8 Reasons for a Representative Office In China - Computers
Among foreign investors, the maximum fashionable fashion of business establishment in China is the Representative Office. Its main attraction is that it is simpler and cheaper to establish than either a Joint Venture of a Wholly Foreign Owned Enterprise - since no Registered Capital is required, startup costs are roughly 10% of the spend of establishing either of these. Representative Offices are also open to almost all industry sectors, including some sectors that are off-limits to Joint Ventures and Wholly Foreign Owned Enterprises. Furthermore, the Chief Representative need not reside in China. However, Representative Offices are quite restricted in the activities that they may carry out.
Why do foreign companies establish Representative Offices in China?
1. To behave preliminary research before deciding if or not to make a direct investment in China.
2. To provide data and promotional matters to potential partners and/or clients.
3. To coordinate the activities of its parent company in China.
4. To make voyage preparations for representatives of its parent company or Chinese clients or latent clients.
5. A foreign company might already be doing business with China from overseas but absence the mall penetration to defend a full-blown investment (some of these Representative Offices afterward upgrade to Wholly Foreign Owned Enterprises, Cooperative Joint Ventures, and Equity Joint Ventures. Note that in decisive industries such as warranty and finance there are sectors that require foreign investors to manipulate a Representative Office for by fewest 2 years before making a straight investment.
6. To rent local employees to help them find suppliers.
7. As a cheap and easy path of doing affair in China by exceeding its legal coverage of affair. This is not a agreeable mind for it is probable to get the company in difficulty with the authorities.
8. To establish a presence in a business sector currently forbidden to direct foreign investment with a outlook to getting to know the market in expectation that China will liberalize its regulations in the hereafter in line with its WTO commitments.
Representative Offices are generally granted to:
* rent office space and plan for utilities
* purchase office supplies
* coordinate the issuance of go permits and visas for foreign employees
* open and preserve bank accounts in local money and foreign exchange
* exhibit office signs and dispense promotional materials
* hire local staff though labor service organizations (this prerequisite might be partially lifted whether the chart Labor Contract Law works into efficacy.
Taxation of Representative Offices
Although a Representative Office may not engage in profit-making activities and cannot receive income, it is still somehow subject to taxation under certain circumstances (usually on a believed profit root)
Two types of taxes are generally seemly to Representative Offices are Enterprise Income Tax and Business Tax. It may be subject to taxation, for instance, when it doings as business liaison for a transaction that generates commissions. The Enterprise Income Tax rate applicable to Representative Offices is 33% (inclusive of a 3% local surcharge). Fortunately, whatsoever, the business activities of a Representative Office tin be exempted under certain circumstances, though these exemptions vary from industry to industry.
Representative Offices are required to disburse amount joined tax (VAT), expense tax, and customs duties on whichever domestic purchases and/or imported equipment, as well as ticket duties (usually a negligible amount). The Representative Office need not pay property-related taxes for leased office space, so don't let your owner convince you otherwise.
Legal Status of a Representative Office
A Representative Office is no thought an independent lawful thing yet preferably one extension of its parent company. Accordingly, the parent company must bear entire of the Representative Office's valid liabilities and debts. The foreign company should cautiously safeguard the Representative Office's financial and corporate seals to assure namely they are not misused.
The administration of the Chief Representative is governed not by Chinese foreign investment law, but rather by the foreign parent company's jurisdiction of incorporation. However, the parent company is still subject to the jurisdiction of the local Chinese tribunals with respect to all contractual issues, including attribute rights.
Establishment Procedures
Only an Representative Office may be created in every Chinese city. Set-up is accomplished in 4 steps:
1. Pre-approval Procedure - The foreign parent company must first locate a Chinese sponsor to help it obtain the required approval and registration. This can usually be done with the help of the local Ministry of Commerce (MOFCOM) office, which will introduce the foreign parent company to a designated agency (a Foreign Enterprise Service Company, a/k/a FESCO) that is licensed by MOFCOM to knob foreign Representative Office applications. The sponsor will charge a fee of nearly US$800 - $1,000 for advertising the foreign company of upcoming deadlines and any problems with the application materials. The foreign company will also be required to enter into a lease for 'Grade A' office space prior to approval, because a signed lease accord is one of the prerequisites for approval of the Representative Office.
2. Application - The Representative Office applying and assisting documents should be submitted to the appropriate checkup and acceptance authority. The checkup and acceptance authority for a Representative Office ambition normally be MOFCOM, but foreign companies in certain industries such as banking, insurance, law, accounting and media will need to apply to the authority with jurisdiction over the foreign company's particular industry. If the petition is accepted, a Certificate of Approval will be published by the examination and approval authority, usually for an extendable initial term of 3 years.
3. Registration - Registration must be completed among 30 days after the certificate of approval is issued. An application (together with supporting documents; see this site's section on "Documentation" under "Rep Offices" for details) is submitted to the local branch of the State Administration of Industry & Commerce (SAIC). This process normally takes 1-2 months and concludes with the issuance of a Certificate of Registration (alike to a business license), which must be renovated annually. Any subsequent change must be registered with the local SAIC.
4. Post-Registration Procedures - The new Representative Office is expected to enroll its position with the local Public Security Bureau (the police), make monetary and corporate seals, open a alien interchange bank list, register with the local and citizen impose offices, complete customs registration (in mandate to import office equipment and annual necessities as its staff), and enroll with a FESCO to recruit Chinese staff. The Chief Representative should apply because and receive a Residence Permit from the Public Security Bureau with jurisdiction over his/her residence (look this site's section above "Foreign Staff" below "Labor" for beyond elaborate)..
Only behind completing the foregoing procedures may a Representative Office start operations. Registration must precede even prelude activities such as distributing business cards, establishing direct telecommunications lines, and winning a multiple entry visa or an dormitory for the Chief Representative (the latter requires the Chief Representative's Residence Permit).
Closing Down a Representative Office - This can be a lengthy process if it is not handled correctly. This is especially so if the office was not originally established completely in accordance with Chinese foreign investment law but rather via back-door connections (a common occurrence within China's more capable foreign investors). China's legal system is appropriate pile up perspicuous and managerial bodies are increasingly really enforcing the law, so it's a good idea to do things the right way the first time. There are several treads required to close down an office - don't equitable walk away, primarily if you have (or muse you might have) long-term plans in the China market.
First, manifold documents need to be arranged and provided to the pertinent authorities. A cancellation form needs to be submitted to the Industrial & Commercial Bureau, and a detailed explanation needs to be provided as to why the office is closing. Application must also be made to the local Commission of Foreign Trade & Economic Cooperation (COFTEC). Both the Representative Office director and the common administer of the parent company must sign the form. A separate application also needs to be made on parent company letterhead and stamped with its company seal. There must also be a embark resolution that agrees to the closure of the office (a statement indicating that the office is to be closed signed by the chairman of the board of the parent company is occasionally accepted).
Further, the bank must cater a placard that confirms cancellation of the Representative Office's bank account. Tax payment certificates and receipts from national and local tax bureaus must also be furnished to the Representative Office's original examination and approval authority by with a terse statement about the settlement of debits and honors. The tax bureau will require the closure inspect report to be approved by a certified public accounting firm. The corporate seal, financial seal, and the business copyright must be surrendered to the Industrial & Commercial Bureau. If all the necessary documents are provided and taxes have been paid, the closure procedure should take roughly 2 weeks.
