Shanghai Free Trade Zone Overview

The China (Shanghai) Pilot Free Trade Zone refers to the Shanghai Free Trade Zone or Shanghai Free Trade Area, which is China’s largest free trade zone. The pilot area was formally approved for establishment by the State Council on August 22, 2013 and officially opened at 10:00 a.m. on September 29.

The Shanghai Free Trade Zone covers four special customs supervision zones, namely; the Shanghai Waigaoqiao Free Trade Zone, the Waigaoqiao Bonded Logistics Zone, the Yangshan Bonded Port and the Shanghai Pudong Airport Free Trade Zone. The zones altogether have a total area of 28.78 square kilometers.

Expansion to Six Areas 
  • The financial services sector includes foreign banks established by permitted and qualified foreign financial institutions; Sino-foreign joint-venture banks jointly established by eligible private capital ; foreign financial institutions, and more.
  • The shipping services sector relaxes the foreign equity ratio limits of Sino-foreign joint-ventures and Sino-foreign cooperative international ship transport enterprises. This allows for the establishment of wholly foreign-owned international shipping management and other enterprises.
  • In commercial services, foreign operators are able to form a specific portion of value-added telecommunication services and foreign companies can engage in gaming entertainment equipment production and sales.
  • Professional services include legal services, credit investigations, travel agencies, talent agency services, investment management services, and engineering and construction services.
  • In terms of the cultural services sector, the FTZ will cancel equity ratio limits of foreign performance agencies and allow for the establishment of wholly foreign-owned performance agencies.
  • As for social services, the FTZ will allow for Sino-foreign cooperative education institutions and Sino-foreign cooperative, joint-venture vocational training institutions, as well as the establishment of wholly foreign-owned medical institutions.
Policy Support
The objectives of opening up RMB capital are: Firstly, the expansion of cross-border RMB trade in the FTZ. Secondly, the implementation of a pilot interest rate market. Thirdly, RMB capital account convertibility in the FTZ. Fourth, the establishment of a foreign exchange management system compatible with the FTZ.
Tax Incentives:
  • The revaluation of assets arising from asset restructuring actions for non-monetary assets of foreign investments of enterprises or individual shareholders registered in the pilot zone cannot exceed a period of five years and shall be subject to income tax installments. This is referred to as “the non-monetary intangible asset investment policy”.
  • The equity incentive income tax policies for the incentives given to pilot zone enterprises with high-end talent or a shortage of talent in the form of equity such as shares or rent ratios is similar to those policies implemented in other regions, such as the Zhongguancun pilot equity incentive income tax policy which is also referred to as the “equity incentive policy”.
  • Financial leasing companies registered in the pilot area, as well as subsidiary companies of financial leasing companies established in the pilot area, will be included in the financial leasing export tax rebate pilot program.
  • An import VAT policy, upon approval from the relevant state departments, can be applied to registered domestic leasing companies, or leasing companies that have set up subsidiaries in the pilot zone for airline company aircraft purchased from abroad that are at least 25 tons in weight.
  • The processed goods of manufacturing enterprises established in the pilot zone, in accordance with business applications, can be implemented as domestic goods on a trial basis and in accordance with the corresponding tariff policies, which are referred to as “selective tax policies”.
  • Under the existing policy framework, manufacturers and manufacturing-oriented service companies within the pilot zone can import machinery, equipment and other necessary goods tax-free; however, in the case of the importation of consumer service goods, there is no clear exception from the tax-free policy in the relevant provisions of laws and regulations.
  • Improved FOB Port Refund Policy
Regulatory Model Innovation for Trading: The Shanghai Pilot Free Trade Zone will implement the new innovative model of regulatory services of “first gradually opening up, and secondly safely and effectively managing the free flow of goods within the zone”.
Promotion of the innovation and development of foreign trade logistics: This incorporates the favorable foreign trade logistics of the four free trade zones in Shanghai, namely: the Waigaoqiao Free Trade Zone, the Waigaoqiao Bonded Logistics Zone and the Pudong Airport Comprehensive Free Trade Zone.
Contact us 
For more information on China (Shanghai) Pilot Free Trade Zone, please contact the following:
Philip Yu
Principal – Corporate and PRC Services
Tel: +852 2541 6632
Email: philipyu@fungyucpa.com
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