What is a representative office and when should you open one in Spain?

Are you looking to do business in Spain? There are many opportunities for foreign companies that want to explore the Spanish market, contact potential clients or prepare for a future presence in the country.

The best-known ways to operate in Spain are usually the creation of a subsidiary, normally through a limited liability company or a public limited company, or the opening of a branch. However, it is not always necessary to start with a full corporate structure.

In some cases, a foreign company may choose to open a representative office in Spain. This alternative allows the company to have a presence in the Spanish market, carry out support, coordination or market research functions, and analyse business opportunities before moving towards a more stable structure.

In this post, we explain what a representative office is, what activities it can carry out, what limitations it has, how it is set up and how it differs from a branch or a subsidiary.

What is a representative office?

A representative office is a form of presence in Spain used by foreign companies that want to explore the market, carry out auxiliary activities or maintain a local presence without directly carrying out an economic activity.

Its main characteristic is that it does not have its own legal personality separate from the foreign parent company. This means that the office is not a separate Spanish company, but an extension of the foreign company in Spain.

In addition, the representative office does not have its own management bodies. It acts through a representative or authorised person, who operates on behalf of the parent company within the powers granted to them.

Its main characteristics include the following:

• It does not have its own legal personality.
• It does not have independent management bodies.
• It cannot carry out direct economic activity in Spain.
• It acts through a representative or authorised person.
• The foreign parent company is liable for the obligations that the office may assume.
• It does not have its own share capital, although the parent company may allocate funds to cover its operating expenses.

Therefore, a representative office can be a good option when a foreign company wants to study the Spanish market before incorporating a company or opening a branch.

What can a representative office do?

A representative office can carry out auxiliary, preparatory or support activities for the foreign parent company.

Its purpose is not to sell directly or provide services in Spain, but to facilitate the company’s initial presence in the market and support the development of future opportunities.

The activities that a representative office may carry out include, for example:

• Conducting market research.
• Analysing commercial opportunities in Spain.
• Coordinating meetings with potential clients, suppliers or partners.
• Supporting communication between the foreign parent company and contacts in Spain.
• Collecting information on the sector, competitors or regulatory environment.
• Carrying out institutional or corporate promotion tasks.
• Preparing documentation or preliminary information for future transactions.
• Providing administrative or coordination support to the parent company.

This type of structure can be especially useful when a foreign company wants to better understand the Spanish market before making a final decision on its establishment in Spain.

What can a representative office not do?

The main limitation of a representative office is that it cannot carry out direct economic activity in Spain.

This means that it should not act as if it were a branch or a subsidiary. Its role must be limited to auxiliary, preparatory or representative activities, without directly participating in the foreign company’s main commercial activity.

In general, a representative office should not:

• Sell products or services directly in Spain.
• Invoice Spanish clients.
• Sign regular commercial contracts on behalf of the parent company.
• Provide services that form part of the company’s main activity.
• Carry out recurring economic transactions in Spanish territory.
• Act as a permanent operating structure with its own commercial capacity.

This point is especially important because, if the office carries out a real economic activity or regularly participates in contracting or generating business in Spain, there may be a risk that the authorities consider that the foreign company is operating through a permanent establishment.

For this reason, before opening a representative office, it is advisable to clearly define what functions it will carry out, what powers the representative will have and what limits must be respected to avoid tax or corporate legal risks.

Differences between a representative office, a branch and a subsidiary

A representative office, a branch and a subsidiary are different forms of presence for a foreign company in Spain. The choice of one structure or another will depend on the activity to be carried out, the level of establishment required and the degree of responsibility that the parent company wants to assume.

The main difference is that a representative office cannot carry out direct economic activity, while a branch and a subsidiary can operate in Spain.

If you want to explore this point in more detail, you can read our post on the main differences between a permanent establishment, a branch and a subsidiary.

How is a representative office set up?

Opening a representative office in Spain usually requires the formalisation of a public deed or equivalent document granted before a foreign notary, duly legalised or apostilled where appropriate.

This document makes it possible to prove the decision of the foreign parent company to open a representative office in Spain and appoint the person who will act as representative.

In general terms, the documentation may include:

• The decision to open the representative office in Spain.
• Identification of the foreign parent company.
• Proof of the existence of the foreign company in its country of origin.
• Appointment of the representative or authorised person in Spain.
• Determination of the representative’s powers.
• Allocation of funds for the operation of the office, where applicable.

