HOW TO CLOSURE A FOREIGN REPRESENTATIVE OFFICE IN VIETNAM

In case of the dissolution of representative office, the HCM City Department of Taxation requires the Office to provide the cashbook, petty cash, bank statements of accounts, together with lawful documents and employee profiles as well as payroll vouchers for tax inspection for final settlement procedures beforehand. 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.

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

THERE ARE 03 KEY STEPS TO CLOSURE A FOREIGN REPRESENTATIVE OFFICE IN VIETNAM

1. Preparing for the official decision and applications in the dissolution of representative office, and submit to the competent state agencies for closing any further obligation. This step aims to suspend, terminate any new obligation, especial for the tax reports and other compliance procedures. From the date of proper notice to the local competent state agencies, the office is in closing standby status.
2. To collect, complete the compliance business records and arrange for any certificates of obligation completion. Especial for the liquidation of employment, the certificate of tax, social insurance.  This is a legal requirement to guarantee that the office has no more pending obligation before allowed to closure under legal procedures.
3. Upon the certificates of obligation completion, the office will closure the bank accounts, return the business licenses, return the legal stamp as the final step of dissolution of representative office. This is the final paperwork as completion.

In which, 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:

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.

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.

TAX INSPECTION PROCEDURES IN DISSOLUTION OF REPRESENTATIVE OFFICE

1. 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, employees profiles as well as payroll vouchers and together with lawful documents for tax inspection.
2. 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 addition, in case of the dissolution of representative office, before the office’s closing, the tax authorities will also carry out similar tax inspection for final settlement procedures.

TYPICAL RISKS AND SOLUTIONS IN THE DISSOLUTION OF REPRESENTATIVE OFFICE

1. Risks:

• The representative office has been operating for years with big amount of paid expenditures.
• After its receipt of money from the parent company, the office may not collect the lawful receipts and business records and prepare for required cashbooks – petty cash, especially per diems, office expenses, house and car rents, business trips, and payments to other suppliers.
• The expenses for procurement of direct production machines and materials and bonuses for employees, etc. are not consistent with the functions of the representative office.
• Commissions, other per diems and other meal expenses will be considered personal benefits to some individuals and will be subject to the personal income tax.
• The office calculates and pays social insurance and health insurance premium according to the basic salary (other than the total salary fund) without registering the wage scale system as prescribed; or according to the total salary fund, leading to the large deductions from salaries, limiting the possible recruitment of more people for its operations.
• Despite having more than 10 employees, the office has not completed the procedures to register labor regulations as prescribed.
• In particular, it is possible that the system of records shows that the office is operating in the form of a production or trading company without declaring turnover and paying CIT, VAT, etc. This may cause serious risks when the relevant state authorities carry out specialized inspection activities.

After reviewing the unreported or unduly invoiced expenses, the tax authorities will retrospectively calculate the back taxes payable, at a minimum of 10% plus a fine of around 17% per annum. Since the tax inspection is conducted after 3 to 5 years of operation, the total amount of arrears and cumulative fines may be huge. Paying a large amount of back tax and fines together with spending much time traveling for clarification, impact to the reputation of the parent company are unexpected and risks can absolutely be avoidable.

2. Solutions:

• Identifying the checklist of procedures, reports, and records to comply with regulations.
• Completing vouchers related to invoices provided by suppliers, per diems records, salary and labor records from the closed date backwards in the direction of clarification in advance to avoid tax and duty arrears.
• Complete employment records: employee profile, payrolls, social insurance, personal income tax declaration…
• Proactively preparing cashbook and petty cash for the office with the following main contents:
  • Collecting, organizing and saving monthly original records and vouchers into the Business records management folder, including: Bank statements of accounts with valid vouchers and invoices; Cashbook and petty cash accompanied by valid invoices; Actual salaries and benefits with valid payroll and employee profiles; Other records and compliance reports to be submitted to state authorities.
  • Reviewing the office’s operations in accordance with applicable regulations, establishing the relations among transactions in a lawful and optimal manner as required by the state.
  • Calculating and optimizing taxes and insurance premiums payable, addressing and preventing risks. Completing legal documents for each transaction, making them legal bases for legal transactions;
  • Preparing tax reports, tax finalization reports, written confirmation of tax obligations, and tax reduction and exemption documents.

OUR SERVICE FOR DISSOULUTION OF REPRESENTATIVE OFFICE IN VIETNAM

We can provide a full package of the dissolution of representative office in Vietnam including preparing official notices and dossiers for closing process, fixing for the business records and reports, arrange special tax settlement procedures with the officers that you can obtain the tax completion certificate in a simple manner and within reasonable/ estimable budget.

Our service option 1:

1. Advising for the required papers, info, procedures.
2. Preparing checklists to collect the required papers, info from teams.
3. Prepare necessary applications, notices and submit to the competent state agencies. Follow up and settle any related query or requirement until completion.
4. Obtain the tax completion certificate, return the office license, close the bank accounts, return the round stamp.
5. Destroy the business records with proper procedures.

Our service option 2:

1. Advising for the required papers, info, procedures.
2. Preparing checklists to collect the required papers, info from teams.
3. Internal audit for the compliance business records, identify the exists and potential risks according to the tax inspection procedures and others. Prepare management letter to the Board of directors with correction actions.
4. Fixing the business records, remove any exist and potential risk, optimize the tax recollection and fines payable amount.
5. Prepare necessary applications, notices and submit to the competent state agencies. Follow up and settle any related query or requirement until completion.
6. Obtain the tax completion certificate, return the office license, close the bank accounts, return the round stamp.
7. Destroy the business records with proper procedures.

Our service option 3:

1. Advising for the required papers, info, procedures.
2. Preparing checklists to collect the required papers, info from teams.
3. Internal audit for the compliance business records, identify the exists and potential risks according to the tax inspection procedures and others. Prepare management letter to the Board of directors with correction actions.
4. Delegate professional teams to support and together fixing the business records, remove any exist and potential risk, optimize the tax recollection and fines payable amount.
5. Arrange special tax settlement procedures with the officers that you can obtain the tax completion certificate in a simple manner and within a reasonable/ estimable budget.
6. Prepare necessary applications, notices and submit to the competent state agencies. Follow up and settle any related query or requirement until completion.
7. Obtain the tax completion certificate, return the office license, close the bank accounts, return the round stamp.
8. Destroy the business records with proper procedures.

ABOUT VIVA BUSINESS CONSULTING

VIVA is the local expertise for local business compliance procedures, has been trusted by thousands of foreign investors, multinational companies from Europe, Japan, Singapore, India, Korea, USA… for the required business compliance procedures by local laws and regulations since 2006.

Thanks for consistent of practice expertise in Business laws - Employment relations – Tax and accounting – Corporate finance – Corporate services, VIVA has been successfully providing service for thousands of leading companies in such industries: Garment, energy, pharma, advertising, agricultural…

VIVA keeps its signature by offering one-stop business platform with regard to market entry and the mandatory business compliances. We ensure for our client’s good standing, in lawful and optimal manners whenever they are working and doing business in Vietnam.

Thanks to a unique combination of local expertise and global experiences, VIVA BUSINESS CONSULTING is the one-stop solution for the required compliance procedures in Vietnam for foreign investors and experts. We are still here since 2006s because of our thousands of satisfied clients and our employees. Our staying power is a testament to the professional resources, and so much more.

Read more:

• Why and how to close representative office in Vietnam?
• Transform representative office into subsidiary company in Vietnam
• 8 keys compliance procedures for foreign representative office in Vietnam
• Foreign Invested Direct (FDI) company or Representative office?
• 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