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Why do I need a Representative Office to do business in the UK or EU?
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Many countries do not have adequacy status as granted by the EU and therefore they need to take action if they plan to do business in the EU or UK. For instance, the USA, China and Australia do not have adequacy status.
Companies from these countries will need a representative office if they want to conduct business.
The GDPR tells us foreign companies are not permitted to do business with EU residents customers without a GDPR representative.
The Representative Office should be located in the European Union (EU). The office could also be a limited company, branch or subsidiary legal entity. The same applies to the UK after Brexit.
With this requirement, the EU wants to increase the chances for data protection authorities to reach and sanction foreign companies that could otherwise be difficult to get a hold of.
If you transfer EU/UK citizens data out of the EU or UK you need to put in safeguards using either model contract clauses, or in the case of a world-wide group, Binding Corporate Rules(BCR’s).
The Representative Office needs to maintain a local solid GDPR framework for compliance itself.
BCR’s would take some time to implement fully as this requires the group enterprise to set forth their GDPR framework. Therefore, as an interim step, companies should consider the use of model clauses.
The local Representative Office is subject to enforcement and fines for wrongdoings of the Representative Office and the parent company. In the event of an incident with the parent company the local office would be expected to represent the parent company for regulatory requests.
Characteristics of a Representative office
A Representative Office is where you have no corporation tax presence in the UK and it is used if you expect to only have a limited presence in the UK. It is a recognised legal entity.
Under HMRC rules you can still employ UK sales staff, use banks and advisors, conduct market research and HMRC will allow you to operate payroll legally. Crucially the representative office does not establish a corporate office with corporation tax payable. Registration is still required from Companies House and the reclaiming of VAT is not possible in the normal way.
The Representative Office structure is often used to test the waters of the business model by operating from its home country with no taxable presence in the UK. Once the need for a permanent taxable presence is necessary another type of entity will be required (e.g. Branch, limited Company or Subsidiary).
GDPR impact on the Representative Office
GDPR Article 27(1), “the appointment of an EU Representative for companies without an office in the EU must be made in writing. The written agreement or the contract should at least state the rights and obligations of the Representative Office. An oral appointment of the Representative is categorically excluded.”
It’s important to be aware of the issue of liability. Representative entities should recognise that they may be subject to enforcement actions by data protection authorities.
If you need help navigating the process please give me a call.
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