4. REPRESENTATIVE OFFICE
This is a favoured option for foreign enterprises with a genuine need for a permanent presence in the PRC. Such offices may engage in non-direct business activities within China. Their function is limited to representing a foreign enterprise in conducting business liaison with trade organisations or related industries, product introduction, market surveys and research, and technological exchange within the business scope of that enterprise24. It is often a good way to gain experience and acquire a better understanding of the size and potential of the market in China. The representative office is used to work out long-term objectives, oversee their business operations up and running in China, for example, CJVs, and forge stronger links with the domestic market.
A foreign enterprise planning to set up a representative offices must:25
- having been legally registered for more than two years in the country where it is located;
- provide the authentic and reliable materials and documents required by these Rules; and
- go through the registration and application procedures as provided for in these Rules.
There are a number of prohibitions in relation to the representative office: only certain activities may be undertaken, and the offices cannot generate profit, or sign contracts that generate profit. However, representative offices are allowed to negotiate contracts that are later on signed in the name of the home office located outside China.
Unless registered, the representative office is unable to employ staff, open a bank account, import office equipment, obtain phone lines, display company signs, or use business cards identifying the company’s presence in China. The company’s representative will only be able to obtain a multiple entry visa and legally rent an apartment once the representative office has been registered.
5. Branch Company
If a FIE wishes to conduct business activities at a place other than its registered office, a branch company should be established. The branch company is not a separate legal entity, and all liabilities of the branch company will be born by the FIE itself. A branch company may carry out business activities within the business scope of the FIE.26 To set up a branch company application shall be made with the Administration of Industry and Commerce at the place where the branch company is to be established.27
24 Please see article 4 of the Detailed Rules of The Ministry of Foreign Trade and Economic Cooperation on the Approval and Control of Resident Representative Offices of Foreign Enterprises
25 Please see article 8 of the Detailed Rules of The Ministry of Foreign Trade and Economic Cooperation on the Approval and Control of Resident Representative Offices of Foreign Enterprises
26 Please see article 46 and 47 of Regulation of the People’s Republic of China on the Administration of Company Registration
27 Please see article 24 of Implementation Opinions on Some Issues Concerning Law Application for the Administration of Approval and Registration of Foreign-funded Companies