How Does the Overseas Enterprise Establish the Representative Office (Office) in China?

Executive Summary of the Representative Office

For those foreign enterprises which want to enter China and plough around in the Chinese market, then to establish a representative office (or office) is the best choice. The representative office in China of a foreign company is the domestic business liaison institution in China on behalf of the parent company. Therefore, the office is not an independent legal entity and cannot directly carry out the business activities which may result in profits. For instance, it cannot sign any purchase and sales contract. Nor can it receive any income gained from the service, issue invoice or remit to the overseas. However, the office can open a bank account and hire employees to realize the goals of conducting the business liaison. It headquarters can sign the contract with the client and the suppliers of the office; however, only under the name of the headquarters rather than the representative office can carry out the business activities. However, many business of the headquarters can be negotiated through the representative office, which is beneficial for the business to be transacted and realized.

The Advantages of the Representative Office

The handling procedures are simple and prompt. Since the specific operation of the representative office is different from that of the entity company, there is no strict requirements regarding the funds input; in addition, it is comparatively simple in the aspects of follow-up and management.

Business Activities

The representative office of the foreign funded enterprise cannot conduct the direct business activities with the users or the clients; nor can they sign any agreement. Therefore, what the representative office can do is “indirect business activities.” For example, public relationship activities, business liaison, products display, market investigation and technological exchanges.
The Tenure and the Termination
The maximum tenure for a foreign enterprise to maintain an office in China is three years (the tenure for the representative offices of insurance company and the bank should be five and six years respectively), and the tenure should be calculated from the date on which the submitted materials passed the review and granted the approval from the supervising departments. When the longest tenure runs out and the representative office wants to continue the operation, then it is required to submit the annual report and the application to the related supervising departments 30 days ahead of time.

Taxation Conditions

Pursuant to the regulations of the Income Tax Law of the Foreign Funded Enterprises of the People’s Republic of China and the local sales taxes statutes, the representative office will pay the income tax and the sales tax of the foreign funded enterprise, but the payment forms will be different. The most frequently seen base is the additional cost basis. For example, in April 2002, the taxation burden under such appraisal means accounts for 10% of the expenditure of the office. The enterprise income tax and sales tax should be imposed on the representative office 15 days prior to the ending of each quarter. According to the related Chinese taxation laws, the representative office may ask for tax exemption from the related departments. If you want to render such application, then we will pleased to discuss the issue regarding the specific conditions.

The Requirements for the Establishment of Representative Office in China

The applicant, namely the foreign enterprise should have been registered for more than one year and the registered capital is more than ten Hong Kong dollars; in addition, the enterprise should belong to the category of general trading, production and cargo forwarder. According to the Chinese laws, when handling the application for the establishment of representative office in China, the applicant cannot directly submit the application and it should entrust a local agency to handle the application procedures.

Materials Required for the Application

1. Office Place Leasing Contract (It is required to registered and record at the Office Leasing Place Administration);
2. Overseas company registration certificate and commercial registration certificate (business commencement certificate), shareholder namelist, directors appointment letter (These documents should be verified by HK Law Office that is recognized by China judicial or verified by China Embassy in local area. We are qualified to register a foreign company for you.);
3. Providing the bank’s credit certification (the Contents should include the opening date, bank account, currency, amount of deposit and the credit appraisal, etc) (in Chinese and English);
4. Tax certification of foreign company in the previous year;
5. Submitting the photocopies of information in relation to the domestic business correspondence (for instance, the business contract, agreement, order, bill of lading, etc);
6. One copy of Authorization Letter is authorized to the chief representative of any agency to China.If chairman of the board is the chief representative, he/she must be authorized by the directorate;
7. The photocopy of the ID card or passport of the Chief Representative, four photos and the curriculum vitae;

Application Procedures

Signing the entrusting letter→Submitting the required materials→signing the documents→approval documents from the Foreign Economics and Trade Bureau→Applying the Business License at the Administration for Industry and Commerce→Handling the taxation registration→Carving the seals of the representative office(Corporate seal, private seal and financial seal)→Opening an basic bank account at the bank for the representative office

Application Time

It will take about twenty working days for the government to review and approve the project upon the submission of whole set of application materials.

The Documents Obtained after the Application is Completed

Documents issued by the Foreign Economic and Trade Bureau(s)/Apply for the Business License at the State Administration for Industry and Commerce/Taxation Registration Certificate/Foreign Affairs Coding Certificate/Technical Management Registration Certificate/Customs Registration/Legal Representative Labor Registration/ Legal Representative Residence Allowance Certificate/the Seals of the Office (Corporate seal, private seal and financial seal) and the bank account.