The Different Between 3 Common Business Entities in Vietnam

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What You need to know Comparing of Business Types in Vietnam

In the past few years, Vietnam has become an attractive market for small investors and large businesses. A sustainable business environment was one of the most crucial factors. During the 2008 financial crisis and the COVID-19 epidemic. The Vietnamese economy, continuing to expand, is among the least affected.

On the other side, the government is encouraging international investors and businesses to invest in Vietnam by lowering entry barriers for a number of sectors, improving public services, and boosting logistics and infrastructure.

This is an excellent opportunity for you to establish a presence in Vietnam. It is possible to establish a company, a branch office, or a representative office. This article will help you in understanding the differences, advantages, and disadvantages of each form.

THE DIFFERENCES BETWEEN COMPANIES VS. REPRESENTATIVE OFFICES VS. BRANCHES

If you are an individual investor who does not own a business elsewhere and you want to establish a business entity in Vietnam, your only option is to form a Company. Otherwise, you have two more options to consider which are a Representative Office or a Branch.

What is the difference between these three types of business entities? Look at the table below.

A Representative Office

A Branch

A Company

Scope of operation

Cannot do commercial activities (no sale generation).

Can generate sales from business activity.

Cannot go beyond the scope of activity of the parent firm.

Can do all businesses which are allowed for foreign investment (most freedom).

General requirements to open

Business address must meet certain requirements, a virtual office is unlikely to be accepted.

The parent firm must be at least one-year-old.

The parent company’s registered business must be allowed to open an RO.

Can have only one Director called the Chief Representative.

The parent company must be at least five years old.

The parent company’s license can’t include any business lines that are against Vietnamese law.

Can have only one Director called the Branch Manager.

A physical or virtual business address can be used.

Can be either individual ownership or corporate ownership, single or multiple owners.

Paid-up capital investment required.

Can have multiple Directors, but at least one Legal Representative resides in Vietnam.

First, A Representative Office (RO) is intended to represent the parent firm in Vietnam; it has no commercial activity (no sale generation) and is known to operate in a limited capacity (small scale). For eligibility to register for RO, the parent firm must be at least one year old. And the parent company’s registered business must be allowed to open an RO, according to Vietnamese law.

One RO can have only one Director called the Chief Representative who is not allowed to be the owner or the legal representative of the parent company or any other business entity in Vietnam. The establishment process can take roughly 1 month from the submission date with extensive document preparation from the parent company.

Second, a Branch in Vietnam is an extension of an international company. It can generate sales from business activity. However, it cannot go beyond the scope of activity of the parent firm. The parent company must be at least five years old and its license can’t include any business lines that are against Vietnamese law. A branch is an entity dependent on its parent, hence it must constantly apply the documents and procedures of the parent company.

One Branch can have only one Director called the Branch Manager who is not allowed to be the owner or the legal representative of the parent company or any other business entity in Vietnam. The licensing part of a Branch establishment is more complicated than other types of business because it involves ministry approval, and it can take months to complete.

Third, A Company is the business structure that gives its shareholders the most freedom. It is permitted to operate in all government-granted and authorized business sectors. It means that it can go beyond the scope of business of the parent firm (if any). A company can be held by either individual or corporate owner(s). It can have multiple owners and directors.

There is also no restriction for the owner(s) and director(s) of the company as for RO or Branch. The Company is considered an independent business entity from the parent company. Therefore, a company is the best alternative for anyone who wants to conduct business in Vietnam.

Each business entity will have unique advantages and disadvantages. The following sections provide an analysis of each business form to assist companies and investors in selecting the most suitable one for registration in Vietnam.

Pros – the advantages of each type

A Representative Office

A Branch Office

A Company

Simple operation procedure.

Low operational costs.

Not subject to business taxes.

Simple to shut down.

Directly engages in a whole commercial operation such as trading, production, services, inventory management, etc (upon business lines of the parent company of course).

Can independently register and issue VAT invoices.

Can retain accounting records both dependent and independent.

Can autonomously enter into contracts, change or supplement terms.

Multiple shareholders allowed (up to 50 shareholders).

Flexible structure: Can transfer wholly or partially the shares.

No restriction on Owners or Directors.

Much of freedom in business operations, an independent entity, can expand or reduce the scope of its business at its own will.

Long-term license validity (up to 50 years).

Registration can be simple/fast if the business is under Vietnam’s WTO commitments or FTAs.

Cons – the disadvantages of each type

A Representative Office

A Branch Office

A Company

Not permitted to directly engage in profit-generating activities

Cannot issue invoices.

Extensive document preparation at registration part.

Cannot feed itself, it lives on the fund from the parent company.

Small scale

Short license lifetime (5 years)

There are some restrictions for the Head of the RO (Chief Representative).

The initial setup procedure is more difficult as it involves ministry approval.

Long registration process (take about months).

Subject to full taxation of Vietnam

Cannot go beyond the parent firm’s scope of business.

There is some restriction for the Head of the Branch (Branch Manager).

The registration process can be complicated if does not belong to Vietnam WTP’s commitments.

Subject to full taxation of Vietnam.

Audited financial statements every year.

Operational cost is higher than the other two entities.

Profits allocated to shareholders are subject to taxation for multiple shareholders.

When you open, operate, and close a Representative Office, a Branch, or a Company, each will have advantages and disadvantages. Rather than focusing on these characteristics, you should consider based on your organization’s goals, objectives, and resources when choosing the most appropriate business form to open and operate in the future.

HOW CAN VNBG SUPPORT YOU?

Let VNBG support you with your business endeavors in Vietnam. When talking to our consultant,

you will see the whole three options of a business entity to be established in Vietnam, with the pros and cons of each. We will help you understand which business entity best fits your needs.

We’ll help you get the license you need and speed up the process of starting a business, a branch, or a representative office. Through our EOR services, we not only help you register your business entity but also help you operate it (hiring and managing people, registering with the tax system, and managing daily operations).

VNBG is proud to be the best provider of business solutions in Vietnam. Over the past four years, thousands of clients and partners have put their trust in us.