If you’re looking for easy entry into the Vietnam market, a representative office is the best option to go for. Low-cost, easy to manage, and not subject to most local taxes, etc. No wonder most foreign companies first penetrate the Vietnam market as a representative office.
So what conditions do foreign businesses need to meet to establish a representative office in Vietnam?
Conditions for a foreign-invested enterprise (FDI) to establish a representative office in Vietnam
A representative office is the most basic form for a business looking to invest in Vietnam, so the establishment process is relatively simple. However, not all foreign investors (FDI) are eligible to set up a representative office. Below are some of the key requirements for establishing a representative office in Vietnam.
According to Decree No. 07/2016/ND-CP, the license will be granted to foreign investors who meet the following requirements:
- Foreign companies belong to countries or territories being parties to treaties to which Vietnam is a signatory
- Hold a Certificate of Business Registration or equivalent valid for no less than 1 year from the submission date
- Operation scope lies within of Vietnam’s Commitments to treaties to which Vietnam is a signatory
In the cases where the operation scope is incoherent with Vietnam’s Commitments or you are not from a country or territory a member of which Vietnam is a signatory, please read Licensing Procedure and Time in this blog to gain a crystal clear insight.
Rights and Obligations of a Representative Office in Vietnam
Rights
As stated in the Commercial Law 2005 and Decree No. 07/2016/ND-CP, the rights of a RO are:
- Conducting activities in line with the purpose, scope, and duration specified in the Establishment License
- Leasing or purchasing necessary items for operations, such as office space, equipment, and means of transport
- Recruiting employees (both Vietnamese and foreign nationals) in accordance with Vietnamese labor laws
- Opening bank accounts in foreign currency or Vietnamese dong sourced from foreign currency at licensed banks in Vietnam, and using such accounts solely for operational purposes
- Using a seal bearing the office’s name in accordance with Vietnamese law
- Exercising other rights as prescribed by Vietnamese law
Permitted Business Activities
A RO’s main purpose is to conduct research on the Vietnam market and to support its parent company overseas. So, under the Law of Vietnam, the following activities are allowed:
- Acting as a liaison office
- Managing and coordinating the execution of contracts signed with Vietnamese partners
- Promoting the parent company in the Vietnamese market
- Conducting market research and surveys
- Carrying out other activities as permitted by Vietnamese law, such as opening bank accounts exclusively for the RO’s operations
Every legal entity has its rights, and of course, its obligations. Even though a RO is the simplest choice if you want to enter the Vietnam market, it does come with its own set of obligations and restrictions.
Obligations
In short, according to Decree No. 07/2016/ND-CP and Vietnam Commercial Law No. 36/2005/QH11, a RO is not permitted to conduct any profit-generating activities directly in the Vietnam market.
- A Representative Office is not allowed to carry out or hire others to carry out commercial promotion programs in Vietnam
- A Representative Office is not permitted to engage in any profit-generating activities in Vietnam
- A Representative Office may not participate in any stage of contract activities, including negotiation, signing, or executing new contracts (except for contracts related to leasing or purchasing office space, procuring equipment, hiring staff, and opening bank accounts)
Obligations of Representative Office
As stated in Decree No. 07/2016/ND-CP and Vietnam Commercial Law No. 36/2005/QH11, ROs have to:
- Pay all fees, charges, and taxes in accordance with legal regulations
- Fulfill other financial obligations as required by law
- Submit operational reports as required by law
- Perform all other obligations in accordance with Vietnamese law
Licensing Procedure and Time
Obtaining a RO operation license can take 10-13 working days. There are 2 typical procedures when applying for one:
After submitting a completed application to the licensing agency wherein your RO’s expected location is directly or by post or online, the next 3 working days is the examination period of the licensing agency.
If your application meets all requirements as per the Law, then a license will be granted (or not) within the next 7 working days. Be noted that if your application is incomplete, you will have to supplement the application and then wait for the examination from the authorized agency.
If your application for a RO license is incoherent with Vietnam’s Commitments or you are not from a country or territory a member of which Vietnam is a signatory, then your application needs to be approved by a relevant Minister.
Therefore, after receiving your application, the licensing agency will submit a request for approval to a relevant Minister within 3 working days. Then during the next 5 working days, this Minister has to submit a notification about whether this application is approved or not.
After acquiring the notification, the licensing agency will grant your RO license (or not) in the next 5 working days.
Required documents
- Officially stated by Decree No. 07/2016/NĐ-CP, foreign companies that have been operating for 01 year or more are eligible to establish ROs in Vietnam.
- An application form issued by the Ministry of Industry and Trade and signed by a competent representative of the foreign trader
- Copies of the Certificate of Business Registration or equivalent
- A letter of appointment of the head of the representative office
Copies of:
- Audited financial statements or certificates of the fulfillment of tax liabilities/financial obligations of the previous financial year or equivalent as proof of existence and operation of the foreign trader issued or certified by competent authorities where the foreign company is established
- RO charter
- Passport of the head of the RO
- Documents on the RO’s expected location: a memorandum of understanding (MOU) or leasing agreements or equivalent as proofs of the right to use a location as the representative office
Post-license Procedure
Operating Announcement
As specified in Decree No. 100/2011/ND-CP, within the first 45 working days after obtaining the license, the RO has to publish the below information in whether a print or online newspaper in Vietnam for three issues in a row:
- Name and address of the Representative Office
- Head of the Representative Office
- Name and address of the foreign trade promotion organization’s headquarters
- Information on the establishment license and licensing authority, including license number, date of issuance, and relevant terms and conditions
Operation contents
And as per Decree No. 07/2016/ND-CP, the licensing agency also has to release the same following information on its web portal within 15 working days.
Also in these first 45 days, the RO has to officially kick off its operation and notify the licensing agency, People’s Committee, and Industry and Trade Department of the locality where the RO is based.
Registering tax code
Though a representative office cannot involve in any income-generating activities, it is required to register for a tax code according to Circular No. 95/2016/TT-BTC. A RO will be issued a 13-digit TIN and the required registration documents are:
- Tax registration form No. 01-ĐK-TCT issued together with Circular No. 95/2016/TT-BTC
- Only the following sections of the form need to be completed: 1, 2, 3, 4, 9, 10, 12, 14, and 15
Opening Bank Account
A representative office is authorized to open both foreign-currency and Vietnam dong of foreign-currency origin accounts at any licensed bank in Vietnam. These accounts can only be used for RO’s activities.
Opening bank account procedures must comply with the regulations of Vietnam State Bank. Should you want to have more insights regarding this, read our blog: Opening a bank account in Vietnam.
Tax and Reporting Duties
A RO is not subject to Corporate Income Tax as it is not permitted to conduct any business activities that generate income. This is also the reason why most foreign companies choose this type of legal entity to make their first step in the Vietnam market. However, according to Circular No. 111/2013/TT-BTC, a representative office is required to apply for personal income tax.
Representative offices have to submit an operation report about the preceding year to the licensing agency by the last working day of January each year. Plus, financial statements and statistical reports also need to be done as per Vietnam Law. In certain cases or as required by the Vietnam Law, a RO needs to present reports and documents or explain its activities.
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