Establishing a Representative Office in China

A Representative Office (RO) is an extension of a foreign company. If an RO signs a contract, the foreign company is bound by the agreement. ROs are permitted to engage in only a limited number of activities and is not allowed to make a profit. It can only be used to facilitate the activities of a foreign company in China such as:

• Market research, display, and publicity activities that relate to company products or services; and
• Liaison activities that relate to product sales or services, and domestic procurement and investment.

If there is any violation related to their activities, ROs will be fined and their illegitimate incomes will be confiscated. As it is not a capitalized legal entity, they are not allowed to directly hire Chinese employees. Instead, they can employ local staff through a qualified labour dispatch agency, such as foreign enterprise service company (FESCO). The agency sends employees to work at the RO for a fee. ROs can directly hire up to four foreign nationals, and they are not needed to go through the agency.

Despite not having any revenues, they can still be taxed under Chinese law, at a percentage of their expenditures. The more an investor spends, the more it gets taxed.

They are a suitable option for companies procuring from China who require to have staff on the ground for quality control or keeping in touch with suppliers.

RO advantages

• Easiest foreign investment structure to set up
• No registered capital required
• Paves way for future investments
• Can hire foreign/local staff
• Less expensive solution

Establishment procedures

The overseas parent company needs to be in existence for at least two years to set up an RO. The procedure is as follows:

Registration certificate

The foreign investor submits the application documents to the relevant State Administration for Market Regulation (SAMR) to apply for a Representative Office Registration Certificate.

This step is completed when the SAMR issues a Registration Certificate for Permanent Representative Offices of Foreign Enterprises.

The following documents must be submitted to SAMR:

• The Approval Certificate issued by the approval authority (approval authority may vary by industry)
  • For industries listed as “restricted”, a Certificate of Approval on Foreign Investment must be obtained, which requires companies to submit a Feasibility Study Report, a Facility Premises Certificate, etc.
  • other documents which may vary from city to city
• Standard Application Form for Registration of ROs printed by the SAMR
• Standard Registration Form for the Personnel of ROs printed by the SAMR
• Application Letter for Establishment of Representative Offices
• Certificate of Incorporation of the foreign enterprise
• Board Resolution of the foreign enterprise
• Bank letter regarding the creditworthiness of the foreign enterprise
• Appointment Letter for the Chief Representative and other representatives
• Resume of the chief representative and other representatives
• Photocopies of passports or ID Cards of foreign employees of the RO
• Passport Translation of the Chief Rep
• Power of Attorney to Public Security Bureau (PSB)
• Power of Attorney to SAMR
• Lease Agreement or other documents for the office of the RO
• Photos of the chief representative

It should be noted that SAMRs in different locations might have different requirements for the application documents that a foreign enterprise must submit. After the registration authority approves the registration of an RO, it will issue:

• Registration Certificate for the RO
• Representative Cards to the Chinese and foreign employees registered as representatives of the RO

The establishment date for a RO is the issuance date of the Registration Certificate.

Key positions

A chief representative needs to be appointed by the board of directors of the parent company who will be responsible for the RO's operations. Although Chinese laws do not clearly state the scope of the chief representative's authority, most government documents will require his or her signature.

Office/lease requirements

To set up a business in China, it is a prerequisite to own or lease an office premises (as the primary place of business), and register this with the SAMR. Doing so requires that the foreign invested enterprise (FIE) possess all legal documents pertaining to the premises as required by the Chinese authorities. Usually, only one business may be registered per office unit. Under limited conditions, one office unit can be used to register multiple businesses.

In the case of a RO, the local SAMR may scrutinize the registered office premises more closely, and/or impose special requirements for its registration. Detailed rules vary by region. When selecting an office location, make sure the building itself is certified to house businesses and to lease units to ROs. Investors should negotiate with the landlord to get an official VAT invoice for the rent paid. Issuing such an invoice may entail additional costs and tax liabilities to the landlord, so it is important to have clarity on this matter. The landlord must provide the investor with copies of these three documents to ensure the investor that the office leased is eligible for use as an RO premises:

• Premises Ownership Certificate, affixed with the landlord’s company seal
• Landlord’s Business License, affixed with the landlord’s company seal
• RO Resident’s Certificate, issued by the management company

Disclaimer

The Canadian Trade Commissioner Service in China recommends that readers seek professional advice regarding their particular circumstances. This publication should not be relied on as a substitute for such professional advice. The Government of Canada does not guarantee the accuracy of any of the information contained on this page. Readers should independently verify the accuracy and reliability of the information.

Content on this page is provided in part by Dezan Shira & Associates a pan-Asia, multi-disciplinary professional services firm, providing legal, tax, and operational advisory to international corporate investors.