a company, by employing or relocating key staff to take a first step in exploring the market. A professional employer organization (PEO) service can act as the official employer of record (EOR) for your staff in China while you expand your business. With the support of our trusted partner network, we can facilitate local hiring and employment without the time and cost of setting up a legal entity in country.

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