Essential Information for Launching Your Representative Office in Vietnam!

The Representative Office (RO) serves to represent the parent company in Vietnam without engaging in commercial activities, operating on a small scale. In this article, we will explore the benefits and drawbacks of opening a Representative Office in Vietnam. Discover why establishing an RO can be a strategic move for your business and the potential challenges you may face.

Advantages of the Representative Office

Simple Operations

The Representative Office (RO) in Vietnam must only consider Personal Income Tax (PIT) when it enters into labor contracts with its employees. Each year, these offices must submit an Operational Report that summarizes their activities and performance over the past year. This annual report is crucial for compliance and provides insight into the RO’s contributions in Vietnam’s business landscape.

Running a Representative Office in Vietnam is significantly simpler than managing a traditional business. A Representative Office is not required to adhere to tax laws because it is prohibited from engaging in commercial activities. Consequently, a Representative Office does not need to file periodic tax reports or financial statements and is exempt from paying taxes. This streamlined process makes it an attractive option for businesses looking to establish a presence in Vietnam without the complexities of tax compliance.

Low cost

Establishing a representative office (RO) in Vietnam is generally more cost-effective than setting up a full company. Since a representative office operates on a smaller and simpler scale, its operational costs are significantly lower. This makes it an attractive option for businesses looking to enter the Vietnamese market without the high expenses associated with full company registration.

Be able to hire

A representative office (RO) is a legally recognized business entity that allows companies to establish a presence in a foreign market. It has the authority to sign labor contracts and hire employees, including both Vietnamese citizens and foreign nationals. For businesses looking to hire staff exclusively for non-sales roles, opening a representative office is a cost-effective and straightforward option. By choosing an RO, companies can efficiently manage local operations while minimizing overhead costs.

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Disadvantages of the Representative Office

Limit in the scope of operation

A Representative Office in Vietnam is not allowed to engage in any commercial activities. This means it cannot generate revenue, issue invoices, or hire employees for sales positions.

Short License Validity

The RO license in Vietnam is valid for a period of 5 years. After this timeframe, businesses must seek an extension to maintain their operating status. This duration is significantly shorter than the typical 50-year term for a company. For more information on starting a business in Vietnam, check out our guide: 10 Steps to Open a Company in Vietnam.

RO small size

Under the Labour Law, a representative office (RO) has the authority to enter into labor contracts and hire employees. Typically, ROs operate on a smaller scale, with an ideal workforce of around 10 to 15 individuals. This approach allows them to efficiently manage operations while complying with labor regulations.

If a Recruitment Order (RO) exceeds the specified limit, the authority may raise questions about it. Additionally, certain job titles like sales, field force, account executive, and business development should not be included under a Recruitment Order. It’s important to note that a Recruitment Order can only designate one Chief Representative, who serves as the legal representative.

Only one legal representative for RO

A Representative Office (RO) in Vietnam can only have one legal representative, even though companies may have multiple. This legal representative must hold resident status in Vietnam, meaning they need to live in the country for at least 183 days each year.

Conditions to set up the Representative Office

To open a Representative Office in Vietnam, the parent company must meet specific criteria:

• Age Requirement: The parent company must be at least 1 year old.
• Business Eligibility: The primary business of the parent company must qualify for opening a Representative Office in Vietnam.
• Financial Documentation: An audited financial statement or tax return from the parent company for the last year is required.
• Leadership Restrictions: The Head of the Representative Office in Vietnam cannot be the owner or legal representative of other business entities.
• Timeline: The process to establish a Representative Office in Vietnam typically takes about 4-6 weeks.
• Business Line Verification: Not all companies are permitted to open a Representative Office. Therefore, checking the parent company’s business line is the crucial first step before proceeding.

Contact us to know more about the process or to have better assistance in opening your Representative Office in Vietnam.