A resident representative office of a foreign company ( including any Hong Kong, Macao and Taiwan-based company ) in China ( hereafter referred to as “Representative Office” ) may only be engaged in business activities that don’t result in directing profits. The representative office shall act as liaison, product promotions, market surveys and technical exchange, etc. within the foreign company’s business scope. The representative is not qualified as a legal person and his/her civil liability shall be borne by the parent company outside the Chinese territory.

Who Need to Set up a Representative Office?

As for those foreign companies, which have just entered into the Chinese market for tentative exploration, it’s advisable toopen a representative office, which is the best solution available to them. The representative office set up by a foreign company in China is a business liaison agency acting on behalf of the parent company in China. Therefore, representative office is not an independent legal entity and cannot be engaged in business activities that result in direct profits. For instance, it cannot sign any sales contract. Nor can it receive any service charge, or issue any invoice or remit money out of the Chinese territory.

However, a representative office may open a bank account and be staffed to fulfill the purpose of performing business liaison. The parent company may sign contracts with a representative office’s clients and suppliers. Such business activities, however, may be carried out only in the parent company’s name rather than the representative office’s name; provided, however, that the representative office may act as a liaison to facilitate a lot of deals for the parent company.

 

Advantages

• Low cost ( if compared with a wholly foreign-owned company )

• No required minimum registered capital and paid-in capital

• Simple accounting

• Allowed to apply for residence permits

• Simple registration and application procedures

• Allowed to undertake most business activities

 

Disadvantages

• Not allowed to sign sales contract, issue invoice or generate profits in China

• Tax declaration on a monthly basis and tax audit on an annual basis

• The tax calculations are made on the basis of actual expenditures, with the tax to be determined at a certain ratio, which is about 10% and is less controllable

• The daily operating expenses and the foreign currency bank account are subject to the audit rules as expressly set forth by law

• The industrial & commercial and tax authorities keep representative offices under strict super vision according to the restriction policies adopted by local governments