A representative office of a company is an office established in a foreign market for the purposes of carrying out marketing functions, data collection and other operations that do not involve selling products or providing services. A key feature of a representative office is that, by definition, it cannot be involved in transactions, invoicing or other forms of buying or selling products.
Activities of a representative office
Representative offices are primarily used for two activities that complement the business’s main functions:
- Representing the parent company
- Managing information
When representing the parent company, a representative office can enter into contracts on its behalf and communicate with local partners (e.g. organising meetings, sending information from the partners to the parent company, etc.).
When managing information, a representative office can conduct market research, organise marketing campaigns and collect data from customers. It also serves as a point of contact between the head office and customers, if no other communication channels are available.
In general, a representative office is a way for a company to make an initial entry into an unfamiliar foreign market without incurring too much risk. This is because, in many jurisdictions, setting up a representative office is easier than opening a branch office — as representative offices cannot sell products or services, they are often less tightly regulated than other company types. Representative offices do not require as many resources (logistics networks, specialised sales staff, warehouses for goods) to perform their main tasks, and so in the event of failure, withdrawing from a given market is not overly costly.
Advantages of a representative office
A representative office has several advantages over other ways of representing a company in a foreign market:
- Simpler registration and management
- Representative offices cannot perform business transactions, which is why in many countries they are not regulated as strictly as other entities.
- Ability to open bank accounts
- Although representative offices are limited in terms of their functionality, they can still be used to open corporate bank accounts for their parent company in a foreign market.
- Simple initial market entry
- Representative offices are an advantageous solution if the parent company is not sure whether to expand into a particular foreign market or not, as they allow it to enter the market for initial research without the need to establish supply chains, a customer base, etc.
- Bypassing restrictions
- In certain jurisdictions, branch offices and other forms of company representation with the ability to engage in transactions are prohibited or subject to certain limitations. Representative offices are a way to enter the market while bypassing these restrictions.
Disadvantages of a representative office
A representative office also has certain disadvantages:
- Inability to conduct direct business
- A representative office is unable to conduct transaction-related business in a foreign market, and so another form of company representation must be established for this purpose. This can lead to delays and additional spending, potentially costing the business its competitive advantage.
- Staff limitations
- Certain jurisdictions restrict the number and status of a representative office’s employees, with some requiring that one or a certain number of employees are staff members of the parent company and/or restricting the office’s ability to hire local staff.
- Period of validity
- Depending on the jurisdiction, a representative office may be limited in terms of its validity, i.e. it may have to be closed and registered anew after a certain period of time (usually a couple of years), whereas other company types are usually valid indefinitely.
Differences between a representative office and a branch office
The main difference between a representative office and a branch office is that a representative office cannot conduct transactions, issue invoices, sell products to customers or generate a profit in any other way, but a branch can. Apart from that, differences vary from jurisdiction to jurisdiction, but generally a representative office is easier to open and maintain — although there might also be limitations on the number and status of its employees, as well as the time for which it can exist before the parent company must close and re-open it. In other words, a representative office might be seen as a branch that has a limited scope of activity but requires fewer resources to maintain.
Representative office registration
The documents required for registering a representative office vary between jurisdictions, but generally you will need the following:
- A representative office registration form (issued by the relevant authority)
- Proof of registration of the parent company
- A written declaration of the parent company’s decision to register a representative office
- The parent company’s incorporation documents
- A document proving that the taxes and fees associated with registering a representative office have been paid
Other required documents may include proof of a local registered address, evidence of a local bank account and others. We strongly recommend that you contact our lawyers for full information, including the required documents, as well as legal advice on your choice of jurisdiction.
Most popular jurisdictions for the representative office opening
We can offer our customers representative office opening services in numerous jurisdictions, however, some offer more favourable corporate legislation than others. Our lawyers advise considering following jurisdictions for the representative office incorporation.