Representative Offices (ROs) are established by foreign companies to engage in businessliaison, product promotion, market research, exchange of technology and other permitted activities in China.
ROs are not allowed to directly engage in operational activities. The AIC usually specifies in the Business Scope, as shown in the Business License of ROs, that a RO should not engage in direct operational activities. Therefore, ROs are not a form of foreign investmentin China. However, some ROs are engaged in operations in a lawful or tacitly permitted way and constitute one of the direct foreign Investment forms in China.
The tacitly permitted way is applicable to those industries that do not require special material conditions or environment for their operations. For example, a consulting businessdoes not need manufacturing equipment and raw materials. It only needs offices, employees and office articles. These physical conditions are necessary for other ROs as well. In practice, many ROs that are established by foreign consulting companies directly engage in consulting activities. Chinese government does not prohibit them in practice and this is reflected by the fact that the tax authorities collect businesstax from these Representative Offices (RO).
The lawful operational activities engaged in by Representative Offices (RO) refer to those businessactivities permitted pursuant to the bilateral treaties between China and other countries. In the event that a bilateral treaty provides that certain types of Representative Offices (RO) are permitted to engage in operational activities, these bilateral treaties should prevail over Chinese domestic law. For example, according to the Sino-US Civil Aviation Transportation Agreement, ROs established by American civil airlines may sell civil air transportation services provided by American civil airlines, as well as engage in administration, inquiry and other businessactivities.
It should be noted that up to now, only Representative Offices (RO) of foreign airlines are allowed to engage in direct operational activities in Chinaunder bilateral treaties. No other ROs of foreign companies are so permitted.
Representative Offices (RO) are important means by which foreign companies conduct businessliaisons or engage in businessand operational activities in China. In this respect, a foreign companyrefers all companies incorporated outside China, and those incorporated in Hong Kong, Macau and Taiwan.
Scope of business
A Representative Office may only engage in non-profit making activities, It can carry out the following functions:
01 Conduct research and survey for its parent enterprise in the local market;
02 Liaise with local and foreign contacts in Chinaon behalf of the parent enterprise;
03 Conduct research and provide data and promotional materialsto potential clients or trading partners;
04 Act as a coordinator for the parent enterprise's activities in China;
05 Make travel arrangements for parent enterprise representatives and potential Chinese clients;
Under no circumstances may a Representative Office do the following:
01 Directly engaged in any businessfor profit;
02 Sign contracts or deals on behalf of the parent enterprise;
03 Represent any firm other than its parent enterprise;
04 Collect money or issue invoice within China for services or products;
05 Buy property or import production equipment.
Features of a Representative Office
1.1 Legal Status of a Representative Office
The Representative Office is a non-legal entity operating representing its parent company. A representative officeis not allowed to engage itself in businessactivities, 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.
1.2. Name
The name of the Representative office should be in the form of "Name of the Enterprise + Name of the City + Representative Office (or Office)".
1.3. Business Address
At the beginning of setting up the Representative Office, it is advised to decide the place and building where office is going to be located first, as the address of the proposed office will have to be mentioned in the application for approval.
