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.
There are many foreign representative offices in Vietnam that have been paying serious lessons for violations of unallowed transactions or lawful invoices.
The cashflow chart from VIVA business consulting may help you for an overview on cashflow of a foreign representative office, the main transactions in order to manage the required compliances properly:
- Local bank accounts – regulations on currency and investment
- Allowed activities of a foreign representative office
- Employment relations
- Compulsory insurances
- Personal income tax
Since 2012, together with the Anti-money laundering regulations and the latest updates on tax laws, the tax inspectors specially focus on representative offices for tax inspection.
After every 3 to 5 years of office operating, the Tax Department will require your office to provide cashbooks – petty cash, bank statements, and all related vouchers – lawful invoices – employees profiles, proper salary payrolls for tax inspection:
- How much are the fund from headquarters over the years of operation?
- How much are the paid expenditures?
- How much are the paid salary and insurances?
- If the paid expenditures are in line with allowed activities of the office? If the paid expenditures proved by the lawful invoices? If not, there will be tax arrears and fines.
- If the paid salary has lawful labor records? If not, there will be tax arrears and fines.
Actually, many representative offices did not believe the rules and have dealt with the tax inspection with very disastrous lessons.
To avoid seriously tax arrears and fines which may also impact to your compliance history in Vietnam, you should:
- Review the required business records and compliance reports in advance,
- Verify the exists and risks,
- Complete the records and reports to manage the final payable amount in the optimal – reasonable – lawful manner.
THE COMMON RISKS AND VIOLATIONS THAT A FOREIGN REPRESENTATIVE OFFICE SHALL KEEP IN MIND:
- Not open a local bank account.
- Receive payment – fund from other parties.
- Using personal accounts for representative office activities.
- Pay for trading – manufacturing transactions – profitable activities.
- Pay for lending activities.
- Pay for commissions.
- Pay without the lawful invoices
- Pay without accounting book / cashbook / reports.
Read more:
- Allowed activities of a foreign representative offices in Vietnam
- Representative office in Vietnam: Cashbook and lawful invoices for tax inspection
- Opening bank accounts for representative offices and non-juridical entities
- Manage tax declaration and settlement for a foreign representative office in Vietnam
- Why foreign representative offices must open bank accounts in Vietnam?
- Annual budget and running cost of representative office in Vietnam
