25 May DIFFERENCES BETWEEN FOREIGN INVESTED COMPANY/SUBSIDIARY AND REPRESENTATIVE OFFICE(Last Updated On: July 7, 2021)
With a stable political environment, labour law and operating costs, as well as promising economic prospects, Vietnam presents a dynamic market and an attractive destination for both foreign and private investors to participate in the economy. For doing business in Vietnam, foreign investors can form several kinds of legal entities with Foreign invested company and Representative office being the most popular choices.
Each of them has different advantages and disadvantages, so which model is more suitable for your investment decision in Vietnam?
For better understanding of doing business in Vietnam, you might be interested in these topics:
- Top 10 challenges of doing business in Vietnam
- Foreign Investment In Vietnam – What you need to know
- Doing business in Vietnam – How to set up company in Vietnam
- Doing business in Vietnam – Enterprise establishment procedures
- Why choose representative offices – Typical rights and obligations
REGARDING THE TYPES OF LEGAL ENTITIES SUPPORTING YOUR INVESTMENT IN VIETNAM, YOU MIGHT HAVE TO CONSIDER BETWEEN SUBSIDIARY – FDI COMPANY (FOREIGN INVESTED COMPANY) AND REPRESENTATIVE OFFICES.
VIVA would like to share some advantages and disadvantages of each business model that may sharp your business choice in Vietnam.
FDI COMPANY REPRESENTATIVE OFFICE
ADVANTAGES 1. Has separate legal identity than its shareholders and directors. It has the rights of a natural person. 1. No Corporate Income Tax.
2. Can sue and be sued in its name. 2. No monthly and quarterly VAT declaration.
3. Can do full business activities such as trading, manufacturing, service, purchase property and estates for its own use. 3. Annually audited financial statements are not required to file their annual accounts.
4. Full legal status and can enjoy all rights of a business unit in civil administrative and business regulations such as ownership of properties, expand investment, open new branches, new factories, new offices, invest in others businesses. 4. Easy to terminate – dissolute – closure.
5. Shareholders and directors’ liability extends only to their amount invested in the shares of the company. 5. Compliance requirements of a representative office are not as strict as compared to other types of subsidiary companies.
6. A Limited Liability Company (LLC) is responsible for its own debts and losses. 6. Running costs of the representative office is lower as the law demands fewer administration requirements.
7. A LLC has perpetual existence which does not depend on the membership of any shareholders. It still goes on if a shareholder or a director dies or is bankrupted. 8. Shareholders can transfer their ownership in the company by selling their shares. 9. The rules and regulations applied to these companies are the same for local or foreign investors. 10. Enjoy the tax incentives: VAT refund, CIT exemptions, exemption of import duty. 11. Open bank accounts with no limit, receipt and payment domestic and abroad, transfer of profits to home country. 12. Invest – withdraw the capital and profit abroad officially. 13. Allowed to receive incomes from many sources such as investors, customers, loans… DISADVANTAGES 1. Full accounting system on VAS is required to file their annual accounts. 1. Not allowed to do any profitable activities (No trading, no manufacturing, no provide service, no import – export goods, no inventory...)
2. Annually audited financial statements are required to file their annual taxes settlement. 2. Can not recruit directly, restrictions on the number and area permitted recruitment.
3. Should declare and pay for Corporate Income Tax (0% to 20%) on profit and audit by tax department, declare for VAT and other taxes monthly and quarterly. 3. Limited operating period for every 5 years.
4. Should prove for financial ability at the beginning and pay up the registered capital in the investment license. 4. Can not transfer the ownership.
5. There are still some limitations on foreign investors in the number of business areas. 5. Limited income and payment: Not allowed to receive income from many sources such as investors, customers, loans… , but a single source from Headquarter and pay for limited activities of the office.
6. Can not expand more offices, branches.
7. Has no legal status.
8. Can not deduct or refund VAT – has to bear VAT as the end users / consumers.
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