Setting up a representative office in Vietnam may be a wise choice for foreign companies looking into this robust market. Read further to find out whether this option may be the right business move for you.
What is a Representative Office?
A Representative Office (RO) is usually established in a foreign country (ie. Vietnam) by an overseas parent company. ROs conduct marketing operations and non-transactional operations to help the parent company decide whether to invest there or not. By law, ROs are non revenue-generating entities, so their main purpose is to test potential markets for business expansion.
Why Set Up a Representative Office in Vietnam?
There are three main reasons why you might consider setting up an RO instead of a subsidiary or branch office:
- Low-cost: The initial and operating costs of an RO is much lower than that of a subsidiary or branch office. Additionally, RO operations are not subject to value-added tax and corporate-income tax.
- Simpler Legal Process: The process to obtain operations licensing is fast, and much more streamlined than setting up larger operations (read below for our outline of the legal process to establishing your RO). ROs also do not need to maintain accounting books, financial statements, nor undergo independent auditing.
- Testing the waters: In the chance the parent company decides to pull out of the market, shutting down the RO operations is much easier, as there are less legalities involved since ROs don’t engage in revenue-generating activities.
Vietnam is a rapidly-developing market, and it makes sense why foreign companies would want to set up operations here. However, not everything takes off here, even some of the most successful chains worldwide such as Starbucks. Hence, setting up an RO proves to be the both strategic and economically-efficient.
Additionally, if you would like further information on why your business might consider the Vietnam market, read here.
What Representative Offices Can and Can’t Do
While there are many benefits to setting up an RO, there are notable limitations as well. As mentioned, ROs can only engage in non revenue-generating operations, which limits its legal functions considerably. ROs cannot conduct contract-related operations unless they obtain extensive documentation of authorization. Furthermore, they can only operate with clients of the parent company, and cannot enter into contracts with new clients. It is important to distinguish that ROs serve to introduce their parent company’s presence, not to further its commercial activities.
Legal Process for Establishment
While the legal process to establish your RO is straightforward, it is important to do every step carefully. Below we have outlined the two stages to set up your RO: pre-license and post-license. Please note that multiple documents require proficient Vietnamese translation, so it is wise to consult a Vietnamese professional for the translations.
Representative Offices during the COVID-19 Period
If you are concerned about business entry during COVID-19, you can read our guide here.
Metasource realizes that setting up an RO in Vietnam may be difficult during this time, especially sending over company employees. Additionally, for foreign employees, the transition period may prove a hassle. If you would like to receive recruitment services for your Representative Office, you can contact us at firstname.lastname@example.org to receive a free consultation.