Representative Office: A Complete Guide for Foreign Companies

A rep­re­sen­ta­tive office (RO) in Chi­na is a non-prof­it enti­ty that allows for­eign com­pa­nies to estab­lish a pres­ence in the Chi­nese mar­ket with­out form­ing a sep­a­rate legal enti­ty. An RO can con­duct cer­tain busi­ness activ­i­ties on behalf of the for­eign com­pa­ny, such as mar­ket research, pro­mo­tion, liai­son, qual­i­ty con­trol, etc. How­ev­er, an RO can­not engage in any prof­it-mak­ing activ­i­ties, such as sales, pro­duc­tion, ser­vice pro­vi­sion, etc.

Set­ting up an RO in Chi­na can be a con­ve­nient and cost-effec­tive way for for­eign com­pa­nies to explore the Chi­nese mar­ket, build rela­tion­ships with local part­ners and cus­tomers, and pre­pare for future invest­ments. How­ev­er, an RO also has some lim­i­ta­tions and chal­lenges, such as tax issues, staff restric­tions, oper­a­tional con­straints, etc.

In this arti­cle, we will explain what a rep­re­sen­ta­tive office in Chi­na is, why and when you should set one up, how to set one up step by step, and what are the best prac­tices and tips for man­ag­ing one effectively.

Why and When to Set Up a Representative Office in China

Set­ting up an RO in Chi­na can bring sev­er­al ben­e­fits for for­eign com­pa­nies, such as:

• Easy and fast reg­is­tra­tion: Com­pared to oth­er types of busi­ness enti­ties in Chi­na, such as whol­ly for­eign-owned enter­pris­es (WFOEs) or joint ven­tures (JVs), an RO has a sim­pler and quick­er reg­is­tra­tion process. An RO does not require a min­i­mum reg­is­tered cap­i­tal or a fea­si­bil­i­ty study report. The reg­is­tra­tion can be com­plet­ed with­in 1–3 months with min­i­mal doc­u­men­ta­tion and costs.
• Low main­te­nance and oper­a­tion: An RO has few­er oblig­a­tions and respon­si­bil­i­ties than oth­er types of busi­ness enti­ties in Chi­na. An RO does not need to file annu­al reports or audits with the author­i­ties. An RO also has low­er over­heads and expens­es than oth­er types of busi­ness enti­ties in Chi­na. An RO does not need to pay cor­po­rate income tax or val­ue-added tax (VAT), only busi­ness tax on its expenses.
• Mar­ket access and expo­sure: An RO can help for­eign com­pa­nies gain access and expo­sure to the Chi­nese mar­ket with­out com­mit­ting too much resources or risks. An RO can con­duct mar­ket research, pro­mo­tion, liai­son, qual­i­ty con­trol, and oth­er non-prof­it activ­i­ties on behalf of the for­eign com­pa­ny. An RO can also help for­eign com­pa­nies build rela­tion­ships with local part­ners and cus­tomers, and enhance their brand aware­ness and rep­u­ta­tion in China.
• Pre-invest­ment prepa­ra­tion: An RO can serve as a step­ping stone for for­eign com­pa­nies that plan to invest in Chi­na in the future. An RO can help for­eign com­pa­nies test the mar­ket poten­tial and demand, under­stand the local reg­u­la­tions and cul­ture, and iden­ti­fy the best loca­tion and strat­e­gy for their invest­ment. An RO can also help for­eign com­pa­nies pre­pare the nec­es­sary doc­u­ments and pro­ce­dures for set­ting up a WFOE or a JV in China.

