Cargo Loss and Prevention: Set-up representative office in Vietnam

Hiển thị các bài đăng có nhãn Set-up representative office in Vietnam. Hiển thị tất cả bài đăng

Following the trend of international economic integration, foreigners have been attracted by the benefits of doing business in Vietnam through setting up representative offices, setting up company, acquiring shares in Vietnam enterprise through M&A activity.

At the initial stage, foreign entity would try to research market, undertake due diligence on its clients, buyers, clients, or other business partners therefore many will be interested in establishing a representative office in Vietnam.

The foundation of representative office of foreign entity in Vietnam is governed under Vietnam Commercial Law 2005 and Decree 07/2016 / ND-CP dated 25 May, 2016.

Advantages of establishment of a representative office:

Establishing a representative office is a tool to research the market. For the first time, foreign enterprises entering the Vietnam market, the primary purpose is understanding the market, undertaking research on clients, or due diligence on their business partners, distributors, monitoring the performance of buyers and being familiar with the Vietnam market. The establishment of representative office in Vietnam turns out to be the most effective option both of cost and time.

The representative office in Vietnam is an effective tool to promote commercial activity, seeking partners, and increasing opportunities to expand business market in Vietnam.

Representative office form in Vietnam has allowed foreign entity to receive benefits such as recruiting Vietnamese employees, foreign employees working in offices whom could apply for work permit in Vietnam, then temporary residence card in Vietnam, opening bank accounts in foreign currencies or Vietnam dong at commercial banks, and to be allowed to use those accounts solely for their operations.

According to the laws of Vietnam, the establishment of representative offices does not require the investor’s capital. Instead, setting up a company in Vietnam, an economic organization requires capital contribution as per business plan, ranging from USD 50 k to million USD. Sometime, if the investment fall under conditional areas, setting up company seems more challenging. This relieves the foreign trader from advancing too much to achieve the purpose of expanding the market before the business plan has been proved to materialize.

Further, the establishment of representative office follows more simple procedures for licensing in Vietnam than establishing entity in Vietnam. Accordingly, the process has been taken less time which is more favorable for foreign traders.

Challenges of the establishment of representative office in Vietnam?

Vietnam law provides that, in order to establish a representative office in Vietnam, foreign traders have to prove the fulfillment of the financial responsibility in their country. In practice, the foreign entity is expected to provide audited financial statements. In some countries, the financial audited report is not available according to laws. The Vietnam Department of Trade and Commerce, which state authority would grand representative office operation certificate would require documents showing the fulfillment of tax liabilities or financial obligations of the last fiscal year, or equivalent documents as proof of existence and operation of the foreign trader issued or certified by competent authorities where such foreign trader is established. This provision may initially be difficult. However, if the foreign trader has been established and operated legally in their country, the implementation of this provision is not a major obstacle.

As a large potential market such a Vietnam, as well as the current rapid reform in administrative procedures, Vietnam Government has been more flexible to encourage foreign traders doing business in Vietnam, hence the establishment of representative offices is an optimal method to consider for market research, trade promotion and a stepping stone to penetrate the Vietnam market successfully.

The commercial law and other business laws in Vietnam are frequently changing toward attracting more quality investment projects into Vietnam. ANT Lawyers in Hanoi, Da Nang and Ho Chi Minh City continue to follow and provide update to its clients for their smooth operation in Vietnam.

The representative office (RO) is a popular foreign investment vehicle which investors utilize when wishing to enter the Vietnamese market without committing too much investment. The representative office could help the foreign entity to hire local employee to carry out market research, business promotion.

A foreign company wishes to establish a representative office in Vietnam must submit an application dossier for a license to the Provincial Department of Industry and Trade (DIT).

However, there are cases which the government agencies receiving the application would be different from department of industry and trade depending on the business lines carried out by the foreign entity.

Firstly, the trade service is bound in Vietnam’s Commitment in trade service in WTO but there are no existing specialized legislative documents:

When the trade service which the foreign entity provides does not fall under areas prescribed by specialized legislative documents in Vietnam, the licensing agency shall submit a written request for directions to the relevant ministries for opinions. The foreign entity shall wait for at least 15 working days for receiving a written notice of whether the license for establishment of the representative office is granted or rejected. This process not only extends duration of establishment of representative office but also rises risk of rejection.

Secondly, the trade service is not yet bound in Vietnam’s Commitment:

Where the scope of operation of the representative office is inconsistent with Vietnam’s commitments or the foreign trader is not located in the country or territory being party to treaties to which Vietnam is a signatory, there is an extra process in registration of representative office. The representative office shall be approved by relevant ministers, heads of ministerial agencies for establishment of the representative office.

