In Vietnam, the specifics of offer and acceptance can determine whether you have a legally binding contract at all. The process of contract formation is governed by strict rules, and a simple oversight can mean that the parties never created the legal relations they intended. For any business operating here, understanding when an agreement becomes […]
Nowadays, many foreign investors want to set up new business in Vietnam. However, the cost of setting up is relatively high and there might be a lack of understanding local knowledge. Therefore, setting up a representative office in Vietnam, especially in the capital city, Ho Chi Minh City, will be the best solution, as it offers a low-cost entry for investors and can have a better understanding of Vietnam’s business climate. If you have a plan to establish a representative office in Ho Chi Minh City, you can read this article until its end. It provides you information about setting up a representative office in Ho Chi Minh City.
READ MORE: Viettonkin Consulting service to help you settle your office in Vietnam
What Are Representative Office(s) Permitted To Do?
The option of setting up a representative office for foreign investors is common, as it is for first-time entrants to the Vietnamese market and precedes a larger presence within the country. In addition, it can save the cost entry for investors and know better about Vietnam’s business. Nonetheless, representative offices are forbidden to earn revenue and their activities are limited to mainly market research, plus acting as a liaison office for their parent companies.
There are things that representative offices are permitted to do. These are:
- Conducting market research
- Acting as a liaison office for its parent company.
- Promoting the activities of its head office through meeting, and other activities, that leads to a business at later stages.
Representative offices are not allowed to generate their profits or enter directly into contracts, because they are dependent on their parent companies. Additionally, they are prohibited to issue invoices.
How To Get The License and What Should You Do After?
Before getting the license, you need to do your checklist for setting up a Representative Office for your new business in Ho Chi Minh City. These are pre-licensing checklist for you:
- File an application for setting up an office with company chop or seal.
- Appointment letter of Chief of Representative Office 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 the landlord regarding the right of the leasing office.
Keep it in mind, 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. Plus, a signed leasing contract is required before registering a representative office in Vietnam.
After getting a license, you will need this post-licensing checklist for your next action. These are:
8. Make a seal for the representative office;
- License on the establishment of a representative office.
- Passport of Chief of representative office if a foreigner or passport/ID card Chief is Vietnamese.
9. Register a tax code;
- Declaration to register a tax code.
- Power of attorney
- Certificate of seal registration
- Certificate of a representative office in Vietnam
10. Open a bank account;
- License on the establishment of a representative office.
- Certificate of seal registration.
- Certificate of tax code registration.
- Letter of authorization appointing the authorized signatories of the bank accounts.
11. Announcement of the establishment the office of Company.
For steps 8 to 10, your documents need to be notarized and translated to complete the process. Do not forget about this or the process will take a little longer.
How Long Do You Need To Establish a Representative Office?
The representative office can be established between 6 to 8 weeks. We also recommend hiring a professional service to deal with the countless laws and procedures.
The absence of in-country revenue and associated licensing requirements have been given, so the setup process for this option does not involve as many bureaucratic procedures as others. A representative office is valid for 5 years, but can be extended for another 5 years.
Hiring, Tax, and Reporting
After getting the license and ready to establish an office in Ho Chi Minh City, you still need to consider something else, such as hiring, tax and reporting.
When setting up the office is done, you can hire the number of local and expatriate employees as long as their employment is properly documented. All expatriate hires including the chief representative are required to have a work permit. The offices can hire staff directly or use the assistance of recruiting agencies.
A representative office is not subject to Vietnamese Corporate Income Tax (CIT). However, it is responsible for declaring its employees’ Personal Income Tax (PIT). Determining payable tax, representative offices have to initiate a tax audit which checks all revenues and expenses during the tax term to establish grounds for declaring and paying tax.
In addition, the representative office has to send reports of its activities of the previous year to the Department of Industry and Trade before January 30 of each year.
The Tax Risks if Your Representative Office is Permanently Set Up
As mentioned above, the representative office 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 is described as per local laws as well as the Double Tax Avoidance (DTA) agreement between Vietnam and other countries. In general, the PE definition under a DTA is more necessary than domestic regulations.
If a foreign business wants to convert the office into a permanent establishment, but it has been carrying out activities per local laws, it could activate a licensing risk. Thus, foreign businesses should ensure that their representative office performs activities as per the DTA guidelines. However, if the representative office activity is outside the scope, it may be subject to additional tax in Vietnam.
To avoid any licensing or tax risks in case the office is treated as a permanent establishment, businesses are advised to restrain from getting their offices involved in buying and selling activities between two parties.
Therefore, foreign investors looking to establish a presence in Vietnam should use the services of registered local advisors who can ensure their setup process is accurate while complying with the relevant DTAs and local regulations.
In conclusion, establishing a representative office should be taken into account if you want to enter the foreign market that you have not experienced yet. Despite its low-cost, it can help you to discern the local knowledge about Vietnam’s business. Keep it in mind, if you are unsure or know nothing about the local regulations and laws, you can ask for our help. Viettonkin will always be ready to assist you anytime!
