FOREIGN REPRESENTATIVE OFFICE

CASHBOOK AND LAWFUL INVOICES FOR TAX INSPECTION

Vietnam-based representative office of a foreign investor means a dependent unit, a lawful office in Vietnam, allowed to recruit staff to manage and promote sale contracts with local business partners, research and develop products, seeking opportunities for the purchase or sale of goods and provision of services. A foreign representative office is a simple form of investment in Vietnam to enhance business from overseas, with multiple advantages while fewer risks regarding the required business compliance procedures such as investment capital, tax, accounting, and auditing. And it is easy to be extended or terminated or dissolved. The expatriate employees who work for representative office can obtain work permit and two years multiple visa (temporary residence card) for themselves and their family in Vietnam.

Representative Offices in Vietnam that have been operating for 3 years or more will be subjected to tax inspection. Most Rep offices often have 03 popular violations:

Not collecting lawful invoices for paid expenditures. Not opening bank accounts and preparing accounting reports and reviewing  allowed incomes, expenditures according to rep office’s function. And not declaring personal income tax and final  tax settlement  for foreigners and local employees.

These violations may lead to serious penalties and and impact to the operation of the office in the future as well as credit – good standing of parent company in Vietnam:

RULES ON LAWFUL INVOICES

Laws on VAT invoices have been applied since year 2000. There are many amendments and revised version, but the basic rules still remain: the seller should issue lawful invoice for any service or goods sold and the buyers (included entities) responsibility to collect and keep the invoices. There should be no doubt about these rules.

Who will be paid the VAT as the end user?

1. Any goods / services took place, consumed or used within the territory of Vietnam shall be subjected to VAT.
2. Incase a business entity declare VAT in deduction method, the paid VAT on purchasing invoices will be off set or refunded latter, according to your selling invoices.
3. Incase of individual or foreign representative office (without direct profitable activities) the paid VAT will not be ojf set or refunded as they are the end users.

Goods and service sellers are obliged to

1. Manage invoice creation activities under current regulations.
2. Sign, when ordering the printing of invoices, invoice printing-ordering contracts with qualified printing establishments.
3. Make and send invoice issuance notices under regulations.
4. Make out and hand invoices when selling goods or services to customers, except cases specified in current rule and regulation.
5. Regularly inspect the use of invoices and promptly prevent violations:
6. Report on the use of invoices to managing tax offices under the Finance Ministry’s regulations.

Responsibilities of goods and service buyers

1. When buying goods or services, to request sellers to make out and hand invoices.
2. To provide accurate information necessary for sellers to make out invoices.
3. To sign invoice originals already fully filled in when directly buying goods, except cases specified by the Ministry of Finance.
4. To use invoices for proper purposes.
5. To provide information indicated in invoices to competent agencies upon request.

Lawful invoices are not always vat invoice but in some other forms

1. Value-added invoice, which is a goods and service sale invoice reserved for restaurant declaring value-added tax under credit method.
2. Goods-sale invoice, which is a goods and service sale invoice reserved for restaurant and individuals declaring value-added tax under direct method.

TAX INSPECTION AND RISK MANAGEMENT

Since 2012, the tax department focus very much on representative office tax inspection based on the Anti money laundering regulations and latest update Laws on tax management, personal income tax… Representative offices shall be ready for:

1. How much the fund from headquarters over the years of operation. If the funds violate with foreign currency regulations?
2. How much the expenditures?
3. How much the salary?
4. If the expenditures are in line with office functions and allowed activities?  If the expenditures have lawful invoices? If not, there will be tax arrears and penalties.
5. If the paid salary has lawful labor records? If not, there will be tax arrears and penalties.

Actually, many representative offices did not believe the rules and pass the tax inspection with very disaster lessons.

There are some technical processes to remove the exists and pass the tax inspection with reasonable payable amount:

1. Audit for the required business records and transaction
2. Complete the records and transactions based on accounting / tax / business / civil law documents.
3. Complete the cashbook and petty cash in advance.
4. Arrange with the inspectors about the goals and inspection process toward the most reasonable payable amount.

Read more:

• Representative office in Vietnam: Annual budget and running cost
• Representative office in Vietnam: Manage tax declaration and settlement
• Representative office in Vietnam: Business records management
• Taxable incomes from wages and remunerations
• Foreign employees: personal taxable income – methods of declaration
• Foreign representative office: cashbook and lawful invoices for tax inspection
• Representative office vs subsidiary vs branch? How to transform business models in Vietnam
• How to closure a foreign representative office: tax final settlement and tax completion certificate