By Nicholas Hughes
Aug. 9 – One of the most important requirements for forming a representative office (RO) is the appointment of a capable chief representative who will manage the affairs of the RO. The chief rep is appointed by the board of directors of the parent company and is responsible for the operations and daily running of the RO. The individual is also considered the “legal face” of the establishment, which allows him/her to sign all related government forms and any documents that are required by government offices.
While Chinese laws do not clearly state the scope or limit of a chief rep’s authority, their role usually covers a broad range of responsibilities such as introducing business to the parent company, supervising management, strategic planning, finances, and maintaining relationships with existing business partners. The chief rep is also required to oversee the work and development of other staff employed by the RO.
The chief rep of an RO can be either a Chinese or foreign national and must meet one of the following qualifications:
- He/she is a foreign national who holds a valid ordinary passport (not including foreign students studying in the PRC);
- He/she is a Chinese national who has obtained permanent residence status in a foreign country;
- He/she is from Hong Kong, Macau or Taiwan and holds valid documentation; or
- He/she is a Chinese national (the representative office must entrust an authorized local labor service unit to undertake the relevant employment formalities).
Chief rep required documents
In order to be appointed as the chief rep, the candidate is required to submit a number of documents:
- Brief resume
- Copy of passport
- Twelve color passport photos
- Chinese application documents
There is no requirement for an RO to obtain approval for the employment of a foreign national in the capacity of chief rep. However; in order to begin work in China the chief rep must apply to the Chinese embassy in his/her country of residence for a single entry “Z” visa. Once the chief rep has arrived in China, they are required to undergo a health check performed by a specific government hospital. Once the health check has been performed, the chief rep can then apply for a foreign work permit. After acquiring the work permit, the chief rep is then required to apply for a 1-year residence permit, which acts as a multiple-entry visa for both the employee and any accompanying family members who will be residing in China. If the chief rep intends to import any personal items for their stay in China, then they are also required to register with the local customs bureau.
The above requirements only apply to chief reps that need to reside in China long-term. No employment visa is required if the chief rep does not intend to reside and work in China for over 90 days per year.
Procedure for acquiring one-year residence permit
After the initial set-up of a RO, the chief rep can get an “Official Representative Certificate,” with which a one-year residence permit will be offered by the PSB.
Documents required to apply for a residence permit (application takes five working days):
- Application form;
- Official Representative Certificate issued by SAIC
- The valid Business Registration Certificate issued by SAIC, original and copy with stamp;
- Organization Code Certificate, original and copy with stamp;
- Registration form of temporary residence (issued by hotel or PSB branch office)
- Health examination report issued by the appointed hospital of the PSB;
- Application letter by employer;
- Valid passport (original and copy);
- Four passport photos (two inches).
ROs are not allowed to hire Chinese staff directly. As such, an HR agency, local government-run or a few non-state firms must be used (an authorized agency). If the parent company wishes to appoint a Chinese national as the chief rep, they must go through one of these third-party agencies. An RO may independently solicit candidates as well as negotiate directly with a potential candidate referred to it by an authorized agency regarding salary, benefits, and any additional items. But before the RO can hire a candidate, the candidate must be referred to an authorized agency. The authorized agency would then make the official referral to the RO and take a percentage of the employees’ salary every month.
Limits on appointment of a chief rep
It is also important to bear in mind that as Chinese laws do not clearly specify limitations to the authorities of a chief rep, parent companies should clearly outline the authorities of the individual they assign to the position in order to avoid a situation in which the acts of a chief rep are binding up the parent company.
The following persons may not be appointed as a chief rep:
- Any individual who has been sentenced in relation to harming national security or the social public interest of China.
- Any individual who was the chief rep or representative of an RO that had its establishment registration cancelled or registration certificate revoked during the past five years （time-frame may differ based on location, check with local AIC), or that was ordered to close by authorities for engaging in illegal activities that were damaging to national security or public interest.
The chief rep is automatically liable to pay individual income tax in China, even if they are not residing in China on a full time basis. As “senior management” of the company, the chief rep is required to pay individual income tax on their worldwide salary, whether this is paid by entities in China or entities overseas. A few countries have “senior management” clauses in their double tax agreement with China where the rules may differ slightly.
Under the usual scenario, the individual income tax for the chief rep will then be paid on a monthly basis as per normal practice. For part-time chief reps (for example, those with two or more employment contracts), the time apportionment method should apply and the taxes paid will be proportioned based on the number of days they are in China. Chief reps who earn over RMB120,000 annually will also have to file a self-declaration at the end of March each year.
Should the salary declared by the chief rep be deemed to be unreasonable, the PRC taxation authorities can require to back up the salary declared with written documentation. In the event that the chief rep cannot distinguish their income precisely, the PRC taxation authorities will determine the income of the chief rep. Often, this will result in the determined salaries being higher than the actual income.
If there are any changes made to the RO, such as a change in the chief representative, office address, or change of business scope, they must be approved by the original approving authority and all certificates associated with the RO must be changed.
If a new chief rep is to be appointed, an authorization letter issued by the parent company is required to be submitted with a number of other documents and the new representative’s resume when applying for approval of the change. The exact detailed procedure varies depending on location, so be sure to check with the local governmental body in your area.
When appointing a chief rep, the parent company should look for a candidate who is familiar with both the local Chinese business environment and the aims and objectives of the parent company. The appointed individual should also make regular trips to China in order to familiarize themself with the staff, procedures, and operations.
Many parent companies often feel they only need to send a company representative from overseas to China once or twice a year. However, it is important to conduct visits regularly, supervise the operations of the office and to try and keep complete control with the parent company. E-mails and/or phone calls should be made on a daily basis to check on the office. It is also vital to recognize that the RO is part of the parent company and regular communication between the chief rep and RO is vital. There have been numerous cases of the chief rep being absent for long periods of time before returning to China and finding that the RO has hired local employees illegally or has not paid the appropriate amount of tax. This makes it extremely important to ensure that there is some form of corporate governance within the RO as well as regular monitoring.
Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China, Hong Kong, Vietnam and India. For more information and advice regarding setting up and operating in any of these markets, please email firstname.lastname@example.org, visit www.dezshira.com, or download the firm’s brochure here.
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