Thirdly, trade services are supplied in foreign countries, but such does not exist in Vietnam

The foreign entity has to apply codes as following to Vietnam standard industrial classification system or CPC. If the foreign entity cannot define a code, it is merely impossible to register the representative office.

In most of the cases, the foreign entity should consult with law firms in Vietnam whom lawyers have expertise in WTO laws, law on investment and experience in working with Vietnam state authorities, to prepare application right at the start and be ready to challenge the authorities when required to protect best interests of the clients.

Setting up a representative office is considered one of the simplest forms of investment in Vietnam.

The representative office will help the foreign trader to lease office, hire people, open bank account, and promote the business activities in Vietnam market. The chief representative if being foreigner will then could apply for work permit and temporary residence card to stay in Vietnam. There is no income tax as the representative office therefore the liability to maintain a representative office is less hassle. When the purpose of setting up representative office in Vietnam has been achieved, the closing down of the business shall be not as challenging as closing down a company.

According to Vietnam laws, representative office is a dependent unit, representing the foreign entity’s interests in Vietnam. Representative office is established by foreign entities to help them liaise, implement research activities, provide information and support them in seeking new partners as well as having understanding of the new market.

The foreign entity has to meet certain conditions before setting up representative office in Vietnam. It has rights and duties in accordance with Vietnam laws.

When preparing the application for license of representative office in Vietnam, the foreign entities have to note the following.

Prepare the application forms

The application forms as issued by Ministry of Industry and Trade. The application must be signed by legal representative of the foreign entity;

Notarize, legalize and authenticate documents

The foreign entity has to prepare and provide business registration certificate, audited financial report, charter, and office lease memorandum of understanding, passport of the legal representatives of the Representative Office in Vietnam. The documents issued in foreign countries have to be notarized, legalized and authenticated (apostille procedures) in accordance with Vietnam laws to be used in Vietnam. If the business registration certificate or alternative documents have expiry date for business entity’s operation, the remaining time must be at least one year;

Who should be the chief representative?

The Chief Representative of the Representative Office in Vietnam must be different from the Director of the foreign entity.

How long does it take?

It would take around 20 business days since application until receiving the business operation registration of representative office.

Foreign Traders wishing to terminate the operation of representative office in Vietnam need to complete the procedure at Tax authorities, the Provincial Department of Industry and Trade and the procedure to return the seal at the police.

Pursuant to the provisions of the Vietnam laws, the termination of operation of representative offices of foreign traders in Vietnam at the Provincial Department of Industry and Trade shall be conducted as follows:

Preparation of dossiers for termination of operation of representative offices includes:

- Notice of termination of operation of the representative office, made according to the form set by the - - Ministry of Industry and Trade, signed by the competent representative of the foreign trader.

- List of creditors and unpaid debts, including tax debts and social insurance premiums;

- List of employees and their respective current interests;

- Original License for establishment of representative office.

- Documents evidencing that the representative office has fulfilled all tax and financial obligations to the State of Vietnam

The order and procedures for termination of operation of representative offices at competent agencies shall be as follows:

- The foreign trader submits a dossier for termination of operation of the representative office directly or via post or online (if applicable) to the Provincial Department of Industry and Trade (or the Management Board of Industrial parks, export processing zones, economic zones and hi-tech parks) where the representative office is licensed.

- Within three working days from the date of receipt of the file, the competent authority shall examine and request the supplement if the dossier is incomplete and invalid. Requests for supplementary records are made at most once during the process of processing applications;

- Within a time-limit of five (05) working days from the date of receipt of a complete and valid file, the competent authority shall be responsible to publish on its website the termination of operation of the representative office.

Foreign traders shall publicly post up the termination of their operation at the representative office.

Foreign traders whose representative offices have terminated of operation shall be responsible for performing contracts, paying debts, including tax debts and settling lawful interests for laborers who have worked at the representative office in accordance with the laws.

The foundation of representative office of foreign entity in Vietnam is governed under Vietnam Commercial Law 2005 and Decree 07/2016 / ND-CP dated 25 May, 2016.

Advantages of establishment of a representative office:

The representative office in Vietnam is an effective tool to promote commercial activity, seeking partners, and increasing opportunities to expand business market in Vietnam.

Challenges of the establishment of representative office in Vietnam?

Decree No. 07/2016 / ND-CP regulating the Commercial Law regarding representative offices and branches of foreign traders in Vietnam that have recently been issued by the Government.

