Why and How To Close Representative Office in Vietnam?

Close representative office in Vietnam

Why and How To Close Representative Office in Vietnam?

(Last Updated On: March 15, 2021)

 

Vietnam joined the World Trade Organization (WTO) in 2007, since there, thousand of foreign investors have been investing in Vietnam in form of foreign representative office as a probatory step. Despite many advantages, the representative office is no longer meet the business expectation of the investors and shall be closed or transformed into a subsidiary company. So why and how to close representative office in Vietnam? 

In this article, VIVA would like to share useful tips and lessons relating to closing representative office based on our practice service for thousands of cases regarding foreign representative office and subsidiary company in Vietnam.

Read more: Representative Office vs Subsidiary vs Branch? How to transform business models in Vietnam

WHAT IS THE FOREIGN REPRESENTATIVE OFFICE IN VIETNAM?

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… The expatriate employees who work for representative can obtain work permit and two years multiple visa (temporary resident card) for themselves and their family in Vietnam.

A representative office can enhance and support a lot for the business of parent company such as it is very easy to manage and save cost and avoid risky things from local compliance procedures: No add valued tax, no corporate income tax, no accounting books, no financial statement, no independent audit required, etc. and it is easy to be extended or terminated or dissolved.

WHY FOREIGN REPRESENTATIVE OFFICE IS NO LONGER EFFECTIVE?

Although a representative office has many advantages, it might be no longer effective for the parent company’s business in Vietnam because:

  • It can not directly conduct profit-generating activities in Vietnam. Not allowed to do any profitable activities (No trading, no provide service, no import – export goods, no inventory, no manufacturing…)
  • It has no legal status, not to enter into contracts, not to amend or supplement contracts already entered into by foreign traders.
  • It has limited operating period for every 5 years.
  • It can not transfer the ownership.
  • It can not expand more office, branch.
  • It only gets paid from headquarter for limited activities of the office.
  • It has to pay VAT, PIT, fees and charges, and fulfill other financial obligations provided for by Vietnamese law.

 

Read more: Differences between FDI company/Subsidiary and Representative Office in Vietnam

WHY A SUBSIDIARY COMPANY SHOULD BE CONSIDERED?

Some of advantages when establishing a subsidiary company or a foreign-invested company that should be considered for your business choice in Vietnam:

  • It has separate legal identity than its shareholders and directors. It has the rights of a natural person.
  • It can sue and be sued in its name.
  • It can do full business activities such as trading, manufacturing, service, purchase property and estates for its own use.
  • It has 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 branch, new factory, new office, invest in others business.
  • Shareholders and directors’ liability extends only to their amount invested in the shares of the company.
  • A Limited Liability Company (LLC) is responsible for its own debts and losses.
  • An LLC has perpetual existence which does not depend on the membership of any shareholder. It still goes on if a shareholder or a director dies or is bankrupted.
  • Shareholders can transfer their ownership in the company by selling their shares.
  • The rules and regulations applied to these companies are the same for local or foreign investors.
  • Enjoy the tax incentives: VAT refund, CIT exemptions, exemption of import duty.
  • Open bank accounts no limit, receipt and payment domestic and abroad, transfer of profits to home country.
  • Invest – withdraw the capital and profit abroad officially.
  • Allowed to receive incomes from many sources such as investors / customers / loans…

Read more: Assurance of Vietnam government about non state-owned enterprises and owners of enterprises

HOW TO CLOSE REPRESENTATIVE OFFICE IN VIETNAM?

There are 03 key steps in the process to close representative office in Vietnam:

  1. Preparing and submit official dossiers and decision of office dissolution to the competent state agencies to terminate any new obligation.
  2. Completion certificates for any debt obligations on tax, compulsory insurances, rental, other payable amounts to third parties…
  3. Return the original license and legal stamp upon the second step completion.

To close representative office in Vietnam, Step 2 is most complicated because of tax inspection procedures. The officers will review all the remittance transactions from head office, all the paid expenses to make sure things comply with local tax, anti-money laundry regulations. There will be 02 options:

  1. Option 01: You can provide any business records to the officers and have to pay for any amount upon the officer decisions before obtaining the Completion certificate. The payable amount in this option, usually, is a huge and disaster amount.
  2. Option 02: You should #001 audit the business records and compliance reports in advance, #002 verify for the exists and risk, #003 fix the records to manage the final payable amount is optimal – reasonable – in a lawful manner.

 

Read more: Cases and how to shutdown a foreign representative office in Vietnam

HOW IS THE TAX INSPECTION PROCEDURES WHEN CLOSE REPRESENTATIVE OFFICE?

Pursuant to the tax regulations and anti-money laundering laws, since years 2012, after every 3 to 5 years of office operation, the Department of Taxation requires foreign representative office to provide the cashbook, petty cash, bank statements, employee profiles as well as payroll vouchers and together with lawful documents for tax inspection. Tax officers will review each transaction to ensure that the office’s expenditures have been made legally and duly, without violating the tax or anti-money laundering laws.

In case of dissolution of representative office, before the office’s closing, the tax authorities will also carry out similar tax inspection for final settlement procedures.

It is a very risky if the chief of representative office or any person who has not enough expertise knowledge and experience to settle the tax obligation directly with the tax inspector during the office’s operation or when close representative office.

 

WHO WE ARE

  • VIVA is a business consulting company, specializes in business compliance procedures according to local business laws and regulations since 2006. VIVA has been continuously trusted by thousands of well-known clients since 2006.
  • The insights and consistent backgrounds in Business Laws - Accounting and Corporate Finance - Tax Management – Labor Relations and Payroll - Secretarial services help us build trust and confidence in the entrepreneurs’ community.
  • We have been successfully providing service for thousands of leading companies from Hong Kong, Japan, US, EU, Singapore, India, China, Korea…. in forms of FDI companies, Foreign representative offices, Foreigner working in Vietnam, Vietnamese SMEs, Chief Operation Officers.
  • VIVA's logo is our Brand name, our signature, it states our faith - independence - transparence - and loyalty for client's interest. The signature is commitment and honor on our outstanding expertise and professionalism. It is the symbol of good standing for our clients whenever they are doing business with customers, partners, the local competent state agencies...

 

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Read more:

Role and Responsibility of Head of Representative Office in Vietnam

8 Key Compliance Procedures For Foreign Representative Office In Vietnam

Operating representative office in Vietnam manage your 08 compliance procedures

Manage tax declaration and settlement for a foreign representative office in Vietnam

Foreign Representative Office in Vietnam – Full Service For Local Compliance Procedures

Representative office vs subsidiary vs branch? How to transform business models in Vietnam



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