How to Set Up a Representative Office in Vietnam

The representative office (RO) provides a low-cost item for companies seeking to better understand the Vietnamese market. As such, this option is one of the most popular for newcomers entering the Vietnamese market and often having a greater domestic presence. We checklist here some point guide for you to set up a Representative Office in Vietnam.

What is RO allowed to do?

RO is allowed to engage in the following activities:

• Conducting market research;
• Acting as a liaison office for its parent company;
• Promote headquarters operations through meetings and other activities, resulting in business at later stages.

Representative offices are dependent on their parent company and are not allowed to create their own profits or participate directly in the contract. Nor are they allowed to issue invoices.

What do you need to get a license? Checklist of pre-licensing to set up RO:

1. Submit application for setting up RO with company or seal;
2. Letter of appointment of the RO Manager with personal papers and company seals;
3. Power of attorney in support of application submission;
4. Certificate of incorporation and / or certificate of business registration of the Company;
5. Audited financial statements of the company in the latest financial year;
6. Memorandum of Understanding (MoU) of the leasing office or lease agreement;
7. The document provides the landlord’s legal rights regarding the rights of the rental office.

For steps 1 through 6, the foreign entity will request a notarized and legalized copy of each document and a Vietnamese translation of the Vietnamese competent authority.

Signed leases are also required prior to RO registration in Vietnam.

What do you need to do after receiving the license? Checklist after licensing to set up RO:

8. Create a seal for RO;

• RO establishment license
• Passport of Chief RO if foreigner or passport / Identity card if Chief is Vietnamese

9. Register tax code for RO;

• Declaration of tax code registration
• Authorization letter
• Certificate of seal registration
• RO certificate in Vietnam

10. Open a RO bank account;

• RO establishment license
• Certificate of seal registration
• Tax code registration certificate
• The authorization letter specifies the authorized signatory of the bank account
• Notice of establishment of RO of the Company.

For steps 8 through 10, notarized and translated documents will be required to complete the process.

How long does it take to set up RO?

RO can be set in about six to eight weeks. We recommend hiring a professional service to deal with a multitude of laws and procedures.

Because there is no domestic revenue and related licensing requirements, the setup process for this option does not require as many bureaucratic procedures as others.

The RO license is valid for five years but can be extended for another five years.

What is next? Rent, tax and reporting.

There is no limit to the number of local and foreign employees a representative can hire as long as their jobs are properly recorded.

All foreign employees including the chief representative are required to have a work permit. The RO may hire employees directly or use the support of recruitment agencies.

RO is not subject to Vietnam Enterprise Income Tax (CIT). However, it’s liable for declaring its employees income tax (PIT).

To determine the tax to be paid, the RO must conduct a tax audit that checks all revenues and expenses throughout the tax period to establish grounds for tax declaration and payment.

The RO must also send reports on previous year’s activities to the Department of Industry and Trade before January 30 of each year.

Tax risk if RO is considered as permanent establishment

As discussed earlier, the RO is only allowed to conduct market research activities and act as a liaison office for its parent company. It cannot engage in commercial activities or assist the parent company with commercial activities in Vietnam.

Permanent establishment (PE) is defined by local law as well as the double tax avoidance (DTA) agreement between Vietnam and other countries. In general, the definition of PE under DTA takes precedence over domestic regulations.

If a foreign enterprise wants to convert RO into PE but has already carried out activities under local law, it may trigger licensing risks. Therefore, foreign businesses should ensure that their ROs carry out activities in accordance with DTA guidelines. In addition, if the RO carries out activities outside its scope, it may be subject to additional taxes in Vietnam.

To avoid any licensing or tax risks in case the RO is considered PE, businesses should refrain from allowing their RO to engage in buying and selling activities between the two parties or any other activity. generate revenue.

Foreign investors wishing to determine a presence in Vietnam should use the services of registered local advisers who can ensure their setup process is accurate while complying with the DTA

Source:VNB

To find more about guide for business and investment in Vietnam, you can click here: https://lookoffice.vn/economy-business-investment/guige/

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