Branches and representative offices of foreign companies: eligibility, licensing, what each may do, the chief representative, tax, reporting and closure

Two commercial presences, not companies

A representative office (văn phòng đại diện, RO) and a branch (chi nhánh) of a foreign trader are dependent units of the foreign company, licensed under Commercial Law No. 36/2005/QH11 and Decree No. 07/2016/ND-CP. Neither has legal personality: the foreign parent is the contracting party and is liable for everything the unit does, and the unit's assets are the parent's assets. Neither needs an Investment Registration Certificate, because neither carries out an investment project, and neither is subject to the Law on Enterprises; they sit under the Ministry of Industry and Trade's commercial-presence regime, or under the sector regulator for banks, insurers, securities firms, law firms, education providers, tourism operators and a few other regulated fields. That is why they can be established quickly and why their activities are narrow.

Representative office: eligibility and licensing

The parent must be lawfully established and registered abroad and have operated for at least one year from its registration. The licence is issued by the provincial Department of Industry and Trade, or by the management board where the office sits in an industrial park, export processing zone, high-tech zone or economic zone, within seven working days of a complete dossier (longer where the Ministry of Industry and Trade must be consulted, as for activities not covered by Vietnam's treaty commitments). The licence is granted for up to five years, not exceeding the remaining term of the parent's own registration, and is renewable for the same period on application at least 30 days before expiry. A foreign trader may have more than one representative office in Vietnam but not more than one in the same province. After licensing the office registers a tax code with the local tax office, opens a foreign-currency account funded by the parent and a dong account for local spending, has a seal made (seals of representative offices are still registered with the police under the seal regulations applicable to non-enterprise organisations), notifies the labour authority when it hires and registers with Vietnam Social Security for its Vietnamese employees.

What a representative office may and may not do

Under Article 18 of the Commercial Law a representative office may operate as a liaison office; conduct market research; promote the business and investment opportunities of the parent; rent premises and buy or lease the equipment it needs; employ Vietnamese and foreign staff; and open accounts in foreign currency and in dong for its operating expenses. It may not carry out directly profit-generating activities in Vietnam; issue invoices or receive payment for goods or services; import goods for sale or hold stock for sale; provide services for a fee; or enter into, amend or supplement the parent's contracts, unless the chief representative holds a valid power of attorney from the parent for a specific contract. Under Article 19 it must operate within its licensed scope, pay tax and comply with the labour law, and report annually. An office that in substance negotiates and concludes sales, manages a distributor's pricing or after-sales service for a fee, or holds a warehouse creates a permanent establishment of the parent for tax purposes under domestic law and most of Vietnam's tax treaties, exposes the parent's Vietnam-sourced income to corporate income tax, and breaches the licence; the Department of Industry and Trade and the tax authority inspect for exactly this.

The chief representative

The chief representative (trưởng văn phòng đại diện) runs the office under a power of attorney from the parent and may be a foreign or a Vietnamese national. A foreign chief representative needs a work permit or exemption certificate and a temporary residence card, obtained after the licence issues; the chief representative may not simultaneously be the head of a branch of the same or another foreign trader in Vietnam, the legal representative of the parent, or the legal representative of a Vietnamese company; and may sign a contract on the parent's behalf only under a power of attorney specific to that contract, which the office must keep on file. If the chief representative leaves Vietnam, he or she must authorise another person in writing to run the office, with the parent's consent, and remains responsible; if the absence exceeds 30 days without an authorisation, or the chief representative dies, disappears, is detained or loses capacity, the parent must appoint a replacement. Changes of chief representative, name, address or scope require an amendment of the licence within 60 working days of the change.

Tax position of a representative office

An RO has no revenue and pays no corporate income tax or VAT, but it is an employer and a taxpayer in other respects: it registers for personal income tax, withholds and remits PIT on its staff's salaries monthly or quarterly and finalises annually; pays compulsory social, health and unemployment insurance for Vietnamese employees and social and health insurance for foreign employees on contracts of 12 months or more; pays the 2% trade union fee; and keeps books of its expenses, which are funded by remittances from the parent that are not taxable in Vietnam. VAT on the office's purchases is a cost, not recoverable. Where the parent earns Vietnam-sourced income from customers in Vietnam, the foreign contractor tax rules apply to those payments regardless of the office's existence (Chapter 3), and a tax audit of the office will test whether its activities went beyond liaison. Foreign staff of the office are taxed as residents or non-residents on the ordinary rules (Chapter 4).

Branch of a foreign trader

A branch may conduct business and earn income in Vietnam, but only in the sectors Vietnam's treaty commitments have opened to branches, which outside banking, insurance, securities and legal services are few, and in each case under the sector regulator's licence. A trading-branch licence from the Ministry of Industry and Trade under Decree No. 07/2016/ND-CP requires the parent to have operated for at least five years and is issued within seven working days of a complete dossier (longer with ministry consultation); it runs for up to five years and is renewable. The branch has a head of branch, keeps its own accounting books under Vietnamese Accounting Standards, is audited, pays corporate income tax and VAT on its Vietnamese activities, may remit its after-tax profits to the parent, employs staff on Vietnamese labour contracts and is subject to Vietnamese court jurisdiction with the parent directly liable for its obligations. Because of the sector restrictions and the exposure, foreign companies outside the regulated sectors form a Vietnamese subsidiary instead; within them, the choice between a branch and a locally incorporated subsidiary is usually dictated by the sector law and by the parent's capital and supervisory treatment at home.

Annual report, renewal, amendment and closure

Both a representative office and a branch file an annual report on their activities with the licensing authority before 30 January each year, on the prescribed form, and report further on request. The licence is renewed on application at least 30 days before expiry, with updated parent documents and a report on the office's activities; amendments (chief representative, name, address, scope, parent's details) are registered within 60 working days of the change. Closure is voluntary at the parent's decision, compulsory when the parent ceases to exist or the licence expires without renewal, and by revocation for operating outside the licensed scope or failing to report for two consecutive years. Closure requires settling tax (PIT finalisation and deregistration of the tax code), social insurance and employee entitlements, settling debts, returning the seal and the licence, and publishing the closure; the parent remains liable for the office's unsettled obligations. Two to three months is a realistic period.