Representative office in Vietnam

Vietnam has become one of the most attractive investment destinations in Southeast Asia, thanks to its rapid economic growth, strategic location, and business-friendly policies. Many foreign companies looking to explore opportunities in Vietnam opt to establish a Representative Office (RO) as their first step. This guide will provide a detailed overview of what a Representative Office in Vietnam is, its functions, legal requirements, benefits, and the process of setting one up.

1. What is a Representative Office in Vietnam?

A Representative Office (RO) is a legal entity established by a foreign company to conduct market research, promote business relationships, and oversee business activities in Vietnam. However, it cannot engage in direct profit-making activities such as selling products or services.

Representative Offices are ideal for companies that want to gain insights into the Vietnamese market, build brand awareness, and establish connections before fully investing in a subsidiary or branch.

2. Key Functions of a Representative Office

While ROs cannot engage in commercial activities, they play a crucial role in business expansion strategies. Some of their main functions include:

• Conducting market research and gathering information about industry trends.

• Acting as a liaison between the parent company and business partners in Vietnam.

• Promoting and marketing the parent company’s products or services.

• Coordinating with Vietnamese entities to explore business opportunities.

• Overseeing the implementation of contracts signed between the parent company and Vietnamese partners.

• Managing and supporting the activities of foreign employees in Vietnam.

3. Legal Requirements and Restrictions

3.1 Eligibility Criteria

To establish a Representative Office in Vietnam, the foreign company must meet certain criteria:

• The parent company must have been operating for at least one year.

• The company must be legally registered in its home country.

• The business activities of the RO must align with those of the parent company.

3.2 Restrictions

Although ROs can engage in market research and business development activities, they are prohibited from:

• Directly selling goods or services in Vietnam.

• Issuing invoices to Vietnamese customers.

• Conducting revenue-generating activities.

• Entering into commercial contracts on behalf of the parent company (except for office-related services such as renting an office space or hiring employees).

4. Benefits of Setting Up a Representative Office

Many international businesses choose to set up an RO in Vietnam due to its numerous advantages, such as:

• Ease of Market Entry: Establishing an RO allows foreign companies to explore the market without full commitment to a subsidiary or branch.

• Lower Costs: Unlike subsidiaries, ROs do not require high capital investment or taxation, making them a cost-effective option.

• Legal Simplicity: The legal and compliance requirements for ROs are much simpler than those for a foreign-owned company (FIE - Foreign-Invested Enterprise).

• Brand Visibility: Businesses can build relationships and enhance their reputation in Vietnam before officially launching full-scale operations.

• Regulatory Compliance: ROs help companies stay compliant with Vietnamese regulations while engaging in preliminary market activities.

5. Step-by-Step Process to Set Up a Representative Office in Vietnam

5.1 Required Documents

To apply for an RO license, the parent company must submit the following documents:

• A Notarized copy of the parent company’s business registration certificate.

• A Letter of Appointment for the Chief Representative.

• A Notarized copy of the Chief Representative’s passport (or ID if Vietnamese).

• The Office Lease Agreement for the RO in Vietnam.

• The parent company’s audited financial statements for the last fiscal year.

• A Power of Attorney (if applicable) for the entity handling the application.

• An Application Form for establishing an RO, as required by the Vietnamese authorities.

All foreign documents must be translated into Vietnamese and notarized.

5.2 Licensing Authorities

The licensing authority depends on the industry of the parent company:

• Department of Industry and Trade (DOIT): Most businesses apply here.

• Ministry of Industry and Trade (MOIT): Required for specific sectors such as oil and gas, banking, and telecommunications.

5.3 Application Process

The process to establish a Representative Office typically follows these steps:

1. Submit the application to the relevant authority.

2. Receive approval and obtain the RO license (processing time: 7-15 working days).

3. Register the RO’s official seal and tax code with the tax department.

4. Open a bank account for the RO’s operational expenses.

5. Hire employees (both local and foreign employees must comply with labor regulations).

6. Begin operations within six months of receiving the license.

   
   

   

   
   

6. Compliance and Operational Considerations

6.1 Taxation

Since ROs do not generate revenue, they are not subject to corporate income tax. However, they must fulfill certain tax obligations:

• Personal Income Tax (PIT): ROs must withhold and remit PIT for their employees.

• Social Insurance Contributions: ROs must contribute to Vietnam’s social insurance system for their Vietnamese employees.

6.2 Annual Reporting

ROs must submit an annual report detailing their activities and operational status to the licensing authority. Failure to comply may lead to penalties or revocation of the license.

6.3 Renewal and Closure

• RO licenses are valid for 5 years and must be renewed before expiration.

• If an RO decides to cease operations, it must follow the deregistration process, including closing tax obligations and informing the licensing authority.

7. Common Challenges and How to Overcome Them

Despite the benefits, foreign companies may face challenges when setting up an RO in Vietnam:

• Bureaucratic Processes: Navigating Vietnam’s administrative procedures can be complex. Solution: Work with a local legal firm for assistance.

• Language Barriers: All legal documents must be in Vietnamese. Solution: Hire a professional translation service.

• Finding the Right Office Location: ROs must have a legal office address. Solution: Choose a business district with good infrastructure and legal compliance.

Setting up a Representative Office in Vietnam is an excellent way for foreign businesses to explore market opportunities, build relationships, and establish a presence without committing to full-scale operations. While ROs face restrictions on revenue-generating activities, they provide a cost-effective and legally compliant method for foreign companies to engage in Vietnam’s thriving economy.

By understanding the requirements, benefits, and challenges of establishing an RO, companies can make informed decisions and position themselves for long-term success in Vietnam.