How­ev­er, set­ting up an RO in Chi­na also has some lim­i­ta­tions and chal­lenges, such as:

• No prof­it-mak­ing activ­i­ties: An RO can­not engage in any prof­it-mak­ing activ­i­ties, such as sales, pro­duc­tion, ser­vice pro­vi­sion, etc. An RO can­not issue invoic­es, receive pay­ments, or sign con­tracts with cus­tomers or sup­pli­ers. An RO can­not import or export goods or hold inven­to­ry in Chi­na. An RO can only act as a liai­son or rep­re­sen­ta­tive of the for­eign com­pa­ny, and not as an inde­pen­dent busi­ness entity.
• Tax issues: Although an RO does not need to pay cor­po­rate income tax or VAT, it still needs to pay busi­ness tax on its expens­es. The busi­ness tax rate is 5% of the total expens­es of the RO, includ­ing rent, util­i­ties, salaries, trav­el, etc. This means that the more expens­es an RO incurs, the more tax it has to pay. More­over, an RO may be sub­ject to a deemed prof­it tax if the tax author­i­ties sus­pect that it is con­duct­ing prof­it-mak­ing activ­i­ties. The deemed prof­it tax rate is 10% of the total expens­es of the RO, plus 25% cor­po­rate income tax on the deemed profit.
• Staff restric­tions: An RO can only hire a lim­it­ed num­ber of staff in Chi­na, usu­al­ly no more than four. The staff must be either for­eign nation­als or Chi­nese nation­als who have obtained a work per­mit from the author­i­ties. The staff must also be reg­is­tered with the local social secu­ri­ty bureau and pay social insur­ance and hous­ing fund con­tri­bu­tions. More­over, an RO can­not hire staff direct­ly, but must use a third-par­ty human resources agency to han­dle the employ­ment con­tract and payroll.
• Oper­a­tional con­straints: An RO has lim­it­ed oper­a­tional capa­bil­i­ties and flex­i­bil­i­ty in Chi­na. An RO can­not open a local cur­ren­cy (RMB) bank account, only a for­eign cur­ren­cy bank account. An RO can­not apply for cer­tain licens­es or per­mits that are required for some busi­ness activ­i­ties in Chi­na, such as import/​export license, food and bev­er­age license, med­ical device license, etc. An RO also can­not enjoy some pref­er­en­tial poli­cies or incen­tives that are avail­able for oth­er types of busi­ness enti­ties in Chi­na, such as tax exemp­tions, sub­si­dies, free trade zones, etc.

There­fore, set­ting up an RO in Chi­na is suit­able for for­eign com­pa­nies that have the fol­low­ing characteristics:

• They are new to the Chi­nese mar­ket and want to explore the mar­ket poten­tial and demand before mak­ing a large investment.
• They have a lim­it­ed bud­get and resources and want to min­i­mize the costs and risks of enter­ing the Chi­nese market.
• They have a sta­ble and estab­lished cus­tomer base or sup­pli­er net­work in Chi­na and do not need to con­duct sales or pro­duc­tion activ­i­ties in China.
• They have a long-term vision and strat­e­gy for invest­ing in Chi­na and want to pre­pare the nec­es­sary doc­u­ments and pro­ce­dures for set­ting up a WFOE or a JV in China.

Representative Office Registration In China – The Setup Process

The set­up process of an RO in Chi­na involves the fol­low­ing steps:

