29 Nov Representative Office In Vietnam – Typical Rights And Obligations
There are nearly 10.000 foreign representative offices in Ho Chi Minh City now, and the same numbers in Binh Duong, Dong Nai, Ha Noi… some have been operating since 1995 till today. Some representative offices are operating together with a subsidiary company which all belongs to the same headquarters from overseas. VIVA would like to share some information regarding typical rights and obligations of foreign Representative Office (RO) in Vietnam.
Vietnam-based representative office of foreign investors is a dependent unit, which is established under the provisions of Vietnamese law to conduct a market survey and a number of commercial promotion activities permitted by Vietnamese law.
Typical benefits of Representative office
- With a representative office, foreign investors can set up a lawful office in Vietnam, 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 residence card) for themselves and their family in Vietnam. The license of the representative office is renewed after every two or five years. Means, you can perform your investment activities in Vietnam form of a representative office.
- Although a representative office can enhance and support a lot for business of the 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… and it is easy to shut down a representative office also. Means, operating a representative in Vietnam can help to perform your investment in the most economical option.
Typical challenges of Representative office
- A representative office of foreign companies is not allowed to perform profit-making activities, and their activities are limited to market research and other non-profit activities. In case you do not have sufficient information to make a decision to invest in Vietnam yet, it would be a suitable foothold in Vietnam. Generally speaking, the initial and operating cost of representative office is much lower than the cost of having a subsidiary. On the contrary, having a subsidiary in Vietnam in the form of either Joint Stock Company or Limited Liability Company is a better form of investment for an investor who intends to manufacture products in Vietnam or to conduct sales activities. As long as you follow the regulations in Vietnam, establishing a company in Vietnam gives you more flexibility in business activities.
- A representative office shall comply with labor, social insurance regulations by register for labor use and pay monthly insurance. The compulsory payable amount of social insurance may up to 34,5% on the salary budget. Expats working for more than 3 months shall granted a work permit.
- A representative office shall comply with personal income tax regulations by register tax code number for every staff and declare for monthly personal income tax, prepare and submit annually settlement reports. The personal income tax rate for none resident is 20% on the income earned inside Vietnam, for resident is from 5 to 35% on global incomes.
- A representative office shall comply with other regulations such as anti-money laundering law, other tax law, commercial law for any activity in Vietnam. In particular, the representative should collect and manage for all the business records in related to any query or question from competent authorities. After every 3 to 5 years of operations, the tax department will perform inspection procedures to verify the true, fair and lawful of each transaction…
- A representative office shall prepare and submit an annual report for the Licensing department.
- The operation term of a representative office is 5 years at maximum and can be extended.
According to the highest current local regulations,
- Commercial Law 36/2005/QH11 dated June 14, 2005 (Basic regulation)
- Decree No. 07/2016/ND-CP (Detailed regulation)
Typical rights of representative office
- To operate for the purposes, within the scope and duration stipulated in the establishment licenses.
- To rent offices, rent and purchase equipment and facilities necessary for its operations.
- To recruit Vietnamese and expatriate employees to work for the office according to the provisions of Vietnamese law.
- To have seals bearing its name according to the provisions of Vietnamese law.
- To open accounts in foreign currencies or foreign currency-based Vietnam dong at banks licensed to operate in Vietnam, and to be allowed to use those accounts solely for their operations.
Do be noted that:
#001, In theory, option1, the parent company can pay directly to the local vendors for office expenditures but may have to pay for withholding tax for every transaction and lots of international bank charges.
#002, A better option is to transfer a lump sum amount as monthly budget to the local bank account of the office, and the office will pay to local vendors with local bank charge rates without withholding tax.
#003, After every of 3 to 5 years of office operation, the tax department will ask the office to provide bank statements, cashbook, petty cash, lawful vouchers for inspection based on tax laws and money anti laundry regulations, with the option 1, you will face some troubles in providing the paid records.
And #004, according to a new regulation, from March 1st, 2018, foreign representative offices will not be allowed to open a local bank account directly but change into personal account or authorize to a person to act as holder account (under a power of attorney).
Typical obligations of representative office
- Not to directly conduct profit-generating activities in Vietnam.
- To conduct commercial promotion activities within the scope permitted by this Law.
- Not to enter into contracts, not to amend or supplement contracts already entered into by foreign traders, except where chief representatives obtain valid letters of authorization from foreign traders or other special cases.
- To pay taxes, fees and charges, and fulfill other financial obligations provided for by Vietnamese law.
- To report on its operations according to Vietnamese law.
VIVA has been an in-depth consultant on business compliance procedures in Vietnam since 2006, based on our professional - integrated background in Business laws - Accounting and corporate finance - Tax management - Labor relation and payroll – Business administration procedures. VIVA offers exclusive services in an integrated tailor-made, consist of 5 specialized-expertise platforms and the inheritance experience up to hundreds of years for every job.
Our extensive expertise and management system that facilitates us to connect local resources and be ready to deliver exclusive solutions that exceed all standard limits and satisfy all expectations of our clients.