Representative office

A representative office is an office established by a company or a legal entity to conduct marketing and other non-transactional operations, generally in a foreign country where a branch office or subsidiary is not warranted. 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.

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. Consequently, 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.

By country

China

There are three options when a foreign company wants to try and sell to the Chinese market, these include using an agency, a distributor or setting up a representative office (RO). Setting up an RO in this way does not count as its own legal entity, rather an extension of its foreign parent company.[1] The main purpose of an RO is to facilitate business activities in China, for example: opening communication channels, ensuring quality control, performing market research and maintaining relationships with partners and suppliers. It is generally forbidden for an RO in China to pursue profit-generating activities.

To register an RO in China, a business must be at least two years old and is required to submit a business report between March and June of each year, summarising key RO activities and a legal statement referring to the foreign-owned parent business. Generally, ROs are taxed on gross expenses which in total tends to stand at around 11.75%, although these rates can sometimes be increased at the relevant tax bureau's discretion.[2]

Vietnam

Starting an RO in Vietnam requires a business to be at least 1 year old since incorporation, with required legal documentation for the RO license needing to be notarised by the Vietnam embassy in parent company's country and translated into Vietnamese. One of the key reasons for foreign investors setting up an RO in Vietnam is to monitor market trends and engage in limited cooperation with locally established businesses. Once established, an RO is granted a license to operate in Vietnam for 5 years with opportunity for renewal at the ends of its tenure. A license is required to be granted by the government within 7 working days.[3][4]

Singapore

ROs in Singapore have a three-year licence cap but are an effective option for investors looking to conduct research into viable business opportunities in this region. ROs can also be useful as a first entry point for foreign-owned businesses looking to expand their operations in Singapore - an important hub for ultimately expanding operations in Southeast Asia. Unlike private companies, ROs in Singapore are not subject to the same compliance requirements based on the assumption an RO is not there to engage in profit-generating activities.[5]

India

In India, an RO is legally referred to as a Liaison Office (LO). LOs work in pretty much the same way as an RO, allowing foreign businesses to facilitate communication with local businesses and strengthen the parent company's overall presence in the region. To initiate the process of setting up a LO in India, the parent company must submit the appropriate legal documentation in addition to its latest audited balance sheet. Each year, the LO is expected to submit a summary of activities to the Reserve Bank of India (RBI) for verification. In due course, an LO may be transformed into a Branch Office (BO), enabling the parent company a more substantial stake in business activities in India.[6]

Ukraine

Foreign companies on purpose to promote products or services in Ukraine, have the right to open a RO. Offices are opened in order to promote (less for the purpose of direct and indirect sales) of goods and/or services of the company, through advertising campaigns, market research, distribution support, etc. Under Ukrainian law, Branches & Representative offices are established without constituting a separate legal entity. Ministry of Economy of Ukraine is the main authority to register representatives[7]. Representatives may have a bank account (in local and foreign currency) and obtain a seal (emblem). Financing received from main office, is fully exempt from income tax if it was properly used by office (inc. salary, rent payment, advertising campaign, market research, etc).

Registration of ROs and obtaining a certificate of registration is the basis to obtain a residence permit for foreign employees of representative office. Certificate of registration enables a temporary duty and value-added tax (VAT) free import in Ukraine of property and equipment required.

References

  1. ↑ "Corporate Establishment in China: How to Structure Your Investment". china-briefing.com. 17 May 2018.
  2. ↑ "Setting up a Representative Office in China". china-briefing.com.
  3. ↑ "Setting up a Representative Office in Vietnam". vietnam-briefing.com.
  4. ↑ "Updated Requirements for Representative Offices in Vietnam". vietnam-briefing.com.
  5. ↑ "The Guide to Corporate Establishment in Singapore". aseanbriefing.com.
  6. ↑ "How to Establish a Liaison Office in India". india-briefing.com. 5 Jun 2018.
  7. ↑ Thor, Anatoliy. "Registration of foreign representative office in Ukraine".
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