• An RO can handle market research, sourcing and project investigation for the parent company. It does not need registered capital injection.
• The parent company can enter into contracts with suppliers/customers in China in its own name.
  

• An RO may not carry out direct revenue-earning business activities. For example, it cannot enter into purchase/sales contracts and cannot receive payments for services, issue invoices or repatriate monies overseas.
• Local staff can only be hired via government-approved agents.
• An RO’s expenses still attract tax liability even if it does not generate revenue. The tax authority normally deems “taxable income” based on the expenditure amount of the RO. The estimated effective tax base of the RO is approximately 10% of its expenses.

An RO is required to apply for quarterly tax filing and annual inspection. It is liable for Business Tax and Foreign Enterprise Income Tax. The formula of an RO’s monthly tax is as follows:

Business Tax = Monthly RO Expenses / 0.85*5%
Foreign Enterprise Income Tax = Monthly RO Expenses / 0.85*10%*33%
(0.85 = 1 - the deemed profit rate 10% - business tax rate 5%)
(The current Foreign Enterprise Income Tax is 33%. It will be adjusted to 25% from 1 st January 2008, according to the new Chinese Corporate Income Tax Law.)

The tax bureau may allow an RO in Shanghai to enjoy tax exemption if the parent company is a:

• Non-profit organisation, such as a Foreign Governmental Organisation or Quasi-Governmental Organisation or Association
• Manufacturing entity
• Law firm or CPA firm

Step 1: Apply for Registration Certificate, Chief Representative Certificate, General Representative Certificate(s)

Unlike a foreign investment entity, an RO is not required to apply for an Approval Letter and Approval Certificate from the Shanghai Foreign Economic Relation and Trade Commission. Instead, it needs to apply for three certificates from the Shanghai Administration of Industry and Commerce (SHAIC):

1. Registration Certificate;
2. Chief Representative Certificate;
3. General Representative Certificate(s).

In accordance with Chinese regulations, an RO requires a Chief Representative and general representatives. After the RO is set up, it may provide supporting documentation for the representatives (if they are expatriates) to apply for the Z Visas (Work Visas), Employment Permits and Residence Permits.

Step 2 Carve RO Seal, Financial Seal and Chief Representative seal

Step 3 Apply for Organisation Code Registration Certificate

This is purely a procedural step. The Shanghai Technology Quality Supervisory Bureau will issue the certificate within 1-3 working days.

Step 4 Apply for Tax Registration Certificate

Once the Organisation Code Registration Certificate is approved, the RO may proceed with applications to the local tax authority. Together with the Registration Certificate and other documents, the formal application form affixed with the requisite seals should be submitted to the authority.

Step 5 Apply for Foreign Exchange Account Card

Having obtained the Tax Registration Certificate and Foreign Exchange Account Card, the RO may open a foreign currency bank account and a RMB bank account.

Step 6 Apply for Statistics Registration Certificate

• An original Certificate of Incorporation certified by the Chinese Embassy or Consulate in the parent company’s country of incorporation;
• An original bank reference letter;
• Copies of Articles of Association of the parent company.

• An application for establishment of the proposed RO;
• An application form for SHAIC;
• Appointment letters and resumes of all representatives;
• Copies of passports and 10 photos of all representatives;
• Copies of rental contract and landlord’s rental permit.

In China, the maximum duration approved for an RO is three years from the date on which the Registration Certificate is issued by the SHAIC. If an RO wishes to continue its operations after the expiry of the registration certificate, it must renew its registration by submitting a report on the business operations for the past three years and its application for renewal 30 days before the expiry.

Establishing an RO is largely a matter of complying with the prescribed application procedures. Once all the necessary documents for application are submitted, government approval should take approximately 50 to 60 working days.