In Mainland China, there are several modes of business presences for foreign investors: WFOE, Representative Office, Joint Venture.
Any foreign company that is established for more than 2 years can set up a Representative Office in China. Some companies believe that forming a Rep Office in China faster, cheaper, and easier than forming a WFOE, however, a Rep Office is not considered a separate legal entity under Chinese law and it is limited by law to performing “liaison” activities. The scope of activities of the REPO is limited to:
· business liaisons,
· quality control,
· company and product promotion,
· market research,
· coordinating the parent company’s activities in China,
· exchange of technology and other permitted activities in China that don’t generate profits.
ROs are not allowed to directly engage in operational activities, issue official invoices, nor receiving payments from its clients.
Representative Office cannot engage in the following activities in China:
· Directly generate any business for profit;
· Collect money or issue invoices within China;
· Represent any firm other than its parent enterprise;
· Sign contracts or deals on behalf of the parent enterprise;
· Buy property or import production equipment.
The following things must be taken into consideration before establishing a REPO:
· Even though Rep Offices are not permitted to earn income in China, they are subject to taxation.
· The business address of the REPO must be located in commercial buildings.
All things considered, when does it make sense to set up a Rep Office in China? It makes sense if your company wants to have its China presence to improve its sales and to let its customers and potential customers know it is serious enough about China to commit to having an office there.