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| How to Set Up a Representative Office in ShenZhen China, |
Shenzhen is the second largest city in Guangdong province, a regional manufacturing and financial hub and one of the richest cities in China. The city, originally a village north of Hong Kong, was first developed as a special economic zone when economic reforms were introduced in the late 1970s. After over 30 years of sprawling, it has become one of China's top four first-tier cities along with Shanghai, Beijing and Guangzhou. With a population of over 20 million, the city's GDP grew 10% to RMB1.3 trillion in 2012. With sound infrastructure and easily recruited many talented personnel in Shenzhen, Foreign company can take this advantage to set up Rep Office in Shenzhen as china market entry strategies
When investors have plans on establishing
representative office in Shenzhen, it is better for them to acquire more
information in order to run a successful business in Shenzhen.
Shenzhen Representative Office Setup-Procedures
Preparing all the needed documents→ fill out the application form→ sign the agreement with TCBC→ pay for the services→ submit all the needed documents→ name reservation→ apply for the business license and work card→ go to the public security bureau for stamp-make→ apply for Organization Code License & card→ apply for Setup license of the Local & National Taxation Bureau.
An RO has no legal personality, meaning it does
not possess the capacity for civil rights and conduct, cannot
independently assume civil liability, and is limited in its hiring
ability. Chinese staff working for an RO, although not limited in
number, must be employed through a human resources agency that will sign
a contract with the RO on the one hand and with the Chinese staff on
the other in order to ensure social security and housing fund
contributions are paid on a regular basis. No more than four foreign
employees can be hired per RO. Foreign staff working for ROs should have
an employment relationship with the parent company abroad, and any
disputes should be settled under the laws of that country
Recent Updates to setting up a Rep Office in ShenZhen
The new restrictions
The January 2010 notice states that some rep
offices have been operating outside of the restrictions—specifically,
changing registration items without authorization, submitting false
supporting registration documents, and conducting business operations
illegally. The notice thus sets out several provisions to strengthen the
administration of rep offices.
Registrations, renewals, and changes
A new provision in the notice states that foreign
companies applying to establish a rep office in China must have been in
existence for at least two years, as evidenced by an apostilled
certificate of incorporation. This means that foreign companies must use
established vehicles, rather than incorporate new SPVs, to handle their
rep office operations. The notice also requires foreign companies to
obtain and provide new apostilled certificates of incorporation each
time they apply to renew their rep offices’ registration certificates—a
potentially onerous process—and requires rep offices to renew their
registration certificates every year.
Number of representatives
In addition to stricter registration and renewal
requirements, the notice creates new bureaucratic hurdles for rep
offices’ operations. Specifically, it limits the number of
representatives that a company may appoint to four individuals,
including the office’s chief representative. (Previously, there were no
explicit limits on the number of representatives that a foreign company
could appoint.) Existing rep offices that have more than four
representatives may not appoint additional representatives, though the
notice does not specify whether such offices must reduce this number to
comply with the new rules. One local SAIC official in Beijing indicated
that reduction would likely be unnecessary unless a rep office applies
to SAIC to make changes to its registered representatives. (In addition
to SAIC’s registration requirements, the PRC government has found
practical ways to enforce the rule, such as refusing to issue visas or
work permits to foreign employees of rep offices that have more than
four registered representatives.) The notice also does not specify
whether the restrictions would apply to rep offices of companies in
industries that require regulatory approval. Local SAIC officials have
provided different answers to this question, likely because of the
limited number of registration applications that have been received
since the notice was issued.
Spot checks
The notice states that local SAIC branches will
perform spot checks on rep offices within three months after the
registration certificates are issued. Rep offices found engaging in
direct operations may be subject to administrative fines, and those
discovered to have moved without updating their registered addresses or
operating without valid registration certificates may be subject to
increased scrutiny by the authorities.
Is a rep office still worth it?
Though rep offices have no capitalization
requirements, some foreign investors have long debated whether opening a
rep office was worth the time and effort due to the limited scope of
its permitted business activities. Given the recent tighter restrictions
on rep offices, more companies may begin their China operations with a
WFOE, which can conduct revenue-generating activities directly.
Furthermore, increased localization of approval procedures and decreased
capital requirements have made establishing a WFOE less onerous.
