Representative Offices: A Cautious Approach To Vietnam's Market

A Representative Office (RO) offers a strategic and low-cost option with minimal compliance requirements for foreign investors seeking to enter the Vietnamese market. An RO serves as a dependent affiliate of the foreign investor, operating under the investor's authorization to enhance business activities, excluding direct engagement in business transactions. This legal insight provides comprehensive guidance on the establishment of an RO in Vietnam, covering the licensing process, post-registration procedures, and ongoing compliance requirements throughout the RO's operational life.

Representative Offices: A Cautious Approach To Vietnam's Market

1. Why Foreign Investors Should Choose Representative Offices?

As highlighted, an RO represents a strategic and cost-effective alternative to establishing a full-fledged company in Vietnam for the following reasons: 

• Simple registration procedures with shorter time for application 

• The investors are not required to invest specific capital in RO

• Being exempt from company tax declaration requirements and the submission of numerous annual reports, in stark contrast to corporate entities

• Being exempt from the obligation to remit Corporate Income Tax (CIT)

• Fewer compliance procedures to be applied

• Can recruit employees and sign contracts for RO's operation 

Why Representative Office? & What We Offer

Permited Activities, Reporting Requirements, Conditions and Restrictions

2. Permitted Activities of Representative Offices

An RO in Vietnam is authorized to engage in the following activities:

• Market Research: Conducting market research to gather information and insights on the Vietnamese market, including consumer behavior, market trends, and competitive analysis.

• Commercial Promotion Activities: Promoting the business and products of the foreign parent company through various commercial activities, such as advertising, organizing promotional events, and establishing business relationships.

• Liaison Office: Serving as a liaison office to facilitate communication and coordination between the foreign parent company and its partners or clients in Vietnam.

3. Conditions For Setting Up A Representative Office

A foreign investor can only open an RO in Vietnam when satisfying the below conditions: 

1. Nationality Requirement: Investors must originate from countries or territories that are signatories to treaties recognized by Vietnam.

2. Operational Duration: Investors are mandated to demonstrate a minimum operational history of one year from the date of their establishment or registration.

3. Validity of Business Registration: The Incorporate Certificate, or its equivalent document, held by investors must remain valid for a duration of at least one year from the date of submission of the RO application.

4. Alignment with Commitments: The operational scope of the prospective representative office must align with the commitments outlined in treaties to which Vietnam is a signatory. In cases of misalignment, approval from relevant Vietnamese Ministers is necessitated for RO establishment.

4. What To Prepare For The Representative Office Registration?

Documents from the Parent Company (i.e., the Foreign Investor):

1. Incorporation Certificate or Equivalent Documents: These must demonstrate the legal existence of the parent company.

2. Appointment Letter for the Chief of RO: This document should officially appoint the individual who will act as the Chief of the RO.

3. Financial Documentation: Audited financial statements, certificates of fulfillment of tax liabilities, or financial obligations from the last fiscal year, or equivalent documents. These documents must be issued or certified by the competent authorities where the foreign parent company is established, proving its existence and operational status.

All documents from the parent company must be true copies, legalized, and accompanied by certified translations into Vietnamese for the application.

Documents from the Chief of Representative Office:

1. Identification: A true copy of the Chief's passport or ID card. If the Chief is a foreign national, the passport must be legalized and translated into Vietnamese.

Documents from the Premises of Representative Office:

1. Proof of Location: A memorandum of understanding (MOU), lease agreement, or documents proving the right to use the premises as the representative office.

2. Legitimacy of Premises: Supporting documents to confirm the legal status of the premises.

All premises-related documents must be true copies. 

5. Lodgement

The application for registering an RO must be submitted to the provincial Department of Industry and Trade or the Management Board of the Industrial Parks where the RO is located. The license for the RO can typically be obtained within four weeks from the date of sufficient submission.

6. Post-Registration Process

After the lodgement, the RO must complete several post-registration steps to commence its operations:

1. Register the RO's Seal: The RO must engrave its seal/stamp and then register it with the provincial Public Security. This step should be completed as soon as possible after lodgement, as the seal is required for subsequent steps.

