Sponsorship Strategies in China

By Timothy Anderson, timothyanderson2005@gmail.com

The telephone rings. It’s another unique once in a lifetime sponsorship opportunity being pitched.

“China is awash with sponsorship possibilities at the moment”, according to Chris Humphrey of Virgin Atlantic, one of the expert panellists tackling the subject at the November 24 BritCham Business Forum. “Perhaps too much from a sponsor’s point of view.”

Sponsors in China, as anywhere, need to get the most out of any sponsorship deal - value for money is of paramount importance. Cost is one measure of this, but not the only factor. Cooperation is key, which requires a two-way flow of information, a theme echoed by each of the panel members over the course of the discussion.

“We see sponsorships as partnerships”, said Jeff Streeter of the British council, “by working as a project team and brainstorming the idea with the sponsor the process changes dramatically. It’s a win/win situation since we learn more about the target audience, how to approach publicity, logo placement and we challenge each other to develop the idea more effectively.”

Take the case of sports sponsorships, of which China offers many possibilities. Sporting events tend to evoke powerful emotions beyond those experienced in everyday life, noted Mark Thomas of S2M Group & Vroom Motor Sports Marketing. If a sponsor can link that passion to their brand, the result can be behaviour changing. To do this requires a clear vision and an integrated approach where the sponsor works closely with the event organisers to maximise the match between their brand values and the event, the fit with their marketing plan and the exposure it offers to their target market. If sponsors are unclear of their objectives from the outset, they will likely leave the experience uncertain just how they benefited from it - and dissatisfied as a result.

Effectively exploiting sponsorship arrangements often requires as much or more money than the cost of sponsorship itself. Companies need bear this in mind and plan for this as part of their involvement, David King of Publicis Dialogue pointed out as he chaired the evening’s discussion.

What is important for those seeking sponsors in China? Getting to the decision maker is key, which requires doing a bit of homework. The focus should be on finding potential sponsors who understand the relevance of the opportunity to their business, then discussing potential sponsorship strategies together. Top-down buy-in starting from the CEO’s office and an active engagement from the sponsor’s marketing and PR departments are all crucial elements.

On the other hand, knocking on a lot of doors with a set proposal and hoping somebody will come on board with a large cheque is not a very sophisticated approach and does not tend to result in long-term collaborations.

Sound Strategies for Seekers of Sponsors…

Virgin Atlantic’s Chris Humphrey offers a few tips when approaching potential sponsors:

• Leave plenty of lead-in time and make realistic requests.
• Be prepared to accept non-cash donations.
• Offer flexible, negotiable proposals for cooperation.
• Explain how the sponsorship can be tailored to fit the potential sponsor’s marketing plans and brand values.
• Stress the opportunity for relevant and affordable mass, long-term exposure in the Chinese market.
• Don’t bury the price, skimp on the details or expect charity – value for money is crucial.
• Emphasise the scope of possibilities to mutually benefit from synergies and complementarities arising from multiple sponsors working together.
• Ensure the proposal reaches the key decision-maker.

Originally published in ‘The Beat’, the monthly magazine of The British Chamber of Commerce in Shanghai.

Update of the Latest UK Budget and the Impact on UK Citizens Working Overseas

On March 28, Robert Hodkinson, Stephen Green and Christina Chan of Deloite, ran through the latest updates regarding the UK budget, tax implications and China regulatory changes affecting UK Citizens working in China. The highlights of the discussion are summarised below.

The UK budget

The recent UK budget contained few tax changes. The self-assessment filing deadline moves forward to Sept. 30 for 2007/2008 (Nov. 30 for returns filed electronically). Tax authorities have a twelve month enquiry window from the date of filing (previously twelve months from January 31 the following tax year).

Tax avoidance schemes and disclosure

In 2005, the rules were limited to schemes considered employment arrangements, along with various financial products. The rules have now been extended to all schemes aimed avoiding income tax, corporation tax and capital gains tax, effective July 2006 – resulting in a significant increase in reporting requirements.

Pensions

A number of fundamental change to the pensions regime. There are no limits on benefits from registered arrangements, but there are limits on benefits and contributions that are tax efficient. The annual allowance for 2006-2007 is 215K and the lifetime limit is 1.5M. For non-registered arrangements, contributions will not be taxed going in and do not qualify for tax relief for the employer until paid.

Notable for UK expatriates, foreign residence provides an opportunity for greater tax relief through contributing to a UK pension fund while abroad, which can be used to increase lifetime allowance. There are also new incentives to join an overseas pension scheme, thanks to the new rules, as overseas pension contributors can receive ‘migrant tax relief’ after returning to the UK, through which their foreign plan will be treated as a UK plan.

Foreign employees working in the People’s Republic of China (PRC)

A number of issues specific to those working inside the PRC were touched upon, and are briefly summarised below.

Tax

Two recent circulars have implications for non-PRC nationals. Circular 120 increases scrutiny of individual income taxes, while Circular 35 clarifies tax applicable to income resulting from stock option exercised - the ‘Big 4’ had differing interpretations of stock option tax implications prior to this circular. Employers now have obligations to report the details of all stock option plans offered to employees working in China.

As of 2006, foreigners in China with an annual income exceeding 120,000 RMB must file 12 monthly tax returns and 1 annual one, due by March 31 the following year - the primary implication being more paperwork. Additionally, non-PRC nationals receive a deduction of 4800 RMB per month, up from 4000 RMB - essentially an extra $1000 US extra per year. As of Feb. 2006, employers must report all movements of foreigners spending any time working in China – a change clearly aimed at catching foreigners not paying tax, and one likely to result in closer study of double taxation treaty exemption claims.

Immigration

For incoming foreigners, if their Chinese employer has a registered capital of less then $3M US, they must apply for Z-visa to enter China. In this case, allow more lead-time the as process is more complex for a Z-visa. Business travellers can still travel up to 3 months without a work permit, however note that under Circular 85, employers must nonetheless report all movements of such employees.

Time apportionment claims

While previously most time apportionment claims were accepted, authorities are now beginning to question them and viewing duties carried on outside China as pertaining to the business of the regional (China) office. The issue remains a tricky one. Previously, managers could wait until day 183 inside the country before filing any returns. Authorities are increasingly questioning why returns can’t be filed immediately, then taxes claimed back if a manager’s time spent in China proves to be less than 183 days. The best advice here is to carefully document in detail how a tax exemption is claimed, remembering again that with Circular 85, employee movements are reported anyway.
Timothy Anderson

Originally published in the May 2006 issue of ‘The Beat’, the monthly magazine of The British Chamber of Commerce in Shanghai.