1.3 REPRESENTATIVE OFFICE OR LIAISON OFFICE
A foreign corporation may establish a representative office or liaison office to facilitate international trade and investment in Washington State. Normally, the activities of such an office are limited to research, information gathering, facilitating communications with customers and suppliers located in Washington State, and similar functions. A Representative Office or Liaison Office (unlike a Branch Office) generally does not engage in any taxable business activities (i.e., it does not derive any income from its activities in Washington State). However, it is important to make sure that the activities of the Representative Office or Liaison Office are properly limited to avoid state and federal taxation.
1.3.1 Avoiding U.S. Taxes Relating to a “Permanent Establishment” The United States has entered into tax treaties with many countries that provide that income of a foreign corporation is only subject to U.S. taxes on industrial and commercial profits that are attributable to a “permanent establishment” of a foreign corporation located in the United States. A permanent establishment is generally defined as a branch, office, factory, warehouse, workshop or other fixed place of business, but ordinarily it does not include a liaison office, representative office or other fixed place of business that is used only for the following purposes:
1. Storage, display or delivery of goods and merchandise;
2. Maintenance of a stock of goods;
3. The purchase of goods or merchandise;
4. The collection of information; or
5. Advertising, supply of information, scientific research or similar activities of a preparatory or auxiliary character.
1.3.2 Deciding Whether to Obtain a Certificate of Authority If the liaison office of a foreign corporation engages in activities that are strictly limited to gathering and disseminating information and facilitating communications between the head office and its suppliers in Washington State, it may not need to obtain a certificate of authority to transact business or to pay the license fees described elsewhere in this publication. On the other hand, a foreign corporation should qualify to do business in this state and pay the regular license fees if the liaison office actively participates in 1) soliciting orders resulting in regular or systematic sales to Washington buyers, 2) negotiating contracts for such sales, or 3) performing other significant services necessary for the consummation of such sales. It would be unwise to assume that a foreign corporation is not obligated to obtain a certificate of authority simply because the orders solicited by the liaison office must be approved and accepted by the head office prior to becoming binding contracts. Because the initial filing and annual license fees are very small ($180.00 for the first year, and $59.00 for each year thereafter), it is usually best to obtain the certificate of authority if there is any doubt about whether it is required. The certificate of authority also can be helpful in providing evidence to U.S. immigration authorities that the foreign corporation has a “registered office” to which it may need to dispatch managerial or executive personnel on a temporary basis.
1.3.1 Avoiding U.S. Taxes Relating to a “Permanent Establishment” The United States has entered into tax treaties with many countries that provide that income of a foreign corporation is only subject to U.S. taxes on industrial and commercial profits that are attributable to a “permanent establishment” of a foreign corporation located in the United States. A permanent establishment is generally defined as a branch, office, factory, warehouse, workshop or other fixed place of business, but ordinarily it does not include a liaison office, representative office or other fixed place of business that is used only for the following purposes:
1. Storage, display or delivery of goods and merchandise;
2. Maintenance of a stock of goods;
3. The purchase of goods or merchandise;
4. The collection of information; or
5. Advertising, supply of information, scientific research or similar activities of a preparatory or auxiliary character.
1.3.2 Deciding Whether to Obtain a Certificate of Authority If the liaison office of a foreign corporation engages in activities that are strictly limited to gathering and disseminating information and facilitating communications between the head office and its suppliers in Washington State, it may not need to obtain a certificate of authority to transact business or to pay the license fees described elsewhere in this publication. On the other hand, a foreign corporation should qualify to do business in this state and pay the regular license fees if the liaison office actively participates in 1) soliciting orders resulting in regular or systematic sales to Washington buyers, 2) negotiating contracts for such sales, or 3) performing other significant services necessary for the consummation of such sales. It would be unwise to assume that a foreign corporation is not obligated to obtain a certificate of authority simply because the orders solicited by the liaison office must be approved and accepted by the head office prior to becoming binding contracts. Because the initial filing and annual license fees are very small ($180.00 for the first year, and $59.00 for each year thereafter), it is usually best to obtain the certificate of authority if there is any doubt about whether it is required. The certificate of authority also can be helpful in providing evidence to U.S. immigration authorities that the foreign corporation has a “registered office” to which it may need to dispatch managerial or executive personnel on a temporary basis.