For foreign companies seeking opportunities in the vast Chinese market, understanding the intricate employment regulations is crucial. Key questions often revolve around whether permanent representative offices (ROs) can hire employees and whether they can provide social insurance to their staff.

According to Interim Provisions of the State Council of the People's Republic of China on the Management of Permanent Representative Offices of Foreign Enterprises (State Council Document No. [1980] 272) and Measures for the Administration of the Registration of Resident Representative Offices of Foreign Enterprises promulgated by the former State Administration for Industry and Commerce on March 15, 1983, when a permanent representative office hires staff, it should entrust the local foreign affairs service agent or other agents designated by the Chinese government to do it.

However, Decree No. 584 of the State Council dated November 10, 2010 on the Administration of the Registration of Resident Representative Offices of Foreign Enterprises repealed the above regulations, and abolished the stipulation that the staff employed by a representative office shall be entrusted to the local foreign affairs service agent or designated agents.

In fact, some cities issue implementation regulations with local characteristics based on central government documents. For example, Regulations on the Management of Permanent Representative Offices of Foreign Enterprises in Shanghai (Trial), implemented in Shanghai in 1986 had similar regulations, which has been abolished by Shanghai government on May 15, 2024 leading to a more efficient and straightforward process for foreign companies to establish a presence in Shanghai.

Interim Measures for Foreigners Employed in China to Participate in Social Insurance states that if a foreigner is dispatched by a foreign employer to work in a representative office within China, they are also required to participate in basic employee pension insurance, basic medical insurance, work-related injury insurance, unemployment insurance, and maternity insurance in accordance with the law.

It is noted that, previously ROs could not open the staff social insurance account, and not able to make payments of staff social insurance for its staff, neither foreign expatriates nor Chinese staff. However, ROs could open the staff social insurance account and make related contribution for foreign staff now, but not for Chinese staff in practice.

While RO in China offer a strategic entry point for international businesses, they must navigate employment regulations and social insurance requirements in compliance with local laws. On the other hand, the change of regulation on RO will lower the compliance cost of RO and help the ROs facilitating their parent companies better in the dynamic Chinese market.

At PHC Advisory, we can offer you full support on matters regarding doing business in China, or any other issues your business may face. If you would like to know more about policies relevant to your business in Italy or Asia, please contact us at info@phcadvisory.com.

PHC Advisory is a company of DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance.

The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not legally bind PHC Advisory with the reader in any way.

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