How to Set Up a Representative Office of a Foreign Company in Vietnam

A Representative Office (RO) is a popular choice for foreign companies looking to establish a presence in the Vietnamese market at a relatively low cost. It serves as a stepping stone for enterprises who want to gain a better understanding of the Vietnamese business environment before committing to larger investments.

Therefore, setting up an RO in Vietnam can be an effective way to interact with the local market without the need for extensive financial commitments or legal complexities associated with other entry modes like the establishment of a subsidiary or a joint venture.

In this article, we will provide you with the basic knowledge on the preliminary requirements, the procedures for establishing an RO of a foreign company, as well as the activities that foreign investors can perform during the relevant operations.

Requirements

First of all, the investor must be a company (not an Individual) legally established in a foreign country and, as specified in Art. 7 toof Decree 07/2016/ND-CP (hereinafter referred as “the Decree”), it should be in operation for at least 1 year from the date of incorporation.

Next, the foreign company (hereinafter referred as “the Head Office”) shall appoint a Head of the Representative Office which should be ideally resident in Vietnam or, in case he/she is not present in the country, he/she should grant a Power of Attorney to another person. It’s also worth to mention that the Head of the Representative Office is not allowed to hold the same post in another RO.

Last but not least, as the RO will need to be established at a registered address, the Head Office may need to search for a suitable location, which could be a physical office or a desk in a co-working space (also known as “virtual office”) in the city/province where the RO will be setup.

Procedures

In order to setup an RO, an application should be submitted at the Department of Industry and Trade of the city/province in which RO will be established (hereinafter referred as “the Authority”).

Among the documents to be included in the dossier, an “Appointment letter for the Head of the Representative Office” stamped by the Company and signed by the Head of the Representative Office will need to be provided.

Another important part to consider is the Financial Statements of the Head Office. According to the Art.12 of the Decree, the Head Office should provide its audited Financial Statements (or certificates of fulfilment of tax liabilities/financial obligations) of the last fiscal year. For the avoidance of doubt, Financial Statements should include the balance sheet, the cash-flow statement, and the profit and loss statement.

Additionally, it is imperative to provide evidence that the Lessor of the Office has both the power and the legal right to lease the office space, as it will be necessary to retrieve the “Land Use Right Certificate” from the Lessor and submit its notarized copy to the Authority.

Once the License for Establishment of the RO (hereinafter referred as “the License”) has been duly issued, a few final steps will still need to be performed, included but not limited to carving a seal for the RO, opening a dedicated bank account and announcing its establishment.

It’s relevant to note that an RO is not allowed to directly engage in profit-generating activities, issue invoices or enter into business contracts with 3rd parties. Therefore, it is not subject to Corporate Income Tax (CIT), although it is still responsible for declaring Personal Income Tax (PIT) for its employees. Furthermore, under Article 32 of the Decree, an RO is required to submit a Report on the Status of its Operations to the Authority by January 30th of each year.

Lastly, the License shall be valid for 5 years and, in any case, it should not exceed the remaining effective period of the Certificate of Business Registration of the Head Office. In order to renew the License, a new application should be submitted at the Authority.

Activities

Let’s now look at what are the admitted activities that can be carried out by ROs in Vietnam.

Firstly, an RO in Vietnam can engage in market research activities to gather information about the local market, consumer preferences, competition, and potential opportunities. This helps the Head Office to make informed decisions regarding its future business strategies and product/service offerings in Vietnam.

An RO can also act as a liaison office and serve as a communication channel between the parent company and its Vietnamese partners, customers, and suppliers. It facilitates coordination, maintains relationships, and supports the exchange of information, enhancing business collaborations.

Finally, an RO can engage in promotional activities to create awareness about the products, services, and capabilities of its Head Office. This can be done through meetings, seminars, exhibitions, and other marketing initiatives. The goal is to generate interest and establish relationships that can lead to potential business opportunities in the future.

Conclusion

In conclusion, setting up a Representative Office (RO) in Vietnam can be a valid option for companies looking to establish a presence in the market. It offers benefits such as low-cost entry, market understanding through research, and acting as a liaison office for relationship building. However, due to its limited scope and inability to engage in profit-generating activities, it may not suit all companies’ objectives. For these reasons, it is crucial to consult with a legal advisor to navigate the legal framework effectively and ensure compliance with regulations during the RO setup process.