Why setting-up RO(Representative Office) in China is not a good option?

In China, the procedures of setting up a RO is similar with Service-type WFOE (Wholly-Foreign-Owned-Entity). And after setting up RO, due to without any tax benefits, all accounting, tax and payroll compliance are similar with Service-type WFOE. In additional, RO exists some limitations comparing with a service WFOE. therefore except some special industries like Bank , very few foreign company choosing RO in China. This facts is totally conversed with our perception.

E-mail: szx4ww@evershinecpa.com
or
Call us by phone in the day-work-time of China (GMT+8)
Manager Bing Weng, UK Graduate School Alumni and a well-English speaker
Mobile: +86-180-5008-2372

Questions and Answers about setting-up China Representative Office:

– Can the whole process be done remotely, or does anybody from the Client have to be present in person at a certain point?

When the chief representative opens an account in the bank, he needs to be on the spot.
At the time of establishment, the passports of the chief and general representatives, if they have not entered China within half a year, must be notarized and certified.
首席代表在银行开户的时候，是需要到现场的。
设立时，首席和一般代表护照若半年内没有入境过中国，其身分证件需要做公证认证。

– Can the RO provide a working visa for a foreigner to work in China?

Yes, it can be allowed.
是可以的。

– Do we need to have a physical office, or can it be “virtual”? If needs to be physical, can you assist to find one?

It needs a Physical office, the bank will require a door check before opening an account.
是的，银行开户前会要求要上门核查。

– How much is usually the taxes paid by a RO (a rough estimation is ok)?

Enterprise Income Tax & VAT of RO is the same as general enterprise regulations.
The obligation to declare, as the company, the monthly or quarterly declaration of value-added tax, financial statements, income tax, quarterly income taxes, annual enterprise income tax declaration, annual inspection
Generally, annual income will be redeemed as 15% of total RO incurred expenses. Then multiplying corporate income tax rate generate levied annual income tax.

企业所得税 & 增值税与一般企业规定一样。
申报的义务，跟公司依样，每月或每季申报增值税、财务报表、个税、季度所得税，年度申报企业所得税、年检。
一般來說，年收入將被贖回作爲總 RO 發生的費用的 15 %。然後乘以企業所得稅率產生被徵收的年所得稅。

– Does your company help with filing the taxes for the RO? If so, what is the cost of this service?

Surely, Evershine can help, please see the attached pdf file.

永輝可以协助。

– Can the Client open a Chinese bank account through the RO?

Yes, similar to China’s domestic enterprises, only need to open a basic RMB account can, if there is foreign currency demand can open a general foreign currency account＞You can also use online banking
可以的，比照中国内资企业，仅需开人民币基本户即可，若有外币需求可以开一般外币账户．
也能使用网银。

– Can the RO receive money from the parent company to pay for the worker’s expenses, like housing, train/plane tickets, business dinners etc.?

Yes, the expenses of the representative office include:
Wages, salaries, bonuses, allowances, welfare expenses, purchase expenses (including fixed assets such as automobiles and office equipment), communication expenses, travel expenses, rent, equipment rental, transportation expenses, communications expenses and other expenses paid to the staff within and outside China.

可以的，代表机构的经费支出额包括：
在中国境内、外支付给工作人员的工资薪金、奖金、津贴、福利费、物品采购费（包括汽车、办公设备等固定资产）、通讯费、差旅费、房租、设备租赁费、交通费、交际费、其他费用等。

– Can the foreign workers working at the RO be employed with an Italian contract, or do they have to be employed with a Chinese contract? Can the RO pay a part of the salary in RMB?

The resident representative office of a foreign enterprise shall entrust the local foreign affairs service unit, or any other unit designated by the Chinese government to handle the employment of staff.
Otherwise, only the salary of one chief representative at the time of the establishment of registration & 1-3 general representatives.

http://gkml.samr.gov.cn/nsjg/bgt/202106/t20210611_330650.html

外国企业常驻代表机构聘请工作人员，应当委托当地外事服务单位或者中国政府指定的其它单位办理。
否则只能支付设立登记时的一名首席代表 & 1-3名一般代表的薪水。

– What are the employees who are working under the representative office allowed to do? (For example sales, sourcing, marketing, quality control etc.) Are there any limitations?

Regulation on the Administration of Registration of Resident Representative Offices of Foreign Enterprises
Article 14 A representative office may engage in the following activities related to the business of foreign enterprises:
(1) market investigation, demonstration and publicity activities relating to the products or services of foreign enterprises.
(2) Liaison activities related to product sales, service provision, domestic procurement, and domestic investment of foreign enterprises.