1. Obtain approval for the com­pa­ny name: The first step is to obtain approval for the com­pa­ny name from the local Admin­is­tra­tion of Indus­try and Com­merce (AIC). The com­pa­ny name must fol­low a cer­tain for­mat: “Coun­try + Name of For­eign Com­pa­ny + City + Rep­re­sen­ta­tive Office”. For exam­ple, “USA ABC Com­pa­ny Shang­hai Rep­re­sen­ta­tive Office”. The com­pa­ny name must also be in Chi­nese char­ac­ters, unless the for­eign com­pa­ny has a reg­is­tered trade­mark in Chi­na that can be used as part of the name.
2. Sign a rental lease for office space: The sec­ond step is to sign a rental lease for office space with a land­lord. The office space must be locat­ed in a com­mer­cial build­ing that is approved by the author­i­ties for for­eign enter­pris­es. The rental lease must be valid for at least one year and must be reg­is­tered with the local hous­ing man­age­ment bureau. The rental lease must also include the offi­cial seal of the land­lord and the tenant.
3. Make an appli­ca­tion to AIC for reg­is­tra­tion: The third step is to make an appli­ca­tion to AIC for reg­is­tra­tion. The appli­ca­tion must include the fol­low­ing documents: 
   • Appli­ca­tion form with the offi­cial seal of the for­eign com­pa­ny and the sig­na­ture of the legal representative.
   • Cer­tifi­cate of incor­po­ra­tion or busi­ness license of the for­eign com­pa­ny, nota­rized and authen­ti­cat­ed by the Chi­nese embassy or con­sulate in the coun­try of origin.
   • Appoint­ment let­ter of the chief rep­re­sen­ta­tive and oth­er rep­re­sen­ta­tives, nota­rized and authen­ti­cat­ed by the Chi­nese embassy or con­sulate in the coun­try of origin.
   • Resume, pass­port copy, and pho­tos of the chief rep­re­sen­ta­tive and oth­er representatives.
   • Let­ter of autho­riza­tion for a third-par­ty agent (such as FDI Chi­na) to han­dle the reg­is­tra­tion process on behalf of the for­eign com­pa­ny, if applicable.
   • Rental lease and reg­is­tra­tion cer­tifi­cate of the office space.
4. Carve com­pa­ny chops: The fourth step is to carve com­pa­ny chops from a des­ig­nat­ed chop mak­er. The com­pa­ny chops are the offi­cial stamps that are used to val­i­date doc­u­ments and con­tracts in Chi­na. An RO needs to have three types of chops: the offi­cial chop, the finan­cial chop, and the legal rep­re­sen­ta­tive chop. The offi­cial chop and the finan­cial chop must be reg­is­tered with the local pub­lic secu­ri­ty bureau and the local tax bureau, respec­tive­ly. The chief rep­re­sen­ta­tive must keep the legal rep­re­sen­ta­tive chop.
5. Enter­prise Code: The fifth step is to obtain an enter­prise code from the local tech­ni­cal super­vi­sion bureau. The enter­prise code is a unique iden­ti­fi­ca­tion num­ber that is used for var­i­ous admin­is­tra­tive pur­pos­es in Chi­na. The enter­prise code must be applied for with­in 30 days after receiv­ing the reg­is­tra­tion cer­tifi­cate from AIC.
6. Reg­is­ter for tax pay­ment with the local tax bureau: The sixth step is to reg­is­ter for tax pay­ment with the local tax bureau. The reg­is­tra­tion must include the fol­low­ing documents: 
   • Reg­is­tra­tion cer­tifi­cate and enter­prise code cer­tifi­cate of the RO.
   • Appoint­ment let­ter and pass­port copy of the chief representative.
   • Offi­cial chop and finan­cial chop of the RO.
   • Rental lease and reg­is­tra­tion cer­tifi­cate of the office space.
7. Obtain visas for for­eign employ­ees: The sev­enth step is to obtain visas for for­eign employ­ees who will work for the RO in Chi­na. The visas must be applied for at the Chi­nese embassy or con­sulate in the coun­try of ori­gin or in a third coun­try. The visas must include the fol­low­ing documents: 
   • Invi­ta­tion let­ter from the RO.
   • Reg­is­tra­tion cer­tifi­cate and enter­prise code cer­tifi­cate of the RO.
   • Appoint­ment let­ter and pass­port copy of the chief representative.
   • Resume, pass­port copy, and pho­tos of the for­eign employee.
8. Open a Chi­nese bank account: The eighth and final step is to open a Chi­nese bank account for the RO. The bank account must be opened at a bank that is autho­rized by the State Admin­is­tra­tion of For­eign Exchange (SAFE) to han­dle for­eign exchange trans­ac­tions. The bank account must include the fol­low­ing documents: 
   • Reg­is­tra­tion cer­tifi­cate and enter­prise code cer­tifi­cate of the RO.
   • Offi­cial chop and finan­cial chop of the RO.
   • Appoint­ment let­ter and pass­port copy of the chief representative.
   • Bank account open­ing appli­ca­tion form with the sig­na­ture of the chief representative.

