Representative Office's Pros and Cons

The Advantages of a Representative Office

• The tax calculation of a Representative Office in China is different as compared to WFOE or a JV on its running expenses. There is a 10% tax on the GROSS EXPENSES of a RO.
• A Representative Office in China also allowed to engage in business activities such as, market research, publicity activities relate to company product or services.
• No registered capital required for incorporation, which means it is accessible for most foreign companies; Low cost for setting up (compared to exclusively foreign-owned enterprise), no lowest limit for a registered fund, no requirement for contributed capital.
• It is helpful to apply for a residence permit.
• It is easy for an accountant to process accounting and tax filing.
• Foreign investors can quite easily set up a Representative Office in China if they want to enter the Chinese marketplace, which is otherwise not allowed without first setting up a RO in China, because China may alter the foreign investment law of the people's republic of China more freely because of the promise that China made it for joining WTO. Setting up representative office means they can get into the Chinese market and get contact resources and know more about the market.
• For those foreign investors who want to invest Chinese mainland, the first thing is to carry out a market survey, then decide whether to make a long-term investment or not, using their Representative Office in Chinaas a bridge to enter the Chinese market.

While there are many benefits of a Representative Office Registration in China, there are also some restrictions, such as the following:

A Representative Office in China is not permitted to carry out direct commercial activities. A Rep office is only allowed to engage in business functions, such as, market surveys, and publicity activities that are relate to company products or services.
ARepresentative Office in Chinacannot sign a commercial contract with a supplier, cannot invoice or create income, the head office must do such operations.
A Representative Office in China has no right to hire Chinese employees directly without authorized intermediary organs of talents.
A Representative Office in Chinahas to employ Chinese mainland employees by licensed recruitment agencies.
Rep Office in China may not remit profits out of China.
Actual expenditure with less controllability calculates tax declaration for once a month and tax audit for once a year.
There are strict auditing standards for daily operating expenses and bank's foreign currency account.
Government policy restrictions, taxation bureau, industrial and commercial administration are sternly managed.
Representative Office Registration in China has been deemed as the most accessible entity to set up a branch office in China for foreigners. Many clients presumed that they could switch a Rep Office to a WFOE, then they "can start making money" in China. Well, the truth is the switch involves an expensive Rep Office shutdown and a brand new WFOE incorporation.

Representative Office in China has below restrictions, but not limited to:

Rep Office in China is not permitted to carry out direct commercial activities. Rep office can only engage in the market survey, publicity activities relate to company product or services;
Rep Office in China cannot sign a commercial contract with a supplier, cannot invoice or create income, the head office must do such operations;
Rep Office in China has no right to hire Chinese employees directly without authorized intermediary organs of talents;
A representative office has to employ Chinese mainland employees by licensed recruitment agencies;
Rep Office in China may not remit profits out of China;
Actual expenditure with less controllability calculates tax declaration for once a month and tax audit for once a year;
There are auditing standards for daily operating expenses and bank's foreign currency account.
Government policy restrictions, taxation bureau, industrial and commercial administration are strict in supervision.
Representative Office Registration in China has been deemed as the most accessible entity to set up a branch office in China for foreigners. Many clients presumed that they could switch a Rep Office to a WFOE, then they "can start making money" in China. Well, the truth is the switch involves an expensive Rep Office shutdown and a brand new WFOE incorporation.

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