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.
- Easiest foreign investment structure to set up
- No registered capital required
- Paves way for future investments
- Can hire foreign/local staff
- Less expensive solution
The overseas parent company needs to be in existence for at least two years to set up an RO. The procedure is as follows:
The first step is to register with the local Administration for Industry and Commerce department. Once it is approved and the Business Registration License is issued, the following post-registration procedure need to be followed:
- Apply for Registration Certificate with State Administration of Industry and Commerce (SAIC)
- Chops made by Public Security Bureau (PSB)
- Apply for Organization Code License by Technical Supervision Bureau (TSB)
- Register with Local Taxation Bureau
- State Administration of Foreign Exchange registration(SAFE)
- Open Foreign Currency and RMB bank account
- Register with Statistical Bureau
The foreign investor needs to submit the application documents to the relevant Administration for Industry and Commerce (AIC) to apply for a Registration Office Registration Certificate. Once the AIC issues a certificate for Permanent Representative Offices of Foreign Enterprises, the process is complete. The following documents must be submitted to the local AIC:
- The Approval Certificate issued by the approval authority (the State Administration for Industry & Commerce - SAIC);
- For restricted industries, a Certificate of Approval on Foreign Investment must be obtained, which requires companies to submit a Feasibility Study Report, an Enterprise Name Registration Certificate, a Facility Premises Certificate, and an approved Environmental Protection
- Valuation Report (if applicable), together with other documents which may vary from city to city.
- The standard Application Form for Registration of ROs printed by the AIC;
- The standard Registration Form for the Personnel of ROs printed by the AIC;
- The Application Letter for Establishment of Rep Offices;
- The Certificate of Incorporation of the foreign enterprise;
- A bank letter regarding the creditworthiness of the foreign enterprise;
- Appointment Letter for the Chief Representative;
- Resume of the chief representative and other representatives;
- Photocopies of passports or ID Cards of foreign employees of the RO;
- Lease Agreement or other documents for the office of the RO; and
- Photos of the chief representative.
However, investors should note that AICs in different locations may have different requirements. Once the authority approves the registration, it will issue a Registration Certificate for the RO and issue Representative Cards to the Chinese and foreign employees. Establishment date will be the issuance date of the Registration Certificate and not the Approval Certificate.
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.
One needs to own or lease office premises to set up a RO in China and register it with the AIC.
While selecting an office location, investors need to make sure that the building is certified to house businesses and lease units to ROs. They would also need to negotiate with the landlord to get an official VAT invoice for the rent. The landlord also needs to provide the investor with copies of the following documents:
- Premises ownership certificate, affixed with the landlord's company seal;
- Landlord's business license, affixed with the landlord's company seal; and,
- RO resident's certificate, issued by the management company.
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 by Dezan Shira & Associates a pan-Asia, multi-disciplinary professional services firm, providing legal, tax, and operational advisory to international corporate investors.
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