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Representative offices are set up in China to represent foreign companies and their affiliates, but a representative office itself is not a company.

Characteristics of Representative Offices

  • Representative offices are set up by foreign companies who want a presence in China. In order to be entitled to register a representative office in China, the foreign company must have been incorporated for at least 2 years.
  • A representative office cannot carry out direct business operations.
  • Representatives offices may carry out the following activities: market research and presentation and promotion of the parent company’s products or services; and liaison activities relating to the sale of products, provision of services of the parent company.
  • Non-legal person status: the parent company assumes all legal liabilities of the representative office in China;
  • Representative offices must hire PRC citizens through designated local labor agencies.
  • There is no minimum capital requirement.

Advantages and disadvantages

– Advantages

  • A representative office provides foreign companies with a basic entry to the Chinese market.
  • It works for such purposes as business liaison, product introduction, market research, information gathering, and technological exchange;
  • Its key role rests in building up the business and administrative relationships for the parent company.

– Disadvantages

  • There is no separate legal entity so that representative offices cannot undertake legal liabilities.
  • There are restrictions on direct business activities, so that representative offices are not permitted to generate profit.
  • Representative offices cannot directly hire PRC citizens.

– What happens if a representative office violates the obligation not to engage in commercial or manufacturing activities?

In such case, the representative office shall be ordered by the authority to make correction, illegal income shall be confiscated, tools, equipment, raw materials, products(commodities) and other properties which are used specifically for the profit-making activities shall be confiscated, a penalty ranging from RMB 50,000 to RMB 500,000 may be applied, and the cancellation of the registration certificate of the representative office.

-> This article may also be of interest to you : Regional Headquarters – Investment Options in China

To know more, download our legal handbook related to foreign investment in China…

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