Foreign Direct Investment

A representative office is an organization that carries out market contacts and research for its headquarters, and assists in developing its business in other countries.

In comparison with WOFE companies, representative offices can not issue any invoices, and therefore gain any income by itself. All expenses of a representative office have to be fully funded by the company headquarters. 

A Representative Office (RO) means a branch office of a foreign company set up in China.

Establishment and Operation of a Representative Office in China

Currently all Foreign Invested Enterprises (FIEs), in particular Small and Medium-sized Enterprises (SMEs) are going through challenging times to manage their domestic and international operations. With the global financial crisis on everyone's mind, SME's are revisiting the idea of China in order to survive the downturn. At the moment they are taking a wait-and-see attitude through the Chinese New Year and may relocate many of their operations to China in order to incur lower-costs.

The easiest and most economic way for these SME's to have a legal presence in China is to establish a Representative Office (RO). The purpose is for the liaison with businesses and customers from China / Asia to the rest of the world on behalf of its parent company. A RO is not considered to be a separate legal entity (i.e. it is tied to its parent company) and it cannot carry out direct revenue earning business activities (i.e. it cannot enter into purchase/sales contracts and cannot receive payment for products or services, issue invoices or repatriate monies overseas). A RO is restricted to conduct only "indirect operational activities", such as:

  • Business liaison
  • Introduction of products for sales purposes
  • Market Research (i.e. supplier searches, partner searches, sales capabilities, etc)
  • Technology exchanges and
  • Quality control audits

Requirements for a RO

There are no capital contribution requirements for a RO. Establishing a RO is therefore largely a matter of complying with the prescribed application procedures.

Office Space - Company Registration Address
A RO must either be situated in an office whereby the landlord has a right to rent his office space to RO's or in a Grade "A" office building. A list of rental certificates and contracts are required and must be submitted to the government authorities for approval. If the landlord cannot provide such rental certificates, it is recommended to discuss with the government authorities whether the RO can be located there. It is highly suggested that no leasing contract be signed until it is certain that the RO can be registered in that location.

You can also see our China Company Registration Address we can arrange a  Company Registration Address for about RMB850/month

Chief Representative
A Chief Representative must be appointed by the parent company. This person will be responsible for the activities of the RO and is considered the "legal face" allowing him to sign all related government forms and any documents that are required by the government offices. That said this person can also have automatic authorization on bank accounts and can create any type of Powers of Attorney.

Accounting and Tax Filing, Tax Exemption Applications and Annual Audit Requirements

A RO, although indirectly operational, is liable for filing and paying Business Tax, Enterprise Income Tax, and Individual Income Tax for the employees and Stamp Tax. This may sound strange to many FIEs, especially as a RO is a non-profit-making center, however the Chinese government does require that tax be paid as they consider that by having such an office in China, profit is being made in the parent company at least.

It is therefore recommended to keep a series of bookkeeping accounts based on all the expenses of the RO and all original receipts should be kept in the office for a minimum of five years according to the PRC Law. On a monthly and/or quarterly basis, the RO will then pay approximately 10% tax on its total expenses for that period.

If the parent company is a manufacturing entity, the RO can apply for tax exemption status, meaning they would no longer be liable to file and pay Business Tax and Foreign Enterprise Income Tax.

Additionally annual Audits and Annual Inspections are necessary for RO's and must be completed before May each year.

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