Representative office
Summary definition: A business presence set up by a parent company in another country without forming a separate entity or generating revenue.
What is a representative office?
A representative office is a type of business presence that allows a parent company to establish operations in a foreign country without forming a separate legal entity.
Often referred to as a rep office or representative company, such locations are designed to support limited, non-commercial activities (e.g., market research, promotional efforts, and relationship management) rather than directly generating revenue.
Key takeaways
- A representative office enables a parent company to conduct non-commercial activities abroad without creating a separate legal entity.
- While a rep office offers a low-cost, low-risk entry point into a foreign market, its inability to generate revenue often requires companies to later convert it to a branch office or subsidiary, thus increasing total cost and triggering compliance requirements.
- Understanding when to use a representative company is essential for aligning global expansion plans with workforce and compliance needs.
What can a representative office do?
A representative company is designed to support strategic market entry while operating under clearly defined legal and operational boundaries.
Its primary functions, therefore, focus on non-commercial activities, such as conducting market research, promoting the parent company’s brand, and serving as a local point of contact in the foreign country. A rep office may also, however, coordinate communications, gather competitive intelligence, and manage relationships with local customers, partners, or government agencies.
Regardless, since a representative office isn’t a separate legal entity, its functions are intentionally limited. In other words, it’s prohibited from signing contracts, issuing invoices, or conducting direct sales.
What’s the difference between a representative office, a branch office, and a subsidiary?
A rep office is limited to non-commercial activities, while a branch office can conduct some commercial business, but still isn’t a standalone entity. Conversely, a foreign subsidiary is a separate legal entity with full authority to operate and generate revenue.
Thus, selecting between these structures determines a company’s scope of activities, compliance duties, and international growth options.
| Feature | Rep office | Branch office | Subsidiary |
| Legal status | Not a separate entity | Not a separate entity, but registered to do business | Separate entity incorporated in the foreign country |
| Permitted activities | Non-commercial only | Limited commercial and operational | Full commercial and operational |
| Revenue generation | Not allowed | Allowed | Allowed |
| Contract execution | Not permitted | Permitted | Permitted |
| Liability | Parent company | Parent company | Subsidiary entity |
| Tax exposure | Typically minimal or none | Local corporate income taxes | Local corporate income taxes |
| Hiring employees | Limited | Allowed | Allowed |
| Setup complexity | Low | Moderate | High |
| Common use cases | Market entry and exploration | Active business expansion | Long-term local operations |
Representative company pros and cons
Despite the practical, cost-effective benefits a representative office offers, it also comes with significant functional limitations that organizations must consider.
| Representative office pros | Representative office cons |
| Faster startup: A rep office is typically less expensive and quicker to establish than a branch office or subsidiary. | No revenue generation: A representative office cannot conduct sales, issue invoices, or sign contracts. |
| Market visibility: Enables the parent company to conduct market research, build brand awareness, and develop local relationships. | Parent company liability: The parent company assumes full legal and financial responsibility for the representative office’s actions. |
| Less financial risk: Allows companies to test a market before committing to a permanent investment. | Scaling constraints: As operational needs increase, companies must transition to a branch office or subsidiary to continue growth. |
How to register a representative company
Registering a representative office requires formal, country-specific processes that ensure the parent company can legally function while complying with commercial activity limits.
Regardless, the registration process often includes at least some of the following:
- Verify eligibility: Ensure the rep office is permitted in the country, and its activities are non-commercial.
- Gather required documents: Collect incorporation proof and status from the parent company.
- Define scope: Clearly state the rep office’s role and relation to the parent company.
- Appoint local officer: Designate a local or authorized representative officer to act on the rep office’s behalf and liaise with local authorities.
- Submit application: File with the appropriate government authority (e.g., tax, trade, or commerce agency).
- Establish the location: Secure an office address and handle setup needs (e.g., office equipment, utilities, security, etc.).
- Hire employees: Ensure hiring and payroll practices comply with local labor requirements.
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