A Permanent Representative office of a foreign enterprise is a non-legal entity operating in China representing its parent company. A representative office is not allowed to engage itself in business activities, issue invoices on its own, remitting outward, signing sales or purchase contracts, or receiving income from services performed but may act as a liaison and promotion office for its parent company.
1.Legal status of a China Representative Office
The Representative Office is a non-legal entity operating representing its parent company. A representative office is not allowed to engage itself in business activities, issue invoices on its own, remitting outward, signing sales or purchase contracts, or receiving income from services performed but may act as a liaison and promotion office for its parent company.
2.Life Span of a China Permanent Representative Office
The validity of duration of the residence for the Permanent Representative Office (RO) is 1 year, beginning from the date on which the registration certificate is issued by the relevant local Administration for Industry and Commerce.
Authorities for approval are distributed among various State Council Departments and are delegated to their local offices. Applicants should apply for approval from different departments (at their local offices) according to their core activities. Some of the major types of industries and their approval authorities are:
|People’s Bank of China
|Marine transport, marine forwarding agent
|Ministry of Communications
|Post and telecommunication
|Ministry of Information Industry
|Travel and tourism
|National Tourism Administration
|State Administration for Industry and Commerce
4. Name of a China Representative Office
The name of the Representative office should be in the form of Name of Country where the Foreign Enterprise registered + Name of the Foreign Enterprise + Name of the City + Representative Office (or Office)
5. Business Address (Registered Office) of a China Representative Office
Before submitting the documents for application for registration to the local Administration for Industry and Commerce, it is required that the office premise to be used by the Permanent Representative Office be leased and a tenancy agreement concluded. The tenancy agreement could be executed by the Chief Representative of the Permanent Representative Office or the director of the foreign company applying to set up the Permanent Representative Office.
Note the business address must be located in commercial buildings approved by the government and the lease agreement should be for a term of no less than 12 months.
6. Chief Representative of a Representative office
A Representative Office needs to have one Chief Representative. The Chief Representative is the legal representative of the Permanent Representative Office in China, appointed by the board of directors of its parent company. There is no restrictions on the nationality of the Chief Representative and the Chief Representative is not required to stay in China. Normally, if the chief representative does not intend to stay and work in China for over 90 days (within a year), no employment visa is needed. In case that the chief representative is a foreigner and intends to stay in China for over 90 days in a year, employment visa is needed.
7. Taxation of Representative Offices
Whether a RO will be subject to paying taxes and what taxes will be applied will depend on the nature of the “Foreign Enterprise”.
ROs of foreign governmental agencies, non-profit organizations, and agencies of certain international organizations such as the U.N. are non-taxable, but this is subject to the approval of the China Tax Bureaus.
ROs of foreign law firms, accounting firms and auditing firms are subject to paying the Enterprise Income Tax (EIT), the Business Tax (BT), and the Individual Income Tax (IIT) for their employees. The EIT and BT will be determined according to the contractual income generated by the ROs through the providing of consulting services in China on behalf of their parent firms.
ROs of foreign enterprises engaging in trading, advertising, tourism, etc., are also subject to paying EIT, BT, and IIT. The EIT and BT will be determined by the operational expenses of the RO. Roughly speaking, EIT and BT together total nearly 10% of the total amount of the RO’s expenses.
For foreign enterprises that do not fit into any of the above categories, EIT and BT will be levied only when the ROs assist their parent companies in earning income from sources inside China; otherwise they are free of EIT and BT. IIT will be levied the same as on the other types of foreign enterprises.
More on Taxation of China Representative Office
8. Recruitment of Chinese employee(s)
A RO shall entrust a local labour services agency for foreigners or other service units designated by the Chinese Government to recruit and employ Chinese personnel in accordance with laws and regulations of the PRC.
Typically, a RO will sign a “contract for service” agreement with the local service unit. Under such service contract the local service unit agrees to provide, and the RO agrees to pay for employee hiring services and for administering the employment relationship. After the establishment of the employment relationship, the local service unit will handle on a monthly basis the employee’s mandatory contributions to the social insurance plan. The local service unit also administers the employees personal file, and may handle such other administrative employment matters as may be entrusted by the RO.