Vietnam has emerged as a dynamic market in Southeast Asia, attracting businesses from around the world. For foreign companies looking to establish a presence in Vietnam without engaging in direct commercial activities, setting up a Representative Office (RO) is a popular option. This article provides a comprehensive guide on the concept, benefits, legal framework, setup process, and key considerations for establishing a Representative Office in Vietnam.
1. What is a Representative Office in Vietnam?
A Representative Office (RO) in Vietnam is a legal entity established by a foreign company to facilitate market research, business liaison, and promotional activities. Unlike a subsidiary or branch, an RO is not permitted to conduct direct commercial or revenue-generating activities. Instead, it serves as an extension of its parent company to support business operations in Vietnam.
1.1 Key Features of a Representative Office:
- 100% foreign-owned and controlled by the parent company.
- Cannot engage in profit-making activities, sales, or production.
- Allowed to conduct market research, networking, and promotional activities.
- Can employ local and foreign staff under specific conditions.
- Typically granted a license for five years, renewable upon expiry.
2. Benefits of Establishing a Representative Office in Vietnam
Setting up an RO in Vietnam offers several advantages for foreign companies, including:
2.1 Easy Market Entry
A Representative Office provides a low-risk and cost-effective way for foreign businesses to explore the Vietnamese market without committing to full-scale investment.
2.2 Legal Compliance
Since ROs are not permitted to engage in direct business transactions, they face fewer regulatory and tax obligations compared to subsidiaries or branches.
2.3 Local Presence
An RO allows foreign companies to establish a physical presence in Vietnam, which is beneficial for networking, brand promotion, and communication with local clients and partners.
2.4 Recruitment Opportunities
An RO can hire local employees and foreign managers, enabling businesses to build relationships with stakeholders and gain insights into the local market.
3. Legal Framework Governing Representative Offices in Vietnam
The establishment and operation of Representative Offices in Vietnam are governed by the following key legal documents:
- Law on Commerce 2005
- Decree No. 07/2016/ND-CP on Representative Offices and Branches of Foreign Traders in Vietnam
- Circular No. 11/2016/TT-BCT guiding the implementation of Decree No. 07/2016/ND-CP
These regulations outline the eligibility, licensing process, permitted activities, and compliance requirements for ROs operating in Vietnam.
4. Eligibility Criteria for Setting Up a Representative Office
To qualify for establishing a Representative Office in Vietnam, a foreign company must meet the following criteria:
- Must be legally established and operational for at least one year in its home country.
- The proposed RO activities must align with the business scope of the parent company.
- Must appoint a Chief Representative to oversee its operations in Vietnam.
5. Step-by-Step Process to Establish a Representative Office in Vietnam
Step 1: Prepare Required Documents
Foreign businesses must prepare the following documents to apply for an RO license:
- Application form for setting up an RO in Vietnam.
- Certificate of Business Registration (or equivalent) of the parent company.
- Audited financial statement or proof of financial capability.
- Appointment letter and passport of the Chief Representative.
- Lease agreement for the office premises.
- Other supporting documents as required by the authorities.
All documents must be notarized, legalized, and translated into Vietnamese by a certified agency.
Step 2: Submit Application to the Licensing Authority
The licensing authority responsible for approving an RO application depends on the business sector:
- The Department of Industry and Trade (DOIT) handles most applications.
- The Ministry of Industry and Trade (MOIT) oversees ROs in regulated industries (e.g., banking, finance, education).
Step 3: Obtain the Representative Office License
Once submitted, the application is processed within 7–10 working days. If approved, the authority will issue the RO Establishment License, valid for five years.
Step 4: Register the RO Seal and Tax Code
- The RO must register for a tax identification number (TIN) with the local tax department.
- An official company seal must be obtained for legal documentation purposes.
Step 5: Open a Bank Account
The RO can open a Vietnamese dong (VND) or foreign currency bank account to facilitate operational expenses.
Step 6: Report Employee Hiring and Operations
- The RO must register its employees with the Department of Labor, Invalids, and Social Affairs (DOLISA).
- An annual report on the RO’s activities must be submitted to the licensing authority.
6. Permitted and Restricted Activities of a Representative Office
6.1 Permitted Activities
- Conducting market research and business analysis.
- Liaising with Vietnamese partners, clients, and suppliers.
- Promoting the parent company's products and services.
- Supervising the implementation of contracts signed by the parent company.
6.2 Restricted Activities
- Selling or distributing products/services directly in Vietnam.
- Signing contracts or engaging in revenue-generating transactions.
- Manufacturing, processing, or any commercial production activities.
7. Tax and Compliance Requirements for Representative Offices
7.1 Tax Obligations
Since ROs are not revenue-generating entities, they are exempt from corporate income tax (CIT). However, they must comply with the following tax obligations:
- Personal Income Tax (PIT): Payable for both local and foreign employees.
- Social Insurance Contributions: Required for Vietnamese employees and certain foreign employees.
- Value-Added Tax (VAT): Not applicable as ROs do not engage in commercial activities.
7.2 Compliance Reporting
ROs must submit annual reports detailing their activities, financial expenditures, and employment status to the relevant authorities.
8. Common Challenges and How to Overcome Them
8.1 Understanding Local Regulations
Vietnam’s regulatory framework can be complex for foreign investors. Working with a professional consultancy firm can help navigate legal procedures efficiently.
8.2 Finding the Right Office Location
ROs must have a registered physical office address in Vietnam. Choosing a strategic location in major cities like Hanoi, Ho Chi Minh City, or Da Nang can enhance business accessibility.
8.3 Employment Regulations
Hiring foreign employees requires work permits, which involve multiple approvals. Businesses should ensure compliance with Vietnam’s labor laws.
Setting up a Representative Office in Vietnam is an excellent strategy for foreign companies seeking to explore market opportunities without engaging in direct trade. While the process is relatively straightforward, understanding the legal requirements, compliance obligations, and operational limitations is crucial for success. By leveraging professional support and adhering to local regulations, foreign businesses can effectively establish a strong foothold in Vietnam’s dynamic market.
If you are considering setting up an RO in Vietnam, consulting with legal and business advisory firms can streamline the process and ensure smooth operations.