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The Representative Office in China

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China Representative Office registration certificate
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Presentation and characteristics

Opening a Representative Office remains, for a foreign company, a choice of flexible legal form to install a first presence in China. In return, it implies significant limits on the scope of authorized activities. The following presents the mostly common case of liaison offices in China of foreign commercial enterprises (in distinction and exclusion of specific cases of non-governmental organizations, international associations or highly regulated business fields)


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Updated on
14 May 2020
 
 
 
 

f>> Back to the Business
set-up
and
registration licenses

in China

 
 
China Rep Office representative certificate
 
 
shanghai Rep Office code license
 
 
 
 

f>> Back to the Business
set-up
and
registration licenses

in China

 

 

Why and how to open a representative (liaison) office in China ?

Since the early 1980s, the creation of the Representative Office has been authorized by the Beijing government to allow foreign companies to prospect and establish a link with the Chinese market at low cost (market intelligence, sourcing, establishment of relationships before considering subsequently a transformation of this presence in China by having commercial or industrial activities). Meanwhile, the Chinese regulations gradually authorized the creation of sino-foreign Joint-ventures and early 2000 the registration of companies or subsidiaries wholly owned by foreign investors (WOFE / WFOE ).

In the 90s, many Western companies set up an office in China in order to have a base of liaison with Chinese suppliers or manufacturers. Operationally, these structures are most often called a sourcing office or a quality control office.

Since early 2000, other companies aimed to register their office in order to have in China a base of employees capable of following prospecting with local customers for products or services sold (exported) by their overseas parent company. Operationally, the Representative Office is referred to as a commercial representation or sales liaison office. In 2020, this legal form is still permitted and constitutes the minimum of the legal corporate presence for a foreign company in China.

 

The key pros & cons of settting up a Representative Office in China

Key advantages (pros)

Key diadvantages (cons)

Relative speed of registration (2 to 3 months for the complete formalities after the submission of the application file to the authorities.

No authorized direct commercial activities, nor invoicing.

No registerd capital

No import export Rights, so no possibility of being an importer or exporter in China.

Taxation most often based on total expenses ("cost plus" method) related to activity in China. Taxation at a variable rate currently of 10 to 15% of monthly expenses. Another calculation method (called "deemed profit") taxes the representative office on the basis of a portion of the  estimated profit made outside of China.

Possibility to legally hire Chinese emloyees (via a local authorized HR third party agency)

A regulation of March 2011 increases the obligations of current management and also imposes reinforced annual audits.

These measures aim to check a Representative Office is not engaged in any commercial activity or any activity with added value

Possibility of employing foreign nationals and obtaining a work permit and resident visa. Following a Directive dated January 2010, the maximum number of resident foreigners attached to a representative office is officially limited to 4 people. In some Chinese provinces, this number may be lower.

A Representative Office’s bank account can be used for cash withdrawals and pay expenses only. The only income authorized on its bank account is a regular transfer paid by the parent company. The payments received in foreign currency (USD, EUR, HKD most often) are converted into RMB (CNY) and are used to pay the Office’ operating expenses.

Ability to pay local social security costs for employees from China.

A Representative Office is a legal entity but does not have legal personality and therefore cannot be a signatory of business contracts or employment contracts.

 

Tightened compliance controls with authorized activities

In early 2010, the Beijing authorities imposed that a Rep. Office parent company must be registered since at least 2 years. In Shanghai for example, this measure is particularly controlled.

Following a regulations update of March 2011, the administrations also apply tighter control that the activities conducted in China are consistent with the early authorized activities at the time of Registration. This control is annual during the accounting and tax audit (must explain in detail the China activity so as to prove it involves no added value, and well in line with the authorized activities). The Chinese administration thus reacted with heavy penalties & fines to any evidence report of discrepancies.

If, in 2020, opening a Representative Office remains a flexible set-up option still authorized and relatively quick to test the Chinese market, it is not an option recommended for a long-term establishment.

As soon as the business prospective justify, many companies decide to set-up a commercial subsidiary (Joint-venture or WOFE) which becomes a profit center in China.

 

Steps to open a Representative Office in China (Shanghai)

The procedures and requirements vary quite much according to the Chinese provinces but the administrative registration logic remain as follows :

  • Pre-registration in the administration's computerized system + request for official registration + obtaining the Registration Certificate

China representative office registration certificate

| Certificate of registration of a Representative Office (liaison) in Shanghai |

 

  • Apply for additional and compulsory registrations with other administrations (Chinese Customs Office, Tax, Labor Office, Police, official stamps (seals)…..
  • Apply for and obtain the Work Permit and Visa for the resident foreign expatriates.
  • Finally, open a bank account in local currency (CNY / RMB) and foreign currencies. The Chinese Banks agree to open accounts only after all the mandatory certificates are issued by the authorities.

 


The right preparation and optimization of your China set-up project is one of our core business. Upon request, we keep at your disposal numerous examples of registration & licensing deliverable for B2B or B2C service sectors, import export trading, wholesale & retail sales, online sales (e-commerce) and assembly and industrial production.


 

 
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