Depending on the country of origin of the parent company, it may be necessary to provide legalised, apostilled and, where applicable, officially translated documents into Spanish.

Unlike a branch or a subsidiary, a representative office does not usually require registration with the Commercial Registry, since no Spanish company or commercial structure with its own economic activity is being created.

Communication to the Spanish Tax Agency and obtaining a Spanish tax identification number

Although the representative office does not carry out direct economic activity, it may be necessary to notify its existence to the Spanish Tax Agency and obtain a Spanish tax identification number (NIF) in order to carry out certain procedures in Spain.

To do this, Form 036 must usually be filed with the Spanish Tax Agency, together with the documentation proving the existence of the foreign company, the representation granted and the identity of the representative.

The documentation that may be requested includes:

• Document proving the existence of the foreign company, such as the deed of incorporation, articles of association or registry certificate from the country of origin.
• Document appointing the representative or authorised person.
• DNI, NIE or identification document of the representative.
• Legalised or apostilled documentation officially translated where applicable.

Once the corresponding documentation has been filed, the Spanish Tax Agency may assign a Spanish tax identification number to the foreign entity so that it can operate or identify itself in Spain.

It is important to distinguish between a legal representative, an authorised representative and a tax representative. In some cases, the foreign entity may need a representative in Spain to act before public bodies or carry out tax procedures. However, the specific obligation will depend on the entity’s residence, the type of transactions, whether or not there is economic activity and the applicable tax obligations.

When should you open a representative office in Spain?

A representative office may be a suitable alternative when a foreign company wants to have an initial presence in Spain without yet incorporating a company or opening a branch.

It may be useful, for example, in the following cases:

• When the company wants to study the Spanish market before starting commercial activity.
• When it needs to hold meetings, maintain contacts or develop institutional relations in Spain.
• When it wants to analyse business opportunities without invoicing directly in the country.
• When it wants to prepare a future establishment through a branch or subsidiary.
• When it needs a light structure for coordination, information or market research tasks.

However, if the company already plans to sell, contract, provide services or carry out regular economic activity in Spain, the representative office may not be the right formula.

In these cases, it is advisable to assess other alternatives, such as opening a branch, creating a subsidiary or operating through a permanent establishment, depending on the type of activity and the establishment strategy.

Risks of misusing a representative office

Using a representative office incorrectly can generate significant risks for the foreign company.

The main risk is that the office stops being an auxiliary or preparatory structure and starts carrying out a real economic activity in Spain. If this happens, the authorities could consider that there is a permanent establishment, with the tax obligations that this entails.

Some situations that may generate risk include:

• The office regularly closing contracts on behalf of the parent company.
• The office invoicing or directly participating in commercial transactions.
• The office providing services that form part of the company’s main activity.
• The office having staff with real negotiation or commercial decision-making capacity.
• The office acting as a stable sales or service provision structure in Spain.

In addition, if the office has staff in Spain, it will be necessary to review the applicable labour and Spanish Social Security obligations. There may also be tax obligations related to withholdings, expenses, payments to employees or census procedures.

For this reason, the representative office must be properly designed from the outset, clearly defining its functions and preventing it from operating as a hidden branch or subsidiary.

How LEIALTA can help you

At LEIALTA, we support foreign companies that want to start activities, explore opportunities or establish themselves in Spain.

Our team can help you analyse whether a representative office is the right formula for your case or whether it would be more appropriate to incorporate a subsidiary, open a branch or operate through another structure.

Our advisory services may include:

• Preliminary analysis of the most appropriate way to operate in Spain.
• Opening a representative office.
• Obtaining a Spanish tax identification number for a foreign entity.
• Preparing and reviewing foreign corporate documentation.
• Appointing and managing a legal or tax representative where appropriate.
• Communication with the Spanish Tax Agency and other public bodies.
• Reviewing tax, labour and corporate legal risks.
• Supporting the subsequent incorporation of a subsidiary or branch if the project grows.

If you are considering establishing your company in Spain, you can consult our legal and tax representative service in Spain or our company incorporation service in Spain.

Having specialised advice makes it possible to choose the right structure, avoid tax risks and move forward with confidence in the process of establishing your business in Spain.