Tiếng Việt
中文 (中国)
Vietnam is gradually becoming a destination to attract strong investment capital from foreign enterprises. However, foreign investors need to survey the actual situation of Vietnam before making an official decision on investing capital. A popular option to help with early access to the Vietnamese market is to open representative offices in Vietnam in big cities such as Hanoi, Ho Chi Minh, Da Nang, etc.
Many foreign investors when officially carrying out the procedures for opening a representative office in Vietnam faces many legal problems, causing delays and stagnancy in market access and expansion, affecting the business activities of investors. So, what are the legal problems when opening a representative office in Vietnam and what are the solutions?
Confusion about representative office and branch in Vietnam
Representative office and branch are two concepts that are often confused. However, although there are a few interwoven factors, in essence, a representative office is very different from a branch.
According to the provisions of Article 3 of the Commercial Law 2005:
- Representative offices of foreign traders in Vietnam are dependent units of foreign traders, established in accordance with Vietnamese law to study the market and carry out a number of trade promotion activities permitted by Vietnamese law.
- A branch of a foreign trader in Vietnam is a dependent unit of a foreign trader, established and conducting commercial activities in Vietnam in accordance with the provisions of Vietnamese law or an international treaty to which the Socialist Republic of Vietnam is a member.
Specifically, according to the provisions of Decree 07/2016/ND-CP detailing branches and representative offices of foreign traders, the operation contents of these two commercial presences are as follows:
– Representative offices perform the functions of liaison offices, market research, and promotion of business investment opportunities of the traders they represent, excluding the service industry where the establishment of a representative office is not the expertise in that field specified in specialized legal documents.
– Branches provide services in the service industries, excluding the service industry where the establishment of branches in that field is prescribed in specialized legal documents.
Accordingly, branches and representative offices have major differences in operational functions, accounting forms, accounting and tax declaration forms, payable taxes, etc.
The factor that cannot perform the business function of the enterprise is the most important factor when the enterprise decides to establish a representative office or not. Because the failure to perform business functions will greatly affect the performance as well as the operational goals of the company.
If a foreign trader wishes to enter into a contract, amend or supplement the signed contract, he/she must authorize in writing the head of the Vietnam representative office in accordance with Clause 7 Article 33 of Decree No. 7/ 2016/ND-CP. At the same time, the authorization is only valid for each time of entering into, amending, and supplementing the signed contract.
In addition, in terms of tax declaration, because the representative office does not have revenue and expenditure activities, the office will not conduct corporate income tax declaration. Even if there is an invoice in the name of the representative office, it must be returned to the head office for the tax declaration. Representative offices only declare and pay personal income tax on behalf of employees working at the representative office.
Obligations of a representative office
After foreign investors have established a representative office in Vietnam, they will enjoy the benefits of the office but must also ensure compliance with obligations as prescribed by Vietnamese law.
One of the main obligations is to submit annual performance reports. According to the provisions of Clause 1, Article 32 of Decree No. 07/2016/ND/CP, before January 30 of each year, the representative office is responsible for sending a report according to the form of the Ministry of Industry and Trade on its activities in the previous year by post to the Licensing Authority.
Failure to make periodical reports will result in an administrative penalty of VND 10 million to VND 20 million according to Point b, Clause 2, Article 67 of Decree 98/2020/ND-CP.
In addition, when hiring Vietnamese and foreign workers at a representative office, the head of the representative office needs to keep in mind compliance with regulations on labor and social insurance. The office must also comply with regulations related to Personal Income Tax such as registering tax identification numbers for employees, monthly PIT declarations, and preparing and submitting annual tax finalization reports.
In particular, the head of the office as well as the business owner needs to note the extension of the representative office establishment license, which is valid for a maximum of 5 years as prescribed in Decree 07/2016/ND-CP.
Finally, the representative office of foreign investors needs to strictly comply with the provisions of Vietnamese laws such as the Law on Anti-Money Laundering, the Law on Commerce, the Law on Taxation, etc. After every 3 to 5 years, the authorities will conduct an inspection to verify the legitimacy of each transaction and each operation of the representative office.
Q&A
Client: “If I have established a representative office in Vietnam (location in Hanoi) and after 2 years of market research, I feel that Vietnam is an ideal investment destination, so I want to set up an official branch or subsidiary. Subsequently, can I convert a stable representative office into a branch or subsidiary? If yes, what is the conversion procedure?”
According to Vietnamese law, there is currently no procedure for direct conversion from a representative office to a branch or foreign-invested company. Therefore, in order to establish a branch or a subsidiary, a foreign trader needs to carry out the following procedures:
Step 1: Carry out procedures to terminate the operation of a representative office
Specifically, the foreign trader submits a dossier to terminate the operation of a representative office to the licensing agency. The representative office must publicly post the termination of operation at the head office of the representative office. Foreign traders whose representative offices have ceased operations are responsible for performing contracts, paying debts, including tax debts, and settling all legal benefits for employees who have worked at the representative offices, and branches as prescribed by law.
Step 2: Carry out procedures to establish a branch or subsidiary in Vietnam
Foreign traders need to carry out the procedures for applying for an Investment Registration Certificate and an Enterprise Registration Certificate in accordance with the law.
However, it should be noted that foreign traders are only allowed to establish branches or foreign-invested companies in the fields of business that are permitted by Vietnamese law or international treaties to which Vietnam is a contracting party.
The establishment of a representative office in Vietnam for Vietnamese and foreign enterprises will certainly have many difficulties arising before, during and after the operation. Therefore, to be able to carry out the procedures for opening a representative office and put it into operation effectively, it is best for businesses/investors to contact a reputable law firm on corporate law in Vietnam and internationally.
Related posts:
- Modifications to foreign loans must be registered in Vietnam
- Vietnam’s requirements for the compilation of bid documents for non-consulting services covered under the CPTPP, EVFTA, and UKVFTA Agreements
- A legal perspective on the opening of companies by foreign entities in Vietnam
- Vietnam: Integrate procedures for making project proposals outside of the State’s list of projects into the Bidding Law
- Challenges of small businesses in Vietnam
ASL LAW is the top-tier Vietnam law firm for doing business in Vietnam. If you need any advice, please contact us for further information or collaboration.
|
***Other service of ASL LAW – full service Vietnam law firm *** |
|
|
|
|
||
|
Oversea investment consultancy for Vietnamese enterprises |
|
|
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
