Economie - Établir une société
Representative Office (RO)

This document was written by Mr. Nicolas Musy,
Senior Consultant, CH-ina

SinOptic remercie M. Musy d'avoir fort
aimablement mis ces textes à sa disposition.

1. Status
It is an office of a foreign company in China. As such it is not a Chinese company. It can be compared to the embassy or consulate of a company in China. It has no registered capital.

2. Legal Liability
a) The Representative Office (RO) Chief Representative (CR), is formally approved by the Chinese authorities. He himself is formally appointed by the legal representative by the mother company. The CR signature and the RO chop legally engages the responsibility of the RO's mother company, as if the legal representative of the mother company would have signed.

This liability thus extends to the registered capital and assets of the mother company.

b) This allows to issue quotations, sign contracts, etc..., all on behalf of the mother company.
Since the mother company is a foreign company, these contracts, etc... fall under international law and bilateral agreements signed between China and the mother company's country of origin.

c) As a foreign company entity on Chinese soil, the RO does not fall under the Chinese corporate laws.

3. Commercial Activity
a) As the RO is not a Chinese company it does not enter into business transactions as a Chinese company, but as a foreign company.

b) Consequently, the RO does not have a capital, it does not buy or sell in its own name.

c) It has a bank account that is used only to receive money from the mother company and pay for its local expenses. (It does not have the right to pay for goods that the mother company would buy, for example.)

d) The RO cannot declare customs, import or export goods, as the mother company does not have such a right in China. It can however receive mail, parcels of samples and send out such samples. It can also import equipment and goods for its own use. (Computer systems, other office equipment's.

e) The RO can act as a liaison between the mother company and its business partners in China. It can conduct purchase or sales negotiations, quote prices or receive quotes from suppliers, sign contracts, effect market research, market and promote its mother company products, hold seminars, take part in exhibitions. In general it can conduct any legal activity that the mother company representative could conduct in China if they would come on a business trip.

4. Personnel
a) As a foreign company office in China, the RO does not fall under the labor law for Chinese companies. As well it is not entitled to enter into own arrangements with local staff as it cannot register for and provide social welfare.

b) Local staff can be hired with the approval of specialized Chinese human resources companies to which fees must be paid in addition to the staff's salary. These fees provide the necessary and legal social welfare cover to the local staff. The formal labor contract is signed with the Chinese HR company. It is standard and does not allow for any important modifications. Besides, an agreement with the hired staff fixes the staff's salary.

This agreement may be copied to the HR company or remain strictly between the local staff and the RO.

c) Foreign representatives approved by the relevant authorities receive a work and residence permit as well as the corresponding work visa.

A local staff can be appointed as foreign representative.

5. Premises
a) As a foreign company in China, the RO is restricted to use specifically approved premises for its offices, be they bought or rented.

b) As well, foreign representatives are restricted to rent or buy housing that is approved for foreigners to live in.

6. Taxes
a) The RO is liable to pay taxes in China, though it is not a Chinese company. These taxes can be calculated in 2 ways, to the preference of the RO:

• according to a percentage of the profits generated by the RO for the foreign company
• as a percentage of the expenses of the RO.

Tax authorities have no proper way to evaluate profit generated by the RO for the Mother company. As a result they require at least that tax be no less than the percentage on expenses. This is usually the way foreign company choose to be taxed.

b) Staff (local and foreign) and liable to pay income tax according to Chinese law. This tax is paid by the employee or the foreign company as per agreement with the staff.

7. Requirements for Registration
The RO must be approved before it can be established. The approval includes checking of:

a) The financial situation of the mother company.

This comes in the form of a letter from the mother company's bank mentioning its registered capital and declaring its good financial status.

Auditted financial statements of 3 years must also be supplied.

b) The personal situation of the appointed CR, including his résumé and passport.

c) The location of the RO.

Copyright © Nicolas Musy, Senior Consultant, CH-ina