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.

Eligibility for Setting up a Representative Office in Vietnam

Because a representative office is just the basic level of entrance to the Vietnam market, the process is quite simple. However, not all foreign investors are eligible to establish one. Check out whether you’re eligible or not for this type of legal entity.

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

Like other types of companies in Vietnam, a Representative Office has its rights and obligations according to current Vietnam Law.

Rights

As stated in the Commercial Law 2005 and Decree No. 07/2016/ND-CP, the rights of a RO are:

• To operate a business for the right purposes, scope, and duration specified in the establishment licenses
• To rent and purchase the necessities for their operations such as rent or purchase offices, equipment, and facilities
• To recruit employees (both locals and foreigners are allowed) according to the provisions of Vietnam’s Law
• To open accounts at a licensed bank in Vietnam in foreign currency or foreign currency-based Vietnam dong; to be allowed to use those accounts solely for business operations
• To have seals with their names on them according to the provisions of Vietnam Law
• And other rights as per the 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:

• Play the role of a contact office
• Manage and handle the execution of the contracts signing with Vietnamese partners
• Promote the parent company in the Vietnam market
• Conduct research and surveys on the market
• Other activities as permitted by the Vietnam Law such as opening a bank account solely for the operation of the RO

Obligations

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.

Restricted activities

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.

• ROs cannot conduct or hire others to conduct commercial promotions in Vietnam
• ROs cannot involve in any profit-generating activities in Vietnam
• ROs cannot involve in contracts at any stage including negotiation, signing, or entering into new contracts (except for renting or purchasing an office, buying equipment, hiring employees, and opening a bank account)

Obligations

As stated in Decree No. 07/2016/ND-CP and Vietnam Commercial Law No. 36/2005/QH11, ROs have to:

• Pay for all fees, charges, and taxes as per the Law
• Comply with other financial obligations as per the Law
• Report operating activities as per the Law
• Follow other obligations as stated in the 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.

Required documents according to the same Decree mentioned above to establish a RO in Vietnam include:

• 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

Obtaining a license is not the final as there are a whole lot of things to do as specified in the Law.

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:

• RO’s name and address
• The Head of the RO
• The head office of the foreign trade promotion organization’s name and address
• Information about the establishment license and licensing agency including number, date of issue, and terms
• 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:

• A No. 01-DK-TCT Tax Registration Form issued along with the Circular No. 95/2016/TT-BTC
• And only fill the following items: 1, 2, 3, 4, 9, 10, 12, 14, 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.

A group of comprehensive human resource management solutions for your business – terra

Developed with the aim of supporting the HR community and businesses around the world, terra provides a group of terra human resource management solutions, supporting FDI businesses to the maximum when conducting market expansion in Vietnam. .

• terra HR System – Comprehensive human resource management system: If businesses are afraid of making mistakes in step 3 or step 4, you can employ terra HR System because all the inadequacies in human resources will be thoroughly resolved. The HR System will help and accompany FDI firms from the “first stages” to engage in the Vietnamese market, with features such as timekeeping, wage calculation, personnel data management, leave and overtime, social insurance, recruitment, labor contract, training, and so on.
• terra Payroll – Payroll outsourcing service: Similar to terra HR System, terra Payroll is a payroll solution that FDI enterprises may use for calculations, salary payments, social insurance, and other related tasks. It can be argued that terra Payroll is the best option for FDI businesses since it combines technology with HR system software at a very affordable price. All of the differences and difficulties related to law, culture, labor, … will be solved by terra team including experienced staff in the field of consulting – tax – local accountant support settlement.
• terra Academy – Training and sharing knowledge projects: When launching a business in a completely new country like Vietnam, terra Academy can become a channel to deliver important information as well as update advances in policies, legislation, and human resources.

terra hopes to become a partner to bring effective human resource management solutions to businesses, helping businesses quickly adapt and develop well  business in Vietnam.