The representative office (RO) is the least dynamic of the entities for establishing a foreign presence in China. The RO can facilitate market entry and coordinate sourcing activities and marketing, but it is a toothless version of the possible foreign entities that have little control over the movement and sale of goods and services. ROs are the extended arm of overseas parent companies and can only interact with Chinese businesses indirectly.
Do you need to control the process of invoicing locally for services or products? If not, and you simply need a local presence capable only of the following permissible activities, then perhaps the RO is the most useful and inexpensive entity for your purposes.
ROs can be used for the following main purposes:
- Conducting market research and surveys
- Liaising with local contacts and suppliers
- Presenting and introducing a product to the China market
- Exchanging technology
ROs can be very helpful in facilitating and establishing trade ties between your parent company overseas and your entities based in China. While ROs may not directly invoice for sales or services in China, they can act as a liaison in matters relating to orders, shipping payments of taxes, repatriation of money from clients and so on. Beyond this, ROs are accessible to a variety of investors because they have no registered capital requirement and have low maintenance.
Signed and notarized parent company documents
Required documents include:
- Official office lease or purchase contract
- Certificate of incorporation and/or business registration certificate of the holding company
In addition, you will need to prepare the following on original letterheads, translate them into Chinese and submit in duplicate:
- Letter requesting permission to establish an RO
- Letter appointing the chief representative, including a signed resume, photo and identification documents
- Original bank reference in the company's name
Only certain buildings are allowed to house ROs and landlords who rent commercial property to foreigners must get permission to do so via a property rights certificate and duplicated business license chopped by the landlord's company. Make sure he has it before you sign the lease and part with any money. You also need a copy of the lease contract.
Chief representative's documents
Required documents include:
- A brief resume
- A copy of the passport
- Twelve color passport photos
Chinese application documents
Basically, these are the application forms that need to be signed and sent to you for completion in Chinese. A professional firm can provide support in completing these forms, including translation and courier service.
The consolidated documentation is then submitted to several bureaus for registration—the local industrial and commercial bureau, the tax bureau, and so on. Be careful that you do not just leave the process here. Registration at the tax bureau, with the PSB (public security bureau) for expat staff residence permits and at the immigration bureau for expat staff work permits and visas as well as the opening of the bank account are all important steps as well.
The application process should take three to four weeks.
Relocating your representative office
If the representative office changes the name of its office, the names or number of its representatives, the scope of its business, its duration or its address, it must tolerate a closing audit and then apply to the local industry and commerce bureau for approval by submitting related documents.
Commonly missing application documents
Make sure your landlord has a certificate granting permission to rent commercial property to foreign entities. This document is required for all RO applications and without it your application cannot proceed. However, this also places the landlord in a higher tax bracket, so many do not want to obtain the required certificate. If you sign a contract and pay a deposit without ensuring the documents are all in place, you may lose the deposit as well as time on the application.
Grade-A building status
Most cities require that the office is in a Grade-A building. This certificate is issued by the Ministry of Commerce and a copy is required as part of the application. Fortunately, most cities now have a large number (and varying qualities) of Grade-A buildings, so it is not as much of a choice or cost problem as before.
Premises ownership certificate
This needs to be provided by the landlord and with the company seal.
Landlord's business license
This is also required with the company seal.
RO resident's certificate
This is issued by the property management company responsible for the building.
Additional Shanghai regulations
Shanghai has recently been developing more, and not less, official bureaucracy and administration—somewhat out of step with its purported international image. These regulations have also mainly been issued without prior warning and at great inconvenience to applicants with licenses pending. The main new procedure affects the lease agreement as follows:
Notarized lease agreements—Shanghai
Additionally, Shanghai has fairly recently begun requiring all RO applications to have the regional lease record certificate, which has to be obtained from the real estate authority. This document should be notarized as a true copy. An original copy also needs to be provided to the pertinent local Shanghai tax bureau and also the local branch of the State Administration for Industry and Commerce.
Shanghai is also unique in that all applications for business licenses must go through government agents, adding another layer of cost and administration. Applications are effectively taken out of the hands of professional services firms and can be held up if a smaller or cheaper agent is used and then goes on holiday or is just lazy or overworked. Larger professional services firms tend to obtain better results when dealing with Shanghai's government agents due to the volume of business they put through them. Cheaper does not mean better service in Shanghai, or anywhere else in China for that matter.
The author is Senior Legal Associate of Dezan Shira & Associates Beijing Office (www.dezshira.com)