China Introduces New RO Regulations for Foreign Enterprises

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Nov. 29 – The Chinese State Council recently issued new regulations to strengthen the administration of the resident representative offices (ROs) of foreign enterprises in China. The new regulations require ROs of foreign enterprises to provide audited accounting information on a regular basis, prohibit them from conducting profit activities, and specify the relative penalties for foreign enterprises that violate the rules.

The “Regulations on the Administration of Registration of Resident Representative Offices of Foreign Enterprises” issued on November 19 will take effect on March 1, 2011; replacing the old regulations that have been in force since 1983. The most noticeable changes in the new provision are listed below:

  • The RO should submit an annual report between March 1 and June 30 every year providing information on the legal status and standing information of the foreign enterprise, ongoing business activities of the RO, and payment balance audited by their accounting agencies. The registration authorities will issue an RMB10,000 to RMB30,000 penalty if the RO fails to provide the report on time, and an RMB20,000 to RMB200,000 penalty if the report includes false information. Fraud may also lead to license revocation
  • The foreign enterprise needs to designate one person as the chief representative of their RO; they can also designate one to three more people as representatives. (This further specifies the personnel assignment in ROs based on the four-representative limitation the government set in a circular released in January this year)
  • The RO cannot engage in any profit activities except for those activities which China has agreed on in international agreements or treaties. The activities ROs can be involved in include market research, display and publicity activities that relate to company products or services, contact activities that relate to company product or service sales, domestic procurement and investment. ROs will have to pay an RMB50,000 to RMB200,000 penalty for profit activity involvement, and RMB10,000 to RMB100,000 for exceeding the activity scope mentioned above
  • Foreign enterprises should announce to the public through media designated by the authorities when they establish new ROs or make any changes to them; the Chinese registration authorities will also make announcements when they revoke the license of an RO or cancel an RO establishment. ROs that fail to make such announcements may pay an RMB10,000 to RMB30,000 penalty

The new regulations reveal special concern over the degree of business undertaken by ROs as well as their valid financial records. They call for the availability of RO accounting books and forbid ROs from using the accounts of other enterprises, organizations or individuals.