Representative Office Registration
As the most common solution for a foreign enterprise to have an extended arm for overseas business in China, a Representative Office (RO) is the simplest and easiest way to establish a presence.
The Lightest Investment Structure
An RO, also known as a Liaison Office, can be considered a separate entity that represents and is subordinated to a foreign parent company in China. An RO can be considered the lightest investment structure, and this approach is normally used when a foreign company wants to conduct marketing surveys, quality control, product promotions, technical exchange services, or other operational activities as an entryway to expand its business in China.
Comparison Between Representative Office and WFOE
In general, the setup procedure and forming structure of a Representative Office is relatively simple and faster than a WFOE. An RO is normally recommended for a foreign company that is not 100% sure regarding their strategy in penetrating the business in China — a more conservative approach as the beginning step. For a long-term strategy, an RO is unable to directly switch to a WFOE structure; it is required to deregister the RO and then start the WFOE application from the beginning. It is therefore very important, at the beginning stage, to determine the right company structure. The table below gives a general concept of the comparison between RO and WFOE taxation structures.
| Taxation | Representative Office Non-Profit Entity |
WFOE Profit Generating Entity |
|---|---|---|
| Value Added Tax | Imposed according to value of expenses. Calculation formula: Expenses / Y% × Z% |
Imposed according to value of profit. Working formula: Profit × Z% |
| Additional Tax | Imposed according to type of expenses and value of VAT | Imposed according to type and value of VAT |
| Income Tax | Imposed according to amount of expenses | Imposed according to generated profits |
A Representative Office at a Glance
Setup & Registration
Advantages
- Less complicated, fast and easy to form (< 7 days)
- Capable of opening a bank account in China, but with limited receiving of funds from the foreign parent company or overseas headquarters
- Able to rent commercial or residential premises
Company Staff
Limitations
- Unable to hire Chinese staff directly
- Staff employment must go through a certified HR company, FESCO (Foreign Enterprises Service Corporation)
- Employee's Social Insurance (SI) and Housing Fund (HF) must be under a FESCO-registered account
Operations & Management
Advantages
- Capable of building its own local contact network and performing activities with its own company staff or culture
- Easier to interact and liaise with local contacts, especially for foreign manufacturing industries being supplied parts locally from China
Operations & Accounting
Limitations
- Restricted from issuing invoices directly
- Cannot participate in profit-generating activity
- Unable to sign contracts
Setting Up a Representative Office
Before setting up a Representative Office in China, the overseas parent company must have been incorporated and must have been running operations, supported by active transactions, for more than two years. Private individuals and partnerships are not allowed to form an RO in China — the parent company must be a limited liability company or a corporation.
Documentation
Prepare and compile relevant documents from the overseas parent company: readiness of notarized company documents, and a lease agreement with a validity period of at least one year.
Online Registration
Online registration and submission of documents.
Business License
Document submission at the Industrial and Commerce Bureau; processing and release of the Business License.
⚡ Get your RO business license in around 1 week, in a very smooth progress
*Day = Working day. Processing times are average estimates — actual duration depends on the complexity of each case.
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