QUESTION:
Hello, my friend has a company in a foreign country, now he wants to expand the market to operate in Vietnam. However, he wondered whether to choose to establish a representative office or a branch of a foreign trader in Vietnam. I hope to get an answer from a lawyer, thank you.
ANSWER:
Thank you for trusting and sending questions to PL and Partners Law firm. To have a basis for choosing to establish a representative office or branch of a foreign trader in Vietnam, we would like to invite you to learn the similarities and differences between these two types. The details are as follows:
Similarities:
- Both are dependent units of foreign traders.
- Having no legal status.
- Term of operation: a maximum of 05 years and can be extended.
Differences:
| Criteria | Representative Office (RO) | Branch |
| Business scope | Perform the function of a liaison office, researching the market, promoting opportunities for business investment of the traders they represent. | Carry out trading activities and other commercial activities in accordance with the establishment license. |
| Entering into contracts | Not entitled to enter into contracts | To be entitled to enter into contracts in Vietnam in accordance with the business scope specified in the license. |
| Profitable activities and transferring profit | No direct profit-making activities are carried out in Vietnam. | To be entitled to make direct profit in Vietnam and transfer profits abroad in accordance with Vietnamese law. |
| Financial obligations | To declare and pay Personal Income Tax on behalf of employees working at the RO. | To declare and pay license fees, corporate income tax, value added tax, personal income tax on behalf of employees, import and export tax (if any) and special consumption tax (if any); |
| Condition for establishment | Traders shall meet the following conditions:
1. Foreign traders shall establish and register their business in accordance with the laws of countries and territories participating in international treaties to which Vietnam is a signatory or recognized by the laws of these countries and territories;
2. Foreign traders have operated for at least 01 year from the date of establishment or registration;
3. In case the foreign trader’s Business Registration Certificate or paper of equivalent value has a term for operation, such time limit must be at least 01 year from the date of application submission;
4. The business scope of the Representative Office shall be consistent with Vietnam’s commitments in international treaties to which Vietnam is a signatory;
5. In case the business scope of the Representative Office is inconsistent with the commitments of Vietnam or the foreign trader is not a member of a country or territory participating in an international treaty to which Vietnam is a signatory, the establishment of the Representative Office shall be approved by the specialized Minister or Head of the ministerial-level agency. | Traders shall meet the following conditions: 1. Foreign traders shall establish and register their business in accordance with the laws of countries and territories participating in international treaties to which Vietnam is a signatory or recognized by the laws of these countries and territories;
2. Foreign traders have operated for at least 05 years from the date of establishment or registration;
3. In case the foreign trader’s Business Registration Certificate or paper of equivalent value has a term for operation, such time limit must be at least 01 year from the date of application submission;
4. The business scope of the Branch shall be consistent with Vietnam’s commitment on market access in international treaties to which Vietnam is a signatory and shall be appropriate for the business lines of foreign traders;
5. In case the Branch’s business scope is not consistent with Vietnam’s commitments or the foreign trader is not a member of a country or territory participating in an international treaty to which Vietnam is a signatory, the establishment of the Branch shall be approved by the specialized Minister or Head of the ministerial-level agency.
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| Head of the unit | The head of a representative office shall not concurrently hold the following positions: – Head of Branch of the same foreign trader; – Heads of Branch of other foreign traders; – Legal representative of that foreign trader or another foreign trader; – Legal representative of an economic organization established in accordance with the laws of Vietnam. | The Head of the Branch shall not concurrently hold the following positions: – Head of the Representative Office of the same foreign trader; – Head of Representative Office of other foreign traders; – Legal representative of an economic organization established in accordance with the laws of Vietnam. |
| Licensing Agencies | Department of Industry and Trade | Ministry of Industry and Trade |
The procedure for a foreign trader to establish a representative office or branch will be more complicated than for Vietnamese enterprises, especially the branch. The establishment of a branch of a foreign trader in Vietnam requires approval from the Ministry of Industry and Trade with quite strict conditions and regulations. Therefore, setting up a branch will take a lot of time.
Therefore, depending on the needs, specific situation as well as operational orientation of the Company, your friend can consider and choose the appropriate model.
Besides the representative office or branch model, establishing an enterprise in Vietnam is also being chosen by foreign businesses because of its advantages. For the choice of incorporating enterprises in Vietnam, only some business lines shall consult the Ministry of Industry and Trade, not all cases like the branch model.
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