ESTABLISHMENT OF REPRESENTATIVE OFFICES OF FOREIGN BUSINESSES IN VIETNAM AND SOME NOTABLE POINTS

A representative office is one of the suitable forms for foreign businesses when they would like to explore before entering the market or perform the functions of communication, investment promotion, market research. However, representative offices of foreign businesses in Vietnam also face certain limitations such as not having a business function or having to follow some conditions during the establishment and operation in Vietnam. The following article will clarify some of the contents related to the above issue and the notes for foreign businesses when they propose to set up a representative office in Vietnam.

Legal basis:

Commercial Law 2005;

Decree 07/2016/ND-CP of the Government;

Decree 98/2020/ND-CP of the Government.

1. What is a representative office of a foreign business?

The Commercial Law 2005 stipulates the concept of foreign businesses and representative offices of foreign businesses in Vietnam, specifically:

A foreign business entity means a business entity that was established and which has business registration under foreign law or which is recognized by foreign law.

Representative office of a foreign business entity in Vietnam means a subsidiary unit of a foreign business entity which is established under the law of Vietnam to survey markets and to undertake several commercial enhancement activities permitted by the law of Vietnam.

2. Conditions for establishing a representative office in Vietnam

A foreign business entity that satisfies all of the following conditions is eligible for issuance of a license for the establishment of a representative office:

• It is a foreign business entity established and registered for business under the law of a country or territory participating in an international treaty of which Vietnam is a member, or it is recognized by the law of such country or territory;

• The foreign business entity has been operating for at least one (1) year as from the date on which it was established or registered for business;

• If the business registration certificate or equivalent document of the foreign business entity stipulates an operational term, then the residual term must be at least one (1) year as from the date of lodging the application file;

• The operational contents of the representative office must be consistent with Vietnam's undertakings in international treaties of which Vietnam is a member;

• If the operational contents of the representative office do not comply with Vietnam's undertakings or if the foreign business entity does not belong to a country or territory participating in an international treaty of which Vietnam is a member, then the Minister or Deputy Minister of the line ministry managing the specialized branch or industry must consent to the establishment of the representative office.

3. Term of license for establishment of a representative office.

The license for establishment of a representative office of a foreign business entity shall have a term of five (5) years but shall not exceed the residual term of the business registration certificate or equivalent certificate of the foreign business entity if such certificate stipulates a term.

4. Some notes when foreign businesses want to set up a representative office in Vietnam.

4.1. The head of a representative office.

The head of a representative office of a foreign business entity may not concurrently hold the following positions:

• Head of a branch of the same foreign business entity;

• Head of a branch of another foreign business entity;

• The legal representative of such foreign business entity or another foreign business entity;

• The legal representative of an economic organization established under the law of Vietnam.

According to Article 67.3 of Decree 98/2020/ND-CP of the Government, if the enterprise violates one of the above cases about the head of the representative office, it may be fined from VND 40,000,000 to VND 60,000,000.

When the head of a representative office exits Vietnam, the head must provide written authorization to another person to exercise the rights and discharge the obligations of such head in accordance with the law. This power of attorney must be approved by the foreign business entity, and the head of the representative office must be liable for the exercise of rights and discharge of obligations by such proxy.

4.2. The operation scope of the representative office.

Foreign businesses should pay attention to the operation scope of representative offices in Vietnam. Accordingly, the representative office only has the role of liaison, promoting business investment opportunities of foreign businesses or exploring the market, but does not have a business function as an enterprise. Specifically:

• Not to conduct directly profit-making activities in Vietnam;

• Not to enter into commercial contracts [in the name and/or on behalf] of the foreign business entity or to amend or supplement such contracts already signed, except in the cases:

o To rent offices and to lease or purchase the equipment and facilities necessary for the operation of the representative office;

o To recruit Vietnamese and foreign employees to work for the representative office under the law of Vietnam;

o 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;

o The head of the representative office has a valid power of attorney from the foreign business entity. However, the entity must provide a written power of attorney in respect of each transaction of signing a contract or of amending and supplementing a contract that has already been signed.

• To conduct commercial enhancement activities only within the scope permitted by the Commercial Law 2005.

4.3. Other notes.

A foreign business entity is not permitted to establish more than one representative office with the same name within the one province or city under the central authority.

Representative offices must forward an annual report on their operation during the year to the license-issuing agency, on the standard form issued by the Ministry of Industry and Trade and be sent by post, prior to 30 January of the following year.

ADK & Co Vietnam Lawyers Law Firm