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Overview
• Key Points of Registering an RO
• Registration Procedures
• Taxation
• Working Documents and Visas
• Changing the registration of an RO
Overview
A Representative Office (RO) is an office of a foreign enterprise
that is set up in China to liaise with Chinese businesses and
customers on behalf of the RO's home company. Establishment
of an RO is subject to approval by the relevant authorities
under Chinese law.
Although ROs are not allowed to directly conduct business, there
are still certain benefits that foreign enterprises can gain
from setting up and legally registering a Representative Office.
Perhaps the most important reason is that an RO can help its
home company to generate income from sources inside China. Other
possible benefits of setting up an RO include: ROs can function
as a liaison between the home office and related industries
in China; ROs can conduct market research and do preparatory
work for their home company to possibly directly enter into
the Chinese market. Other benefits include ease of obtaining
Chinese visas for employees, easier direct communications, etc.
Since China first started allowing the establishment of trading
WFOEs, some foreign enterprises, especially those that conduct
trade with China, have elected to set up a trading WFOE instead
of an RO. From a total business operations standpoint, setting
up a WFOE to directly conduct business in China is much more
efficient than merely having an RO acting as a middleman in
China. We can discuss the options with you to determine which
type of business registration makes the most sense for your
specific situation.
Compared to registering a WFOE, registering an RO is relatively
faster and easier because there are fewer approval authorities
involved and there are fewer documents required. The main benefit
of registering an RO compared with a WFOE is that for an RO,
there is no Registered Capital requirement, whereas a WFOE must
have physically deposited a minimum amount of registered capital
in a Chinese bank (currently RMB100,000; RMB30,000 after January
2006). The total registration fees for an RO are around RMB1000,
which includes carving the RO's company chops (seals).
Key Points of
Registering an RO
Requirements for foreign enterprises
- Foreign enterprises that want to set up a Representative Office
in China must be an officially registered business in its home
country or region. A copy of the official Registration Certificate
issued by the foreign enterprise's home country is required
in order to prove that it is properly registered in its home
country. The Beijing government removed the regulation that
formerly required the home-based business to have been in existence
for no less than one year in April 2004. Now even a foreign
enterprise that is newly registered in its home country can
register an RO in Beijing.
- A bank reference letter is required from the country or region
where the enterprise headquarters is based. The bank reference
letter should state the name of the foreign enterprise, that
the foreign enterprise has maintained bank accounts with this
particular bank, and that the foreign enterprise is in good
standing with the bank (e.g. no large outstanding debts, etc.
Requirements for the RO
- A Chief Representative must be designated for the RO. An appointment
letter that specifically designates someone as the RO's chief
representative will be required. The chief representative can
be an expatriate or local Chinese.
- An office site in China is required for the RO. A lease agreement
and the landlord's official documents will be required. The
lease term must be for no less than one year.
Representatives of the RO
- There must be at least one Chief Representative appointed
for an RO.
- All other foreign employees of the RO can be designated as
"representatives". A formal appointment for each representative
will be required. Expatriates can only be representatives; local
Chinese can either be designated as representatives or as local
employees.
- All expatriate representatives are required to apply for Working
Cards and Work Permits from the relevant authorities.
- New representatives can be added after the initial RO registration
has been completed.
Lifespan of an RO
An RO may register for existence as a legal entity for between
one and ten years, depending on the needs of the foreign enterprise.
(The maximum lifespan was only three years prior to changes
in the law in April 2004.)
RO Bank Accounts
An RO is allowed to open both a foreign currency account and
an RMB account. The foreign currency account is used for receiving
funds from its parent company in the home country. The RMB account
is used for expenses in China. Normally all money deposited
into the RMB account must come from its foreign currency account
via a bank transfer, i.e. the RMB account cannot receive any
money from any other sources.
Registration Procedures
To fully and legally register an RO in China, visits to about
ten different governmental bureaus and agencies are required
and some of them will require numerous visits. A tremendous
amount of complicated paperwork and physical footwork is involved.
Each bureau has its own specialized documents that are required,
and only Chinese language documents or certified translations
are accepted. It could take 4~6 weeks for completion of the
full registration process. Below is a list of the bureaus or
agencies that must be visited during the registration process:
Administration of Industry and Commerce (AIC).
The AIC is the first authority to be visited in the registration
process. This authority will issue a Registration Certificate
for the RO and working cards for all representatives. The Registration
Certificate is the most important document that indicates that
your RO is approved and certified by the Chinese government.
To download the documents required by this authority, please
click here…
Public Security Bureau. This authority will
issue two documents: a PSB Registration Certificate that is
used to apply for visas for the RO's employees; and a Notice
of Chop Carving, which allows the RO's representative to go
to the appointed RO chop-carving shop to obtain the official
company chop. The "chop" is the official company seal that is
used to stamp all official company business documents, much
like a corporate "signature".
Institute Code Center. Here the RO will obtain
the Code Certificate and the IC Card. The IC Card and the Code
Certificate are very important, similar to a person's ID card
and ID number. They will be used in the following registration
procedures and in the future operations of the RO.
Foreign Currency Bureau. This authority issues
the RO a formal permission notice for use in opening the company's
foreign currency account. The permission notice contains information
about the bank where the RO must open its foreign currency account,
the denomination of the foreign currency that the account will
contain (e.g. USD), usage limitations on the account (only for
receiving overseas funds for ROs), etc.
State Tax Bureau and local State Tax Office.
This bureau will issue a State Tax Registration Certificate
to the RO. The Local State Tax Office will interview the person
that the RO has designated for handling its tax affairs, check
the nature of the foreign enterprise in order to determine the
tax calculation method to be applied, set a tax payment schedule
and the method of reporting taxes paid, etc.
