Representative Office in Vietnam - Pros and Cons

Legal/Law, New incorporation, Trending

What you need to know before opening Representative Office in Vietnam

The Representative Office (RO) is intended to represent the parent company in Vietnam; it has no commercial activity and is known to operate on a small scale. Let’s explore Why and Why not you should open a RO in Vietnam

PROS

Simple Operations

Running a Representative Office is much easier than running a business. The Representative is not required to comply with tax laws because it is not permitted to engage in commercial activities. As a result, a representative office in Vietnam will not submit periodic tax reports or financial statements, nor will it pay taxes.

The RO only involves Personal Income Tax (PIT) if it enters labor contracts with its employees. Every year, the representative offices in Vietnam need to submit one Operational report to summarize the activities of the RO within the year.

Low cost

The cost of establishing a representative office in Vietnam is typically lower than that of establishing a company. Furthermore, because the nature of a RO is a small and simple operation, the operational cost of the RO is much lower.

Be able to hire

A representative office is a legally recognized business entity. It has the authority to sign labor contracts and hire people, both Vietnamese and foreigners, to work for it. As a result, if one wants to open an entity solely to hire people to do non-sales work, RO is a low-cost and simple operation to choose.

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CONS

Limit in the scope of operation

A Representative Office in Vietnam is forbidden to conduct any commercial activity. It cannot generate revenue, it cannot issue invoices nor hiring people with Sales as a job title.

Short License Validity

The RO license stays valid for 5 years. After 5 years, an extension is needed. This is way too short compared to 50 years term of a company. Alternatively, read more: 10 steps to open a company in Vietnam

RO small size

According to the Labour Law, a representative office can enter into labor contracts and hire people. It is common practice for a RO to operate on a small scale. A total of 10-15 people can be considered adequate.

However, if a RO exceeds that number, the authority may question it. Furthermore, certain job titles, such as sales, field force, account executive, business development, and so on, should not be recruited under a RO. A RO can only have one Chief Representative (the legal representative).

Only one legal representative for RO

If a company can have more than one legal representative, a RO is allowed to have only one. This legal representative must obtain resident status in Vietnam. It means he/she has to reside in the country for at least 183 days/year.

CONDITIONs:

The parent company must be at least 01 years old.
The main business of the parent company must be eligible to open a Representative Office in Vietnam.
Must provide an audited financial statement or tax return of the parent company in the last 01 year.
The Head of the Representative Office in Vietnam cannot be the owner or legal representative of other business entities.
The timeline to open a Representative Office in Vietnam is about 4-6 weeks.
Not every company will be allowed to open a representative office in Vietnam. Therefore, the parent company’s business line checking is the first step to do before moving ahead.
The Representative office can use a virtual office for the registration step and this should be a temporary arrangement only. It is recommended to move to the proper address after it is successfully established.

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