We are looking at expansion into China to support cross-border sales from the US. We are open to either a Rep Office or a WFOE; the WFOE would probably operate as a Cost-Plus entity (no direct sales). What pitfalls do we need to avoid? Are there specific activities we should be sure to steer clear of, to avoid triggering government regulation problems?
In China, a Rep Office cannot "sell." Does anyone have a specific definition of what activities qualify as selling in China?
Answers
Anon
If you want an intro to someone who I can recommend-he's Chicago based and has lived and worked in China for over a decade, advising companies on things like this.
Send me a private message if you wish.
Regards
Len
Anon - After consuliting with one of the APAC Advisory leaders here at Radius, I have a broad answer that should be helpful as it relates to the allowable activities under an RO. If you'd like to dive into specifics, please reach out to me directly and we'll schedule a call.
Generally, Representative office (RO) is not permitted to engage in direct business activities such as sales,
Some companies may set-up a RO to engage in ‘sales support’ services locally (e.g. follow-up with local customers regarding sales orders placed with parent overseas, administrative supports on sales transaction between customers and parent, etc.), but care is required in conducting these activities so not to be seen as conducting direct sales activities, as otherwise may violate the allowed business scope for a RO.
To illustrate, please refer to some examples below on what a China RO can or cannot do.
A China RO may carry out the following functions:
• Conduct research and survey for its parent enterprise in the local market;
• Liaise with contacts in China on behalf of the parent enterprise;
• Conduct research and provide data and promotional materials to potential clients or trading partners;
• Act as a coordinator for the parent enterprise's activities in China;
• Make travel arrangements for parent enterprise representatives and potential Chinese clients.
On the other hand, a RO is prohibited to conduct the below activities:
• Directly engaged in any business for profit;
• Sign contracts or deals on behalf of the parent enterprise;
• Represent any firm other than its parent enterprise;
• Collect money or issue invoice within China for services or products;
• Buy property or import production equipment.
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FP&A