Local Tax Bureau and Local Tax Office. This
office is similar to the State Tax Bureau and Local State Tax
Office. The only difference is that the State Tax Bureau handles
the Enterprise Income Tax and Business Tax that is levied on
the RO, while the Local Tax Bureau handles the Individual Income
Tax that is levied on employees of the RO.
Bank. The RO can open both a foreign currency
account and an RMB account in the bank suggested by the RO and
subject to be approved by the Foreign Currency Bureau.
Statistics Bureau and Local Statistics office.
This authority issues a Statistics Registration Certificate
to the RO. The Statistics Office will interview the representative
of the RO to give he/she a lesson on the importance of reporting
statistics figures to the office and set up a schedule for reporting
the appropriate statistical figures.
Customs. This authority issues a Customs Registration
Certificate to the RO. The Certificate will be used when employees
of the RO have personal belongings, office equipment, samples
for exhibitions, samples of goods from overseas, etc. that need
to go through Chinese Customs. If the RO has none of these items,
this step can be deleted.
Because the scope of business is crucially important in the
WFOE business registration application, Beijing Yafei always
confers with the appropriate officials to ensure that every
business activity that is listed on the registration application
is an approved business activity and that every business activity
is designed as broadly as allowable so that clients can be more
flexible in what activities they are allowed to conduct. We
will not submit an application until we are assured that the
application information follows the pertinent rules and regulations
and that it will allow our clients to achieve the maximum benefits
of running their businesses in China.
Taxation
Whether your RO is subject to paying taxes and what taxes will
be applied will depend on the nature of the "Foreign Enterprise".
ROs of foreign governmental agencies, non-profit organizations,
and agencies of certain international organizations such as
the U.N. are non-taxable, but this is subject to the approval
of the China Tax Bureaus.
ROs of foreign law firms, accounting firms and auditing firms
are subject to paying the Enterprise Income Tax (EIT), the Business
Tax (BT), and the Individual Income Tax (IIT) for their employees.
The EIT and BT will be determined according to the contractual
income generated by the ROs through the providing of consulting
services in China on behalf of their parent firms.
ROs of foreign enterprises engaging in trading, advertising,
tourism, etc., are also subject to paying EIT, BT, and IIT.
The EIT and BT will be determined by the operational expenses
of the RO. Roughly speaking, EIT and BT together total nearly
10% of the total amount of the RO's expenses.
For foreign enterprises that do not fit into any of the above
categories, EIT and BT will be levied only when the ROs assist
their parent companies in earning income from sources inside
China; otherwise they are free of EIT and BT. IIT will be levied
the same as on the other types of foreign enterprises.
Among the different methods of computing EIT and BT, the method
that determines taxes based on total expenses could be the most
expensive method. If the RO cannot provide the proper documents
that indicate the true nature of its parent office (law firm,
advertising company, etc.), the computation method will most
likely be determined by the tax officials. We assist our clients
in proper registration with the tax bureaus, but even more importantly
we help our clients to negotiate with the tax officials to get
the best possible treatment on the applicable taxation method
imposed on our clients. For more details on your specific business
situation, please contact us.
Working Documents and Visas
For the RO to employ expatriate representatives that can legally
work and reside in China, in addition to the Working Card that
will be obtained during the registration process, the expatriate
representatives will also be required to obtain a Work Permit
and a Residence Permit. Expatriate representatives from Taiwan,
Hong Kong and Macau will only require a Work Permit; foreign
representatives will also require a Residence Permit.
Both Work Permits and Residence Permits are normally good for
one year, and can be renewed by submitting the appropriate documents
to the Labor Bureaus and Public Security Bureaus respectively.
Residence permits also function as multiple-entry visas, which
are very useful for those expatriate representatives who need
to travel in and out of China frequently.
An RO may also have foreign clients that wish to visit their
office in China. An RO is allowed to issue Invitation Letters
that will allow their clients to obtain Chinese business (F)
visas so that they may legally enter China.
Our company assists in obtaining these working documents for
your expatriate representatives and we can also help with obtaining
official invitation letters for your guests. For details, please
contact us. {LINK} to office contact info?
Changing the Registration of an RO
In the event that certain changes are necessary for the RO,
for example, office relocation, the appointment of a different
Chief Representative, the addition of new representatives, etc.,
the RO will need to go through the proper formalities with all
of the same authorities that were involved in the original RO
registration process. The RO will have to return all of the
original certificates and documents that were issued before
the authorities will issue the new certificates and documents.
Changing the Chief Representative can be problematic so special
attention must be paid to always keeping the proper records
and documentation for the Chief Representative and tax payments.
Under the regulations, to change the Chief Representative, the
RO must first present all documents showing that the current
Chief Representative has paid his/her IIT for the previous three
years. If any of the required documents are missing, the RO
could be forced to re-pay the taxes or pay a fine. This is just
one example of why it is crucial that the RO maintain proper
management and filing of its business documents.
Changing the official office address may become another problem
in some situations. The problem often originates with the legality
of the new office site location. It is very important that RO
representatives do not sign a lease with a landlord (both those
that manage office buildings and those that own an apartment)
if the landlord cannot provide the official property ownership
certificate for the building. For some newly built office buildings
or apartment buildings, the landlord may not yet have the property
ownership certificate; in this case it may be acceptable if
they can provide relevant documents that prove that the office
site in question is truly their property and that they are merely
waiting to receive their official certificate. The RO representative
must be able to determine whether the landlord’s documents will
be able to be used to register the new office location with
the proper authorities. Our office can assist you with ensuring
that the landlord’s documents are legal for the re-registration
process, as well as any other problems that may be associated
with changing the RO’s registration. Please contact us for more
detailed information.
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