From a Representative Office to a Foreign Direct Investment Company: The Essentials

Posted 20.05. 2020 by Cekindo

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A representative office in Vietnam serves as one of the ways a foreigner or a foreign company can establish its presence in the Vietnamese market. This type of company is regarded as a dependent local structure of its foreign parent company.

A foreign company often opts for a representative office in Vietnam to have a physical presence anywhere in the country. Furthermore, it allows the parent company to send foreign employees to Vietnam to undertake non-profit generating business activities that are beneficial to their company growth and brand promotion.

As of now, more than 10,000 representative offices in Vietnam are mainly located in Ho Chi Minh City, Hanoi, Binh Duong, and Dong Nai, and Binh Duong.

We will focus on providing you more details on setting up a representative office, RO in short, in Vietnam, and why it’s recommended to ultimately migrate your business from a representative office to a foreign investment company, also known as an FDI company.

Why Start with A Representative Office in Vietnam?

The substantial benefits of a representative office in Vietnam are why they are favored by many foreign companies and investors:

  • Fairly quick, easy and inexpensive to set up
  • Foreigners working at a representative in Vietnam can obtain a work permit, a temporary stay visa for themselves and their family
  • Explore business opportunities and establish market presence
  • The validity of the license ranges from two to five years with renewal possibility
  • Tax exemptions are available
  • Relatively simple to shut down

Why Is It Best to Convert to an FDI Company after Some Time?

The representative office in Vietnam is a very good first step for a foreign company to enter the Vietnamese market.

However, there are certain restrictions stipulated under the law. These restrictions include the prohibition of direct engagement in profit-making activities in the country.

Therefore, combined with the constantly changing policies and legislation, more and more foreign companies find that switching their representative office to a foreign direct investment company is a more ideal option.

We have listed some factors why companies are converting their representative office in Vietnam to an FDI company:

  • Allowed to conduct business activities with a much greater scope
  • Permitted to perform profit-making business activities
  • It is mandatory for certain industries to employ foreign workers such as pharmaceutical companies
  • They have more long-term and serious interest in the Vietnamese market

Can You Transfer Employees from a Representative Office in Vietnam?

The answer is yes – only when the representative office in Vietnam is officially shut down and the FDI company is successfully established in the country.

The requirements for moving the employees from a representative office to an FDI company are as follows:

  • The employment contract between an employee and the representative office must be terminated
  • A termination notice of the employment contract is compulsory
  • A termination package must be provided to the employee, and the employee’s social insurance must be de-registered if the employee doesn’t agree with the migration

How Cekindo Can Assist with Migration (Both Company and Employee Transfers)

Cekindo is a consulting services firm based in Vietnam that strives to help you plan and execute your company and employ the migration process end-to-end.

Over the years, Cekindo has raised its service standards and earned a reputation in the industry as one of the highest-ranked business consultants in the country.

We excel in understanding our client’s business requirements and cater to all kinds of business migration including converting a representative office in Vietnam to a foreign direct investment company.

All of Cekindo’s consultants are registered business and employee migration agents possessing immense experience and knowledge in relevant fields.

Through our assistance and guidance, your business will be able to grow most professionally and achieve the highest success peak.

Fill in the form below now to discuss your business or investment plan in Vietnam.