Pros and cons of setting up a Representative Office in Australia

What is a Representative Office in Australia?

A Representative Office is a non-income generating entity owned by a foreign company seeking to conduct any of the following activities in Australia:

• market research;
• promote products/services;
• quality control of products from head office;
• facilitate communications between the parent company and its existing and/or potential clients in Australia;
• perform administrative tasks for the head office; and
• other qualifying activities allowed under Australian laws.

Since it does not generate income, it is generally easier to set up than a subsidiary or branch office, and is not as heavily regulated by the government. The setup process can be completed in 1 month. 

A Representative Office is not required to register with the Australian Securities and Investments Commission (ASIC). However, if it will employ local staff, it must register with the Australian Taxation Office (ATO) for income tax-related compliance. 

To establish a Representative Office, a foreign company must:

• set up a physical office address 
• register with ATO if it will employ locally

If employing local staff, appointing a resident public officer is required. Appointing a resident agent is not required, but is highly recommended to streamline the setup process. A resident agent’s vast knowledge of the local market can assist you in making informed decisions to achieve your business goals.

Pros of setting up a Representative Office in Australia

If you want to limit your initial commitment to expanding your business to Australia, a Representative Office is a lower-cost, lower-risk investment to consider. Its many advantages include:

Test the Market. Considering the difficulties associated with entering a foreign market, a Representative Office can help you understand the local business climate and predict the market reception of your products/services. This can help you plan on how to strategically position your brand when you decide to fully expand your business to Australia. 

Establish Presence. With a physical office in Australia, you can build brand awareness and create bigger visibility and credibility for your products/services. You can do these through various means such as advertising campaigns, facilitating communications between the parent company and existing and/or potential clients within Australia, and conducting quality control of products before shipment to local clients. 

Build Relationships. Dealing with suppliers and government authorities in Australia is the most difficult for foreign companies. A Representative Office can help you find the best suppliers and improve your relationship with government authorities before you make the big leap. 

No Need to Register with ASIC. Registering with ASIC requires a significant amount of time, money, and paperwork. Representative Offices are not required to undergo this registration process because they are non-income generating entities – which means there is less incentive for the government to regulate them. 

No Long-term Commitment. Representative Offices are by nature, established for a short duration. They typically operate for 2-3 years, which serves as an ample amount of time for the parent company to assess the potential of their products/services in the Australian market. They can be renewed or extended, subject to the parent company’s discretion. 

Cons of setting up a Representative Office in Australia

Owing to it being a non-income generating entity, a Representative Office also has its disadvantages, which include:

No Revenue Generation. Perhaps the most obvious disadvantage, it is not allowed to derive income by any means, direct or indirect sales, from the parent company’s existing or potential clients in Australia. 

Limited Activities. Besides not being able to generate income, it is also not allowed to offer services to third parties or apply for tax incentives from the government. 

Overhead Expenses. A Representative Office requires a physical office address, and maintaining this office incurs costs for rent, utilities, salaries, and other overhead expenses. All of these without generating any revenue. 

Dependent on Parent Company. For it to fully operate, a Representative Office must receive sufficient funding for its operational expenses and business activities from its parent company. If the parent company refuses to provide more funding, the Representative Office, as a non-income generating entity, will cease to operate. 

Establish a Representative Office in Australia with the right firm

Foreign companies are generally not familiar with the local regulations and business environment in Australia. With the many considerations associated with business expansion, uncertainties are inevitable. Testing the waters through a Representative Office will help you reduce, if not eliminate, these uncertainties. As well as make informed decisions before deciding on a fully-fledged expansion. 

From providing expert knowledge on the best ways to navigate compliance in Australia to finding the best location to set up your Representative Office, our business consultants at Company Set Up Australia are ready to assist you.