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Advantages and Disadvantages of establishing a Rep Office

What is a RO in China?

Representative Office (RO) is fairly quick, relatively inexpensive and easy way to set up in China. It is established by foreign companies and an entity involved in business activities which do not result in direct profits being made by the office. They are not allowed to operate as partnerships or sole proprietorships in China, as they are not recognized as legal persons. However, they are allowed and encouraged to conduct “indirect operational activities’, such as engage in business liaison, product promotion, market research, exchange of technology and other permitted activities in China.

Why use a RO?

RO is typically used for testing the market and probably the most common form of foreign presence in China. The RO is an excellent means by which a foreign company can become further involved in the Chinese market. Following are prompt a foreign company to set up an RO:A foreign company is looking for Chinese suppliers A foreign company is looking to make a direct investment in the Chinese market, but feels it needs to do more market research before it decides on a long-term strategy for entry into China. A foreign company already has an existing market for its products and/or services in China, but the Chinese market is not large enough to sustain a full-blown investment in China.

Advantages of establishing an RO

  • No registered capital required.
  • Easy to control than others business type in Hr or Tax issue
  • The quickest, relatively inexpensive and easy to set up.

Disadvantages of establishing an RO

A. An RO is limited in the nature of the business activities in which it can engage, cannot receive any fees for its service or engage in any profit-making activities. Restricted activities include:

  • Rendering services to any persons other than its head office
  • Soliciting, concluding or signing business contracts with any customers or issue invoice in China.
  • Warehousing and managing inventor conduct in China for trading purposes
  • Other business trade or activities; whatever direct or conduct on behalf foreign parent company. Any activities other than of a liaison nature (e.g. quality
  • control services and installation and testing services).

B. RO cannot employ staff directly. Essentially, an RO must use an authorized human resources agency in hiring its staff.