Above: Russell Brown, chairman of the British Chamber of Commerce in China and managing partner of LehmanBrown. Below: Jane Wang, tax partner at business advisers PwC China. Feng Yongbin / China Daily

European companies and others from across the world may be attracted to the Shanghai free trade zone because of light touch regulation compared with the rest of China, according to a leading business organization.

Russell Brown, chairman of the British Chamber of Commerce in China and managing partner of LehmanBrown, a leading China and tax and advisory firm, says many firms may locate there to escape red tape.

"What is attractive about the Shanghai free trade zone is the aim to strip out red tape and streamline regulation to bring it more in line with developed markets such as the UK and Hong Kong," he says.

"Over the past 10 years what anyone doing business in China has noticed is the amount of red tape and bureaucracy that companies have to deal with."

Jane Wang, tax partner at business adviser PwC China, hopes the FTZ will see an end to the regulation culture in China.

"The problem now is that if you ask a regulator whether there is a specific regulation that prohibits you doing something, they will ask the government if they can't find one. This is the general mindset and with the free trade zone, there is an intention to change that," she says.

Some of the measures introduced include simplified business registration scheme and also the imposition of minimal capital requirements for starting a business, except in specific sectors.

The State Council also indicated it will remove the minimum capital requirement of 30,000 yuan ($4,920, 3,640 euros) for starting a business nationally in late October.

"The minimum capital requirement was never really the problem in the rest of China since 30,000 yuan is not a large sum. It is the fact that capital requirements differ from province to province and between different cities. If you wanted to set up a manufacturing plant it could run in to millions of dollars," Brown says.

The tax regime that operates in the FTZ is also likely to include reduction in income tax and corporation tax as well as VAT refunds.

There will also be no customs duties and imports taxes for goods exported from the FTZ to overseas destinations.

Simon Gleave, regional head of financial services for KPMG Asia-Pacific, based in Beijing, says tax is clearly one of the advantages of the FTZ but will not necessary be the reason why companies locate there.

"I think it is one of the benefits but it is not the primary driver, although it is something we are getting a lot of questions about. What will be more attractive is doing things more effectively and efficiently than in the past."

andrewmoody@chinadaily.com.cn

(China Daily European Weekly 11/08/2013 page7)