China Representative Office Registration
A China Representative Office registration is popularly used by Chinese business investors to gain positive returns. It was created for those businesses that wish to be known throughout China. A representative office registration usually takes a month to be completed.
China Representative office rules
Representative offices merely represent the businesses that exist back home. They are not separate from the main branch (which exists outside of China), but merely a representative of a foreign owned company. Moreover, they cannot part-take in any activities that cause them to gain returns. According to Chinese law, they can only perform liaison activities. They are not permitted to sign up legal binding documents or charge any customers and cannot charge a sales service fee. Basically, they cannot make any money in China or receive money from Chinese people and businesses thereof, under any circumstances. However, bank branches, insurance firms, accounting and law companies are allowed to participate in activities that would cause them to gain wealth in China. Representative offices in China are good for marketing research, connecting with clients or networking.
WFOE vs Joint Venture
Wholly Foreign Owned Enterprise WFOE is a limited liability company in China that is privately held, and its shareholders are foreign. Joint Venture JV is a company that starts in China with a minimum of one foreign and one Chinese shareholder. WFOE usually takes about 40 working days to be set up and requires you to specify the scope of your business during the application process. You will need to decide which type of business you require: service, trading or manufacturing. The process is broken down into pre-registration and post-registration.
RO vs JV
Representative office is the easiest of the three structures, to both set up and get off the ground. RO’s are subject to being inspected and need to keep all accounting records but the application is still very simple. Once submissions of company documents are made and approved, all that is needed to register company in China, is for it to register with different Chinese government agencies. The process of setting up Joint Venture, on the other hand, is complex. One would need to first find a suited Chinese company to partner with, then discuss the terms of that relationship. Shareholders and the company involved, need to agree on important matters.
WFOE vs Representative Office
WFOE companies are owned in its entirety by the foreign parent company. All aspects of the business including its day to day operations are solely handled by the foreign company. This structure makes it simple for companies to protect their trademarks, secrets of the trade and business processes.
Cost of set up
Setting up a WFOE used to require a total capital of RMB 100,000 however in 2014 this changed and now there is no minimum amount. The cost of setting up a representative office in China was affordable but since 2010 they have gotten a little expensive. Now there is a financial burden on the representative office in China and the tax burden has also increased from 9.5% to 11.69%. JV set up costs are subject to the type of JV set up: Equity Joint Ventures and Cooperative Joint Ventures. The minimum amount of capital needed is RMB 30 000 for each of the investors, however this is dependent on the shareholders.
Your decision is crucial
The decision of which structure you want, in order to expand your business, is an important one. Each of them offers their own benefits and are up to you, depending on your goals as a business entity. A RO is well suited for those businesses that want to get a feel of the Chinese market. It allows businesses to develop relationships, and create their presence in China, as well as understand how business is done there. WFOE is very different because it allows companies to set up a more real presence from which to trade and conduct business for profit. They also benefit from a lower tax rate and have full control of the operation. Finally, a JV is a good choice for those businesses that already have existing relationships with companies in China and are suitable in cases where WFOE is not an option due to governmental regulations. You may decide which structure you wish to go with, however you should do further research.