Establishing a Representative Office in Vietnam
May 31 – The representative office (RO) is a popular foreign investment vehicle which investors utilize when wanting to enter the Vietnamese market. In contrast to joint ventures and 100 percent foreign-owned enterprises, an RO has limited functions and cannot engage in business directly with local companies since it is forbidden to conduct any revenue-generating activities. It is also not allowed to directly enter into contracts with local companies or organizations unless a written power of attorney is obtained.
However, ROs are permitted to hire staff directly and can help ease the execution of contracts once they are signed between the parent company and Vietnamese companies or organizations. In addition, ROs can also help companies effectively gauge the business environment in Vietnam by conducting market research and studying the industries that interest them. They also serve as a liaison office that pursues business opportunities for the overseas parent company in providing economic, trading, scientific and technical services.
The stipulations forbid an RO from issuing and using its own invoices. This can be an advantage because it reduces the accounting and tax compliance burden for an RO, making it the most inexpensive entity for foreign businesses in Vietnam.
A foreign company wanting to establish a representative office in Vietnam must submit an application dossier for a license to the Provincial Department of Industry and Trade. Certificates are normally issued within 15 working days upon receiving valid application documents, although the entire application process including the post-licensing procedures can take three to five weeks. An RO license is valid for five years with an option to renew afterwards.
An application dossier for establishment of an RO includes:
- RO application letter and chief representative appointment letter, signed by the legal representative and affixed with the company chop or seal (if the company does not have a seal, a government certified document verifying the authenticity of the authorized representative’s signature may be accepted).
- Certificate of incorporation or business registration certificate of the parent company (in case the above document does not show the business lines of the company, another government certified document showing that information must be provided);
- Company charter (i.e., Memorandum and Articles of Association);
- An audit report of the company for its latest financial year issued by an independent auditing company or organization; and
- Original copy or valid notarized copy of the official lease agreement in Vietnamese (landlord must be certified to rent the office).
Copies of these documents must be legalized by the Vietnamese consulate in the country where the headquarters is located and translated into Vietnamese. The translation must be notarized and certified by competent agencies.
After official approval, the new RO should undertake procedures for the Operating Announcement within 45 days from the issuance date of the license, which will officially announce to the licensing authority that the RO has started its operation from a specific date. To do so, ROs must first publish a notice of establishment in a valid print or online newspaper for three consecutive issues. All employment contracts and resume’s of the RO’s local staff, including the employment contracts of expatriates with their passports and valid visas, need to be submitted to the licensing authority.
The RO must simultaneously proceed to make a seal, open a bank account and obtain work permits for expatriates (if any). The RO’s chief representative should be responsible for personally obtaining the official seal for security reasons.
There is no cap on the number of local and expatriate employees that a representative office can hire as long as their employment is properly documented. All expatriate hires excluding the chief representative are required to have a work permit.
The Chief Representative
The chief representative can be a local or expatriate hire. This person will not be allowed to concurrently hold the following positions during tenure:
- Head of a branch in Vietnam;
- Legal representative of the foreign entity who is allowed to sign contracts without written power of attorney from such foreign entity; or
- Legal representative of an enterprise established pursuant to the laws of Vietnam.
A Vietnamese chief representative must submit a copy of their identity card or passport while a foreign chief representative must provide a copy of their passport. Copies must be certified in accordance with Vietnamese laws and regulations.
An RO is forbidden to sub-lease office space. It is recommended that investors consider renting office space in Grade A buildings. This guarantees the availability of modern facilities and a centralized location.
Generally, when submitting application documents for the RO establishment license, the foreign company is required to submit the original copy or valid notarized copy of the office lease agreement (in Vietnamese), to verify that the landlord has the authorization to rent the office space.
An RO is not liable to pay Vietnamese corporate income tax. However, an RO has to pay value-added tax when it consumes goods or services from another Vietnamese entity (and receives an accompanying VAT invoice). An RO is also responsible for declaring its employees’ personal income tax.
License Changes and Re-issuance
If the RO needs to make any changes to its license that involves changing the chief representative, office name, parent company address or business registration, local address within a province or city and scope of business, it must submit documents to the provincial Department of Industry and Trade within 10 days from the date the changes were made for amending the RO License.
A foreign business has to apply for re-issuance of its license for the establishment of its representative office in the following cases:
- Address of representative office changes from one province or city under direct central management to another;
- Name or address of foreign business is changed from one country to another; or
- The company’s business lines are changed.
A full set of application dossiers must be submitted for a new RO license to the provincial Department of Industry and Trade within 15 days from the day the changes were made.
Portions of this article was was taken from Vietnam Briefing’s Doing Business in Vietnam technical guide. This guide aims to assist foreign investors in understanding the business environment of Vietnam, including reasons to invest and the challenges for which to prepare for. This publication is available as a PDF download in the Asia Briefing Bookstore.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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This issue of the Vietnam Briefing Magazine examines Representative Offices – the processes of working with them, and the rationale for either upgrading or closing them. It is currently available for a limited time only as a complimentary download in the Asia Briefing Bookstore.