On 4 January 2010, the State Administration of Industry and
Commerce ("SAIC") and the Ministry of
Public Security jointly promulgated a notice that places additional
restrictions and requirements on new and existing foreign
representative offices ("RO"). The local
AIC in Beijing implemented the notice on 15 January 2010; other
cities and provinces swiftly followed or are expected to do so
soon. The more stringent criteria on RO registration are summarised
First, the notice shortens the operational term for most ROs
from three years to one year. This applies to newly established ROs
as well as existing ROs that seek to renew their registration. This
represents a significant increase in the cost and effort involved
in maintaining an RO. In addition to the increased burden of an
annual registration on the RO itself, because the
employment-related documentation of foreign staff is related to the
operation term of their employer, they will likely be required to
renew work permits, residence certificates, and related
docu¬ments once a year.
Second, an RO's parent company must be at least two years
old. Previously, any foreign company - regardless of its
establishment duration - could register an RO.
Third, an updated legalised and notarised incorporation
certificate of the parent company must be provided each time the
operation term of the RO is extended. Such a certificate was
previously only required when the RO first registered.
Fourth, in addition to this certificate, the parent company must
provide a notarised and legalised bank reference letter.
Notarisa-tion and legalisation of a bank reference letter was
previously not required, and is still not required for parent
companies registered in Hong Kong, Macao or Taiwan.
Fifth, an RO can no longer register as many representatives as
it wishes; it generally cannot register more than four
representatives (including chief representative). Also, local AICs
will conduct an on-site inspection of an RO within three months
after it issues a registration certificate.
The notice is yet another indication of more severe scrutiny of
ROs by Chinese authorities. ROs must be ever more prudent in
conducting themselves properly and pay particular attention to the
ROs may not engage in direct business activities and are limited
to conducting activities on behalf of their parent companies such
as business liaison work, market surveys and research and
prod¬uct introductions. (Some exceptions apply, such as for
legal and tax advisors.) In other words, ROs may only engage in
non-profit-making activities for assisting their parent company in
estab¬lishing and arranging contracts, rendering advice (the
extent of which depends on the business of the represented
enterprise), preparing market studies and collecting general
information. Activities outside such scope are prohibited by
The State Council made tentative moves to revise legislation
applicable to ROs when it circulated draft regulations for comment
on 29 August 2008 ("RO Draft
Regulations"). The RO Draft Regulations, which have
not yet become law, define an RO as a "non-profit-making
administrative body" of a foreign enterprise in China which is
only permitted to carry out activities related to market research,
presentation, promotional activities and liaison activities in
relation to product sales, service provision, domestic procurement
The penalties for conducting activities outside the permitted
business scope can be severe. Such activities can expose an RO to
an RMB 20,000 fine and revocation of its license; the RO Draft
Regulations even foresee a penalty for undertaking profit-making
activities of up to RMB 500,000.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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