“Studied Law in Oviedo (Spain) and Lisbon (Portugal); started her professional career in the Spanish insurance sector and then moved to Asia with one year in the Spanish Embassy in Singapore and more than two working for Rebollo between their offices in Spain and China, Carmen Solís outlines in this article the regulatory changes concerning RO’s in China.”

CHANGES IN THE REGULATIONS CONCERNING REPRESENTATIVE OFFICES IN CHINA.

On January 2010 a new rule enacted jointly by the State Administration for Industry and Commerce, and the Ministry of Public Security, came into effect with no vacatio legis period. It was called “Notice on Further Strengthening the Administration on Registration of Resident Representative Offices of Foreign Enterprises”.

Representative Offices had been traditionally the most popular and easy way of establishing a presence in China since it started the opening process. So much so that the rule –after mentioning the positive role of the RO’s in attracting foreign investment and the promotion of socioeconomic development-, points out as the reasons for the change certain abuses detected in their operation and among others, the following: changing certain registration data without authorization, applying for the registration using false documents or developing activities out of the legal business scope of the RO’s.

Next, we will specify what exactly those new regulations are:

I. At the bureaucratic level, the procedures for the opening and renovation have been toughened:

• When applying for the establishment of the RO or changing the name, it shall be submitted the legal business certificate of the head office, confirming its existence for at least two years must be submitted, as well as a capital credibility certificate issued by a financial institution with which the head office has business relations. Both documents should be notarized and legalized by the corresponding public administration of the country where the enterprise is located.
  
• When applying for the renewal of the licence, a certificate must be submitted in which the validity and existence of the head company is proven, issued by the “corresponding official organization” from the country where the company is located. This new requirement may give rise to delays and difficulties, since not all of the jurisdictions have a proper procedure or a concrete body to issue them.
  
• The compliance with the previous rule –from 1983- will also be carefully watched, and from now on licenses will be strictly granted for one year instead of the three, that were usual up to now. In the cases in where the RO’s had a three years license, they should renovate them for one year when applying for the extension. There’s no limit on how many times an extension can be applied for.

II. At the personnel level, it restricts the number of employees who could be appointed representatives or chief representative to a total of four. If we take into account that those positions represent the only legal way for a foreigner to work legally in an OR indirectly they are also restricting the number of foreigners of every RO to maximum of four.

In this regard, the new rule only clarifies that in the cases of Offices with have more than four representatives “it is only permitted to cancel rather than increase the representatives”.

III. At the inspections level, it urges the Authorities to conduct on-site verifications of the legal address and other registration details of the newly-established office within 3 months of obtaining the Registration Certificate. During those inspections the original documents, chops and registration certificates of the office, representatives and tax will be checked; certain infringements of these could provoke even the revocation of the license.

IV. At the sanctions level, they are also toughened, specially for infringements like providing fraudulent documents, being engaged in operating/business activities or any other not permitted to RO’s. In these cases the sanction will be the same as if the company was operating without a license. When the licenses had already expired or the RO has changed the registered address without the proper authorization, those RO’s will be included in a list and will be closely supervised, according to the seriousness of the infringement.

V. At the public administration level, the new rule appeals for all the authorities involved in the different administrative and commercial procedures, as well as all those in charge of the public security to intensify and reinforce the inter-department communication and collaboration systems. In particular, the rule urges them to inform also periodically the entry-exit administrations of public security organs about any illegal practice or behavior; this could cause delicate situations at the airports and other control points of the country, like cancelling of visas or prevention of departure from China.

VI. Finally, we should clarify that all the above mentioned changes affect the “ordinary” RO’s, since the new rule doesn’t specify what will happen with those that are subject to a special regulation, such as law firms, banks, insurance companies or travel agencies.

Before we finish, we would like to comment that it seems like what many people had predicted some time ago with the name of “the beginning of the end of the RO’s in China”, is finally happening. Some observers even see this new rule as a reflection of the Government’s will to reduce the number of RO’s and force many of them to incorporate as WFOE’S (wholly foreign owned enterprises).

Others choose it as an attempt by the Government to regularize an area that has been left unattended in the recent years, which gave way to certain tolerance and permissiveness towards situations with foreigners, specially with regards to working and residence permits.

In any case, caution advises a transparent administration of the RO’s, do not waiting for the last moment when preparing the necessary documents for the renovation of the license, and of course to collaborate as much as possible in case of an (un) expected inspection.

For further information please contact: carmen.solis@rebollo-abogados.com