FAQs: Representative offices of foreign traders in Vietnam

HM&P Law Firm
Resources
    FAQs: Representative offices of foreign traders in Vietnam
    Posted on: 31/05/2024

    1. What are the requirements for foreign traders to obtain a license to establish a representative office?

    A foreign trader shall be granted a license to establish a representative office if it meets the following requirements:

    (i). The foreign trader is established and registered to do business in accordance with the laws of countries or territories that are parties to treaties to which Vietnam is a signatory, or is recognized by the aforementioned countries or territories;

    (ii). The foreign trader has been in operation for at least 01 years from the date of establishment or registration;

    (iii). The Business License or the equivalent document is valid for at least 01 more years from the date of submission of the application;

    (iv). The scope of operation of the representative office is consistent with that in Vietnam's commitments to treaties to which Vietnam is a signatory.

    In case the scope of operation of the representative office is not consistent with Vietnam's commitments, or the foreign trader is not located in the country or territory participating in the international treaties to which Vietnam is a party, the representative office can only be established if the relevant ministers, heads of ministerial agencies have given approval for the establishment of the representative office.

     

    2. What are the requirements for a representative office manager?

    At present, the law does not specifically regulate the conditions for appointing and becoming the head of a representative office, however, the head of a representative office is the person who must be responsible for the activities of the foreign trader and the representative office within the scope of the foreign trader's authorization. Therefore, in principle, the head of the representative office must have full civil capacity to act in accordance with the provisions of civil law in order to become an authorized representative. In particular, he or she must be at least 18 years old and must not have lost his or her civil capacity, have limited civil capacity, or have difficulties in cognition and behavioral control. In addition, according to the provisions of Clause 6 Article 33 of Decree No. 07/2016/ND-CP, the head of the representative office of a foreign trader cannot simultaneously hold the following positions:

    • The head of a branch of the same foreign trader;
    • The head of a branch of another foreign trader;
    • The legal representative of the same foreign trader or others;
    • The legal representative of a business organization incorporated in accordance with Laws of Vietnam.

    Another issue that the head of the representative office must pay attention to is that the head of the representative office must have a written authorization for another person to exercise the rights and obligations of the head of the representative office under the law when leaving Vietnam. This authorization must be approved by the foreign trader. The head of the representative office is still responsible for exercising the authorized rights and obligations.

     

    3. Does a change in the type of business of a foreign trader lead to an adjustment of the license to establish a representative office? 

    According to Clause 1 Article 15 of Decree No.07/2016/NĐ-CP, foreign traders must apply for adjustment of the License to establish a Representative Office in case of a change in the name of a foreign trader. Normally, the name of a foreign trader includes the name of the type of business of the foreign trader. In this case, a change in the type of business leads to a change in the name of the foreign trader, and the foreign trader must carry out procedures to adjust the license to establish a representative office. On the other hand, if a change in the type of business of a foreign trader does not result in a change in the name of the foreign trader, the foreign trader is not required to carry out these procedures.

     

    4. If a foreign trader wishes to change the head of the representative office during the operation, what legal procedures should be followed?
    Because the information on the head of the representative office is one of the important types of information in the application to establish a representative office, and at the same time, this is also the information shown on the license to establish a representative office of foreign traders in Vietnam. Therefore, if the head of the representative office changes, foreign traders must carry out procedures to amend the license to establish a representative office with the Vietnamese implementing agency.


    5. What type of document can have the same value as a foreign trader's business license?
    Depending on the regulations in the country where the foreign trader is registered, the foreign trader may have a Certificate of Incorporation or a Business License, or even both types of documents. In fact, according to the response of the Department of Industry and Trade of Ho Chi Minh City and our experience in implementing this procedure in practice in Ho Chi Minh City, only the Business License/Business Registration has equivalent value and is understood as the Business License provided for in point b, paragraph 1, Article 10 of Decree No. 07/2016/ND-CP. However, if the Ho Chi Minh City Department of Industry and Trade applies this understanding when considering an application to establish a representative office in Ho Chi Minh City, it will create difficulties for foreign traders who only have a Certificate of Incorporation according to the regulations of the country of registration. At the same time, this is only the feedback from the Ho Chi Minh City Department of Industry and Trade, there is no official regulatory document and it is not generally applicable to other implementing agencies. For some Departments of Industry and Trade of other provinces and cities in Vietnam, HM&P found that these agencies still accept the Certificate of Incorporation or Business License during the licensing process for foreign traders.


    6. How long is the renewal license to establish a representative office valid and how many times can it be renewed? 
    According to Clause 1, Clause 3 Article 9 of Decree No. 07/2016/NĐ-CP, in case of renewal, the License to establish a Representative Office will be valid for 05 years, but not exceeding the remaining validity period of the Business License or its equivalent (for documents with expiry date). This means that this license will have a maximum term of 5 years. However, if the Business License or equivalent documents of a foreign trader have regulations on the period, then the period of the License to Establish a Representative Office will be the same as the period of the above documents.
    Current legislation does not limit the number of times a representative office can renew its establishment license. However, when renewing the establishment license, foreign traders are still required to submit a set of documents similar to those for establishing a new representative office (excluding documents on the appointment of the representative office manager, legal documents of the representative office manager, and documents on the representative office), which relate to the operating conditions and licenses of foreign traders abroad. Therefore, foreign traders must continue to ensure these conditions at each renewal of the license to establish a representative office.


