Trend in Administration of Rep Offices of Foreign Enterprises in China

                                                         Mr. Jeffrey Lin, M.A., Attorney-at-Law & Partner

There have been more than 100,000 resident representative offices of foreign enterprises (commonly called “Rep Office”) in China, which have been established according to the existing legal regulations therefor. And a Rep Office, unlike an enterprise with foreign investment in China (contractual JV, equity JV and WOFE), is not allowed to engage in any direct business activities in China, for Art. 4 of the Detailed Implementation Rules for the Examination-Approval and Administration of the Rep Offices clearly states that a Rep Office can engage in such indirect business activities as business liaison, products recommendation, market research, technological exchange, etc. in China.

However, the present legal regulations therefor are not complete and mature enough to cope with the actual circumstances of development of Rep Offices in China, besides the implementation of the relevant legal rules in China is not thorough at all, while many Rep offices have been engaging in direct commercial activities in China, evading those relevant enterprise taxations.

To better regulate and direct the normal development of foreign investments in China, a new draft of regulations on Rep Offices has been prepared for further discussion and decision since April, 2008. The new draft, consisting of regulations on the establishment, change and de-registration of Rep Offices as well as their administration and supervision, should be a greater improvement on the existing rules, as the relevant formalities for registration, changes and de-registration are more complete, more room is given for commercial activities by Rep Offices, and the legal sanctions for such violations are clearly defined therein. With its final version to be approved in the near future, it will become a better legal basis for our legal professionals to plan and manage the investment endeavors of our international clients in China.