Establishing an Office in Vietnam

An Expert's View about Sales Representative in Vietnam

Last updated: 4 Mar 2011

In order to establish a commercial presence in Vietnam, a foreign firm must obtain one of the following three types of licenses.

 

Representative Office License: A representative office is generally easy to establish, but is the most restrictive form of official presence in Vietnam. The license is issued by the relevant Department of Trade (DoT) in the city or province where the representative office is to be set up. A representative office license allows for a narrow scope of activities, as stipulated in Decree 72/2006/ND-CP, dated July 25, 2006, detailing the Trade Law’s regulations on representative offices, branches of foreign businesses in Vietnam, and in Circular 11/2006/TT- BTM, dated September 28, 2006, providing guidance on the implementation of Decree 72/2006/ND-CP. A representative office may rent office space/residential accommodations, employ local staff along with a limited number of expatriate staff, and conduct a limited range of business operations. Permitted activities include market research and monitoring of the marketing and sales programs carried out by its overseas head office, as well as pursuing long-term investment activities. As the representative office is regarded as a commercial liaison office and not an operating entity, it is strictly prohibited from engaging in any revenue-generating activities, such as trading, rendering professional services, revenue collection, invoicing or subleasing of its office space.

 

The representative office license permits the foreign company to open only one office at one site. Should the firm wish to open a second office in the same city or, more commonly, in a different city, another license is required. A "branch representative office" license is no longer allowed. A foreign company should decide at the time of application whether it wants more than one representative office in Vietnam. Experience suggests that it is easier to obtain licenses for several representative offices when all are applied for simultaneously. If an additional license application is made at a later date, government authorities may require documentation on the performance of the first representative office.

 

• Tax Considerations: A representative office is exempt from corporate tax auditing requirements. Income tax for Vietnamese and expatriate staff must be paid in accordance with relevant regulations.

• Other Considerations: From time to time, representative offices have come under scrutiny by the local People’s Committees or the municipal governments, police, tax and labor authorities, especially with respect to foreign service providers who claim they are not rendering services on-the-ground, but are merely facilitating services actually provided by their head office. Application Procedures: The procedure to establish a representative office is relatively straightforward. An application with stipulated supporting documentation must be submitted to the relevant DoT. The application and profile must be prepared in English and Vietnamese, and both sets of documents must be duly executed. The license is usually valid for five years and may be extended.

 

Branch License: The term “branch” office under the laws of Vietnam refers to an entirely foreign-owned business that operates in certain designated service sectors. These sectors, which are restricted and closely monitored by the Vietnamese government, include banking and finance, law, insurance, marketing and advertising, education, tourism, logistics, construction, and other types of services. Many foreign branch offices first entered Vietnam as representative offices and later applied for a branch license. Branch status authorizes a foreign business to operate officially in Vietnam, including invoicing/billing on-shore in local currency and the execution of local contracts.

 

• Tax considerations: Branches are fully liable for Vietnamese taxes on their assets and activities.

• Application Procedures: Applications for a branch license are generally submitted to the Ministry of Industry and Trade (MoIT) or other competent authorities for the industry in question (e.g., the State Bank of Vietnam for banking licenses, or the Ministry of Justice for law offices).

 

Decree 72/2006/ND-CP dated July 25, 2006 states that “Foreign businesses can establish their branches in Vietnam in accordance with Vietnam’s commitments in international agreements that the country is a member of, to carry out goods purchasing activities and other activities directly related to goods purchasing in accordance with Articles 16, 19, 20 and 22 of the Commercial Law and the regulations as specified in the Decree”.

