When a sourcing project gets to a certain size, it often makes sense to set up a permanent presence on-the-ground in China to help manage the supply chain. This series of blog posts covers some of the key areas of consideration when it comes to setting up in China.
Representative offices (“RO”) may only engage in “non-direct business operation in the PRC”, such as marketing, organizing business contracts and collecting information. In the financial sector and other regulated industries, setting up a RO is often a pre-requisite for a foreign investor to undertake other forms of investment in the PRC.
A RO must engage a local foreign enterprise service corporation, or another entity designated by the PRC Government, to hire its personnel. The complication for the foreign investor (apart from the cost involved) is that technically it does not directly employ any PRC staff, and so it is reliant on the service company to effect dismissals of PRC “employees”. Direct recruitment of employees by the RO is prohibited.
There is no minimum capital requirement for foreign investors to satisfy in order to set up a RO. However, the permitted scope of business of RO is limited and does not allow it to engage in revenue-generating direct business activities. Note: according to the newly promulgated Regulations on Administration of Registration of Resident Offices of Foreign Enterprises, only foreign enterprises which have been in operation for more than two years are eligible to set up a RO in China.
Next Post: Alternatives
Written for CSIC by Sophie Mao
China based lawyer at www.AsiaBridgeLaw.com