2. Register a Tax Code for the RO: The tax registration application must be submitted to the tax authority within 10 working days from the issuance date of the RO license. Failure to comply with this timeline will result in sanctions and nullify the lodgement process. The tax code is issued to the RO within 03 working days from the submission date of all required documents.

3. Register Tax Codes for RO Staff: If the RO employs staff, it must also register the tax codes of both local and foreign employees with the tax authority.

4. Open a Bank Account: While the RO cannot engage directly in business transactions, it can conduct transactions to support its operations in Vietnam and therefore has the right to open a local bank account.

7. Representative Office's Reporting Requirements

Although the RO is not permitted to engage in business transactions and is therefore not subject to corporate income tax, it must fulfill several reporting obligations:

1. Personal Income Tax (PIT) Reporting: If the RO has employees, it must file tax reports and pay personal income tax for its staff.

2. Value-Added Tax (VAT) Reporting: The RO must submit VAT reports due to transactions made to support its operations.

3. Annual Report to the Licensing Authority: The RO is required to submit an annual report to the licensing authority no later than January 30 of each year.

Non-compliance with reporting requirements will adversely affect the RO's operations and any future licensing extensions or amendments.

8. Key Takeaways

Restrictions: The foreign investors are highly recommended to adhere to the following restrictions: 

• License History: Investors seeking RO establishment should not have incurred the revocation of branch or representative office licenses within the two years preceding the application date for the new RO.

• Multiplicity of ROs: While investors possess the prerogative to establish multiple ROs, it is imperative to note that 02 ROs shall not be located in the same central-affiliated cities.

• License Duration: The issuance of an RO license is limited to a maximum term of five years, though it should not exceed the remaining validity period of the investor’s Incorporate Certification, where applicable. This stipulation applies uniformly to both the initial issuance and subsequent extensions of the RO license upon expiration.

• Role of RO's Chief: The Chief of an RO is prohibited from concurrently holding the following positions:

• Head of a Branch: The Chief cannot simultaneously serve as the head of a branch for the same foreign trader or any other foreign trader.

• Legal Representative: The Chief is not allowed to hold the position of legal representative for the same foreign trader or any other foreign trader.

• Legal Representative of a Vietnamese Company: The Chief is barred from concurrently serving as the legal representative of any business organization established under Vietnamese law.

What We Can Do?

At Van Pham LLC, we leverage our extensive experience in supporting hundreds of investors in establishing their Representative Offices (ROs) across various industries, including pharmaceuticals, chemicals, trading, and manufacturing. Our comprehensive services ensure that you receive the ultimate support throughout your journey in Vietnam. 

Here’s what we offer:

• Comprehensive Market Entry Advice:
  

We provide strategic advice on market entry in Vietnam, including setting up affiliates, managing cash flow, utilizing funding efficiently, and structuring operations and organizations to align with your business goals.

• Bank Account and Transaction Management:

We assist in opening and managing local bank accounts, ensuring smooth and compliant financial transactions to support your RO's operations.

• Licensing and Business Record Management:

Our team handles the entire licensing process, from application to approval, and maintains accurate business records to ensure compliance with local regulations.

• Human Resource Management:

We offer advice and service regarding work permits and labor compliance, ensuring your team operates effectively and legally in Vietnam.

• Secretary Services:

Our secretary services cover administrative tasks, document management, and communication facilitation, allowing you to focus on core business activities.

Additional Services to Enhance Your Business Success:

• Legal Compliance and Risk Management:

We provide legal compliance services to navigate the complex regulatory environment in Vietnam and implement risk management strategies to safeguard your business.

• Tax Advisory and Planning:

Our experts offer tax advisory services, helping you plan and manage your tax obligations efficiently, including VAT, PIT, and other relevant taxes.

• Localization and Cultural Integration:

We support your business in understanding and integrating into the local culture, which is crucial for successful market entry and long-term operations.

• Business Expansion Support:

As your business grows, we provide ongoing support for scaling operations, entering new markets within Vietnam, and diversifying your business activities, including the RO conversion to company or separate company establishment. 

By partnering with Van Pham LLC, you gain a dedicated team committed to your success in Vietnam. Our holistic approach and deep understanding of the local market ensure that your investment is optimized, compliant, and positioned for long-term growth. Please do not hesitate to direct us via email: info@vanphamllc.com for a 45-minute free consultation for your RO Establishment.