The business scope of a Representative Office (RO) should be clearly stated in the application document prepared by the applying foreign enterprise. After approval by the relevant authority and registration with the AIC, the business scope will be stated in the Registration Certificate for the Representative Office (RO). A Representative Office (RO) can only engage in business activities which are within the business scope as set forth in the Registration Certificate.

Normally, ROs can only engage in non-operational activities in China, such as liaison, product promotion, market research and technology exchange. However, if a bilateral treaty between China and the home country of the foreign enterprise provides that Representative Offices (RO) established by enterprises of both countries should have the authority to engage in direct operational activities, such provisions should prevail.

ROs will have the authority to engage in economic activities and sign economic contracts which are necessary to maintain the existence and function of the Representative Offices (RO). For example, a Representative Office (RO) entered into a purchase contract with a computer company, whereby the Representative Office (RO) will purchase a computer for office use. This computer purchase contract should be valid because the purpose of this contract is to satisfy the basic needs of its operation.

The right to engage in activities to maintain its operations is an intrinsic right of a RO. Such activities are not business activities. Examples include engaging the services of Chinese personnel, renting permanent office space, displaying the name of the office outside its premises, using a company chop, importing personal and office goods, obtaining telephone lines, opening a bank account in the name of the office, obtaining resident visas and other permits for expatriate employees and referring to itself as having an "office" in China.

Complying with Limitations on Activities

The apparent intention of limiting representative offices to "non-direct business activities" is to ensure that representative offices act on behalf of the foreign-based companies they represent and not on their own behalf as separate business entities. Thus contracts signed by the representative office (other than those relating to its own administration, such as its office lease) should be signed in the name of its parent enterprise or one of its affiliates, not in the name of the representative office itself. Such contracts should also show an address outside of China for the relevant foreign party. Any sale and subsequent billing and collection of money for technical, consulting, inspection, or other services should similarly be carried out by the parent enterprise or one of its affiliates, not the representative office. Based on the regulations, representative offices should not perform the functions of a "service centre".

Consequences of Exceeding the Limitation on Activities

If an established representative office is found to be "directly engaging in business activities", the Registration Procedures provide for penalties including fines of up to RMB20,000 and suspension of business activities. In practice, actual fines and sanctions are somewhat discretionary and determined on a case-by-case basis. It is possible that the representative office may be allowed to remedy the situation without sanction or that appropriate penalties will be determined on the basis of the amount invested in such activities and/or income generated through such business activities.

Introduction to China Representative Office
Representative Office Registration Procedures
Legal Status of Representative Office
Business Scope of Representative Office
Chief Representative
Taxation of Representative Offices