How To Hire Foreign & Local Staff For A Representative Office In China

 
So you are planning to open a Representative Office in China, what's next?
Did you know that there is a limit on the number of foreign staff that you can hire?
Did you know that you can't directly hire your own staff and administer their payroll?

There are a number of unique China rep office rules and regulations that you NEED to know about if you have, or are planning to, opened a representative office in China.

Let's look in more detail at how employment of staff for a representative office in China works in this blog post...

 

China Rep Office Rules For Hiring Staff

There are certain China rep office rules that must be followed. For instance, the maximum amount of foreigners to work at a Rep Office may not be more than four, and they cannot work directly for their overseas office (as typically foreigners working in China must be hired by a local entity and placed on the relevant work permit which an overseas company could not offer). 

Another rule to remember is that your Rep office must have a Chief Representative, who is not required to be directly employed by the Rep Office and can be an employee of the parent office. This person's name and details are given when opening an RO.

This means that you could have four foreign representatives operating from China and the Chief Representative could be the fifth foreign employee, but only if they are not residing within China.
Foreign staff are employed for the rep office through a FESCO, a qualified local organisation which handles employment of staff for rep offices dealing with payroll, documentation, etc.

You might wonder if four employees would be enough? If you need more employees, local Chinese nationals can be hired, however they can not be employed by the Rep Office directly and must make use of a FESCO.

Are you looking to open a Representative Office in China, but need to know more about the process of registering your rep office for tax? 

 

What is a FESCO?

Foreign businesses that have set up a representative office in China will have set up a contract with a government-qualified 3rd-party called a FESCO (Foreign Enterprise Service Company) to aid in labor dispatch and additional Chinese services regarding employees. Because the RO does not bring in capital it is not seen as a legal entity in China, creating restrictions for an RO to make use of a agency for hiring employees. This is necessary to protect the interests of the employees working for the RO.

FESCO is a term used for local HR companies here in China, and not a specific organization as is usually the popular assumption, and are not exclusively owned by the government, some of them are complete privately owned local companies.

Did you know that TCBC are a FESCO, and as such we can directly help you to open your RO and hire staff?

 

 

What services does a FESCO agency offer?

When a representative office is looking to expand its staff whether local or foreign, the agency will offer services to your rep office and search for applicants. The agency will supply and hold standard labor contracts which are usually strict with little room for negotiation, but this also lessens the risks to hiring directly.
Some of these companies which are state owned will have strong legal teams to assist in any employment issues that may occur regarding performance, termination of a contract and more. FESCOs can also be useful for foreign businesses that are still pre-incorporation period and that may require the assistance of local Chinese employees if the business has obtained a valid business license.
According to Labor Contract Law, a FESCO can only offer contracts for at least two years, this contract may still be terminated by the employer by following the agreement of Labor Contract Law and the signed agreement with the employment agency.

 

Advantages of using FESCOs

• Lower risks involved using a FESCO than hiring directly as they must deal with any issues, not you.
• Some hiring agencies will allow under specific circumstances (deposit of three or more months salary and insurance costs) foreign businesses the process of hiring Chinese employees while waiting for a business license. This will give great advantage to your business while it is still in the incorporation phase.
• The FESCO offers services to the employees that includes; medical insurance, housing and retirement and will renew or terminate employments contracts for your RO. 

All Chinese employees must be indirectly employed under a dispatch agreement with a Chinese dispatch company such as FESCO. They cannot work directly for the foreign parent of the Rep Office.

Are you interested in setting up a representative office? Why, or why not? Have you got any specific questions about China rep office rules and regulations?

Explaining The Manufacturing WFOE Registration Process

 

If you want to move up the supply chain, or shift your manufacturing to China to reduce overall cost, registering a manufacturing WFOE (wholly foreign owned enterprise) is the way to take it to the next level. There are different WFOEs for different purposes, and in this case we’ll look in detail at the manufacturing WFOE registration process...

