A Representative Office (RO) offers a low-cost entry for companies seeking to gain a better understanding of the Vietnamese market. As such, this option is among the most common for first-time entrants to the Vietnamese market and often precedes a larger presence within the country.
ROs are permitted to engage in the following activities:
Representative offices are dependent on their parent company and are not allowed to generate their own profits or enter directly into contracts. They are also not allowed to issue invoices.
What do you need to get a license?
Pre-licensing checklist for setting up a RO:
- File an application for setting up a RO with company chop or seal;
- Appointment letter of Chief of RO with identification documents and company seal;
- Power of attorney in favor of consultant to submit the application dossier;
- Certificate of Incorporation for the Company and/or Business Registration Certificate of the Company;
- Audited financial report of the company for the latest fiscal year;
- Memorandum of Understanding (MoU) of leasing office or leasing contract;
- Documents providing legal rights of landlord regarding the right of leasing office.
For steps 1 to 6, the foreign entity would require one notarized and consularized copy of each document and a translated copy in Vietnamese by a Vietnamese competent authority.
A signed leasing contract is also required before registering a RO in Vietnam.
What do you need to do after you get the license?
Post-licensing checklist for setup a RO:
- Make a seal for the RO;
- License on the establishment of RO
- Passport of Chief of RO if foreigner or passport/ID card if Chief is Vietnamese
- Register a Tax code for RO;
- Declaration to register a tax code
- Power of attorney
- Certificate of seal registration
- Certificate of RO in Vietnam
- Open a bank account of RO;
- License on the establishment of RO
- Certificate of seal registration
- Certificate of tax code registration
- Letter of authorization appointing the authorized signatories of the bank accounts
- Announcement of the establishment of RO of Company.
For steps 8 to 10, notarized and translated documents will be required to complete the process.
How long does it take to set up an RO?
ROs can be set up in between six to eight weeks. We recommend hiring a professional service to deal with the myriad of laws and procedures.
Given the absence of in-country revenue and associated licensing requirements, the setup process for this option does not entail as many bureaucratic procedures as others.
An RO license is valid for five years but can be extended for another five years.
What comes next?
Hiring, tax, and reporting.
There is no cap on the number of local and expatriate employees that a representative office can hire as long as their employment is properly documented.
All expatriate hires including the chief representative are required to have a work permit. ROs can hire staff directly or use the assistance of recruiting agencies.
An RO is not subject to Vietnamese corporate income tax (CIT). However, it is responsible for declaring its employees’ personal income tax (PIT).
In order to determine payable tax, ROs have to undertake a tax audit that checks all revenues and expenses during the tax term to establish grounds for declaring and paying tax.
The RO also has to send reports of its activities of the previous year to the Department of Industry and Trade before January 30 of each year. These reports are also known as the Annual Report.
The Annual Report must be in accordance with Circular No. 11/2016/TT-BCT. Among other details, the annual report must include the list of employees working for the RO and any change within the reporting year. In addition, the report must also include what the RO has done during the year such as its promotion activities and marketing events.
Businesses that fail to submit the annual report on time, risk fines of up to VND 40 million (US$1,700). It can also result in difficulties if the RO wants to renew its license or change and upgrade its operations to a permanent establishment.
Tax risks if RO viewed as Permanent Establishment
As discussed earlier, an RO is only permitted to do market research activities and act as a liaison office for its parent company. It cannot engage in commercial activities or support the parent company with its commercial activities in Vietnam.
A Permanent Establishment (PE) is defined as per local laws as well as the double tax avoidance (DTA) agreement between Vietnam and other countries. Generally, the PE definition under a DTA takes precedence over domestic regulations.
If a foreign business wants to convert the RO into a PE but has been carrying out activities as per local laws, it could activate a licensing risk. Therefore, foreign businesses should ensure that their RO performs activities as per the DTA guidelines. In addition, if the RO performs activities that are outside its scope, it may be subject to additional tax in Vietnam.
To avoid any licensing or tax risks in case the RO is treated as a PE, businesses are advised to refrain from getting their ROs involved in buying and selling activities between two parties or any other activities generating revenue.
Foreign investors looking to establish a presence in Vietnam should use the services of registered local advisors who can ensure their set up process is accurate while complying with the relevant DTAs and local regulations.
This article was first published by VietnamBriefing which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write to [email protected].
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