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WFOEs and joint ventures are not the only ways to establish a foothold in China for foreign companies; registering a representative office (RO) is the easiest and least daunting solution for foreign investors who want to have an initial idea of the Chinese market before committing to an investment.
With the whole registration process taking about 30 days, a Representative Office could be a suitable vehicle for foreign companies when their only requirements are to employ staff and cover a local office and operations with a suitable license.
To be clear from step one, a Representative Office doesn’t constitute an independent legal entity in China, meaning that its registration merely grants the foreign business a presence in the local market. Representative Offices are thus limited in their scope of what they can participate in and specifically they:
ROs are not permitted to directly bill customers or charge sales services for a fee unless it targets their mother company. Under Chinese law, ROs can only perform liaison activities such as market research, product promotion, connecting with clients and developing networks.
To establish a Representative Office in China, the overseas parent company, typically a limited liability company or a corporation, must have been incorporated and up and running for more than two years, making this option unavailable for newly formed entities. For the very same reason, private individuals and partnerships cannot form a Representative Office in China.
Renting a physical commercial space in a building that is fit for enterprise domiciliation is definitely among the first steps needed to kickoff the registration process. A valid lease agreement between the lessor and landlord for at least one year should be submitted to the Administration of Industry and Commerce (AIC) along with the property ownership certificate, floor plan and the landlord’s business license or ID card.
The notarised company documents of the foreign entity need to be translated into Chinese and authorised by the closest Chinese embassy or consulate in the investor’s home country. Among the other incorporation documents to be prepared besides the notarisation are:
Once the required documents are presented to the local authorities, it usually takes about 30 days to deliver the RO registration certificate and the chief representative and general representative’s certificate.
Just like for other forms (WFOE and Joint Ventures) of foreign-invested enterprises, after receiving the necessary certificates, the next step is to carve the chops and open the bank accounts needed to begin the daily operations of the RO.
There are three chops (seals) that must be carved for different uses:
It is important to note that the RO seals are registered at the Police Security Bureau and it’s always a good idea to have at least some of them in the hands of a trusted advisor to prevent unauthorised use by employees.
A Chinese basic bank account is needed to handle daily business operations in China. Due to the restrictions regarding international wire transfers and the needs of foreign businesses, it’s advisable to also open a foreign currency account allowing transactions that would otherwise suffer from the lack of full convertibility of China’s local currency.
An authorised Chinese employment agency will need to hire the Chinese staff and sign their contracts, deducting local contributions and taxes on behalf of the RO, given the need to ensure Chinese workers are being handled by independent Chinese entities within the jurisdiction.
Regardless of their residency status in the Chinese jurisdiction, the chief representative of an RO is required to file individual income tax returns in the country.
Having no ability to manage profit and revenue-generating activities, ROs are taxed on their total expenses, a principle that turns them into fiscally inefficient vehicles the more their structure and operations grow.
Hawksford is an established provider of company registration and outsourced corporate services in China.
Hawksford has more than a decade’s worth of on-the-ground expertise guiding foreign investors in their China market access decisions. With 100 multilingual professionals based in Shanghai, Beijing, Suzhou, Guangzhou and Shenzhen, we are able to offer the very best local knowledge to our international clients. We’ve learned that there’s always time to consider the pros and cons of a cheap and quick structure that might not be the best shot for a long-term strategy.
By engaging with Hawksford professionals, foreign companies have been able to reduce the hassles and complexities concerning their business plans in China and this includes choosing the right type of corporate entity to make companies’ plans a reality.
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