Why you need a manufacturing WFOE

In the past, foreign companies aiming to manufacture their products in China would usually have to enter into a joint venture with a local company. This allows an easy route into China with a company which already has established infrastructure, and is still necessary for certain industries, such as Automotive and Pharmaceutical; but can lead to a loss of control, or disagreements with your local partner.
A manufacturing WFOE allows you to set up your own manufacturing operations within China, but with no connection to local companies whatsoever. This offers increased business mobility, better protection of IP, and a level playing field with local companies (as your Chinese company is equal in terms of being able to trade in China).
It’s good to keep in mind that  the company setup can only operate within the business scope approved by the authorities. China may provide incentives and tax breaks for foreign manufacturing companies, however, the rules and regulations are complex so professional guidance from a partner like TCBC is recommended.

How long does the Manufacturing WFOE Registration process take?

The exact duration of registering a manufacturing WFOE depends on several factors and the timeframes can differ, mainly due to a variety of certificates demanded by the Chinese government. These certificates include the Environment Safety Certificates, Energy Impact Assessment Approval and Fire Protection Approval, among others. Most companies quote 3-9 months, with the average time being around 8 months, but considering your paperwork is in order the process can be done much quicker with proper assistance. The good news is a lot of the process can be done via email and courier services, so you can start the process from wherever you are and travel to China once the process has been initiated.
There are 4 phases for registering a Manufacturing WFOE. If working with an agency, your account manager will guide you through each step, and make sure that your documents are correct:

Phase 1: Preliminary Project Application and Name Approval

The first thing you need to do is make sure your proposed company name is available, fill in the initial forms and get a reference letter from your bank.
Documentation:

• Project application based on the feasibility study;
• Environment impact, self-evaluation form(this is important for a manufacturing company);
• Site selection form for the project (Including lease agreement and ownership certificate of real estate);
• Name pre-approval application with five optional company names and business scope description;
• Letter of authorization for application of business Name;
• Bank reference letter;

NOTE: You will receive an approval letter and a business name approval notice within 5 working days after submitting the documents mentioned above, only then can you proceed to Phase 2.

Phase 2: Official Application for Government Approval

 

In phase 2 of the registration process we move onto government approval, and take the first steps to make your WFOE official.
Documentation:

• Feasibility report of project;
• Environmental evaluation report;
• Article of association (note: this is the key document that lays out equity terms);
• List of equipment & raw materials to be imported (if any);
• List of names for WFOE board members & official certificates of appointment;
• Names of WFOE General Manager, Deputy Manager, Supervisor and certificates of appointment;
• Copies of ID or Passport of Board Members, Supervisor and General Manager

NOTE: It normally takes around 20 days to get your certificate of approval. The certificate of approval expires 30 days after issuance.

Phase 3: Application for Business License

Now that we have your certificate of approval in hand,  we can move on to register for your business license.
Documentation:

• Application for establishment and registration of FIE (foreign investment enterprises);
• Form for registration of “legal representative” and “evaluation” form (declaring no illegal activities, criminal records etc.);
• Copies of ID or Passport of Board Members and General Manager & Deputy General Manager; résumé & photos of legal representative certified by Chinese Embassy (if outside of China);
• Article of association of WFOE;

NOTE: After Phase 3, the Business license will be issued in approximately 15 days and the WFOE will be officially established. You must open a local bank account and fulfil your registered capital obligations and officially register with various government departments as stated below.

Phase 4: Registration with Different Authorities

Your WFOE is now officially established, the next step is to get your bank account up and running and register with the various government departments listed below.

Procedure After Obtaining Business License:

• Apply for enterprise organisational code;
• Apply for company stamps and seals;
• Apply for a tax registration certificate;
• Apply for certificate of foreign exchange;
• Opening of bank account (this will have to be done in person);
• Apply for the statistics registration certificate;
• Apply for import and export operating right;
• Apply for finance registration certificate;
• Apply for customs registration certificate.

