Representative Office

Overview

A Representative Office is often the first step and entry strategy of foreign companies into China. Representative Offices are preferred due to the relative ease of establishment and lower investment requirements. Representative Offices generally need only to be registered with the local authorities and do not require a registered capital.

However, as they are not separate legal entities, they are only allowed to engage in a limited range of activities such as a marketing or liaison office. Although Representative Offices are not allowed to enter into any contracts or engage in any commercial or profit-making activities, they are still taxable on a cost-plus basis.

The relaxation of rules for Wholly Foreign-Owned Enterprises (WFOE), in particular the abolishment of the registered capital and contribution rules (albeit in practise still applicable), and expansion of free trade zones having their own specific regulations and incentives to attract Foreign Direct Investment, made the registration and administration of Representative Offices in certain areas in China more difficult than registering for a WFOE.

Nevertheless, a Representative Office is still the cheapest and fastest way to establish a presence in China, provided that the limited activities are in line with the foreign company’s strategic goals in China.