Cities in the Greater Bay Area (GBA), which links nine cities in Guangdong with Hong Kong and Macau, already present foreign businesses with subsidies based on the size of their investment and future contribution to the local economy with specific requirements and reward schemes varying on a municipality and sector basis.

Shenzhen is an excellent example of how the GBA plans to facilitate a business friendly-bureaucratic framework, encouraging multinational companies to establish regional headquarters in its sophisticated environment. If companies meet requirements regulating their local and overseas entities’ registered capital and management structure, the approved headquarters are entitled to a reward ranging from RMB 3-6 million (£346,000-692,000).

Over the last few years, Shenzhen has also laid out a series of provisions to simplify the overall company incorporation process, which includes shortening the time of business license issuance to a few working days and introducing company secretary virtual addresses and dormant company status. 

Investors aside, today Shenzhen is also one of the most attractive cities for local and international talents in the new technologies and logistics sectors. The Notice by the Ministry of Finance and the State Taxation Administration of the Preferential Individual Income Tax Policies for Guangdong-Hong Kong-Macao Greater Bay Area (No. 31 [2019] of the Ministry of Finance) has implemented an individual income tax (IIT) subsidy scheme aimed at foreign talents employed in the nine core cities of the GBA.

The policy aims to limit the total IIT burden for the fiscal year to 15% of the yearly taxable income, and provide a refund for the exceeding part when meeting a number of specific requirements set by each municipality taking part in the initiative from 1 January 2019 to 31 December 2023.

What corporate income tax benefits does the GBA offer?

Introduced nationwide via Announcement No. 24 [2017] of the State Administration of Taxation), a reduced corporate income tax (CIT) rate of 15% against the standard rate of 25% is granted to high-tech enterprises that are eligible for accreditation based on requirements that vary on a municipal level, based on:

• Establishment and business scope of the entity (i.e., encouraged industries of investment)
• IP protection and ownership
• Research and development-to-revenue ratio
• Personnel specialisation-to-total-organic ratio
• Innovation (graded system)
• Environmental protection

This regulation finds its best application in the GBA, where tech giants like Huawei, Tencent and Foxconn are based.

Startups and small or medium enterprises that might not fall into the above sectors or investment size can still benefit from the beneficial CIT rate granted by Article 2 of The Ministry of Finance and the State Administration of Taxation on the implementation of the inclusive tax relief policy for small and micro enterprises (Caishui [2021] No. 12). This halves the progressive enterprise income tax rate previously set by (Caishui [2019] No. 12) from January 1^st 2021 to December 31^st 2022.

Table 1: CIT tax rates for small and micro enterprises

The above tax treatment, implemented nationwide, would grant investors access to the GBA infrastructure and environment even when the investment volume and operations are limited during the startup period.

Understanding intellectual property rights in China

In 2020, China revised four IP-related laws and regulations (namely the Patent Law, Copyright Law, Criminal Law and the provision on the transfer of suspected criminal cases by administrative law enforcement organs); issued six judicial interpretations (covering commercial secrets infringement, application of laws in infringement disputes, and IP-related criminal cases); implemented more than twenty policies, and set two national standards for IP protection (related to IPR on e-commerce platforms and recommended national standards for patent guidance).

Through these continued efforts, China now ranks 14th among 131 economies according to the World Intellectual Property Organisation’s Global Innovation Index 2020. While ranking highly in patent registrations and total exports of creative products, China still needs to structure further reforms in areas like human capital, infrastructure, and institutional construction.

Navigating the protection of intellectual property in the Greater Bay Area

Among the challenges and opportunities of the GBA for foreign investors, the biggest might be navigating multiple municipal and regional jurisdictions. It is quite common for foreign investors to set up a Hong Kong holding company (under Hong Kong laws) for foreign exchange and tax purposes, and a PRC Wholly Foreign-Owned Enterprise (under PRC laws) 100% owned by the Hong Kong holding company for handling operations and the employment of local staff. While setting up entities in different jurisdictions can be a good strategy at the corporate level, it can create challenges for IP protection.

Beyond contractual or corporate matters, IPR territoriality is decisive. Apart from rare exceptions (such as so-called “well-known marks”), the registration of trademarks, patents or copyrights in one jurisdiction grants little to no other rights in other jurisdictions. Therefore, a rights owner’s IP protection strategy across the GBA must be assessed case by case according to the rights owner’s interests and anticipated use.

The table below outlines the main differences among the three jurisdictions within the GBA.

Table 2: Differences between the three jurisdictions

The GBA represents a privileged business destination for domestic and foreign companies operating in finance, logistics, innovation and technology, and capital-intensive industries. However, the differences in regulations among the three jurisdictions from legal, accounting and tax perspectives add a level of complexity.