Setting up a rep office may thus be the best
choice for a foreign company that is mainly interested in promoting its
overseas products and services and establishing networking relationships
between Chinese businesses and their overseas operations. In addition,
for some entities—such as foreign law firms and certain nonprofit
organizations—a rep office may be the only option for conducting their
China operations.
Many foreign companies are finding that the
question is not simply whether they should set up a WFOE or a rep
office, but rather how they can best take advantage of the vehicles
available for foreign investment through a multifaceted approach.
Because various investment vehicles and industries are subject to
different regulations and authorities, a foreign company may find it
advantageous to set up multiple rep offices, WFOEs, and Sino-foreign
JVs. The different permitted business scopes of these various investment
structures may allow companies to conduct more business in China. The
correct approach for investing in China largely depends on the
particular industry and the specific goals of the company.
Recent Updates to Representative Office Tax Law
The PRC government earlier this year issued new
measures that promise significant changes to how foreign representative
(rep) offices calculate and file taxes in China. The changes bring
China’s law on rep office taxes in line with the 2007 PRC Enterprise
Income Tax (EIT) Law and may subject rep offices to new tax requirements
and potentially higher tax burdens.
According to the Provisional Measures for
Foreign-Enterprise Representative Office Tax Administration, which were
released by the PRC State Administration of Taxation in February 2010
and took effect retroactively from January 1, 2010, foreign rep offices
must now declare and pay income, business, and value-added taxes on
income attributable to the rep office. Previously, rep offices could
negotiate EIT exemptions with local tax bureaus on the basis that their
rep office activities did not generate revenue. Under the new measures,
local tax bureaus can no longer accept new rep office applications for
EIT exemptions and must re-evaluate the applications of rep offices that
enjoy existing exemptions. Only rep offices that have protection under a
relevant double tax agreement may be considered for EIT exemptions.
The measures also clarified tax registration
procedures for rep office staff and offered three formulas to calculate
tax liability, depending on how complete the rep office’s financial
records are:
◾Actual amount method Used when the rep office has kept complete records of its expenditures and revenue, this method is comparable to the tax calculation standard laid out in the EIT Law. (Though rep offices typically do not engage in traditional profit-making activities, income has been assessed—and tax levied—based on the services they provide.)
◾Actual-revenue-deemed-profit method The tax authority will use this method when the rep office has kept complete records of its revenue but not its expenditures. The reported revenue is multiplied by the tax rate and a “deemed profit rate,” which can be no less than 15 percent.
◾Cost-plus method This method is used when the rep office has kept complete records of its expenditures but not its revenue. In this case, the tax authority will generate a figure to indicate revenue: Revenue = expenditures / [1 – deemed profit rate – tax rate].
◾Actual amount method Used when the rep office has kept complete records of its expenditures and revenue, this method is comparable to the tax calculation standard laid out in the EIT Law. (Though rep offices typically do not engage in traditional profit-making activities, income has been assessed—and tax levied—based on the services they provide.)
◾Actual-revenue-deemed-profit method The tax authority will use this method when the rep office has kept complete records of its revenue but not its expenditures. The reported revenue is multiplied by the tax rate and a “deemed profit rate,” which can be no less than 15 percent.
◾Cost-plus method This method is used when the rep office has kept complete records of its expenditures but not its revenue. In this case, the tax authority will generate a figure to indicate revenue: Revenue = expenditures / [1 – deemed profit rate – tax rate].
This figure will then be multiplied by the determined profit rate and tax rate to calculate tax liability.
The cost-plus and actual revenue-deemed-profit
methods empower local bureaus to determine the formula that rep offices
must use to calculate their income tax liabilities, using the
all-important deemed profit rate. The new measures increased the minimum
rate from the previous 10 percent to 15 percent. Because 15 percent is a
base rate, however, local tax bureaus may have the discretion to apply a
deemed profit rate that is even higher. The new rules thus create a
strong incentive for rep offices to keep accurate records of their
revenue and expenditures to avoid using the deemed-amount method to
calculate tax liabilities.
Contact Tom Lee for Set Up a Representative Office in shenzhen now
Email: tomlee@tommyconsulting.com,
tomlee_cn@163.com,
WhatSapp/Wechat/Cell Phone: +86 18926401128, Skype: tomleeli
Tel: 86-755-25809219,Fax: 86-755-83256658
WhatSapp/Wechat/Cell Phone: +86 18926401128, Skype: tomleeli
Tel: 86-755-25809219,Fax: 86-755-83256658
