In accordance with Commercial Law in Vietnam, a foreign investor or legal entity is allowed to establish a representative office in the country. Currently, more than 10,000 foreign representative offices can be seen in Ho Chi Minh City and almost the same numbers of can be found in Hanoi, Dong Nai, and Binh Duong. Representative offices in Vietnam are nothing new for foreign investors as some of them have been in operation since 1995.
Starting a representative office in Vietnam is one of the legal ways for a foreign investor to do business in Vietnam. A Vietnam-based foreign representative office is considered a dependent unit established under Vietnam Law to conduct permitted promotion or market survey activities.
With the purpose of offering foreign investors assistance to have deeper insights into the establishment of a representative office in Vietnam, Cekindo will share all relevant information regarding its benefits, challenges, rights and obligations.
Representative Office in Vietnam: The Essentials
Benefits and Challenges of Setting Up Representative Office in Vietnam
The main benefits for foreign investors are the reasons representative offices are thriving:
- Can recruit employees to handle contracts and promote sales with local partners
- Can find goods and services purchase opportunities, and can conduct research and develop products
- A representative office’s license is valid for two to five years and can be renewed, allowing you to participate in investment activities
- A foreigner working at a representative office can get a work permit, a two-year multiple temporary residency visa for themselves, as well as their family in Vietnam
- A cost-saving investment option for foreign investors with no corporate income tax, no added-value tax, no independent audit, and no financial statement
- Easy to shut down
Foreign representative offices do come with challenges and one of them being they are forbidden to participate in any profit-generating activities. They can only perform non-profit activities such as market research and product or service promotion.
Therefore, unless you do not have enough information on the Vietnam market yet, it is always better for form a Vietnamese subsidiary in the form of Limited Liability Company or Joint Stock Company to maximise your investment options. These two forms of legal entities allow foreign entities or individuals to conduct profit-making sales activities and manufacture products in Vietnam.
Other than the limited business activities, representative offices in Vietnam must adhere strictly to local social insurance, labor, and personal income tax regulations. It means that they need to pay social insurance of up to 34.5% to their employees; and they need to register tax number, declare monthly personal income tax, prepare and submit annual settlement reports for employees. The personal income tax rates vary:
- Non-residents: 20% on income generated in Vietnam
- Residents: 5-35% on income generated worldwide
Furthermore, representative offices in Vietnam must make sure they are in compliance with commercial law, anti-money laundering law, and other relevant tax laws. All business records for law compliance shall be kept and managed properly as the relevant authorities such as tax department will perform audit or inspection every 3 to 5 years.
Other challenges include submission of annual report to the licensing department and a limited operation term of 5 years only. However, the validity can be extended.
Rights and Obligations of Representative Office in Vietnam
When you set up a representative office in Vietnam, you should know your rights, which include the following:
- To operate for the purpose, scope and duration
- To recruit local and foreign staff
- To lease office, rent and buy equipment for operations
- To own name-bearing seals
- To open bank accounts
With rights come obligations. The following obligations are to be fulfilled by representative offices in Vietnam:
- No profit-making activities
- Conduct only permitted promotion activities
- No contract signing, amendment and supplement (with the exception via letters of authorization)
- Pay taxes and fulfill all financial obligations
- Report on operations
How Cekindo can Help
Cekindo has far-reaching experience across a multitude of business models, markets, and company sizes. Our business consultation expertise allows us to help you identify business opportunities and set up a representative office in Vietnam.
Ready to get more out of your business in Vietnam? Let’s make it happen, start by filling in the form below.