The set­up process of an RO in Chi­na can be com­plet­ed with­in 1–3 months, depend­ing on the loca­tion, indus­try, and com­plex­i­ty of the project. How­ev­er, the process can also encounter some dif­fi­cul­ties and delays, such as name approval, doc­u­ment authen­ti­ca­tion, visa appli­ca­tion, etc. There­fore, it is advis­able to hire a pro­fes­sion­al ser­vice provider (such as FDI Chi­na) to assist with the set­up process and ensure a smooth and suc­cess­ful registration.

Rep Office Taxes and Administration

An RO in Chi­na is sub­ject to cer­tain tax­es and admin­is­tra­tive require­ments, such as:

• Busi­ness tax: An RO must pay busi­ness tax on its expens­es at a rate of 5%. The expens­es include rent, util­i­ties, salaries, trav­el, etc. The busi­ness tax must be paid on a month­ly basis to the local tax bureau.
• Deemed prof­it tax: An RO may be sub­ject to a deemed prof­it tax if the tax author­i­ties sus­pect that it is con­duct­ing prof­it-mak­ing activ­i­ties. The deemed prof­it tax is cal­cu­lat­ed by apply­ing a deemed prof­it rate (usu­al­ly 10%) to the total expens­es of the RO, and then apply­ing a cor­po­rate income tax rate (usu­al­ly 25%) to the deemed prof­it. The deemed prof­it tax must be paid on a quar­ter­ly basis to the local tax bureau.
• Indi­vid­ual income tax: An RO must with­hold and pay indi­vid­ual income tax for its employ­ees, both for­eign and Chi­nese. The indi­vid­ual income tax rate ranges from 3% to 45%, depend­ing on the income lev­el and deduc­tions of the employ­ee. The indi­vid­ual income tax must be paid on a month­ly basis to the local tax bureau.
• Social insur­ance and hous­ing fund: An RO must reg­is­ter and pay social insur­ance and hous­ing fund for its Chi­nese employ­ees. The social insur­ance includes pen­sion, med­ical, unem­ploy­ment, work injury, and mater­ni­ty insur­ance. The hous­ing fund is a manda­to­ry sav­ings scheme for hous­ing pur­pos­es. The social insur­ance and hous­ing fund rates vary by loca­tion, but gen­er­al­ly range from 30% to 40% of the employ­ee’s salary, shared by the employ­er and the employ­ee. The social insur­ance and hous­ing fund must be paid on a month­ly basis to the local social secu­ri­ty bureau and the local hous­ing fund man­age­ment cen­ter, respectively.
• Annu­al inspec­tion: An RO must under­go an annu­al inspec­tion by the AIC, the tax bureau, the cus­toms, and oth­er rel­e­vant author­i­ties. The annu­al inspec­tion is a process of ver­i­fy­ing and updat­ing the reg­is­tra­tion infor­ma­tion and busi­ness activ­i­ties of the RO. The annu­al inspec­tion must be com­plet­ed between March and June every year.

An RO in Chi­na must com­ply with the tax and admin­is­tra­tive require­ments and keep accu­rate and com­plete records and doc­u­ments. An RO must also hire a qual­i­fied accoun­tant or a third-par­ty account­ing ser­vice provider (such as FDI Chi­na) to han­dle the tax fil­ing and report­ing, and to avoid any penal­ties or fines.

