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.
Foreign direct investment (FDI) enterprise means an organization whose members or shareholders are foreign investors, established and operating in accordance with Vietnam’s laws that carry out business investment activities. Foreign investor means an individual holding a foreign nationality or an organization established under foreign laws and carrying out business investment activities in Vietnam.
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.|
ABOUT VIVA BUSINESS CONSULTING
VIVA is the local experts for local business compliance procedures, has been trusted by thousands of foreign investors, multinational companies from Europe, Japan, Singapore, India, Korea, USA… regard to market entry service, 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 from Japan, US, EU, Singapore, India, China, Korea…. in such industries: Garment, ennergy, pharma, advertising, agricultural…
VIVA keeps its service signature by offering one-stop business platform with exclusive and tailored-made services related to market entry and 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.
- Representative office in Vietnam: What you need to know
- Roles and responsibilities of the enterprise’s legal representative
- Why and how to close representative office in Vietnam?
- Cases and how to shutdown a foreign representative office in Vietnam
- Full compliance procedures for foreigners who are working in Vietnam
- Capital contribution for establishment a company – what you need to know
- Rep office vs subsidiary vs branch? How to transform business models in Vietnam
- Operating representative office in Vietnam manage your 08 compliance procedure