Accordingly, foreign traders can establish their representative offices and branches in Vietnam under Vietnam’s commitments in international treaties to which Vietnam is a member. A foreign trader cannot establish more than one representative office or branch with the same name within a province or city under central authority.

Foreign traders are licensed to establish representative offices when they meet five conditions:

– Foreign traders can establish and register for business in accordance with law of nation and territories participating in international treaties in which Vietnam is a member, or recognized by the law of those nations and territories.

– Foreign traders that have been in operation for at least one year from the date of establishment or registration.

– In case the certificate of business registration or papers with equivalent value of the foreign traders have prescribed the time limit for operation, then the duration must be at least 1 year from the date of submitting record.

– The operation of the representative office must match the commitment of Vietnam in the international treaties in which Vietnam is a member.

– The case where the operation of the representative office is inconsistent with Vietnam’s commitments or foreign traders do not belong to any nations and territories participating in the international treaties in which Vietnam is a member, the establishment of representative offices must be approved by the Minister of specialized management.

The Decree also stipulates the conditions for foreign traders to be granted licenses to establish their branches. Specifically, foreign traders will be licensed for the establishment of branches when they meet 5 conditions:

– Foreign traders that have been in operation for at least five year from the date of establishment or registration.

– The operation of the branch office must be consistent with the market-opening commitments of Vietnam in the international treaties in which Vietnam is a member, and in line with the business lines of the foreign trader.

– If the content of the branch operation is inconsistent with Vietnam’s commitments or foreign traders do not belong to any nations and territories participating in the international treaties in which Vietnam is a member, the establishment of branches must be approved by the Minister of specialized management.

The license for the establishment of representative office and branch of foreign traders have a term of 5 years but does not exceed the remaining term of the certificate of business registration or papers of equivalent value of the foreign trader in the case that those papers contain provisions on the term.

Vietnam-based representative office of a foreign trader means a dependent unit of the foreign trader, which is established under the provisions of Vietnamese law to conduct market survey and a number of commercial promotion activities permitted by Vietnamese law.

Representative office of foreign trader in Vietnam has the rights and obligations in accordance with the law of Vietnam. Foreign trader is responsible before the law of Vietnam for all operations of its representative office in Vietnam.

Accordingly, representative office in Vietnam is not allowed to conduct business activities, nor carry out other activities for profit-generating purposes. The representative office in Vietnam only performs the activities for the right purposes, scope and duration specified in the certificate to establish the representative office. Besides, the representative office in Vietnam has the right to rent the head office, rent and buy the facilities and materials necessary for the operation of the representative office; to recruit Vietnamese and foreign employees to work at the representative office in accordance with the provisions of Vietnamese law; to use an account in foreign currency, in Vietnam dong of foreign currency origin opened by a foreign trader at a bank licensed to operate in Vietnam and only use this account for the operation of the representative office; to have a seal bearing the name of the representative office according to the provisions of Vietnamese law. Representative office in Vietnam can sign contracts, perform transactions with partners when authorized by the enterprise.

Hence, due to the limited scope of activities, the tax liability of a foreign representative office in Vietnam is narrower than that of an enterprise. As the representative office does not produce or trade in goods and services, it is not required to pay license fees as prescribed. Representative office of foreign trader in Vietnam is dependent unit of foreign trader, established to investigate the market and carry out some trade promotion activities permitted by Vietnamese law, does not carry out production and business activities, so it is not required to pay license fees.

The fact that the representative office has the right to recruit Vietnamese or foreign employees to work at the office is the basis for arising personal income tax obligation. At the same time, representative office of foreign organization is subject to personal income tax registration. For employees working at foreign representative office in Vietnam, the taxable incomes are based on salaries and wages. Declaring, withholding, paying taxes and settling personal income tax of employees working at foreign representative office is the responsibility of such representative office.

ANT Lawyers, a law firm in Vietnam with offices in Hanoi, Da Nang and Ho Chi Minh City could help client to set up representative office in Vietnam and advise on the compliance on regular basis.

Foreign entities have found Vietnam as an increasing attractive destination for investment. They could consider entering Vietnam in various forms, including setting up representative offices.

“A representative office is a dependent unit of the enterprise, having the task of representing under authorization the interests of the enterprise and protecting such interests” (Clause 2 of article 45, Law on Enterprises 2014). “Representative office shall perform the functions of liaison offices, market surveys, promotion of business opportunities for traders they represent, excluding those in which the establishment of representative offices in that field, it is stipulated in specialized legal documents” (Article 30 – Decree No.07/2016/ND-CP decree detailed regulations on establishment of representative offices or branches of foreign traders in Vietnam under Laws on Commerce).

