The three options
| Subsidiary (WFOE / JV) | Representative office | Branch of a foreign company | |
|---|---|---|---|
| Separate legal entity | Yes | No | No |
| Can earn revenue and invoice | Yes | No | Yes, in permitted sectors |
| Hire staff directly | Yes | Through an agency | Yes |
| Parent’s liability | Limited to capital | Parent fully liable | Parent fully liable |
| Availability | Most sectors | Most sectors | Mainly banking, insurance and some other regulated sectors |
Subsidiary: the default choice
A WFOE or joint venture is a Chinese company. It can sign contracts, issue fapiao, employ people and hold licences, and the parent’s risk is limited to its investment. This is the right vehicle for almost every business that expects to sell or operate in China.
Representative office: a listening post
A representative office is an extension of the foreign company. It can promote products, support the parent’s customers and suppliers, and do market research, but it can’t sign sales contracts or earn revenue. It is still taxed, usually on a deemed basis from its expenses.
Branch: rarely available
Unlike many countries, China does not generally let foreign companies open ordinary trading branches. Branches of foreign companies are mostly limited to regulated sectors such as banking and insurance. Note that a Chinese company (including a WFOE) can open its own branches in other Chinese cities, which is a different thing.
How to decide
Ask one question: will you earn revenue in China in the next year or so? If yes, go straight to a subsidiary. Our guide on WFOE vs representative office walks through the trade-offs.