In summary you would start with picking a name and providing bank reference letters as set out in phase one, the second phase will be the official application for government approval, thirdly you will apply for your business license and finally, you will register with all the different authorities listed. The above is a reference and the content can change from time to time, and thus we would recommend keeping in touch with a professional consultant to keep up to date with the latest news and changes in regulations.

 

Your next step…

A WFOE is the most favoured investment vehicle as it gives full autonomy and control to the foreign parent company, being a privately held limited liability company in China in which all the shareholders are foreign. Given you’ve read this far, this is most likely the ideal vehicle for your organization, so why not get in touch with an expert at TCBC to answer any questions you may have.

How to make sure your China WFOE structure is compliant

 

Keeping your China WFOE structure compliant, current and out of the cross hairs can be a challenging task. Chinese business law is diverse and complicated, and it is important that you stay on top of it. We are going to take a look at how you can make sure your China WFOE structure is currently compliant with these laws, and what steps you can take to prevent any unwanted scrutiny.
You must have someone in your company or preferably a consulting agency that actively follows and understands Chinese law. Current information isn’t always readily available and almost certainly not in English, so it is important to have someone keep their ear to the ground about any sudden changes or shifts in compliance laws. You will need someone actively monitoring this on the ground, as it changes with little or no warning, and where there’s smoke there’s fire.

How Do I know if My WFOE Structure is Currently Compliant?

There are essentially 4 points you need to look at to make sure your China WFOE structure is compliant and up to date:

Corporate Income Tax Compliance

Tax compliance requires the knowledge of a local tax accountant or similar resource.  The State Administration of Taxation (SAT) oversees all kinds of tax paid by corporations, but only corporate income tax (CIT) requires annual reconciliation. The deadline for submitting the CIT Reconciliation Report to the Tax Bureau is May 31 every year, however, the investigation of the tax compliance could last to the end of the year, and companies should be prepared to provide supporting documents upon demand from the Tax Bureau.
Every year around March, depending on the area, the local Tax Bureau will issue annual guidelines on CIT reconciliation. The CIT Reconciliation Report is examined by the Tax Bureau to see if all tax liabilities have been fulfilled under tax law. This has to be done annually and failure to comply could result in heavy penalties.

Statutory Annual Audit Report

Company Law mandates the annual audit of financial reports, with entity-specific laws like WFOE law requiring this audit to be conducted by a Certified Public Accountant(CPA) firm in China. The objective of this audit is to ensure companies are meeting Chinese financial and accounting standards.
Usually, CPA firms start preparing annual audit reports in January, directly after closing last year’s account. The procedure takes all of two months, and the audit report needs to be finished before the May 31 tax-filing deadline.
Many foreign investors want to know exactly what’s going on in their China WFOE, and an upgrade to an in-depth audit done according to Western best practices, someone to design, supervise and assist with audit execution are now becoming commonplace.

Audit Report for Foreign Exchange Reconciliation

All forex transactions in and out of China are strictly controlled by the State Administration of Foreign Exchange (SAFE), the Bureau under the People’s Bank of China inspects foreign exchange transactions. Each year, SAFE requires an audit report for foreign exchange reconciliation to demonstrate the legality of a company’s foreign currency inflows and outflows.
This, as you probably guessed, requires an authorized Chinese CPA firm to audit report. The guidelines on Annual Foreign Exchange Reconciliation availability may vary by region, usually around March or April each year. The submission deadline is June 30 each year. 

Annual Inspection

All enterprises are required to go through the annual inspections “cooperative annual examinations’ of multiple government departments. These are designed to ensure that your WFOE conducts business in compliance with each department’s requirements.
Each year the annual inspection runs from January to the end of June, and can be jointly or separately conducted by the following government departments:

• Customs
• Administration of Industry and Commerce (AIC)
• Tax Bureau
• Local office of the Ministry of Commerce (MoC)
• State Administration of Foreign Exchange
• Statistics Bureau
• Finance Bureau

China WFOE structures with branches should pay special attention to ensuring that their branches also undergo annual inspection.

