The State Council of China promulgated Regulations on Administration of Registration of Resident Representative Offices of Foreign Enterprises. These regulations became effective March 1, 2011.
The Chinese Government has become ever more restrictive on the ability of foreign entities to do business through Resident Representative Offices (“ROs”). This latest round of regulations is another step at making ROs less flexible. By way of example, there are now accounting and reporting requirements; restrictions on the number of representatives; more documents are required to set up ROs; the one year validity of ROs certificate is abolished; penalties for non-compliance are increased.
Our Chinese colleagues suggest to us that it may be time for many entities doing business in China to consider setting up wholly foreign owned enterprises (“WFOE”). The costs of setting up a WFOE are now comparable to that of setting up ROs.
If you are doing business in China it is important to review your situation and decide what the best business course is for the next several years.