Buy essay on Representative Offices

Currently, representative offices of foreign companies are the cheapest way the company can arrange its presence in China. The purpose of the representative office is to work on the establishment of relations with Chinese businessmen and consumers on behalf of the company. Representation is the most common business tool through which foreigners can enter the Chinese market (Chen 1997: 151-171). To obtain a permission to establish the office in China, the company must submit the following documents in Chinese or in a foreign language with translation into Chinese (Shira 2008: 31-43; Recent Chinese Legislation 2010: 52-66):
A) Company documents for the registration of its representative: Registration Certificate (as a rule the company has to be registered for at least two years already), the current certificate of registration at the tax authority, or the certificate of having no tax arrears or tax report for the last fiscal period; a letter from the bank servicing the company confirming the solvency of the client; shareholders register (participants); Memorandum and Articles of Association. The copies of the above documents must be notarized and legalized by the local consular office of the PRC.
B) Documents relating to the establishment of the representative office: Board of Directors Resolution on the establishment of the representative office; letter with the motion for permission to establish the representative office; document of appointment of the general representative; Letter of attorney to represent the interests of the company after the registration of the office (to the name of an agent who arranges the registration). These documents should be signed by the supreme body of the company (board, board of directors, CEO, etc.) with a seal of the company.
C) Documents from the owner of the office space: copy of the office lease contract; copy of the permission to lease the property to foreigners; in some cities it is also required to provide the certificate on the use of the premises.
D) Documents of the General Representative: 12 two-inch colour photos; copy of the passport; curriculum vitae (with no time gaps).
In about two to four weeks after the adoption of the above documents, the local authority of the Ministry of Foreign Trade and Economic Cooperation issues a certificate of ratification (pi zhun zheng shu) in duplicate (Lau 2005: 56-58). The first copy is submitted to the Commerce and Industry Office, which draws on its basis the registration certificate of representation. The registration certificate is usually issued for two or three years, then it should be extended, provided that the activities of the representation are consistent with the law. In addition, it is necessary to annually renew the registration of representative offices (within the 2-3 year period) (Kivela 2005:125-152).
The second copy of the ratification certificate is submitted to the Tax Office, which prepares a certificate of registration in tax authorities, under which the representative office will have to provide monthly (quarterly) reports and pay taxes. Other documents are also registered, including permission to live and work in China, working visas for foreign workers of the representation, their registration with the tax authorities in order to impose income tax on individuals, as well as the documents for opening an account of the representative office(Zuo 2006: 68-75).
Representative offices in China are prohibited to participate in trade operations and get engaged in any economic activity. Formally, the activity of a representative office is not profitable, since it has no right to receive any income from the sale of goods or services on the territory of China (Shira 2008: 75-78). Therefore, the parent company must transfer to the account of representative office all the funds necessary to cover its expenditures (Fung 2004: 99-130). These payments should be made in foreign currency, and the Bank of China will automatically place those funds to the representative office’s account in Chinese Yuans at the bank rate of Yuan to the respective currency. It should be noted that the payments for the expenditures of a representative office should only be made from company’s personal bank account (the company may be asked to provide formal invoices), as well as that restrictions may be imposed on cash payments and payments to private individuals. Banks provide information on account activity to tax authorities, which is, in principle, not a problem, if a company doesn’t not violate the law (Tian 2007: 91-99).
Chinese staff of a representative office should be hired through the Ministry of Foreign Trade and Economic Cooperation, which simply acts as a mediator in these relations. It will ensure that all necessary payments are made in accordance with the laws of China (e.g., payments to the pension fund, insurance premiums, etc.). The amount of the minimum wage varies in different regions; employee’s education also affects the minimum level of payment for his labor (Liu 2008: 259-270).
Representative offices are subject to two kinds of taxes: 1. Tax on economic activity (sometimes called a tax on turnover or business tax), which is calculated on the basis of representative office’s expenditures on the organization of its activities, including rent, salaries, telephone services, utilities, etc.; 2. Tax on foreign enterprises’ investment, which is calculated as a percentage of the tax on economic activity (Zuo 2006: 68-75).
Without going into details, the rate of these two taxes makes together about 10% of all the expenses of a representative office. Reporting on these taxes is presented monthly or quarterly (depending on location); taxation payments are made in the same manner.
Moreover, the employees of a representative office are subject to income tax on individuals. In China, there exists a minimum wage rate for foreigners, which is not subject to taxation and makes 4000 yuans per month (about $ 500), with a progressive tax rate on the amount of cash above this level. The tax rate increases by 5-45% in proportion to an increase in salary. For example, the maximum rate of 45% is applied if the salary exceeds 100,000 yuans ($ 12,000) per month. The company is obliged to submit reports on income tax on individuals monthly, even if salaries do not exceed untaxable minimum – in this case, a company has “zero” obligations under the tax (Stender 2009: 81-95).
Representative offices in China must conduct annual audits of their activities in order to determine the correctness of financial activities. According to the results of the audit, an audit conclusion is issued which is also forwarded to the tax authorities by an audit firm conducting the inspection (Kivela 2005:125-152). All the detected inconsistencies and inaccuracies are to be fixed documentally and explained to the tax inspector who will make a decision on the case and issue bills to pay, for example, the amount of tax losses, etc. The registration certificate of a representative office should also be extended annually; otherwise a company will be subject to penalty in the case of late registration renewal (Theut 2009: 7-21).
At the same time, there are no single Chinese standards. It is important to bear in mind that in different regions of China, there are differences in the procedure of registration of foreign companies’ representative offices, costs for issuing relevant documents, in the order of registration in tax authorities, obtaining visas, residency permits, work, etc. (Walsch 2007: 249-257).