One of the legal entities that a foreign company or a foreign investor can establish in Vietnam is a representative office. This type of company formation is an effective way for foreign companies or investors looking forward to analyzing the market trends in Vietnam.
Thus, a representative office allows a foreign entity to gain a presence in the Vietnamese market before setting up a foreign-owned company in the country.
Though easier to set up, representative offices in Vietnam has significantly limited functionalities and several key restrictions, as compared to foreign-owned limited liability company.
Representative offices can only promote the parent company’s products, provide product quality control and supervision, and take part in information dissemination.
It is prohibited to participate in any commercial activities that generate profits in Vietnam. Besides, a representative office can only engage with clients of its parent company.
With the aim to provide assistance and deep insights to all foreign investors hoping to start a business in Vietnam, Cekindo will summarise all relevant requirements, process, permitted activities, as well as restricted activities of a representative office.
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ELIGIBILITY FOR SETTING UP A REPRESENTATIVE OFFICE
Just in Ho Chi Minh City alone, 10,000 foreign representative offices (RO) can be found in this booming city of Vietnam. Almost the same number of representatives can be located in the capital city Hanoi, Binh Duong, and Dong Nai.
Since the establishment of a representative office in Vietnam is to survey the market and to engage in promotion or enhancement activities, the process of incorporation is relatively less complicated.
However, there are some requirements that foreign companies need to fulfill:
- According to the Commercial Law in Vietnam, an international trading company or a foreign business entity is allowed to set up a representative office in Vietnam.
- Foreign companies will need to obtain the establishment license of the representative office.
- The foreign parent company needs to acquire a seal with the name of the representative office on it.
- Vietnamese Law requires a foreign company to have a legal establishment with the operation for at least one year before it can set up a representative office in Vietnam.
- Only a foreign company with effective business activities will be allowed to set up a representative office.
- Only a foreign company in a sector or market with real demand.
REQUIRED DOCUMENTS FOR A REPRESENTATIVE OFFICE IN VIETNAM
The preparation of documents to set up a representative office in Vietnam includes the following:
- An application form obtained from the Ministry of Industry and Trade. This form is used for the application of the license of the representative office and needs to be signed by the foreign company’s representative.
- Copies of business license or certificate of business registration of the foreign company (parent company). It has to be certified by the Consulates of Vietnam or the foreign country’s diplomatic missions.
- A letter of appointment in Vietnamese from the head of the representative office. This letter of appointment has to be certified as well.
- Copies of financial statements or other financial certificates that show the fulfillment of tax obligations of the last fiscal year. These financial documents have to be translated into Vietnamese.
- Copies of passport of the head of the representative office. These copies have to be translated into Vietnamese and legalized.
- Copies of documents on the representative office’s location.
- Copies of lease or agreement as evidence for the right of use of the representative office’s location.
PROCESS OF ESTABLISHMENT
Once the documents are ready, the procedures of acquiring the license for the establishment of a representative office are listed below:
- The application of the establishment is submitted directly to the local Department of Industry and Trade via post or online.
- The Department of Industry and Trade will then review the request upon the receipt of the dossier. The authority has the right to request for additional documents if the dossier is found incomplete or invalid.
- The Ministry of Industry will decide to grant or refuse a license to the foreign company for its establishment of a representative office. The reasons for a failed application shall be clearly stated in writing by the Ministry to the applicant.
The period for the license of the RO will be issued within 20 working days, upon the receipt of the complete and valid documents as required. Once the license of a representative office is granted, it is valid for five years as long as the parent company is in operation. The validity of the license can be extended.
Though a representative office is a dependent unit of its parent company, it is of general consensus by law that a representative office is forbidden to engage in the following activities:
- Getting involved in profit-making activities and generating income. These activities include sales transactions, and direct trading activities– from the beginning until the completion of a project.
- Receiving purchase orders from any individuals or companies.
- Coordination of purchases and sales on behalf of the parent company.
- Negotiating, signing, and entering into contracts, submitting tenders, and settling claims.
- Issuing invoices. All invoices issued should be under the parent company overseas.
- Purchasing, ordering or paying goods on behalf of the parent company.
- Providing after-sale-services concerning a service or product provided by the parent company.
- Carrying out activities as an agent between a client and its parent company.
If a representative office gets involved in other activities that are not granted permission in Vietnam, for example, purchasing and selling products or services on behalf of the parent company, it will be regarded as breaking the law.
If this does happen, foreign companies may be subject to penalties, as well as Vietnam taxation on all income received in the country.
PERMITTED BUSINESS ACTIVITIES
As a representative office in Vietnam, you only have a supporting role to the parent company with the following allowed activities, under the Law of Vietnam:
- To operate for the purpose of market research and survey.
- To find investment opportunities and partners.
- To rent offices and locations for the representative office.
- To purchase or lease facilities and equipment for the operation of a representative office.
- To promote the parent company.
- To search for distributors and survey goods.
- To put together an initial market entry or business plan.
- To recruit both local and foreign staff to work for the representative company.
- To supervise the process of contract signing with Vietnamese partners.
- To open bank accounts for the purpose of operation of the representative office, such as an employee’s payroll.
OBLIGATIONS OF A REPRESENTATIVE OFFICE IN VIETNAM
- To pay fees, charges, taxes, and fulfill other financial obligations in accordance with the law of Vietnam.
- To report the activities and operations of the representative office as required by the law.
- To comply with labor and social insurance regulations set out by the government in Vietnam.
- To comply with personal income tax regulations by registering its employee’s tax ID and submitting tax reports.
- To strictly adhere to other regulations such as anti-money laundering law and commercial law in Vietnam.
- To submit an annual report for the licensing department.
Even though a representative office in Vietnam is subject to various restrictions, it’s market research activities and brand awareness contribute to the effortless market entry of its parent company. Contact us today and get to know more.