In light of this, companies should carefully plan an entry strategy in the GBA, evaluating all the necessary resources and steps, including how to leverage synergies and incentives in the area, how to comply with the local tax requirements, and how to hire the right and qualified personnel, all the while protecting competitive advantage and key IPR. Working with a trusted partner with local expertise will help you better navigate China’s booming market.

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The work of the CBBC has been hailed as a major contributing factor in the successful crackdown on intellectual property (IP) infringements of two British companies.

The sale of millions of pounds’ worth of fake Castrol and Shell lubricants was stopped in a series of dramatic raids after many months of close collaboration between CBBC, the British companies involved, and Alibaba’s Platform Governance Division.

In the initial raids, 50,000 barrels of fake lubricant were confiscated and destroyed, with a street value of RMB 100 million (approximately £9 million). Investigators have discovered records that show the criminal network had been operating for at least five years, providing the gang with a total estimated revenue of around RMB 500 million (£45 million).

In 2016, after seeing engine oils for sale on various e-commerce platforms in China, the legal counsel of BP (owners of the Castrol brand) and Shell were introduced to Alibaba’s Platform Governance Division by the CBBC.

In the following months, CBBC and the IP rights owners worked with Alibaba’s offline investigations team to gather evidence to map out the supply and sales network of the oils.

In the initial raids, 50,000 barrels of fake lubricant were confiscated and destroyed

The investigators quickly discovered that the source of the fakes wasn’t China, the products were coming from Malaysia, often labelled as being from Hong Kong. The IP rights owners then deployed investigators in Malaysia to get to the source of the supply chain, and to find the Chinese and Malaysia nationals responsible. The British Embassy supported the efforts by bringing the case to the attention of senior officers at the Ministry of Public Security, which has the authority to coordinate Chinese police in different provinces and cities.

Millions of pounds’ worth of fake Castrol and Shell lubricants was stopped in a series of dramatic raids

Working under the framework of a Memorandum of Understanding signed in September 2014, CBBC and Alibaba worked behind the scenes throughout, cooperating with investigators who continued to provide Chinese police with intelligence relating to the on-the-ground activities of the criminals. In a simultaneous coordinated action, Chinese police raided premises of the criminal network across several Chinese provinces, detaining 11 suspects, including the dramatic arrest of a ringleader at the airport.

After the police actions, Chinese customs continued to gather evidence of shipments in an investigation coordinated by the General Administration of Chinese Customs (GACC).

CBBC Executive Director Jeff Astle provided a letter of appreciation to GACC during the investigation to show the support of UK industry for their diligent work. With GACC’s support, CBBC and its members have been invited to provide counterfeit identification training at key ports for counterfeit trade – Nansha Customs and Huangpu Customs in Guangdong.

The GACC was so pleased with CBBC’s positive support for their work, CBBC has been invited to enhance cooperation with Chinese customs further in 2017, and have already attended their International IPR Dialogue in Yiwu.

“Castrol China is committed to the protection of intellectual property rights, with the aim of helping Chinese consumers to protect their interests.  We are encouraged by the efforts of the Chinese authorities in clamping down on counterfeiting networks,” said Carlos Barrasa, regional vice president of lubricants China at BP.

“We would also like to acknowledge the support rendered to the given case by China Britain-Business Council, UK IP attaché (Beijing) and the British Embassy in China,” he said.

Ying Dong, senior legal counsel at Shell, also praised the work done. “Shell takes the protection of its brand very seriously and hopes that consumers know that anything carrying our trademark can be relied on. Therefore, we proactively fight against trademark infringements and take legal action against those responsible,” said Ying.

“As a successful example, our case against counterfeited lubricants imported from Malaysia last year was a huge success, greatly supported by the UK Embassy in China (IP attaché) and the China-Britain Business Council. They played a very important role for us to work with Chinese government authorities much more efficiently,” she said.

In collaboration with the British Embassy Beijing, CBBC runs an online IP programme to help British brand owners better enforce their IP on the Chinese internet. This includes cooperation agreements with Alibaba.com, Tencent and JD.com. CBBC’s formal cooperation with Alibaba Group goes back to 2014 when an agreement was signed during the visit to China of UK’s then IP minister. A major strand the Alibaba cooperation is about improving offline enforcement actions, by facilitating better use of illicit sales data and sharing it with brand owners and the police.

The case has influenced how China tackles cross-border anti-counterfeiting and increased awareness of the growing threat of infringing goods produced in south-east Asia. The case has also been recognised for its size and influence, winning first place in the Typical Cases for Chinese Customs, and BP and Shell have been recognised for their success too by the Quality Brands Protection Committee’s Top 10 Best Cases in IP Protection awards. Alibaba has also been promoting their big data analysis support for the case, in order to deter would-be criminals using their platform, naming it as their number one IPR case of 2016.

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