Concept of Representative Office
A representative office is the easiest option for a company planning to start its operations in a foreign country. The company need not incorporate a separate legal entity nor trigger corporate income tax, as long as the activities are limited in nature.
A representative office is the easiest option for a company planning to start its operations in a foreign country. The company need not incorporate a separate legal entity nor trigger corporate income tax, as long as the activities are limited in nature. As its name says, a representative office represents its foreign parent in the country of operations.
A representative office is an office established by a company to conduct marketing and other non-transactional operations, generally in a foreign country where a branch office or subsidiary is not warranted. A representative office cannot regularly buy and sell goods or offer services. Representative offices are generally easier to establish than a branch or subsidiary, as they are not used for actual "business" (e.g. sales) and therefore there is less incentive for them to be regulated.
A representative office is a more tentative step into the foreign market, often used by investors to test the waters or for promotional purposes when the business distributes its goods by other means. A representative office is most appropriate in the early stages of corporation’s business presence in a foreign country. They have been used extensively by foreign investors in emerging markets such as China, India and Vietnam although they do have restrictions through not being able to invoice locally for goods or services.
Main Features:
- Representative office to engage only in activities which do not amount to, or form part of, the carrying on of the relevant business in foreign country.
- Having a nominated person employed by a local affiliate to handle enquiries could fall into this category.
- The representative office can contact customers and enter into contracts on behalf of its foreign parent, but can’t sell the goods itself.
- Representative Offices tend to be utilized by foreign investors in fields such as sourcing of products, quality control, and general liaison activities between the Head Office and the Representative Offices overseas.
- Corporations should periodically review the suitability of the structure and its activities to make sure that the company is not triggering a taxable presence in the foreign land by exceeding the permissible activities.
ICICI Bank, India's second largest bank, opened representatives offices in three east-Asian countries Thailand, Indonesia and Malaysia". The branches are expected to enable the bank to increase its participation in India's trade transactions in the region. It also has a representative office in the US.
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