Foreign Representative Office Procedures Consolidated
July 02, 2004 | BY
clpstaff &clp articles &A State Council abolishment decision has dropped the approval procedures for most representative offices, and only a registration procedure remains.
By Laetitia Tjoa, Neal Stender and Zhou Jingwen, Coudert Brothers, Beijing, Hong Kong and Shanghai
China's foreign representative office establishment, change and termination procedures have recently been simplified for foreign companies in most industries. Now, the previous two-step application (for approval and registration) has been consolidated into a one-step application (for registration only). Only registration procedures by the local Administration of Industry and Commerce (AIC) will be required, without the approval procedures previously handled by local government foreign trade departments authorized by the Ministry of Commerce (MOFCOM, formerly the Ministry of Foreign Trade and Economic Cooperation, MOFTEC).
The Substance of the New Developments
The elimination of MOFCOM's role affects foreign companies engaged in manufacturing, trading, consulting, contracting, advertising, investing, leasing and "goods transportation agency" (including freight forwarding). No change has been announced for most specially regulated industries, where representative offices have been subject to approval by a ministry or a bureau other than MOFCOM. Exceptions are in the securities industry, where deregistration no longer requires approval by the China Securities Regulatory Commission, and in the insurance industry, where deregistration no longer requires approval by the China Insurance Regulatory Commission.
The above changes are set out in the Third Batch of Items in respect of which Administrative Examination and Approval Requirements are Abolished Decision, issued by the State Council on May 19 2004, and effective upon issuance. In practice, the change has been implemented more slowly. MOFCOM and local government departments in Beijing implemented the changes at the beginning of June. Local government departments in Shanghai deferred implementation until the beginning of July; other localities may take longer.
Faster processing can be expected under the new one-step registration procedure. The number of documents required has been reduced by eliminating the approval application. The AIC (at the national and the local level) will remain free to expand the number of documents required for registration applications, but there is no indication that this is likely. The post-registration procedures are unchanged.
Representative Office Agents
On the role of representative office agents (typically referred to as "sponsors" or "host organizations"), different local AICs are taking different approaches. For example, the Shanghai AIC has announced that submissions must be made through a locally qualified agent. In contrast, the Beijing AIC will accept submissions either through agents or directly from foreign companies.
Employment Issues
As before, any employment of PRC nationals by a foreign representative office must go through an authorized labour service agency. Wholly foreign-owned enterprises (WFOEs) and joint ventures (JVs) have always had the advantage of being permitted to directly employ PRC nationals.
Comparison with WFOEs
It is unlikely that the above changes will make China representative offices substantially more attractive to foreign companies, in comparison with the increasingly attractive alternative of establishing WFOEs. Fewer activities are now prohibited to WFOEs, and lower registered capital levels are now required to establish many types of WFOEs, due to deregulation and implementation of the PRC's WTO-related obligations. In particular, with WFOEs able to engage in numerous services and, from December 11 2004, in reselling of non self-made products, it will be less attractive to handle sales promotion activities through a representative office.
Tax Issues
Taxation of a representative office
This premium content is reserved for
China Law & Practice Subscribers.
A Premium Subscription Provides:
- A database of over 3,000 essential documents including key PRC legislation translated into English
- A choice of newsletters to alert you to changes affecting your business including sector specific updates
- Premium access to the mobile optimized site for timely analysis that guides you through China's ever-changing business environment
Already a subscriber? Log In Now