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  • Doing Business In China | The Representative Office

    April 15 2014

    This post continues our series of post on Doing Business in China. In this article we discuss the advantages and drawbacks of investing in China through a Representative Office or RO. Do not hesitate to contact me if you have any question in relation to this matter at corporate@offshorepremium.com     This post is published as a courtesy of www.offshorepremium.com

    How to Set Up a Representative Office in China?

    The advantages of setting up a RO for a presence in China are as follows:

    •  Ease of Incorporation (simple and easier than a WFOE)
    •  No minimal Capital requirement (less costly)
    • Can hire a limited number of foreign employees in addition of the RO Manager.

    The disadvantages are:

    • RO cannot transact business directly in China
    • RO cannot hired directly Chinese local employees but need to do so through an agent
    • No tax exemptions for RO (please see tax considerations below)

    In general ROs are allowed to do the following :-

    • Liaise with the foreign company’s Chinese trading counterparts.
    • Liaise with the host organisation and host Ministry for specific projects.
    • Organize business meetings, and business visits from company headquarters.  In this respect, ROs can often help obtain business visas more easily for visitors.
    • Conduct public relations work.
    • Undertake local administration.
    • Tax considerations: ROs need to pay taxes based on a deemed revenue even though they are not allowed to engage in direct for-profit business activities. The estimated tax rate is minimum 15% on an RO’s gross expenses.

    Note that one of the requirements to set a RO is that the foreign company which owns the RO will be required to have been in existence for at least two years before it can establish an RO. This requirement can be easily fulfilled by purchasing a Hong Kong vintage company (with no previous activity and a clean balance sheet).

    Recommendation: we recommend you to structure your Representative Office in China through a HK company

    Do not hesitate to contact us if you need more information on this subject

     

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