 

 

What Does Annual Corporate Compliance Mean?

As mentioned for WFOEs, annual corporate compliance involves producing a corporate income tax (CIT) reconciliation report, an audit report for foreign currency reconciliation, statutory annual audit report, as well as passing an annual inspection and fulfilling any other region-specific requirements.
On top of the official reports and audits you have to make sure your China WFOE structure is currently still within the scope of work as when you registered your company. Here are a few points to keep in mind when making sure you are still in line with corporate compliance:

• Be sure you are still operating within the bounds of business activity described at the onset of registering your WFOE,
• Have you moved your operation or any parts of your operation to a new address, if so have you revised your registration papers?

• Have you changed any staff members, or taken on any new staff in the meantime?

These questions relate directly to your up to date employment, tax and contract compliance and has to be updated regularly on your registration papers. 

 

Conclusion

The common theme of compliance here is to be up to date and vigilant of Chinese law in its current form, while trying to anticipate how these laws will be changed or interpreted over time and to be aware of it when they do.
The defence of your business to steer clear of unwanted scrutiny and unnecessary trouble is to make sure all your paperwork, registrations and plans are filed with the appropriate government agencies in a timely manner, both local and national. If you can tick all the boxes above your company should be in perfect compliance.

Still unsure about your current compliance? Why not get in touch with an expert at TCBC to analyze your current status?

Offer Accounting &Taxes Planning,Taxes Compliance, Bookkeeping,Tax Advisory,Tax Filing, Financial Accounting Function Outsourcing Services in ShenZhen China

Offer Accounting &Taxes Planning,Taxes Compliance, Bookkeeping,Tax Advisory,Tax Filing, Financial Accounting Function Outsourcing Services in ShenZhen China

Shenzhen is located on the western coast of the Pacific Ocean and at the central section of the north-south coastline of China. Facing the opportunities and challenges of the 21st century, Shenzhen has set its long-term strategic objectives for social and economic development. In near future, Shenzhen is planned to become one of the international economic, financial and trade centers of the world.

As the window of China's reform and opening up, Shenzhen is the first special economic zone established by China's reform and opening-up policy. Shenzhen came in second as the most economically competitive cities in the world in 2016.


Setting up a company in Shenzhen is a good choice for companies that are in computer software, IT, microelectronics and components, video and audio products, electromechanical integration, and key projects of light industry and energy.


Once your business is officially registered in shenzhen, it's required to maintain proper accounting records in accordance with accounting standards in China and to report taxes on both monthly (for business tax, individual income tax) and quarterly (corporate income tax) basis. Late submissions will face penalties and surcharges.

When foreign companies come to shenzhen to set up Small Medium Enterprises, one of the headaches is to find an English-speaking professional accounting & tax advisory and agency firm. Even there is help from local professionals, due to language and communication problems, it is still hard for investors to find the correct way of investment and to completely understand the local investment and tax policy. Furthermore, it is hard for the foreign investors to set up a complete and legal financial & tax system as well as the related procedures. Therefore, different kinds of incompliant problems regarding tax and legal areas will be accumulated with the invested company and lead to serious legal risks step by step.

A lucky investor may get the fluent English-speaking internal accountant by recruitment, but it does not mean the invested company no longer needs an external consultant. Due to the professional limitation of internal accountant, particularly when it comes to comprehensive issues regarding taxation, customs, foreign exchange, labor, banks and so on, it is hard for the internal accountant to propose sophisticated professional advice and options to the company’s management.

During the practical operating, many small and medium sized companies conclude that full time cashier and full time accountant cost a lot and create certain burden for operation. Meanwhile, as they might not be full occupied by works due to the limited work load. To be successful, any enterprise regardless its size often needs a financial and accounting expertise.Outsource your accounting project to us is the best solution to this problem

With Our professional accountanting service, clients can have the expertise they require when they require.

