Under PRC legal scheme, if a foreign investor intends to set up a representative office(“RO”) in China, they need to carry out registration procedure(please note that they are not required to seek approval from the local counterpart of Ministry of Commerce for the formation of RO, which is different from formation of a foreign invested company). They first need to apply for the name reservation with local Administration for Industry and Commerce(“AIC”) for to-be-formed RO. Then the foreign investor should prepare the relevant documentation and submit the same to AIC for the registration of RO. After registration with AIC, a RO normally needs to complete the post-formation procedure, such as tax registration, bank account opening, Organization Code registration and statistics registration, etc.
The formation of a RO in China would take 3-4 month if all documents are ready and accepted by the authority.
PRC law put too many off-limits on the business scope of a RO. Under PRC legal scheme, a RO is not permitted to conduct any direct business activities, although it can conduct information gathering, product promotion, market research and ancillary activities. The activities of the RO are to facilitate the transactions between the parent company and its customers in PRC.
Thus, the RO should not receive any sales payments from its headquarters or PRC customers, nor issue invoices to PRC customers, nor enter into sales contracts in the name of the RO. Performing these activities will be regarded as either acting as a party to the transaction or conducting unauthorized foreign exchange business or both. The bank account of the RO may transact business in USD but only to the extent of the RO’s own activities, not sales transactions. Thus, the RO is a cost center only and may not conduct business with third parties.
By Adam Li