Differences Between a Permanent Establishment and a Representative Office
We take a closer look at these two types of establishments. What sets them apart? Why is it so important to carefully analyze and understand the activity being carried out?
17/02/2026
📝- Index
A representative office is an establishment where a non-resident entity operates, carrying out auxiliary or preparatory activities, such as advertising, promotion, or other preparatory tasks for the foreign entity.
In general, it can perform anything excluded from the definition of a permanent establishment (PE), that is, anything that does not constitute the direct (partial or total) performance of its main activity.
In other words, a representative office cannot carry out the main economic activity of the non-resident entity.
In Spain, if the functions of the representative office go beyond auxiliary tasks and resemble the main activity, the Spanish Tax Agency could interpret that the non-resident entity has a permanent establishment in the country rather than a representative office, which would require the foreign company to pay taxes in Spain.
Representative Office vs Permanent Establishment | What You Need to Know
A representative office carries out merely auxiliary activities, whereas a permanent establishment conducts economic activities that directly impact the business of the non-resident entity.
Unlike a representative office, a permanent establishment does pay taxes for carrying out its activity: it is taxed in the country where the main activity is performed (in Spain: VAT and Corporate Tax).
The Activity Carried Out Plays a Key Role
As mentioned, a representative office performs auxiliary/indirect tasks, whereas a PE conducts the main activity of the non-resident entity.
Regarding the type of activity to be performed, it is essential to exercise caution, because the moment employees of a representative office start performing commercial and main tasks with the capacity to contract clients, it could be considered a permanent establishment rather than a representative office (which would imply the obligation to pay VAT and Corporate Tax in Spain).
In other words: if the functions carried out by the representative office exceed auxiliary tasks, the Spanish Tax Agency could interpret that the foreign entity has a permanent establishment rather than a representative office, with the associated tax implications.
In some cases, it can be somewhat complex to determine whether a representative office could be considered a permanent establishment.
To clarify this matter further, we share a series of queries from the Spanish Directorate General of Taxes (DGT) addressing this issue.
Representative Office vs Permanent Establishment: What Does the DGT Say?
“If a representative office of a German company in Spain is limited exclusively to establishing commercial contacts between Spanish clients and the company, which directly receives the clients’ orders, it constitutes a permanent establishment for VAT purposes” (DGT 27/2/02).
“A commercial office of a French company that rents a property in Spain solely to make product presentations, but does not carry out any commercial operations with clients, is not considered a PE (DGT CV 13/12/10; CV 29/01/10).”
“Permanent establishments are considered to include:
- Head offices, branches, offices, factories, workshops, warehouses, stores, or other establishments.
- Mines, oil or gas wells, or quarries.
Under a double taxation treaty, certain minor facilities (which would otherwise qualify under domestic rules) are excluded from the PE concept, such as warehouses that do not carry out resale activities (DGT 12-11-01), or, for example, representative offices, information, advertising, or promotion offices that do not have contracting authority and whose activity is effectively auxiliary or preparatory (DGT 30-8-01; CV 24-1-11).”
In conclusion: in general, a representative office is not a permanent establishment, although depending on the circumstances of each case, it could be considered as such.
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