A representative office “represents” a company in China, the role of a representative office is very limited. A representative office is mostly allowed to have three activities: the conducting of market researches, the promotion of the foreign company in China and the coordination of the foreign company’s activities in the Chinese territory. A representative office is not allowed to participate in commercial activities, issue invoices, purchase goods or import production equipments.
The role of a representative office is to allow a foreign company to be physically present on the Chinese market in order to present its products and services.
In short, what is authorized and not authorized with a representative office?
What are the requirements needed to create a representative office in China?
To apply for registration of a representative office, the following prerequisites are required:
o Have a company based abroad
o Having a lease or having purchased offices in China (check that the owner holds the license to rent office spaces to a foreign representative office)
o Designate a representative who will manage the representative office
These prerequisites will allow you to register your representative office. After this, many steps will be needed to legally exist in the Chinese territory.
The steps to follow to create a representative office are:
Less than a month is usually necessary to carry out all these steps.
What are the advantages of a representative office?
The main advantage of a representative office is its ease of creation. The procedures to create a representative office, although heavy, are relatively quick, it usually takes less than a month.
This solution is also cheap, no starting capital is required.
What are the limits of a representative office in China?
However, the management of a representative office has many constraints. Running costs are very high. Although a representative office does not have the ability to generate revenue, since the measures put in place in February 2010 by the tax authorities, foreign representative offices must report and pay taxes on gross expenses of the representation office. These taxes generally represent 11% of expenses, which increases costs.
The representative office must be submitted to an annual inspection of its financial status and activities between March 1st and June 30th, as all the other foreign companies in China.
Finally, it is forbidden for a representative office to hire Chinese employees directly, it is necessary to go through a human resources agency. However, it is possible to recruit directly foreign employees, if the company goes through administrative procedures to hire these foreigners on the Chinese territory.
This solution is not viable to develop your business in China in the long term.
In short, what are the pros and cons?
If you want to read a case study highlighting the steps necessary for the establishment of a representative office.
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