ESTABLISHING A REPRESENTATIVE OFFICE OF FOREIGN COMPANY IN VIETNAM

Business consulting

1. What is a Representative office of foreign company in Vietnam?
2. What can a Representative office of foreign company do in Vietnam?
3. Why do foreign company establish Representative office in Vietnam instead of branch or subsidiary company?
4. What are conditions for a foreign company to establish Representative office in Vietnam?
5. Which Authority grants the License for establishment of a Representative office of foreign company in Vietnam?
6. What documents are required to apply for a License for establishment of a Representative office of foreign company in Vietnam?
7. What is the procedure and timelime for obtaining a License to establish a Representative office of foreign company in Vietnam?
8. What is the duration of the License to establish a Representative office?
9. What are the fees for obtaining a License for establishment a Representative office of foreign company in Vietnam?
10. Where to find a Law firm to assist establishing a Representative office of foreign company in Vietnam?

In a competitive market economy, many businesses have chosen to expand their market reach to increase sales. Before taking this step, research, analysis, and evaluation of the new market are essential. To support this process, many businesses have decided to establish Representative office in the markets they want to expand into. It is evident that the establishment of Representative office is becoming a prevalent trend among both domestic and foreign enterprises, aimed at understanding and accessing new customers and markets. Representative office not only facilitate companies in effectively gathering market information but also promote the establishment of relationships with potential clients and partners. In this article, Phong & Partners will present the legal aspects concerning the conditions for establishing Representative office for foreign companies in Vietnam under current legislation.

1. What is a Representative office of foreign company in Vietnam?

A foreign company may establish a Representative office in Vietnam in accordance with Vietnam's commitments under international treaties to which it is a member. The foreign company is responsible under Vietnamese law for all activities conducted by its Representative office in Vietnam.

The Representative office of a foreign company in Vietnam is a dependent unit of the foreign company, established in accordance with Vietnamese law to explore the market and conduct certain promotional activities permitted by Vietnamese law.

2. What can a Representative office of foreign company do in Vietnam?

According to Decree No. 07/2016/ND-CP, the Representative office may perform the following activities:

Performing the functions of a liaison office.
Engaging in activities related to market research.
Promoting investment and business opportunities for the company it represents, excluding services for which the establishment of a Representative office is regulated by Specialized legal documents.

Within this scope of activities, pursuant to Article 17 of the 2015 Commercial Law, the Representative office has the following rights:

Operate in accordance with the purpose, scope, and duration specified in License for establishment of a Representative office
Lease premises and acquire necessary equipment and materials for its operations.
Hire Vietnamese and foreign employees to work at the Representative office in compliance with Vietnamese law.
Open accounts in foreign currencies or Vietnamese Dong with foreign currency origins at banks authorized to operate in Vietnam, using these accounts solely for the activities of the Representative office.
Have a seal bearing the name of the Representative office as stipulated by Vietnamese law.
Other rights as provided by law.

3. Why do foreign company establish Representative office in Vietnam instead of branch or subsidiary company?

Lower costs: Setting up a Representative office is generally simpler and less expensive than establishing a branch or subsidiary company. It eliminates the need for business registration tax, value-added tax, corporate income tax, and independent audits. Companies only need to meet minimal requirements and complete the licensing procedures, saving both time and money.

Non-revenue-generating activities: Representative office are not permitted to engage in direct business activities or generate revenue. Instead, it is limited to market research, brand promotion, and supporting the activities of the parent company. This helps foreign companies mitigate financial risks when entering a new market.

Flexible operating term: Representative office can be granted Licenses for extended periods as long as the parent company remains in good standing in its home country. This allows for a long-term presence without the need for significant investments in a branch or company.

Simpler legal requirements: The establishment of a Representative office typically requires less stringent legal requirements. Companies need only demonstrate at least one year of operation and meet other minimal criteria specified by Vietnamese law. In contrast, setting up a branch or subsidiary company often involves more complex requirements regarding capital, personnel, and documentation.

Greater control: Representative office allow parent company to maintain tighter control over its operations in Vietnam without the need to manage a separate legal entity like a branch or subsidiary company.

4. What are conditions for a foreign company to establish Representative office in Vietnam?

According to Article 7 of Decree No. 07/2016/ND-CP, the requirements for granting a License for establishment of a Representative office for foreign company as follows:

The foreign company must be established and registered in accordance with the laws of the country or territory that is a party to international treaties of which Vietnam is a member, or must be recognized by the laws of those countries or territories;
The foreign company must have been operating for at least 01 year from the date of establishment or registration;
In cases where the Enterprise registration certificate (ERC) or equivalent document of the foreign company specifies a duration of operation, that duration must remain at least 01 year from the date of application submission;
The activities of the Representative office must align with Vietnam's commitments under international treaties to which it is a member;

The establishment of a Representative office requires approval from the Minister or Head of the relevant specialized management agency (referred as the Minister of Specialized management) in the following circumstances:

If the activities of the Representative office do not comply with Vietnam's commitments, or;
If the foreign company is not from a country or territory that is a party to international treaties of which Vietnam is a member;

However, foreign companies should be aware of 04 situations in which they will not be granted a License for establishment of a Representative office in Vietnam under current regulations, including:

Instances where the conditions for establishing a Representative office as outlined above are not met.
If the foreign company only engages in trading goods or services listed in Vietnam's prohibited business categories.
If the foreign company applies for a License for establishment of a Representative office within 02 years from the date its previous License was revoked.
If the establishment of a Representative office is restricted by law due to national defense, security reasons, public order, social ethics, or public health.
Other cases as stipulated by law.

