This article is intended to provide a general guide to the subject matter. Specific advice should be sought about individual circumstances. Further information or advice may be obtained from Linklaters & Paines, Hong Kong office, 14th Floor, Alexandra House, Chater Road, Hong Kong; telephone: (852) 2842 4888; fax: (852) 2810 8133; contact David Mullarkey or Jeremy Parr.
The following article examines the applicable laws and procedures in respect of establishing a representative office in the PRC.
1. Relevant legislation
(1) Interim regulations of the State Council of the PRC concerning the control of resident representative offices of foreign enterprises
(2) Ministry of Foreign Trade and Economic Cooperation ("MOFTEC") implementing rules for the examination, approval and administration of representative offices of foreign enterprises
(3) Notice of the State Administration for Industry and Commerce of the PRC concerning registration of resident offices of foreign enterprises
(4) Procedures of the State Administration for Industry and Commerce of the PRC for the registration and administration of resident representative offices of foreign enterprises
(5) Administrative measures of the PRC on the establishment in China of resident representative offices by foreign financial institutions.
2. Scope of Business
A representative office ("RO") and its agencies are not allowed to be engaged in "direct business operations" or to conduct profit-making activities for the head company. Sales and production activities will be deemed to constitute such direct business operations. ROs are only allowed to conduct activities such as: market surveys, liaison, consultation, service, and such other work as is not directly related to profit-making.
In case of violation of the relevant PRC provisions, for example that the RO is conducting profit-making business, the RO shall be sanctioned by the State Administration of Industry and Commerce ("SAIC") according to the seriousness of the case:-
(a) the RO shall be ordered to stop its business operations, with a fine of up to Renminbi 20,000 yuan; or
(b) if the RO is found to have engaged in speculation, swindling, and other unlawful activities, all proceeds and properties so obtained will be confiscated in addition to a fine or even the cancellation of the registration certificate as the case may be. In very serious cases, the head office will be prohibited from doing business with the PRC.
3. Summary of Approval Procedures
The procedures required for the establishment of a RO comprise two stages:-
(a) obtaining a formal approval for the establishment of the RO from the appropriate PRC approval authority; and
(b) completing registration formalities with the SAIC in order to obtain a registration certificate.
4. The Approval Authorities
In order to obtain an approval certificate for the establishment of an RO, an application must first be submitted to the appropriate administrative body for the industry concerned in the PRC. Who such administrative body is depends on the nature of the activity in which the RO will be representing: for instance, for a trader or manufacturer, the appropriate approval body is MOFTEC while for a banking institution, the appropriate approval body is the People's Bank of China.
After review of the application papers this administrative body will pass on the relevant documents to MOFTEC who will issue the approval certificate for behalf of the foreign enterprise.
The submission of the application must be entrusted with a PRC party with foreign trade rights, who will submit all materials to, and handle all application procedures with, the approval authorities on behalf of the foreign enterprise.
5. Necessary Documents
A foreign enterprise, when applying for permission to establish a resident office in the PRC, should produce the following documents and reference materials:-
(a) an application form/letter signed by the chairman of the board of directors or the general manager of the head enterprise. This application form/letter will be directed to the appropriate PRC approval authority requesting approval and registration.
This letter states the details of the RO to be set up: such as the name of the RO, the names of the representatives, proposed scope of activities, proposed duration, address of the RO and such other matters as may be requested by the approval authorities;
(b) a copy of the legal document sanctioning the operation of the foreign enterprise issued by the authorities of its home jurisdiction. This usually means a copy of the enterprise's certificate of incorporation and its business licence, memorandum and articles of association or other equivalent documents to prove that the foreign enterprise has been duly established and is in good standing in its own country. These documents should be certified by the relevant foreign authorities as being true and correct;
(c) a copy of a bank reference issued by the banking institution(s) which has business contacts with the foreign enterprise. This only needs to include a brief statement to the effect that the foreign enterprise enjoys a satisfactory credit standing with the bank;
(d) the credentials and brief biographies of the members of the RO appointed by the foreign enterprise. These resumes,s set forth the educational and professional qualifications of such personnel;
(e) a letter of authorisation for each person appointed to the RO notarised by the relevant authorities in the foreign enterprise's home jurisdiction. This letter must be provided by the enterprise's chairman or president;
(f) the foreign enterprise's annual report for the previous three years;
(g) any other documents which may be required by the relevant approval authority;
(h) registration fee.
