What are the key requirements?
Generally speaking, to be officially recognised as having an innovative enterprise headquarters, an enterprise must meet requirements covering four criteria: innovation, growth potential, contribution, and function. The key requirements are as follows:
(i) An applicant must be a Shanghai-registered enterprise in the industrial or services sector with total assets of at least RMB 200 million or a market value of no less than RMB 2 billion; have annual sales revenue of more than RMB 100 million or its average compound growth rate of sales revenue in the last three years must exceed 20%; have headquarters in Shanghai that perform a wide range of functions, including research and development, sales, and financial operations; and have two or more branches located outside the city.
(ii) The scope of industries in which the company runs its main business or offers its main products or services must cover the key areas set out in the national “Guidance Catalogue of Key Products and Services for Strategic Emerging Industries” and related plans, as well as the core industries defined in the “Statistical Classification of Digital Economy and its Core Industries (2021)”.
(iii) Annual R&D expenses must be more than 5% of sales revenue (more than 10% for service industry enterprises such as software and information services, integrated circuit design and biomedical R&D outsourcing); the total annual R&D expenses must exceed RMB 50 million, with at least 60% of these expenses being incurred within the territory of China; R&D personnel must make up more than 10% of employees (more than 20% for service industry enterprises such as software and information services, integrated circuit design and biomedical R&D outsourcing); or the total number of R&D personnel employed by the enterprise must be more than 100.
(iv) An applicant owns core intellectual property rights of major products or services in Shanghai (including more than 15 invention patents, exclusive rights for integrated circuit layout designs, software copyrights, or similar), or product registration certificates for, among others, innovative drugs, new and improved drugs with high technological content, or innovative class II or class III medical devices.
(v) Priority will be given to applicants who have been awarded one of the following designations, which must remain valid: High-tech Enterprise, Specialized and New Enterprise, National and Shanghai Enterprise Technology Centre, Technological Innovation Demonstration Enterprise, Shanghai Patent Work Demonstration Enterprise.
It is also worth mentioning that enterprises that fail to meet the requirements under certain criteria still have the opportunity to be recognised as innovative enterprise headquarters if they have made outstanding contributions to society and the economy or played a leading role in their industries.
What are the key subsidies and benefits?
Innovative enterprise headquarters that meet the relevant conditions can apply for subsidies and incentives in accordance with the Measures, including (i) set-up funds of up to RMB 5 million for any enterprise that registered in or moved to Shanghai after 1 January 2022 with a paid-up registered capital exceeding RMB 100 million; (ii) a three-year rental subsidy (30% of the rent for no more than 1,000 square metres of office space and no more than RMB 8 per square metre per day); (iii) operational incentives (innovative enterprise headquarters that have reached annual sales revenue of RMB 500 million, RMB 1 billion and RMB 1.5 billion for the first time since 1 January 2022, and whose activities have contributed at least RMB 10 million to the region in which they are located, will receive operating incentives of RMB 5 million, RMB 3 million and RMB 2 million, respectively).
In addition, eligible headquarters of innovative enterprises can enjoy support and assistance in certain areas, such as promoting major industrialisation projects, developing high-value patents, attracting and hiring talent, importing goods for R&D, procuring innovative products, transforming achievements and procuring products registrations.
The introduction of the Measures for innovative enterprise headquarters complements the existing categories of regional headquarters, institutional headquarters and business unit headquarters as detailed in the Provisions. The Measures reflect the Shanghai government’s commitment to accelerating the development of Shanghai’s innovative economy by supporting fast-growing enterprises and R&D institutions that are looking to upgrade or establish innovative enterprise headquarters, encouraging the development of more innovative companies and institutions, and supporting Shanghai’s growth as a global hub for science and technological innovation.
Client Alert 2023-065