A representative office is a dependent unit of a foreign enterprise in Vietnam, and it acts under the authorization of foreign enterprises. Representative office shall not conduct business activities therefore, the tax obligations of the representative office are limited, such as:

Firstly, as representative office does not involve profit making activity, hence there are no Value Added Tax, Corporate Income Tax, Annual Due incurred.

Secondly, representative office has to register its tax code, to deduct and pay Personal Income Tax on behalf of its employees working in the representative office or deduct and pay contractor taxes for foreign sub-contractors (if any).

Foreign entities have found Vietnam as an increasing attractive destination for investment. They could consider entering Vietnam in various forms, including setting up representative offices.

Firstly, as representative office does not involve profit making activity, hence there are no Value Added Tax, Corporate Income Tax, Annual Due incurred.

The applicable taxes include value added tax (VAT), corporate income tax (CIT) and personal income tax (PIT).

On August 6th 2014, the Ministry of Finance issued Circular No. 103/2014/TT-BTC guiding the implementation of tax obligations that are applicable to foreign organizations and individuals doing business in Vietnam or having incomes generated in Vietnam.

Taxpayers: foreign contractors, foreign subcontractors; organizations established and operated under the law of Vietnam, organizations registered to operate under the law of Vietnam, other organizations, individuals producing and trading.

The applicable taxes include value added tax (VAT), corporate income tax (CIT) and personal income tax (PIT).

Taxable income of foreign contractors and foreign subcontractors is income derived from the provision and distribution of goods; provision of service, service in association with goods in Vietnam on the basis of the contractor contract and subcontractor contract.

CIT Payable = Revenue subject to CIT x CIT rate calculated on taxable turnover

Subjects liable for VAT: services or services associated with goods provided by foreign contractors, foreign subcontractors on the basis of the contractor contract, subcontractor contract to use for manufacturing, trading and consumption in Vietnam.

Incomes arising in Vietnam of foreign contractors and foreign subcontractors are earnings received in any forms on the basis of the contractor contract, subcontractor contract (except for cases specified in Article 2, Chapter I of this Circular), regardless of the place conducting business operations of foreign contractors and foreign subcontractors.

Circular specifically instruct the following cases:

1. Pay VAT by deduction method; pay CIT on the basis of cost and revenue declaration to determine taxable income.

2. Pay VAT and CIT by percentage on turnover.

3. Pay VAT by deduction method; pay VAT by percentage on turnover.

Issued together with Circular 103 is the tax declaration form for foreign contractors.

This Circular takes effect from October 1st 2014, replaces Circular No. 60/2012/TT-BTC dated April 12th 2012 of the Ministry of Finance guiding the implementation of tax obligation applicable to the foreign organizations and individuals doing business in Vietnam or having income in Vietnam.

Foreign entities have found Vietnam as an increasing attractive destination for investment. They could consider entering Vietnam in various forms, including setting up representative offices.

Firstly, a representative office does not involve profit making activity, hence there is no Value Added Tax, Corporate Income Tax, Annual Due incurred.

Secondly, the representative office has to register its tax code, to deduct and pay Personal Income Tax on behalf of its employees working in the representative office or deduct and pay contractor taxes for foreign sub-contractors (if any).

Set-up representative office in Vietnam

A foreign business entity or a foreign trader is allowed to establish Representative Office in Vietnam.

Representative office of a foreign business entity in Vietnam (referred as “Representative Office”) means a subsidiary unit of the foreign business entity, established in accordance with the law of Vietnam in order to survey markets and to undertake a number of commercial enhancement activities permitted by the law of Vietnam.

Representative Office will need to apply and obtain the establishment license; and have a seal bearing the name of the representative office.

Representative Office is not allowed to directly conduct profit making activities in Vietnam (i.e: the execution of contracts, direct payment or receipt of funds, sale or purchase of goods, or provision of services), but the representative Office is permitted to

To operate strictly in accordance with the purposes, scope and duration stated in the license for establishment of such representative office;

To rent offices and to lease or purchase the equipment and facilities necessary for the operation of the Representative Office;

To recruit Vietnamese and foreign employees to work for the Representative Office in accordance with the law of Vietnam;

To open accounts in foreign currency and in Vietnamese Dong sourced from foreign currency at banks which are licensed to operate in Vietnam, and to use such accounts solely for the operation of the Representative Office.

ANT Consulting assists clients with Market Entry, Legal Advice, Tax Advice and Outsourcing Services in Vietnam.

We are located in Hanoi, Da Nang and Ho Chi Minh City.

Talk to our consultants at +84 28 3520 2779 or email us ant@antconsult.vn

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