If you’re looking for an easy entry to the Vietnam market, a representative office is the best option to go for. Low-cost, easy to manage, and not a subject to most local taxes, etc. No wonder most foreign companies first penetrate the Vietnam market as a representative office.
1. 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 with valid for no less than 1 year from the submission date
- Operation scope lies within the of Vietnam’s Commitments to treaties to which Vietnam is a signatory
- In the cases where operation scope is incoherent with Vietnam’s Commitments or you are not from a country or territory being a member of which Vietnam is a signatory, please read Licensing Procedure and Time in this blog to gain a crystal clear insight.
2. Rights and Obligations of a Representative Office in Vietnam
Like any other legal entity in Vietnam, a Representative Office has its rights and obligations according to current Vietnam’s Law.
As stated in the Commercial Law 2005 and Decree No. 07/2016/ND-CP, rights of a RO are:
- To operate a business in the right purposes, scope, and duration that 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 according to the provisions of Vietnam Law
- And other rights as per the law
2.2. Permitted Business Activities
A RO main purpose is to conduct research on the Vietnam market and to support its parent company overseas. So, under the Law of Vietnam, these 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 Vietnam market
- Conduct research and survey on the market
- Other activities as permitted by the Vietnam Law such as opening a bank account solely for the operation of the RO
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.
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 stages including negotiation, signing or entering into new contracts (except for renting or purchasing an office, buying equipment, hiring employees and opening a bank account)
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
3. 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 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 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 being 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.
Officially stated by Decree No. 07/2016/NĐ-CP, foreign companies that have been operating for 01 years 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
4. Post-license Procedure
Obtaining a license is not the finale. There are a whole lot of things to do as specified in the Law.
4.1. 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 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 the 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.
4.2. 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 the 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 these following items: 1, 2, 3, 4, 9, 10, 12, 14, 15
4.3. 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.
5. 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 its preceding year to the licensing agency by the last working days of January each year. Plus, financial statements and statistical reports also need to be done as per Vietnam Law. In certain cases or required by the Vietnam Law, a RO needs to present reports and documents or explain its activities.
Setting up a representative office in Vietnam is much simpler than other types of companies that are available to foreigners. But comes along with this big perk is tons of restrictions over its allowed activities. Here is a Vietnam Tax System blog from BBCIncorp that might come handy if you want to invest in Vietnam someday.