 

Foreign Investment Licenses (FIL): Foreign direct investment (FDI) in Vietnam is regulated by the Department of Planning and Investment (DPI) at the local level and the Ministry of Planning and Investment (MPI) at the central level through FILs and related implementing regulations, decrees, and circulars. Compared to previous legislation, the new FIL rules delegate more authority over investment licensing to provinces, municipalities, and investment zones. For example, as of September 2006, approval authority for investment certificates under $100 million has been delegated to the provinces (for a limited number of sectors only). Certain investments above $100 million require consultation between the province and MPI. MPI also reserves the right to approve or deny all investments in certain sensitive sectors, including airports, seaports, mining and oil and gas investments. Even with these recent changes, several provinces and large cities have been urging the Vietnamese government to expand their autonomy still further in this area. The Prime Minister's office retains authority over larger projects and projects deemed sensitive. MPI remains the principal government agency acting as an advisor for the Prime Minister with regard to giving approval to large and sensitive projects. Under the prevailing Investment Law of Vietnam promulgated in 2005 applicable to both local and foreign investors, primary forms of direct investment by foreigners and Vietnamese include:

 

1. To establish economic organizations in the form of one hundred (100) percent capital of domestic investors or (100) percent capital of foreign investors.

 

2. To establish joint venture economic organizations between domestic and foreign investors. Under (1) and (2) investors shall be permitted to make an investment to enable the establishment of the following economic organizations:

a) Enterprises organized and operating in accordance with the Law on Enterprises; credit institutions, insurance enterprises, investment funds and other financial organizations in accordance with various laws;

b) Medical service, educational, scientific, cultural, sports and other services;

c) Establishments which conduct investment activities for profit-making purposes;

d) Other economic organizations in accordance with law.

 

3. To invest in the contractual forms of: Business Cooperation Contract (BCC); Build- Operate-Transfer (BOT); Build-Transfer-Operate (BTO); and BT (Build-Transfer).

 

a) Investors shall be permitted to sign a BCC contract in order to co-operate in production and to share profits or to share products and other forms of business cooperation. The contract shall set out the co-operating parties; the contents of the cooperation; the duration of business; the rights, obligations and responsibilities of each party; the co-operative relationship between the parties and the management organization as agreed by the parties. A BCC contract in the sector of prospecting, exploration and mining of petroleum and some other natural resources and in the form of a production sharing contract shall be implemented in accordance with the provisions in this Law and other provisions of the relevant laws.

b) Investors shall be permitted to sign a BOT, BTO and BT contract with the competent State body in order to implement projects for new construction, expansion, modernization and operation of infrastructure projects in the sectors of traffic, electricity production and business, water supply or drainage, waste treatment and other sectors as stipulated by the Prime Minister. Investments under BOT, BTO and BT contracts are regulated by Decree 78/2007/ND-CP dated May 11, 2007.

 

4. To invest in business development. Investors shall be permitted to invest in business development through the following forms:

a ) Expanding scale, increasing output capacity and business capability.

b ) Renovating technology, improving product quality and reducing environmental pollution. 5. To purchase shares or to contribute capital in order to participate in management of investment activities. Investors shall be permitted to contribute capital to and to purchase shareholding in companies and branches operating in Vietnam. The ratio of capital contribution and purchase of shareholding by foreign investors in a number of sectors, industries and trades shall be regulated by the Government.

 

6. To invest in the carrying out of a merger and acquisition of an enterprise. Investors shall be permitted to merge and to acquire companies and branches. The conditions for merger and acquisition of companies and branches shall be regulated by the 2005 Investment Law, the Law on Competition and other provisions of the relevant laws.

 

With regard to portfolio investment (indirect investment as termed in Vietnamese legal documents), investors shall be permitted to carry out the following forms of indirect investment in Vietnam:

1. Purchase of shareholding, shares, bonds and other valuable papers;

2. Through securities investment funds;

3. Through other intermediary financial institutions.

 

Any investment by way of purchase or sale of shares, share certificates, bonds and other valuable papers of individuals and organizations and procedures for conducting indirect investment activities shall be implemented in accordance with the law on securities and other provisions of the relevant laws.

 

 

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Posted: 16 June 2010, last updated 4 March 2011

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