As a matter of practice, all of the above documents must be submitted in triplicate. Although not expressly stated, both foreign language and Chinese language versions (other than (f)) must be provided to the Chinese authorities.
6. Approval Procedures
Once these documents are submitted, the PRC approval authorities will review the application and decide whether or not to approve or reject the application.
The PRC authorities will assess the merits of the application on the basis of whether a "genuine need" exists for the maintenance of an
office in the PRC. This requirement is very flexible and gives the PRC authorities maximum discretion. In exercising that discretion, the PRC authorities will generally look at factors such as:-
(a) the present and future expected volume of business of the foreign enterprise in the PRC;
(b) the extent to which the foreign enterprise's presence will facilitate the PRC authorities' own business(es);
(c) the standing or prominence of the foreign enterprise in its home jurisdiction or worldwide;
(d) the demand in the PRC for the foreign enterprise's business; and
(e) other relevant factors.
If approval is granted, an approval certificate for registration of a representative office will be issued by MOFTEC to the foreign enterprise.
7. SAIC Registration
When granted approval to establish a RO, the foreign enterprise should, within 30 days of the date of the approval certificate, apply to the SAIC for registration. Failure to complete such formalities within this period will invalidate the approval certificate.
The main items to be registered are: the name of the RO, its address, number of representatives and foreign staff, business scope, and duration of residence.
8. Documents for SAIC Registration
A foreign enterprise shall submit the following when applying for registration with the SAIC:-
(a) the approval certificate issued by MOFTEC;
(b) the documents and materials as previously submitted to the relevant PRC approval authority for approval;
(c) an Application for Establishment (Extension) of Representative Office of Foreign Enterprise in triplicate;
(d) an application to obtain a representative identity certificate; and
(e) registration fee.
Once the SAIC approves the registration, it will issue a certificate of registration.
The time required for completion of all formalities for the registration of a RO varies. It usually depends on the PRC sponsoring agency's enthusiasm for the application, the workload of the PRC government's personnel handling the application, and a variety of other factors.
It may take up to one to three months to obtain the approval document. The SAIC registration formalities will normally take one week to complete.
Generally, the effective term of a RO is three years. This term may be extended upon subsequent application.
11. Staffing/Employment Matters
The person heading such resident representative office is called a chief representative. The total number of representatives (including the chief representative) generally must not exceed three or four, depending on where the RO is located.
The other staff of the RO must only be employed with the recommendation of the PRC Foreign Affairs Service Unit or other organisations designated by the PRC government such as the Beijing Foreign Enterprise Service Corporation.
12. Post-Registration Matters
Once a foreign enterprise has obtained a certificate of registration for its RO, it must proceed to complete a number of supplementary registrations with various other PRC authorities. The important ones are:-
(A) Public Security Bureau
Each representative to the RO, together with each of his family members, must register with the Public Security Bureau and obtain a foreigner's residence certificate. In addition, individual representatives and family members must also register with the Public Security Bureau's Household Registration Section and obtain a household registration booklet.
The representative and his family members may then apply to the Visa Section of the Public Security Bureau for the issuance of six-month multiple entry visas.
(B) Bank of China
The foreign enterprise may open bank accounts with the Bank of China. This will involve completion of the Bank of China's
forms and submitting a copy of the foreign enterprise's SAIC registration certificate.
There are detailed rules regarding the customs treatment of goods or belongings imported by individual representatives or for the use of the representative office. Generally, a professional moving or cargo company will be able to assist in the completion of the necessary formalities.
(D) Tax Registration
Individual representatives are required to register with the local tax authorities. A separate registration is also required for the RO.
13. Annual Reporting
Each year the RO shall present to the People's Bank of China a report of its work in the PRC in the previous year.
Further information or advice may be obtained from Linklaters & Paines, Hong Kong office, 14th Floor, Alexandra House, Chater Road, Hong Kong; telephone: (852) 2842 4888; fax: (852) 2810 8133; contact David Mullarkey or Jeremy Parr, or enter text search 'Linklaters & Paines' and 'Business Monitor'.