Where approval is required by laws, administrative regulations, or provisions of the State Council for a representative office to engage in the business activities prescribed in the preceding paragraph, such approval shall be obtained.

外国企业常驻代表机构登记管理条例
第十四条代表机构可以从事与外国企业业务有关的下列活动：
(一)与外国企业产品或者服务有关的市场调查、展示、宣传活动；
(二)与外国企业产品销售、服务提供、境内采购、境内投资有关的联络活动。
法律、行政法规或者国务院规定代表机构从事前款规定的业务活动须经批准的，应当取得批准。

http://www.gov.cn/zhengce/2020-12/27/content_5573783.htm

– Is there an expiration, after which we will need to re-apply for the RO?

Regulation on the Administration of Registration of Resident Representative Offices of Foreign Enterprises
Article 16 The term of a resident of a representative office shall not exceed the duration of the existence of the foreign enterprise
Article 28 Where a representative office continues to engage in business activities after the expiration of its term of residence, the foreign enterprise shall, within 60 days before the expiry of the term of domicile, apply to the registration authority for change of registration.
外国企业常驻代表机构登记管理条例
第十六条　代表机构的驻在期限不得超过外国企业的存续期限。
第二十八条　代表机构驻在期限届满后继续从事业务活动的，外国企业应当在驻在期限届满前60日内向登记机关申请变更登记。

– Do foreign employees have a timeframe to move to China once the representative office is open, or can they move whenever it is more suitable for the parent company?

在设立的过程中，只有银行开户的时候，会有首席代表需要来开户的问题，
至于其他人员，可以等要申请ARC ＆ work permit的时候再来中国即可。
In the process of setting up, only when the bank opened an account, there will be a problem that the chief representative needs to open an account.
As for the rest of the staff, they can wait to apply for ARC & work permits to come back to China when the time comes.

– What are the initial one-time costs for the RO including the costs to be paid to your company? Please list them here below.

One time charge is similar with setting up a Service-type WFOE (wholly-foreigner-overseas-entity) as a subsidiary.
The relevant documents of proof of parent company need to be Translation into Chinese,notarized and certified. The additional fee is about usd 1000.
Quotation on request.

– What are the reoccurring costs (monthly, yearly) for the RO including the costs to be paid to your company? Please list them here below.

All accounting, tax and payroll compliance are similar with Service-type WFOE (wholly-foreigner-overseas-entity) as a subsidiary.
Quotation on request.

– In China, Why Evershine suggest the client set up a Subsidiary instead of a Representative office?

(1) In China, RO still needs to file VAT and Corporate income tax, similar to a foreign-owned subsidiary, without tax benefits. Besides RO cannot issue invoices. Besides, it can not transfer to be a Subsidiary when necessary.

(2)Your IT parent company’s relevant documents, like articles of corporate, certificate of incorporation etc., need to be translated to be Chinese, and need to be certified and notarized. It will spend a lot of expenses. Comparing Subsidiary, it only needs a certificate of incorporation, simpler.

(3) The resident representative office of a foreign enterprise shall entrust the local foreign affairs service unit, or any other unit designated by the Chinese government to handle the employment of staff.
Otherwise, only the salary of one chief representative at the time of the establishment of registration & 1-3 general representatives.

(4)Only needing special industry permit license, like the banking industry, they start from RO. That means very few companies set up RO, it caused a lots of relevant parties like banks, tax bureau, and register unit and service providers who are not familiar with registration and after-setup operation.

(5)Contrarily, foreign-owned Subsidiary is common practices, everyone is familiar with i. It will be smoother. Unless special requirements, we suggest the client set up a Subsidiary instead of RO in China.

(6) Some companies use Temporary Employment outsourcing services to recruit Chinese Employees instead of setting up RO.

Contact Us

Shanghai Evershine BPO Service Corp.
Room 709, No.96, Lane 1333, Xinlong Road.,
Minhang District, Shanghai, PRC, 201101
Tel. No.: +86-21- 6402-0100
E-mail: szx4ww@evershinecpa.com
or
Call us by phone in the day-work-time of China (GMT+8)
Manager Bing Weng, UK Graduate School Alumni and a well-English speaker
Mobile: +86-180-5008-2372
or
For investment structure relevant with multi-national tax planning and Financial & Legal Due Diligence for M&A (Merge and Acquisition), send an email to HQ4szx@evershinecpa.com
Dale Chen, Principal Partner/CPA in Taiwan+China+UK will be accountable to your case.
Email address:dalechen@evershinecpa.com
linkedin address:Dale Chen

Additional Information

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Evershine Potential Serviceable City (2 months preparatory period):
Evershine CPAs Firm is an IAPA member firm headquartered in London, with 300 member offices worldwide and approximately 10,000 employees.
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