Representative Office (RO)

Setting up a Representative Office (RO) is the easiest and cheapest way to establish a legal presence in China. A RO is a liaison office in Mainland China owned by a foreign company pursuing liaisons with Chinese businesses, suppliers, and customers on behalf of its parent company. The establishment of a RO is simple but still requires a foreign company (in France, Hong Kong, USA, etc.) to act as a parent company.

Shareholder of a RO must be a company and not an individual. Also, the chief representative legally responsible does not need to be a Chinese resident. The RO may not exclusively use an employment agency to employ local employees (e.g. FESCO, CIIC), and it is restricted from hiring more than 6 employees (maximum 4 foreign employees), all of which must pay taxes in China.

Indirect operational activities (non profit-making activities) such as business meetings, visiting factories, promoting products, market research, technology exchange, and other permitted activities can be conducted with a RO. However, under no circumstances may a RO buy products or services in China, receive payment from clients, sign contracts or deals on behalf of their holding company, buy property, or import equipment. It is forbidden for a RO to issue official invoices (since there is no registered capital). The RO is allowed to receive money from the parent company, but it cannot generate revenue or sign contracts in China.

Since January 2010, only ROs with parent companies at least two years old are eligible to register. A RO is allowed to exist for a maximum of 3 years (insurance companies, 5 years, and financial institutions, 6 years).

Advantages

• Low investment (lower registration fees than WFOE/FICE or JV and no registered capital investment)
• Faster and easier registration process
• Less risk
• Easier accounting and tax calculations (average of 10% of taxes)
• Can hire foreign and local employees through a third party
• Can obtain working visas for foreign employees

Disadvantages

• Forbidden to conduct business in China
• May not issue invoices to clients in China on the name of the parent company
• No right to import or export product or services
• RO bank account may not receive any money (other than from the parent company)
• Forbidden to sign contracts on its own name – all contracts must be signed on the name of the parent company
• Limitation of number of employees
• Restrictive duration of establishment in China

Note: Before January 4, 2010, a RO was able to list a parent company younger than 2 years old. A RO an legal entity used to explore the Chinese market before establishing a JV or WFOE.

RO CHARACTERISTICS

RO SETUP FLOW CHART

Beijing Administration of Industry and Commerce

(Registration Certificate)

                      

              

Beijing Public Security Bureau

(PSB Certificate & RO Chops)

              

Beijing Technical Supervision Bureau

(Business Code Certificates & IC Card)

                                                                  

                            

State Tax Bureau

(State Tax Certificate)

              

Local Tax Bureau

(Local Tax Certificate)

              

Beijing Labor Bureau

(Alien Employment Permit)

                                                                                        

                                          

                            

State Administration of Foreign Exchange

(Approval for opening foreign currency account)

              

Beijing Public Security Bureau

(Z Visa)

Bank

(basic RMB account & foreign currency account)

                      

              

State Tax Bureau

(State Tax Certificate Duplicate)

              

Local Tax Bureau

(Local Tax Certificate Duplicate)

REQUIRED DOCUMENTS

• Copy of Certificate of Incorporation
• Bank credit statement
• Rental Agreement for at least one year and related documents from the landlord
• CVs, copies of passports, and passport photos of chief representative and every representative
• Health Check Report and Residency Certificate (for Z visa)

TEMPLATES TO BE PROVIDED BY BEIJING RETAIL FOR OUR CLIENT REFERENCE AND SIGNATURE

• Application letter to Beijing AIC
• Appointment letter stating chief representative and each subsequent representative
• Salary certificate of chief representative and each representative
• Application letter for chops
• Other application forms

Note: The above documents required are prepared on the basis of legal requirements and past experience, and the actual documents required may vary case-by-case.

RO TAXATION METHOD

Note: Depending on RO registration, different taxation methods are applied. It is very important for Beijing Retail to explain to clients the filing method that is being applied.

AUDIT AND TAX FILING REQUIREMENTS

Note: RO audits and annual tax filings depend on the tax method that is assigned to each registration.

RO CHIEF REPRESENTATIVE INDIVIDUAL INCOME TAX (IIT) CALCUALTION

Note: The RO chief representative IIT will be calculated depending on his position (full or part time). If he is spending all of his time working in China, only his salary in China will be accounted for. However, if he is working in and out of China, then his IIT will be calculated based on his global salary income.

TAX CALCULATION (GROSS UP OR NON-GROSS UP)

A: Gross-up taxable income or income after standard deduction for non-gross up calculation
B: Gross-up method - Income after standard deduction
C: Effective tax rate
D: Quick reckoning amount