5. Which Authority grants the License for establishment of a Representative office of foreign company in Vietnam?

According to Article 5 of Decree No. 07/2016/ND-CP, depending on the circumstances, the applicant must submit the application to the competent Licensing authority where the Representative office is proposed to be located, specifically:

If the Representative office is to be located in an industrial zone, export processing zone, economic zone, or high-tech zone: The Management Board of the industrial zone, export processing zone, economic zone, or high-tech zone will be responsible.
If the address of the Representative office is not within an industrial zone, export processing zone, economic zone, or high-tech zone: The Department of Industry and Trade of the relevant province or city will handle the application.

6. What documents are required to apply for a License for establishment of a Representative office of foreign company in Vietnam?

Article 10 of Decree No. 07/2016/ND-CP stipulates that the application for a License for establishment of a Representative office includes the following documents:

An application form for the License for establishment of a Representative office in accordance with the model provided by the Ministry of Industry and Trade, signed by an authorized Representative of the foreign company.

Application form:

A copy of the Enterprise registration certificate (ERC) or equivalent document of the foreign company;
A document from the foreign company appointing or designating the head of the Representative office.
A copy of the audited financial report or a document confirming tax or financial obligations for the most recent fiscal year, or equivalent documentation issued or verified by a competent authority where the foreign company is established, demonstrating its existence and operations during that fiscal year;
A copy of the passport (for foreign nationals) or identity card (for Vietnamese nationals) of the head of the Representative office;
Documentation regarding the proposed location for establishing the Representative office, including:
- A copy of a memorandum or lease agreement for the location or a copy of documentation proving that the company has rights to utilize that location for its Representative office;
- A copy of documentation regarding the proposed location in accordance with Article 28 of Decree No. 07/2016/ND-CP and relevant legal regulations.

Note:

Documents (2), (3), (4), and (5) (in cases where a passport copy belongs to a foreign national as head of the Representative office) must be translated into Vietnamese and notarized according to Vietnamese law.
Document (2) must be certified by a diplomatic mission or consular agency of Vietnam abroad or legalized in accordance with Vietnamese law.

7. What is the procedure and timelime for obtaining a License to establish a Representative office of foreign company in Vietnam?

Step: Submit the application

The foreign company may submit the application directly, via postal service, or online (through the National Public Service Portal: https://dichvucong.gov.vn/) to the Licensing authority where the Representative office is proposed to be located.

Step 2: Application receipt

Within 03 working days from the date of receipt, the Licensing authority will review the application and request any necessary supplements if the documentation is incomplete or invalid. A request for supplementary documents may be made only once during the processing of the application.

Except in cases specified in Clause 4 Article 11 of Decree No. 07/2016/ND-CP, within 07 working days from the date of receipt of a valid application, the Licensing authority will either grant or deny the License for establishment of a Representative office for the foreign company. If a License is denied, a written explanation must be provided.

Step 3: Await results from the Licensing authority

In cases specified in Clause 5 Article 7 of Decree No. 07/2016/ND-CP and where the establishment of the Representative office is not regulated by specialized legal documents:

The Licensing authority will send a request for opinions from the Specialized management Ministry within 03 working days from receiving a valid application.
Within 05 working days from receiving the request for opinions from the Licensing authority, the Specialized management Ministry must provide a written response indicating whether they agree or disagree with granting the License to establish the Representative office.
Within 05 working days from receiving the opinion of the Specialized management Ministry, the Licensing authority will either grant or deny the License for establishment of a Representative office for the foreign company. If a License is denied, a written explanation must be provided.

Note: After obtaining a License, foreign companies should adhere to subsequent regulations to avoid administrative penalties or revocation of their Representative office License:

Carry out procedures to adjust their License for establishment of the Representative office if there are changes in information on that License during operations;
Apply for reissuance of their License for establishment of the Representative office if relocating to another province or city or within an area managed by another management board;
Apply for reissuance if lost or damaged;
The Representative office must submit activity reports. The Licensing authority will revoke Licenses if no activity reports are received for two consecutive years or within six months if requested in writing.

8. What is the duration of the License to establish a Representative office?

The establishment License for a foreign merchant's representative office is valid for 05 years, but it cannot exceed the remaining duration of the Enterprise registration certificate or equivalent documents of the foreign merchant if those documents specify a validity period.

The duration of the License for establishment the representative office can be renewed for an additional 05 years.

9. What are the fees for obtaining a License for establishment a Representative office of foreign company in Vietnam?

According to Articles 4 and 5 of Circular No. 143/2016/TT-BTC, the fee for establishing a new Representative office of a foreign enterprise in Vietnam is 3,000,000 VND (3 million VND) per License, which must be paid in Vietnamese Dong. All fees paid by the company will be transferred to the state budget.

10. Where to find a Law firm to assist establishing a Representative office of foreign company in Vietnam?

Foreign companies often encounter numerous difficulties when establishing a Representative office in Vietnam due to complex legal procedures and stringent requirements. Consequently, they frequently seek reputable legal entities in Vietnam to authorize the establishment process. With extensive experience and professionalism, along with a network of office in various provinces such as Ho Chi Minh City, Da Nang, Quang Nam, and the Central Highlands, Phong & Partners Law Firm confidently positions itself as a reliable partner for foreign investors.

With profound knowledge of Investment law and practical expertise, the team of lawyers at Phong & Partners will assist investors in minimizing risks and efficiently completing legal procedures. By choosing Phong & Partners’s Representative office establishment consulting services, clients gain not only a reliable legal partner but also an ally on their journey to realizing their business objectives.

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