Scrutiny of Representative Offices in China Increased
China has tightened the procedures for setting up and renewal of foreign company Representative Office (RO) and stipulates stricter supervision of rep office operations. For multinationals, this means increased compliance efforts and costs for setting up and renewal of their RO or rep office in China.
Published on: Mar 3, 2016
Transcripts - Scrutiny of Representative Offices in China Increased
Scrutiny of Representative Offices in China IncreasedChina has tightened the procedures for setting up and renewal of foreign company Representative Office (RO) andstipulates stricter supervision of rep office operations. For multinationals, this means increased compliance effortsand costs for setting up and renewal of their RO or rep office in China. Representative Offices also need to be morevigilant in ensuring they operate within the limits of permissible activities and comply with all registration terms asthe new provisions enhance the powers of the authorities when dealing with illegal cases.In a company international expansion, most companies face increased paperwork as a series of documents need tobe notarized and authenticated when the rep office applies for renewal, especially in pilot cities like Shanghai.Further, the notice permits setting up of rep office only for companies existing for more than two years. Therepresentative office term of duration has decreased and will need to renew their registration certificate everyyear as against the earlier permissible term of three years. For existing rep offices, the one year limit begins whenthey apply for renewal upon expiry of their existing term.The cap on Number of Representatives is restricted to four. Existing ROs that already have more than fourrepresentatives may not need to prune their staff but cannot add to that number. The local officials requireauthorities are required to conduct on-site verification of legal address and other Representative Officeregistration items. This has to be done within three months of the Representative Office obtaining its registrationcertificate. Any unreported change of address is subject to penalty and the rep office may even be blacklisted innon-compliance records. Additionally, in certain pilot cities, e.g. a Representative Office in Shanghai, office spacemust be rented in a Grade-A building, which essentially refers to a high-standard building.In any international business expansion, establishing a representative office has conventionally been a reasonablyquick and inexpensive way for foreign companies to gain a presence in China, promote themselves and exploreadditional investment opportunities. There is no capital requirement and, aside from registration with the localbranch, no separate approval process, as is the case with legal entities. The new rules indicate an intention totighten the existing regulatory regime, with increased scrutiny on compliance. In an international expansion,foreign companies will need to consider the implications of this for the structuring and establishment of newrepresentative offices, as well as the ongoing operations of any existing representative offices they have.Click here for more on international accounts payable, eu vat rules & transfer pricing audit