29 Nov Represenatvie Office In Viet Nam – 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 are all belong to the same headquarter from oversea.
Vietnam-based representative offices of a foreign investor is a dependent unit, which is established under the provisions of Vietnamese law to conduct market survey and a number of commercial promotion activities permitted by Vietnamese law.
- With a representative, foreign investors can set up a lawful office in Viet Nam, recruit staff to manage and promote sale contracts with local business partner, 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 resident card) for themselves and their family in Viet Nam. The representative license is renewal after every two or five years. Means, you can perform your investment activities in Viet Nam form of a representative.
- Although a representative can enhance and support a lot for business for parent company but 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 also. Means, operate a representative in Viet Nam you can perform your investment in the most save cost option.
- 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-for-profit activities. In case you do not have sufficient information to make a decision to invest in Vietnam yet, it would be suitable foothold in Vietnam. Generally speaking, 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 be complied 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 who working for more than 3 months shall granted working permits.
- A representative office shall be complied 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 person income tax rate for none resident is 20% on the income earnt ins side Viet Nam, for resident is from 5 to 35% on global incomes.
- A representative office shall be complied with other regulations such as Anti money laundering law, other tax law, commercial law for any activity in Viet Nam. In particular, representative should collect and manage for all the business records in related for 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 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 offices
- 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 their operations.
- To recruit Vietnamese and expatriate employees to work for them according to the provisions of Vietnamese law.
- To have seals bearing their names 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 that 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 new regulation, from March 1st, 2018, foreign representative office will not be allowed to open a local bank account directly but changes to personal account or authorize to a person to act as holder account (under a power of attorney).
Typical obligations of representative offices
- 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 fulfil other financial obligations provided for by Vietnamese law.
- To report on their operations according to Vietnamese law.
With more than 10 years of delivering business consultation for more than 1000 foreign representative offices in Viet Nam, Viva Business Consulting is capable to consult and implement any query you have in the most practical way. We prevent your business from any potential risks in advance so you can operate the office in the most simple and cost effective way.