14 Jul Why Opening Foreign Representative Office in Vietnam – Basic Rights and Obligations
There are nearly 10.000 foreign representative offices in Ho Chi Minh City, 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… In case you do not have sufficient information to make a decision to invest in Vietnam yet, setup representative office would be a suitable foothold in Vietnam.
- 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 RENEWABLE after every two or five years.
- A representative can significantly enhance and support business development for parent company, it is cost efficient, easy to manage and able to keep investor away from many potential risks of violating local compliance procedures: No add valued tax, no corporate income tax, no accounting books, no financial statement, no independent audit required… Furthermore, it is easy to shutdown as well.
- A representative office of foreign companies is not allowed to perform profit-making activities, and their operation is limited to market research and other non-for-profit activities.
- A representative office have to register labor use and pay monthly insurance to comply with labor regulations. The compulsory payable amount of social insurance is up to 34,5% on the salary budget. Expats who is working for more than 3 months shall granted working permits.
- A representative office have to register tax code number for every staff and declare for monthly personal income tax, prepare and submit annually settlement reports in order to comply with personal income tax regulations. The person income tax rate for none resident is 20% on the income earned inside 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 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 truth, fairness and lawfulness of each transaction…
- A representative office shall prepare and submit annual report for the Licensing department.
- The operation period of a representative office is 5 years at maximum and can be extended.
According to current regulations, the basic rights and obligation of an foreign representative office are listed as follow:
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 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.
- To have seals bearing their names according to the provisions of Vietnamese law.
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.
Failure to properly adhere to the basic regulations will result in many unexpected consequences later on. However, heads of representative offices and parent companies can consult their local business consultant to avoid the risk of violating governmental regulations.