Our accountant could assist you and negotiating with yourlocal officer to use the proper tax reporting method for your China presence. And submit the tax reports monthly and quarterly on your behalf.
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The details of our services are set out below
◾Update the books in accordance with the Chinese Accounting Standards
◾Prepare monthly financial statements for tax filing purpose and submit if applicable
◾File monthly Business Tax Return and Individual Income Tax Return
◾File Corporate Income Tax Return quarterly
◾Annual Corporate Income Tax Filing
◾Monthly Bookkeeping Service
◾Audit of Financial Statements



Bookkeeping service
Chinese tax authorities require all enterprises to complete a tax filing on a monthly basis (quarterly for representative offices), failure to do so may result in late interest penalties and fines. You may also be required by your headquarters' management to update them on how well your business is going in China . To timely provide fairly presented financial statements may therefore be critical for the smooth operation of your business.

You may find it beneficial to outsource your financial accounting function at the beginning stages of your business. You will need access to local expertise from the very beginning and avoid any unnecessary corrective costs. We can help you set up standardized working procedures, integrate finance functions to your business infrastructure, and coach your business and future finance team at a cost-effective way.

Our outsource service team can work with your employees in China to handle the whole process of accounting service. We can sort out the most efficient work procedures, collect all relevant documents, discuss the sufficiency and legality thereof, perform bookkeeping according to prevailing Chinese laws and regulations, and deliver local tax authority financial statements to you in a timely manner. According to your specific requirements, either from your local office or headquarters, we can prepare or propose a reporting package with an in-depth analysis for you.

We can also communicate on your behalf with local tax authorities or any other government bodies as statutorily required to handle any issues that may arise during the course of your business operation, a tax audit, or business audit by other government bodies.

With the development of your business, if you deem it necessary to build up your in-house finance function, we can help you design the most appropriate structure, set up internal control procedures, hire suitable staff, and provide training for your entire finance team to ensure a smooth transfer from our professional team to your team.

Taxation agent
We assists businesses, individuals and organizations with tax strategy, planning, and compliance, whilst also delivering a wide range of business advisory services with dedicated tax professionals. This means that we can support you both locally and globally, wherever you require tax advice.

We take a holistic view, combining industry insight with the technical skills of financial and tax professionals, economists, lawyers and our other in-house resources as necessary, to develop comprehensive integrated solutions.

We have experience of working with an expansive and diverse client-base comprising all types of businesses — multinationals, local companies, privately-owned organizations, entrepreneurs, family businesses, trusts, partnerships and private individuals.

Taxation is a fundamental part of how every country and company operates. Tax policy needs to be shaped and actively managed by governments and corporate alike.

From a corporate viewpoint; tax governance is a rising priority, as legislation gets more complex. We work with our member firms clients to establish tax policies and processes, which determine that compliance responsibilities are met, planning opportunities are realized, and there is appropriate communication with the markets and regulators. That way, management can communicate that taxation is under control and get on with running the business.

We use our in-depth technical tax knowledge, and our broader understanding of how tax fits into the wider business picture, to help clients to meet their compliance responsibilities and to act on planning opportunities. Whether you are a business or an individual, we work as a team to help achieve your objectives.

Cashier Service
To ensure your cashier function goes well, you first need to recruit a cashier with high integrity, good personality, and strong technical competency. Then you need to set up and implement sound internal control procedures.

If you cannot ensure the above requirements are met, you may find outsourcing your cashier function to be a better option than keeping it in-house. Examples of circumstances where you may need to outsource include the following:

 a) During the initial stage when you start up your business
  b) Your business experience in a restructure, such as a merger or spin-off
  c) Unstable finance function
  d) Lacking qualified personnel

By outsourcing your cashier function, you can have your junior staff closely supervised, coached from time to time by our professionals during the course of their work, and avoid unnecessary fraud when starting your business in China. Working as your cashier function, we can help you control the bank movement, provide cash flow analysis and raise any significant issues where necessary.

Contact Tom Lee for Your Accounting Services Need 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