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September 2014
Updated Reforms in the
Shanghai FTZ 2014
- By Richard Cant and Matthew Zito, Dezan Shira & Associates
It has been almost one full year since the Shanghai Free Trade Zone launched amidst much anticipation. Though the rate and depth of
reforms have left some observers unimpressed, the Zone has proven to be a site of dynamic regulatory change. During this time, we have
seen additional reforms implemented in the Zone and the spread of pilot reforms to other areas of China.
The Shanghai FTZ has created fresh opportunities for mature businesses in China, and opened new avenues into industries that have
heretofore been restricted to foreign investment. For the first time in 14 years, videogame consoles will be permitted to be sold in China,
opening entirely new avenues for foreign investment into the industry.
Additionally, a deal was recently signed by German healthcare provider Artemed Group to establish a 10,300 m
2
hospital in the FTZ—the
first wholly foreign-invested enterprise (WFOE) of its kind. Foreign investment into medical institutions was relaxed under the original
Framework Plan. More recently, the Revised Negative List removed restrictions on the minimum investment (previously RMB 20 million)
and maximum operation period (20 years) for such projects.
Beyond its preferential policies for customs, corporate establishment, foreign exchange, and e-commerce, the FTZ offers other benefits in
more niche areas of doing business in China. Here we highlight a select few examples:
Arbitration
As part of the push to create an especially preferential environment for foreign investment into the FTZ, a distinctive mechanism for
alternative dispute resolution (ADR) has been established in the Zone, administered by the Shanghai International Arbitration Center
(SHIAC) and China (Shanghai) Pilot FreeTrade Zone Court of Arbitration. The FTZ’s arbitrationmechanism features an emergency arbitration
system, hybridmediation/arbitration arrangements, the option to choose arbitrators fromoutside the roster maintained by SHIAC, optional
summary procedure, and an expedited appeal reviewprocedure. Most importantly, however, cases not relating to the FTZ can be governed
according to the FTZ’s arbitration mechanism, provided this is stipulated in the arbitration clause of a related agreement.
Legal Services
On January 27, the Ministry of Justice (MOJ) significantly expanded the ability of foreign lawyers to participate in China’s legal services
industry: a foreign law firm that has established a representative office (RO) in the Shanghai FTZ will be allowed to enter into an agreement
with a Chinese law firm to dispatch lawyers between themselves. While foreign lawyers are still restricted from practicing under PRC law,
they can now act as foreign legal consultants.
Secondly, a foreign law firm that has already established an RO in China can now set up a joint operation in the Shanghai FTZ with a Chinese
law firm, whereby the two parties can provide legal services to Chinese and foreign clients based on laws of their respective countries in
accordance with their agreement. The two parties’ legal status, names, finances and civil liabilities should remain independent.
Tax Filing
In July of this year, the State Administration of Taxation (SAT) launched a number of innovative tax services in the Shanghai FTZ designed
to save taxpayers both time and costs. Under the new system, businesses can now complete tax registration, manage invoices and apply
for electronic invoices using an online system. Taxpayers are also afforded the option of filing on a quarterly basis (rather than monthly,
as is standard elsewhere in China) and enjoy instant tax returns. Further, the SAT launched an online credit evaluation system that offers
enterprises in good standing additional tax services and processing options.
