China Representative Offices


A Representative Office (RO) is the easiest and most economic way of setting up a legal presence in China. It is an office of a foreign enterprise set up for the purpose of liaising with Chinese businesses and customers on behalf of its parent company.


A RO is not considered to be a separate legal entity and it can not carry out direct revenue earning business activities, i.e.

  1. It cannot sign purchase/sales/service contracts
  2. It cannot receive payment for products or services
  3. It cannot make payments for products or services

A RO is restricted to conduct only "indirect operational activities", such as:

  1. Business liaison
  2. Introduction of products
  3. Market Research
  4. Technology exchanges

Parent Company Requirements

Since January 2010 it is a requirement, that the Parent Company of the RO must be at least two (2) years old. Additionally the business license and bank reference letter of the Parent Company need to be notarized by the Chinese embassy/consulate in the parent company"s country.


Location

Please note that in order to submit the application at the government bureau, a signed lease contract of an office space is required. Please be advised that the landlord has to have a license, allowing him/her to rent commercial property to foreign representative offices. This license is a requirement of all RO applications and without it your application cannot proceed.


If you sign a contract and pay a deposit without ensuring the documents are all in place you may lose the deposit as well as lose time on the application. Therefore we would recommend you check these documents with your service provider or real estate agent.


In China each Rep Office must have its own office address. The rule is one office address, one legally registered company. Therefore it is a requirement that you rent your own office space. It is illegal to have a virtual office location and should a landlord/office provider suggest this option you should question the legality of it.


For start-up companies that are on tight budgets, our recommendation would be to start in a business center. The facilities of the business center can be used, particularly for the startup period, such as meeting rooms, receptionists as office support. Business centers also provide flexibility should bigger space be required. The alternative would be to lease an office space that requires renovation and installation of all fixed assets - this could incur high initial costs for a new business.


Corporate Structure

The Corporate Structure of a RO is as follows:

  • Shareholder - Must be a company
  • Shareholder appoints a Chief Representative

The Chief Representative does not need to be a PRC resident. The Chief Representative who is the "legal face" to the company is automatically liable to pay personal income tax in China whether they are residing in China or not. The RO is limited to having only four (4) foreign representatives.


Additionally as a "rule of thumb" it is recommended to have no more than six (6) employees in total under the RO structure, which includes foreign and chinese employees.


Employment of Staff

A RO must use an employment agency to employ local employees. According to the Labor Law, local employees can only be employed by a legal entity in China. The registration certificate of the RO must be shown to the employment agency in order to be able to sign the necessary agreements.


Additionally according to the Labor Law and Immigration Law foreign representatives of the RO can ONLY be officially employed once they have received their work permit. Foreign employees are employed directly by the RO and can sign employment contracts directly without using the employment agency.


All local employees must be employed via an employment agency in China. An employment agency must be chosen in the city of the RO registration. A standard contract will be signed between the agency and the RO. The agency will then sign employment contracts with each staff member. It is recommended by the agency as well as Klako Group to sign a supplemental agreement between the RO and each staff member outlining additional clauses concerning the company"s internal policies regarding Exclusivity, Standard of Conduct, Confidentiality, Intellectual Property, Non-Competition, etc.


Registered Capital

A RO is an indirectly operational entity, which means that it needs to have a parent company that establishes it. There is no requirement in terms of capital investment - it is purely a cost centre and therefore requires to be funded from the parent company.


Taxes

As ROs are not allowed to generate revenue, their tax base for enterprise income tax (EIT) and business tax (BT) is presumed on the basis of their expenses. The presumed profit rate of 15% is used for calculations.


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