New Regulation on Administration of Representative Offices in China

On November 19, 2010 the State Council promulgated Regulation of the Administration of Representative offices of foreign enterprises (order of the State Council no. 584). Regulations will come into effects on March 1, 2011.

The previous Regulations provided that Representative Office shall only engage in activities which are not profit-generating unless otherwise stipulated by the agreement between China and the country in which foreign enterprise resides. The Regulations promulgated recently expressly provides that activities related to the business of the foreign enterprises which a Representative Office may engage in includes:

–          market investigation, display, promotional activities in connection with the products or services of foreign enterprises;

–          Liaison activities in connection with products sales, services provision, domestic procurement and domestic investment of foreign enterprises.

Article 35 of the Regulations expressly provides the legal liabilities for the engagement in profit-generating activities and increases the fine and legal liabilities for such violations, including ordering a Representative Office to correct and confiscate the illegal gains and the tools, equipments, raw materials, products (commodities) and other property that are specially used for engaging in profit-generating activities, and imposing a fine of no less than RMB50 000 and no more than RMB500 000. In egregious cases, the registration certificate of a Representative Office shall be revoked.

The Representative Offices shall provide an annual report to the Registration Authorities between March 1 and June 30. The content of such annual report shall include the legal existing and standing information of the foreign enterprises, the information on the carry-out of business activities of the Representative Offices and the information on the expenses and expenditure and revenues audited by their accounting firms and other related information.

Failure to provide such report will result in a penalty of RMB10000 to RMB30000.

The Regulation provides the new rules for the publication of the establishment registration. The Regulations provide that the registration authorities shall record the registration matters of a Representative Office in the registrars to be made available to or copied by the general public. Moreover, the Regulations provide that foreign enterprises shall announce the establishment or change of the Representative Offices to the general public via media designated by the registration authorities.