| Shenzhen is the best choice for doing business in | | | | post-registration formalities including: |
| China. Situated in the Pearl River Delta, Shenzhen is | | | | • obtaining an organization code and an organization |
| the first Special Economic Zone since China carried | | | | code certificate from the General Administration of |
| out reform and open-door policy 30 years ago. | | | | Quality Supervision, Inspection and Quarantine of the |
| Shenzhen has an area of 1953 square km’s and a | | | | PRC or its designated local bureau; |
| population of more than 10 million. Shenzhen is the best | | | | • registration with the Public Security Bureau; |
| city both for living and working in China as well as the | | | | • opening of a foreign exchange account in the |
| fastest growing city in the world. In Shenzhen you can | | | | designated bank; |
| enjoy the sound infrastructure and the intensive | | | | • registration with the local as well as the state tax |
| industrial chain for trading, manufacturing and value | | | | authority; and |
| investment. Since Shenzhen is bordering Hong Kong, | | | | • registration with the local customs bureau; |
| you can also take great advantage and opportunity | | | | • if there is a foreign employee, work visa and |
| from the “one country, two systems” policy. | | | | residence permit is needed. |
| | | | | Term of Operation |
| Introduction | | | | In most cases, the term for a representative office is |
| Starting your business by setting up a representative | | | | three years. The term of operation of a representative |
| office in China is an effective and relatively cheap | | | | office may be extended upon submission of an |
| way. However, a representative office is not an | | | | application to the original approval authority within 30 |
| independent legal entity. It is prohibited from engaging in | | | | days before expiry of its term. |
| direct business activities, such as manufacturing, | | | | Tax |
| production and sales. So its business scope is limited. | | | | The main tax involved for a representative office shall |
| The activities it may engage include liaison with | | | | include the business tax and income tax. When the |
| potential client, product introduction, market research, | | | | representative office applies for tax registration in the |
| technology communication etc. | | | | tax authority, the tax authority will decide to adopt one |
| The main purpose of a representative office is to | | | | way for calculating the tax for the representative |
| guide market research, supervise/coordinate purchase | | | | office, according to the business the representative |
| sales activities and coordinate relationship between | | | | office engages. Since the representative office is not |
| oversea company and Chinese partners. | | | | allowed to engage direct business activities, so how to |
| Not like WOFE or JV, a representative office does not | | | | decide its income is the issue the authority may |
| need registered capital and only require funds for its | | | | consider. In Shanghai, there is one model which the |
| operation which may be remitted by its HQ. | | | | authority adopts called Expense converted to Income. |
| Establishment Procedure | | | | The calculation is as follows: |
| If the oversea company who wants to set up a | | | | First of all, the representative office shall calculate its |
| representative office in China is a financial institution, an | | | | total expense for a certain period. The expense may |
| insurance company, an air or sea transportation | | | | include the employee’s salary, office rent, |
| company, a sea transportation agent, etc, the | | | | equipment cost etc. |
| establishment of the representative office shall acquire | | | | Then the total income shall be calculated as follows: |
| approval from the authority before registered at the | | | | The assumed income is equivalent to expense/0.85 |
| registration authority. However, for other company like | | | | The business tax shall be expense/0.85*5% (5% is the |
| trading company, manufacturer, leasing company, etc, | | | | rate for business tax) |
| no prior approval is required. | | | | The income tax shall be expense/0.85*10%*25% (10% |
| Prior Approval | | | | is the assumed profit rate and 25% is the rate for |
| If according to the industry of the oversea company, | | | | income tax) |
| prior approval is required, the applicant shall prepare | | | | The authority may decide to adopt other model for |
| and submit required documents to relevant authority | | | | tax calculation after examination. |
| for examination and approval. | | | | Employment |
| After approval, the authority will issue the approval | | | | A representative office can use local and foreign |
| certificate which shall be used for registration for the | | | | employee. |
| next step. | | | | Since the representative office is not an independent |
| Registration | | | | legal entity, according to Chinese law, it is not allowed |
| For representative offices which may require prior | | | | to recruit employee directly in its own name. It has to |
| approval, within 30 days after the approval certificate | | | | hire employee through a certified agent, like FESCO. |
| is issued, it shall apply for registration. | | | | The employment contract is signed between the |
| For representative office which don’t need prior | | | | employee and the certified agent and then the agent |
| approval, it can apply for registration directly. | | | | send the employee to representative office. The agent |
| A listing of required documents shall be prepared and | | | | is the employer of the employee and the |
| submitted to the registration authority, which may | | | | representative office is the actual user for these |
| include application letter, appointment letter for chief | | | | employees. The representative office shall pay service |
| representative, bank credibility letter, leasing agreement, | | | | fee to the agent as well as all salaries to employee |
| chief representative’s resume, pictures, passport | | | | through the agent. |
| copy etc. | | | | If the representative office needs to recruit foreign |
| A registration certificate will be issued after registration, | | | | employee (chief representative and representatives |
| which means the representative office has been duly | | | | excluded), these foreign employees shall apply for Z |
| established. | | | | visa and work permit in China. After application of |
| Post-establishment Formalities | | | | work permit, they also need to get a residence permit |
| After obtaining the registration certificate, the | | | | which may enable them to work legally in China. |
| representative office should attend to a number of | | | | |