Representative Office

A Representative Office (Rep Office) allows your business to test the Chinese market’s openness to your products with minimal investment and low vulnerability. While Representative Offices are restricted to conducting only business liaison and representation activities, they can be appropriate for quick, small-scale operations in China.  It should be noted that Representative Offices are much less common than WFOEs or JVs due to their extremely limited capability.  Simply being a liaison with no legal potential for profit limits the effort one would put into establishing a Representative Office.  Therefore, many times companies will instead hire consultants, such as TriVista who are who are experienced in China in many aspects andto can assist in developing a business plan for entering a new market.

Representative Office

Pros

Cons

No minimum capital requirement Cannot directly conduct any profit-making activity
Lesser taxation (no corporate or dividend taxes) Cannot invoice or bill clients: all formal business transactions must be conducted with the parent company
Fast incorporation process Limited incorporation licensing that must be approved by the government annually
Promote business in China while keeping main operations consolidated in another country Cannot hire Chinese nationals directly, must use a local human resource firm
Non-legal entity Must be located in government mandated buildings in specific cities/ cannot purchase property
Limited to four employees including head representative
Parent Company must be established for at least two years in home country before being allowed to open a Representative Office in China

AN IMPORTANT NOTE ABOUT REPRESENTATIVE OFFICES:

Recent Central Government legislation (2010) has made the incorporation of Representative Offices in China less favorable. Increased government regulations, including a five percent tax increase on gross expenses and a reduction of licensing periods from three-year to yearly increments now apply to both new and existing Representative Offices. The Government has also begun to “crack down” on Rep Offices operating in China that are conducting activities it deems more appropriate for Wholly Foreign Owned Enterprises.

Representative Offices cannot be converted in Wholly Owned Foreign Enterprises; a Representative Office closure and a separate, complete WOFE incorporation is necessary.

TriVista
TriVista’s global consulting team provides guidance to foreign businesses operating in China. Learn More.

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