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When expanding into Vietnam, foreign investors often consider either establishing representative office in Vietnam or a Branch. While both are extensions of a foreign parent company, they differ significantly in terms of legal capacity, operational scope, and regulatory obligations. Understanding these differences is essential for investors to choose the right vehicle for market entry.
Therefore, investors should consider using oversea investment consultancy service of renowned law firms to help with their case.
Legal Status and Governing Regulations
Both ROs and Branches are governed by:
- Law on Commerce 2005
- Decree No. 07/2016/ND-CP on representative offices and branches of foreign traders
- Sector-specific laws depending on the business area (e.g., banking, legal services)
However, the legal personality and scope of activities vary greatly.
Scope of Permitted Activities
Representative Offices (ROs)
- Not allowed to conduct profit-generating activities
- Serve as a liaison office, conducting market research, promotional activities, and support for the parent company
- Cannot sign contracts or generate revenue in Vietnam
- Ideal for early-stage market exploration
Branches
- Allowed to conduct commercial activities in line with parent company’s business
- Can sign contracts, issue invoices, and earn revenue
- Must pay taxes as a corporate taxpayer in Vietnam
- Suitable for businesses seeking direct commercial presence without setting up a subsidiary
Licensing Requirements
Representative Offices
- Simpler licensing process
- Requires a License for Establishment of a Representative Office
- Valid for five years, renewable
Branches
- More complex and restrictive licensing
- Requires a License for Establishment of a Branch
- Only certain sectors (e.g., banking, law, education) are permitted to open branches
- Subject to stricter supervision from line ministries
Tax and Accounting Obligations
- ROs: Not subject to corporate income tax as they do not generate income; minimal reporting obligations.
- Branches: Subject to corporate income tax, value-added tax, and full accounting and audit requirements as applicable to local companies.
Employment Regulations
Both ROs and Branches may recruit local and foreign staff, but:
- ROs are typically limited to hiring employees for administrative and support roles.
- Branches may employ staff for business operations, marketing, sales, and other revenue-related functions.
Conclusion
Choosing between the establishment of representative office in Vietnam and branch establishment in Vietnam depends on an investor’s objectives in Vietnam. ROs offer a low-risk, low-cost presence for market research and brand visibility, while Branches enable revenue-generating operations without forming a subsidiary. A clear understanding of the legal implications of each form is vital for compliance and strategic alignment.
ASL Law is a leading full-service and independent Vietnamese law firm made up of experienced and talented lawyers. ASL Law is ranked as the top tier Law Firm in Vietnam by Legal500, Asia Law, WTR, and Asia Business Law Journal. Based in both Hanoi and Ho Chi Minh City in Vietnam, the firm’s main purpose is to provide the most practical, efficient and lawful advice to its domestic and international clients. If we can be of assistance, please email to [email protected].
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.
