A Quick Glance on Establishing a Representative or a Branch in Vietnam

The representative office or branch of a foreign trading company in Vietnam is a dependent unit of the foreign company. It provides an important step in understanding the Vietnamese market and is typically established before officially investing a large amount and expanding business in Vietnam. At first glance, it appears to be a business model that is simple to establish, operate, and manage with minimal costs. However, in reality, it's not that simple.

To establish a representative office or branch in Vietnam, a few simple and clear conditions must be met. A foreign trading company must be legally established or registered in its own country or territory and must have been established for at least one year. However, the establishment of branches of foreign companies is generally restricted or not welcomed. The only exception to this is certain types of companies such as insurance companies or banks. Because of this, there are many difficulties associated with actually establishing a branch.

A REPRESENTATIVE OR A BRANCH'S ROLE

It's important to note that representative offices or branches cannot engage in commercial activities, meaning they cannot generate sales activities. On the other hand, while companies can generate revenue from business activities, they cannot exceed the scope of activities of the parent company.

Representative offices are mainly used for research, investment preparation, communication with the head office, support for services or product sales in Vietnam, and cooperation with local partners or authorities.

On the other hand, branches are suitable for specific sectors such as finance, insurance, banking, etc., where special rules are needed for market entry. To put it simply, while representative offices help companies set foot in the Vietnamese market, branches help expand activities in specific areas.

COMMON MISTAKES

One of the most common mistakes foreign companies make when starting to operate a new representative office or branch in Vietnam is the lack of personnel with expertise in labor, accounting, and tax. Most companies only employ sales and technical staff to support the parent company in developing business opportunities and liaising in Vietnam. In some cases, there are no accounting books and vouchers available to track the expenses and payments of the office.

The complex part is not the establishment phase itself but the subsequent stages. Once an office has obtained an operating license in Vietnam, it must comply with Vietnamese law during local operations. In fact, these stages are not difficult to follow, but many people take them too lightly and fail to perform them properly. Many companies establishing an office in Vietnam focus only on initial goals and do not follow regulations, resulting in having to pay large fines in some cases.

All tax, accounting, and payment processes can easily be outsourced, but without adequate and diligent supervision and handling, control and governance can be lost. This is equally true for administrative tasks such as labor, company, and financial policies.

GENERAL COST OF ESTABLISHING A REPRESENTATIVE OFFICE OR A BRANCH

The cost of establishing a company can vary from business to business, there is no fixed cost that can be applied for all businesses, but it can be classified into two main categories: establishment cost and after-establishment cost.

The establishment cost includes:

1. Government fees

2. Preparation of business location

3. Local resident representative (optional)

4. Service fee for the establishment agency (optional)

5. Administrative fee (translation + notarization)

6. Capital investment (depending on the business)

The after-establishment cost includes:

1. Business license tax

2. Recruitment & Hiring

3. Office setup

4. Tax/Accounting compliance

5. Annual audited financial statement

6. Taxes: Personal Income Tax (PIT), Value Added Tax (VAT), Corporate Income Tax (CIT), Foreign Contractor Tax (FCT) in Vietnam, Import tax

7. Hiring a representative director

During the registration process and the operational period of an office/branch or company in Vietnam, a manager must be appointed. If the investor is not in the country at the time of registration, they must delegate or hire a representative. Typically, the cost of hiring a representative director is around $300-$500 per month.

Once a company is registered, it has the responsibility to submit periodic reports to the government. These reports must adhere to specific templates, be written in Vietnamese, and precisely follow the accounting records. Additionally, these reports must be submitted on time.

Companies or branches must register their electronic signature certificate, electronic invoice (for the company), and accounting software. They also need social security software and software to report employee situations, as well as registering their social security account.

We prioritize our clients’ benefits and aim to show where costs can be saved. However, just as other things, the cheapest option may not be the best option. The balance between cost and quality should always be considered. We have often witnessed instances where a client chooses the lowest cost option, only to end up being poorly managed and misinformed, resulting in hefty fines or economic damage.