Post-Registration Management of a Representative Office in China

After set­ting up an RO in Chi­na, there are some best prac­tices and tips for man­ag­ing it effec­tive­ly, such as:

• Define the scope and objec­tives of the RO: An RO should have a clear and spe­cif­ic scope and objec­tives for its busi­ness activ­i­ties in Chi­na, such as mar­ket research, pro­mo­tion, liai­son, qual­i­ty con­trol, etc. An RO should also have a real­is­tic and mea­sur­able plan and bud­get for achiev­ing its objec­tives. An RO should avoid any activ­i­ties that are beyond its scope or that may vio­late the Chi­nese laws and regulations.
• Hire and train the right staff: An RO should hire and train the right staff for its busi­ness activ­i­ties in Chi­na, both for­eign and Chi­nese. An RO should con­sid­er the qual­i­fi­ca­tions, expe­ri­ence, skills, lan­guage, cul­ture, and per­son­al­i­ty of the staff. An RO should also pro­vide ade­quate train­ing and guid­ance for the staff, such as on the com­pa­ny poli­cies, pro­ce­dures, val­ues, goals, etc. An RO should also moti­vate and retain the staff, such as by offer­ing com­pet­i­tive salaries, ben­e­fits, incen­tives, recog­ni­tion, etc.
• Com­mu­ni­cate and coör­di­nate with the for­eign com­pa­ny: An RO should com­mu­ni­cate and coör­di­nate with the for­eign com­pa­ny reg­u­lar­ly and effec­tive­ly. An RO should report on its progress and per­for­mance, pro­vide feed­back and sug­ges­tions, seek sup­port and approval, etc. An RO should also align its busi­ness activ­i­ties with the for­eign com­pa­ny’s strat­e­gy and vision, and main­tain a con­sis­tent brand image and rep­u­ta­tion in China.
• Build rela­tion­ships with local part­ners and cus­tomers: An RO should build rela­tion­ships with local part­ners and cus­tomers in Chi­na. An RO should under­stand their needs and expec­ta­tions, pro­vide qual­i­ty ser­vice and sup­port, and cre­ate val­ue and trust. An RO should also adapt to the local cul­ture and busi­ness eti­quette, and respect the local laws and reg­u­la­tions. An RO should also lever­age the local resources and net­works, and seek oppor­tu­ni­ties for coöper­a­tion and development.
• Mon­i­tor and eval­u­ate the RO’s per­for­mance: An RO should mon­i­tor and eval­u­ate its per­for­mance in Chi­na. An RO should col­lect and ana­lyze data and infor­ma­tion on its busi­ness activ­i­ties, such as mar­ket trends, cus­tomer feed­back, sales fig­ures, expens­es, etc. An RO should also com­pare its per­for­mance with its objec­tives and bench­marks, and iden­ti­fy its strengths and weak­ness­es. An RO should also make adjust­ments and improve­ments based on the results and feed­back, and seek con­tin­u­ous learn­ing and innovation.

Man­ag­ing an RO in Chi­na can be chal­leng­ing and reward­ing. An RO should fol­low the best prac­tices and tips for man­ag­ing it effec­tive­ly, and seek pro­fes­sion­al advice and assis­tance when need­ed (such as from FDI Chi­na). An RO should also con­sid­er its long-term goals and plans in Chi­na, and decide whether to upgrade to a WFOE or a JV when the time is right.

Frequently Asked Questions about Representative Office in China

Sources:

1. The State Coun­cil of the Peo­ple’s Repub­lic of Chi­na | Reg­u­la­tions on the Admin­is­tra­tion of Reg­is­tra­tion of Res­i­dent Rep­re­sen­ta­tive Offices of For­eign Enterprises
2. State Tax­a­tion Admin­is­tra­tion | Cir­cu­lar on Issues con­cern­ing the Levy of Enter­prise Income Tax on Deemed Prof­it of Res­i­dent Rep­re­sen­ta­tive Offices of For­eign Enterprises
3. Chi­na Brief­ing | Set­ting Up a Rep­re­sen­ta­tive Office in China
4. FDI Chi­na | Open a Rep­re­sen­ta­tive Office in China
5. Hong­da Ser­vice | What Is A Rep­re­sen­ta­tive Office In China?