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It used to be something of a logical progression for international companies heading into China: 1. Representative Office, 2: JV or, latterly, WFOE (Wholly Foreign Owned Enterprise).

China Law Blog highlights the trend to ignore the often unnecessary (and unnecessarily restricted operations of the) Rep Office stage. The leap to WFOE is, in part due to practicality and in part due to cost (in time and, not least tax, money):

• Changing Corporate Structures: The China Representative Office (RO). Got WFOE? (China Law Blog @DanHarris – via flashy iPhone app. Very hip!) 11:13 AM Mar 13th

China Law Blog notes: “…China is killing Rep Offices and the reason it is doing so is to increase its tax collections. In the past, Rep Offices virtually always provided substantial tax savings. In the past, forming a Rep Office was nearly always faster, cheaper and easier than forming a WFOE. Now, it is usually a push and because WFOEs are so much more flexible in terms of what they can do in China, it has truly become the rare instance where a Rep Office makes sense. Rep Offices, unlike WFOEs, are not allowed to engage in profit making activities. Chinese law limits them to performing “liaison” activities.They cannot sign contracts or bill customers. They cannot supply parts and after-sales services for a fee. They simply cannot earn any money in China or take any payments from a Chinese person or business for any reason…”

Another article referenced in the post “goes on to note that these new regulations mean that work permits will be for one year not three as was formerly the case for Rep Office employees and is typically the case for WFOE employees. The article concludes by noting that the SAIC will perform on-site inspections within three months of the issuance of their registration certificates and Rep Offices that have performed any illegal activities could face fines and a delay in their renewals…China does not like Rep Offices and the situations in which they still make sense are becoming even rarer.”

While on China Law Blog, take a look at another recent post. It also highlights the increasingly taxing nature of taxes, especially for foreign firms, in China:

• Tax risk. No joke! From @DanHarris on CLB “Knock, Knock? Who’s There? China Tax Man.” 1:27 PM Mar 10th

As we often remind people, it is important to challenge assumptions, take advice, and to realise that the advice changes along with the market. In China, that can mean fast change.

One Response to “RO OR WFOE?”

  1. Archive » Briefly…Top Ten Tweets (From RMB, WTO & Google Angst, To Expo, Fast Food & T2 Opportunities)| China Business Blog Says:

    […] Changing Corporate Structures: The China Representative Office (RO). Got WFOE? (China Law Blog @DanHarris – via flashy iPhone app. Very hip!) 11:13 AM Mar 13th (See our post here) […]

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