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A Representative Office (RO) is a popular corporate establishment model for foreign investors entering China. A RO is an extension of a parent foreign enterprise, and does not form its own separate legal entity. They are often used by foreign companies to facilitate activities in China, such as communicating and liaising with China-based agents and distributors.
For various reasons, however, foreign investors might come to a point where they must close their RO. For example, an investor needs to close its RO when:
• The RO is required to shut down in accordance with the law;
• The RO no longer engages in business activities upon the expiry of its period of residence;
• The foreign enterprise terminates its business (meaning the parent company is being closed);
• The foreign enterprise terminates its RO; or
• The RO is no longer suitable for facilitating foreign investor’s business in China, as ROs are unable to engage in profit-making commercial activities.
Investors should note that one cannot simply walk away from the RO without properly closing it. As the RO will soon be in non-compliance with taxes and other regulations, fines and penalties will be imposed.If no rectification is made, the RO’s license may be revoked. At this point, the foreign company and the RO Chief Representative will be blacklisted and barred from setting up a new RO in China for the next five years.
The whole process of closing down the Representative Office is not as easy as you think. It would be better to find a expertise to help and offer professional consulting services. Tannet group is a professional business services provider, providing corporate formation, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, Singapore and the rest of the world.
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