Vietnam is becoming a popular destination for global businesses and investors seeking to establish a presence in Southeast Asia. For foreign businesses looking to expand their reach or explore opportunities in Vietnam, one option is to open a Representative Office (RO) in the country. A Representative Office allows foreign businesses to promote their brand, conduct market research and analysis, and liaise with local partners and customers while having a legal presence in the country.
This guide provides an overview of the conditions and procedures involved in opening a Representative Office in Vietnam, including eligibility criteria, registration procedures, and compliance requirements.
Legal basis for opening a RO in Vietnam
– Law of Enterprise 2020
– Decree 47/2021/ND-CP issued on April 1 2021 of the government detailing a number of articles of the enterprise law
– Commercial Law 2005.
The concept of a representative office of a foreign company/representative office of a foreign trader
Clause 6, Article 3 of the Commercial Law 2005: “Representative office is a dependent unit of a foreign trader, established in accordance with the law of Vietnam to study the market and carry out a number of promotional commercial activities permitted by Vietnamese law”
It should be noted that the establishment of a representative office of a foreign trader/foreign company is different from the establishment of a representative office of a foreign-owned company established in Vietnam.
Foreign capital companies established in Vietnam, when establishing representative offices, carry out procedures at the Department of Planning and Investment, similar to Vietnamese companies.
Foreign companies (established abroad) when setting up representative offices in Vietnam, they must do so at the Department of Industry and Trade.
What are ROs permitted to do?
The following activities are allowed for ROs: Conducting market research; Serving as a liaison office for its parent company; Promoting the activities of the head office through meetings and other activities that may lead to business in the future.
Representative offices rely on their parent companies and are prohibited from generating their own profits or directly entering into contracts. Additionally, they are not permitted to issue invoices.
Steps to take before and after getting a license
– A checklist for setting up a RO before obtaining a license.
+ Submit an application for setting up a RO, using the company chop or seal.
+ Provide the Chief of the RO’s appointment letter along with identification documents and the company seal.
+ Issue a power of attorney in favor of a consultant who will submit the application dossier.
+ Present the Certificate of Incorporation for the Company and/or the Business Registration Certificate of the Company.
+ Submit the audited financial report of the company for the latest fiscal year.
+ Provide the Memorandum of Understanding (MoU) of leasing office or the leasing contract.
+ Furnish documents that demonstrate the legal rights of the landlord regarding the right of leasing office.
To carry out steps 1 to 6, the foreign entity must possess one notarized and consularized copy of each document and also a translated version in Vietnamese by a Vietnamese competent authority. A signed leasing contract is also required before registering a RO in Vietnam.
– A list of post-licensing tasks for setting up a RO.
+ Create a seal for the RO.
+ Obtain the license for establishing the RO.
+ Submit the passport of the Chief of RO if they are a foreigner or their passport/ID card if they are Vietnamese.
+ Register a tax code.
+ Declare the registration of a tax code.
+ Provide a power of attorney.
+ Furnish the certificate of seal registration.
+ Acquire the certificate for the RO in Vietnam.
+ Open a bank account for the RO.
+ Obtain the license for establishing the RO, the certificate for seal registration, and the certificate of tax code registration.
+ Appoint authorized signatories of the bank accounts through a letter of authorization.
+ Announce the establishment of RO of the Company.
Steps 8 to 10 require documents that have been notarized and translated to complete the process.
The establishment of ROs usually takes around 6-8 weeks, so it’s advisable to seek professional assistance to navigate the complex legal processes involved. Setting up an RO involves fewer administrative procedures as compared to other alternatives due to the absence of in-country revenue and associated licensing requirements. You can further extend an RO license’s validity of 5 years for another 5 years if necessary.
Obligations of a RO after its establishment
A representative office (RO) can hire both local and expatriate employees without a limit as long as they provide proper documentation. It is mandatory for all expatriate staff, including the chief representative, to have a work permit. ROs can recruit employees directly or via recruiting agencies. Even though Vietnamese corporate income tax (CIT) does not apply to ROs, ROs still need to declare their employee’s personal income tax (PIT) in accordance with their responsibility. To calculate the payable tax, the ROs need to undergo a tax audit that examines all revenues and expenses during the tax period.
In addition to PIT declaration, ROs must submit an annual report to the Department of Industry and Trade before January 30 of each year. This report should follow Circular No. 11/2016/TT-BCT and include various details such as the list of employees working for the RO, any changes in staff during the reporting year, and the promotional activities and marketing events conducted by the RO during the year. Failure to submit the annual report on time may result in fines of up to VND 40 million (US$1,700) and can also cause difficulties for the RO while renewing its license or upgrading its operations to a permanent establishment.
Some notes when operating RO in Vietnam
– When operating representative offices, it is important to avoid conducting any direct profit-making activities in Vietnam.
– The head of the representative office cannot enter into any contracts, amendments, or supplements to a foreign trader’s signed contract without a legitimate power of attorney or other legal circumstances
– The represented traders strictly prohibit the promotion or hiring of other traders to conduct promotions in Vietnam.
– The representative office cannot carried out direct commercial advertising activities.
– The represented trader cannot directly display or introduce their goods and services unless they are first presented and introduced at the head office of the representative office.
– The representative office should abide by relevant laws and regulations, such as Anti-Money Laundering Law, Tax Laws, and Commercial Laws applicable to its operations in Vietnam.
Conclusion
In conclusion, opening a representative office in Vietnam can be a strategic move for foreign businesses planning to expand their operations. Although the process may require some administrative procedures, seeking professional assistance can help navigate the complexities of the legal requirements involved. By following the guidelines outlined in this document, businesses can establish their presence and leverage the opportunities offered by one of the fastest-growing economies in the region. As Vietnam’s business environment continues to evolve, establishing a representative office can help businesses stay ahead of the competition and achieve long-term success in this thriving market.
HMLF is always available to offer assistance in understanding the procedures or liaising with authorities.
Harley Miller Law Firm “HMLF”
Head office: 14th floor, HM Town building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.
Phone number: +84 937215585
Website: hmlf.vn Email: miller@hmlf.vn