China changes its Representative Office rules
More than 50 percent of all foreign entities registered in China are Representative Offices (ROs). The rules for ROs were initially set in 1983. ROs became popular because they were a cheaper, less paper-intensive gateway vehicle into China.
Although limited, ROs did not require a joint venture or some of the more onerous requirements, necessary to set up a company in China.
However, that is all going to change in March. China is intent on closing the loopholes in its business operations laws. The days of using an RO as a shadow trading business which avoided scrutiny and taxes are numbered.
Note: this is one of many signals the central government is sending that it is going to get tough on those foreign operations that have been playing fast and loose in China. Licensing, registration and tax considerations are in part driving this, but the other part is that as China’s economy matures, the central government is less concerned about attracting investment and more concerned with leveling the playing field for its domestic markets.
It is probable that this trend will be an ongoing one, so careful attention needs to be paid if you see a future for your product or service in China’s markets.
Read more here in the latest issue of BizTimes.