The Representative Office is a legal entity under Chinese corporate law.

Companies with a representative office will be able to legally transfer key personnel from the home country, open bank accounts, and establish an independent profit center.

The representative office will report income and pay taxes in China. According to the State Administration for Industry and Commerce (SAIC), Foreign representatives must register a representative office within six months of establishing a business presence in China. Those who have not obtained approval or have not gone through the procedures for registration shall not be permitted to undertake business operations in the capacity of the home office.

How does it work?

Most firms choose to set up a representative office in order to gain experience and acquire a better understanding of the size and potential of the market in China. They use this representative office to lay out their long term goals and oversee their other business operations or joint ventures in China.

The mission of a representative office is to act as a liaison between the home office and trade organizations or related industries in China. Often representative offices engage in market research and establish contacts with prospective customers and potential partners.

There are many intangible benefits related to the establishment of a representative office. Often the office serves no other purpose but to present an image to the prospective Chinese customers and potential partners. The location and furnishings of a representative office are very important in China because the Chinese are often unable to visit the home office of the foreign company and are only able to judge the viability of a company by their operations in China. Foreign representative offices typically occupy the most expensive real estate in China, currently making class 'A' office space in high demand.

The representative office is also an effective tool to convince the Chinese that their foreign counterpart is serious about the China market. The establishment of a representative office assures the Chinese partner that their counterpart is in China for the long term. Chinese executives frequently express their uneasiness about the commitment of the foreign party during negotiations by telling stories about the foreign company that came to China to negotiate a joint venture and then disappeared. The establishment of a representative office can also enhance the foreign party's bargaining position by switching the burden of urgency from the foreign side (who was far away from home and was in a hurry to return with a signed contract) to the Chinese side (who sees a potentially profitable relationship and does not want it to be stolen by another company).

Foreign traders, manufacturers, shipping agents, economic organizations, charities and other groups can apply to become a representative office. A foreign company must have been in business for at least three years before it can apply.

In many cases, companies first establish a liaison office – which does not report to Chinese authorities - and naturally progress into a representative office when business takes hold.

The address of the proposed representation office will be part of the application process, thus companies usually choose an office location before applying.