On 4 January 2010, the State Administration for Industry and Commerce (SAIC) and the Ministry of Public Security jointly released the Notice on Further Strengthening the Administration of Registration of Foreign Enterprises’ Resident Representative Offices. A representative office of a foreign enterprise is set up by an overseas foreign enterprise with the intent to have a presence in China. Generally, a representative office is allowed in China to represent its overseas parent company in business liaisons, market surveys, product introduction, etc., without engaging in direct profit-making business.
The Notice was formulated when representative offices in some locations were recently found to have submitted false documentation in registration, changed specific registered items without registration, engaged in direct profit-making business unlawfully or undertaken other non-compliance activities. In order to better regulate the unlawful behaviours of these representative offices, the Notice provides restrictions in four main areas.
Establishment or Name-Renewal – Foreign Enterprise Required to Be in Existence for at Least Two Years
For application materials required in the establishment or name-renewal registration, the Notice reiterates the existing requirements, such as notarization and authentication of the application materials and the submission of a certificate of incorporation and a credibility certificate.
The most significant change under the Notice is for the certificate of incorporation (submitted in the establishment and name-renewal registration) to indicate that the foreign enterprise has been in existence for at least two years. There was no such requirement previously. This provision will prevent a foreign enterprise existing for less than two years in China from setting up a representative office in China. It will also make it hard for a foreign enterprise to establish a new entity as a firewall to manage its representative office in China.
Term of the Registration Certificate – Limited to One Year
Currently, the valid term for the registration certificate of a representative office could be up to three years. According to the Notice, this term will be strictly limited to one year. As to registration certificates which have been issued to representative offices with a valid term over one year, they shall be renewed as one-year certificates when the representative office conducts change or extension registration.
Number of Representatives – Limited to Four
According to the Notice, in general, the number of representatives appointed by a foreign enterprise shall not exceed four. A representative office which has maintained more than four representatives can only nullify representatives and will not be permitted to appoint a new representative until the limit of four is reached.
Activities – Spot Check
Generally, representative offices are not permitted to “charge money” in China. Activities of a representative office are restricted to performing marketing or liaison functions on behalf of its parent company. However, in practice some representative offices have been conducting direct profit-making business operations. In order to investigate unlawful activities conducted by representative offices and other non-compliance issues, the Notice requires local administrations of industry and commerce to conduct spot checks on representative offices within three months after they have obtained registration certificates. Representative offices that are found to be engaging in direct profit-making business operations may receive administrative fines; those that are discovered to have changed location or exceeded valid term of residence without renewing their registration certificates may be subject to higher scrutiny.
Conclusion
With the Notice coming into effect, establishment of new representative offices will be more difficult, and existing representative offices will be under more strict scrutiny. Foreign companies should evaluate their representative offices to ensure they are in full compliance with registration requirements, and that they do not conduct direct profit-making business in China.
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