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China Company / Rep Office

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RO ( Representative Office )

• Pros & Cons
• Setup Key Points
• Documents Required
• Tax Implications
• Setup Cost
• Maintenance Cost

• Least capital injection required. As RO is not a legal entity, actually no minimum share capital is required.
• Can handle market research, sourcing, project investigation for mother company, who in turn to execute trading function.
• Can hire local staff.

• Limitation in activity. No trading or invoicing is allowed.
• Local staff should be hired via government admitted agents.
• Although not profit center, cost expenses still attract tax liability.

• Takes around 1 month to apply.
• A Chief Representative (CR) is to be appointed
• Company should be able to present bank reference letter;
• An office premise rental agreement (or ownership document) which is valid for foreign investor use. The term should be at least 12 months long.

Applicant company's

• Certificate of Incorporation
• Members Register
• Directors Register
• Last filed return to Company Registry
• Last filed return to Tax Department
• Company / business profile and reason of setting up RO
• Minutes of Board Meeting to setup RO
• Minutes of Board Meeting to authorize Chief Representative
• Bank reference letter

Chief Representative's

• Passport copy
• Photos
• Resume

Application letter

• One to Foreign Economic Relations & Trade Commission
• Another one to Administrative Council of Industry & Commerce

• Chief Representative and local staff's Individual Income Tax (IIT)
• Business Tax base on monthly operational expenses (BT)
• Income Tax base on annual operational expenses (IT)

IIT above depends on salary amount while BT & IT roughly amounts to 10% of annual operational expenses.

Rough elaboration on BT & IT payable

• Business Tax = Deemed Turnover x 5%
• Deemed Turnover x 90%= Total Expenses
• Deemed Turnover = Total Expenses / 90%
• Business Tax = (Total Expenses / 90%) x 5%
• Income Tax = Deemed Profit x 33%
• Deemed Profit = Deemed Turnover x 10%
• Deemed Turnover = Total Expenses / 90%
• Income Tax = (Total Expenses / 90%) x 10% x 33%
• Business Tax + Income Tax = (Total Expenses / 90%) x (5% + 10% x 33%)
• Business Tax + Income Tax = (Total Expenses / 90%) x 8.3%

Therefore

• Business Tax + Income Tax = Total Expenses x 9.2%

License renewal

RO license has to be applied again once permit is expired. Maximum 3 years approval will be granted and depends on rental lease terms.

Accounting, tax filing and auditing

• Tax filing has to be done on monthly and annual basis.
• Moreover, there are statutory audit on the expenses account and foreign currency bank account.
• Service fee for monthly accounting and tax filing starts from Rmb 2,500 while annual audit starts from Rmb 5,000.