Opening a Representative Office (RO) in China

Hi, I work for a retail company in South America and our biggest imports are garments from China. We want to open an office of representation and sourcing in Asia. Just want to hear your suggestion to help us decide where to locate our office. Hong Kong, Shanghai, Vietnam, who knows, or based on your experience maybe most of retailers has their offices were…Thanks a lot for your comments.

To answer this question, you need to ask yourself “what do you hope to accomplish by opening an office in China”. For example, a representative office (RO) in PRC is not allowed to invoice (can’t actually buy and sell). But the staff in the RO can provide support such as negotiations and quality control functions. If you are thinking of using the entity to buy and sell, then you may want to consider opening a WOFE (wholly owned foreign entity) with a trading license. With this vehicle you can make purchases and resell under your own name. This is a great tool if you are buying commodity items from your suppliers and desire to ship directly to your buyers without letting them know the actual source (assuming you are worried your buyers would try to go factory direct and cut you out of the loop).

Setting up in HK is much easier than in PRC, not nearly as much red tape or limits on your scope of business. However, the costs associated with office space, warehousing space and especially human resources is significantly higher than in the Mainland. Despite the costs, HK is an excellent location if you desire to have a regional sourcing hub managing orders at a pan-Asia level. In HK you will find an excellent banking system, rule of law and well educated staff to man your office.

Perhaps the biggest reason to set up in HK is to take advantage of the tax incentives. For example, if your HK entity buys from PRC and sells to S. America, there is no business tax applied in HK. Depending on your home country’s rules about transfer pricing and arm’s length business transactions, you may even be able to use the HK entity to defer or maybe even reduce your global tax burden. I suggest you speak to a tax advisor in your home country and ask how the profits of a HK entity owned/controlled by your company would be taxed. You would also be wise to consult the business formation experts to get a feel for the costs involved in setting up and maintaining offices in Asia.

If for some reason you change plans and decide not to set up your own office, know that you can outsource many of the China sourcing functions such as inspections, project management, engineering, vendor coordination and even VAT rebate processing to 3rd parties. If you need a place to start your research, take a look at the endorsed service providers page for companies that can help you get started.

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