Setting up a representative or branch (service company) office in China

It is important from a legal perspective to understand the choices for opening an office to conduct business in China. Legally speaking there is a vast difference between a ‘representative office’ and a ‘branch office’. Representative offices fall under the “Regulation of Registration of Representative Offices of Foreign Enterprises” and business conducted by representative offices is severely restricted to: market research, liaison activities, promotional activities and other activities which do not directly generate income. If your objectives include your office conducting ‘for profit’ business activities review the information in the section entitled ‘FDI regulations and setting up a subsidiary company‘. Information on setting up a branch office is provided below, however bear in mind a ‘wholly owned foreign entity’ (WFOE) must be legally established in China before a branch office can be opened. Finally, by law Chinese nationals cannot be directly hired, this must be done through a Chinese employment agency (e.g. FESCO).

Representative office

Seafood enterprise representative offices in China, are not legal entities and must be non-profit. Staff is essentially restricted to the role of a ‘liaison’. Representative offices are required to pay: Business Tax, Enterprise Income Tax, and Individual Income Tax for the employees and Stamp Tax. Representative offices cannot directly hire Chinese nationals. For seafood businesses interested in learning first-hand about the Chinese seafood marketplace a representative office seems like an attractive option. Be aware however, it is not recommended to use a representative office as a stepping stone to a wholly foreign owned entity (WFOE). Representative offices are complicated and expensive to shut down. The following requirements must be met to open a representative office in China. First, a lease of at least one year on an approved office space which takes effect after the representative office is approved. A designated chief representative must be appointed (any additional staff is limited to 3 individuals). Finally, the representative office must represent a legal entity which has been in existence at least 2 years (private individuals are excluded).

Branch office

The precursor to setting up a branch office in China is the establishment of a wholly foreign owned entity (WFOE). Branch offices have a business license, can sign contracts, generate invoices, operate for-profit and hire employees. Branch offices however, cannot import or export. WFOE’s are legally liable for the branch office. The advantage of a branch office is convenience through the ability to conduct ‘for-profit’ business at another location distant from the parent company. For example, a tilapia exporting parent company might be in Shenzhen (the primary export location) with branch offices (for purchasing product) in Haikou, Beihai and Zhanjiang. The following basic steps must be followed: Complete all necessary permits and applications for branch registration, obtain a business license, register with tax and other relevant authorities, register for required stamps and open a bank account.