    7. Does the Representative Office have the right to recruit Vietnamese employees directly?
    Previously, according to Article 6 of Decree No. 75/2014/NĐ-CP, the Representative Office was not allowed to recruit Vietnamese employees to work at the Representative Office, but had to go through Vietnamese employee recruiting agencies. After a certain period of time, if the Vietnamese employee recruiting agencies cannot select and introduce a Vietnamese employee at the request of the Representative Office, the Representative Office has the right to directly recruit Vietnamese employees. However, pursuant to Article 24 of Decree No. 152/2020/NĐ-CP, the representative office may itself recruit Vietnamese employees to work at the representative office. Recruitment of Vietnamese employees through employment agencies, professional employer organizations or recruitment and management organizations are only other options for the Representative Office.
    However, after recruiting Vietnamese employees, the representative office is still required to notify the Vietnamese employee recruiting agencies. Specifically, within 07 working days from the date of signing the labor contract with the Vietnamese employee, the representative office must provide the Vietnamese labor recruiting agencies in writing with (i) a certified copy of the labor contract signed with the Vietnamese employee; (ii) a certified copy of one of the following documents: birth certificate or identity card or national identity card; and (iii) certified copies of diplomas and certificates of technical, professional and foreign language qualifications related to the job for which the employee is registering.

     

    8. Is a foreign trader required to be present in Vietnam when establishing a representative office?
    According to Clause 1 Article 13 of Decree No. 07/2016/NĐ-CP, the application must be submitted to the Licensing Agency where the Representative Office will be located in person or by mail or online (if applicable). Therefore, foreign traders do not need to be present in Vietnam to establish a representative office. The procedure for establishing a representative office only involves submitting documents, obtaining licenses, and adjusting documents as required by government agencies (if any). As a result, foreign traders can submit documents by mail or online, or hire a third party such as a law firm or legal office in Vietnam to represent them in submitting documents and obtaining licenses.

     

    9. Does the representative office manager who is a foreigner need to apply for a work permit?
    According to Point d Clause 1 Article 151 and Clause 3 Article 154 of the Labor Code 2019, a foreigner currently working in Vietnam must have a work permit and only the head of a Representative Office, project or the person in charge of the operation of an international organization or a foreign non-governmental organization in Vietnam is not required to have the work permit.
    For the head of Representative Office of foreign trader in Vietnam (not international organization, non-governmental organization), they will not be exempted from work permit issuance and need to conduct procedures for applying for a work permit according to the laws.

     

    10. Does the RO have to pay taxes?
    According to Clause 1 Article 18 of the Commercial Law 2005, the RO does not have the function of conducting business. Therefore, the RO is not obliged to declare and pay royalties, VAT or corporate income tax, even if the assets of the RO are liquidated. The above is also based on the official letter No. 1279/TCT-CS dated April 04, 2017 from the General Department of Taxation and the official letter No. 57837/CTHN-TTHT dated November 25, 2022 from the Hanoi Department of Taxation. However, if the RO hires employees and pays salaries, it is responsible for declaring, deducting, paying and finalizing taxes on taxable income paid to employees based on Article 24 of the Law on Personal Income Tax 2007.

     

    11. Is the procedure for establishing the RO of a foreign trade promotion organization in Vietnam similar to that of a foreign trader in Vietnam?
    Under the current legislation, the procedure for establishing the RO of a foreign trade promotion organization is different from that of a foreign trader. In particular, the establishment and operation of the RO of the foreign trader is regulated by Decree 07/2016/ND-CP. Meanwhile, the establishment and operation of the RO of the foreign trade promotion organization are governed by Decree 28/2018/ND-CP. Despite being governed by different instruments, the procedures for establishing the RO of these subjects are relatively similar in terms of implementation steps, licensing authority, and components of the application.

     

    12. Can the Representative Office open a savings account? 
    The Commercial Law stipulates that a representative office is not allowed to directly engage in profit-making activities in Vietnam, for example: commercial activities such as buying and selling goods, providing services, investing and commercial promotion, and other profit-making activities. Opening a savings account to deposit money and earn interest is a profit-making activity for the Representative Office. Therefore, the Representative Office may not engage in this activity.

     

    13. What are the sanctions for the RO that continues to operate without extending the term of the expired license to establish the RO?
    According to the current law, the RO must submit an application to extend the period of the license for establishment before the expiration date. If the RO continues to operate without extending the license, a fine ranging from VND 60,000,000 to VND 100,000,000 may be applied under Point b Clause 4 Article 67 and Point b Clause 4 Article 4 of Decree 98/2020/ND-CP.

     

    14. Can the Vietnam Representative Office Manager personally enter into contracts in Vietnam?
    The head of the Representative Office can personally enter into contracts in some cases, specifically such as leasing offices, renting and purchasing necessary facilities and equipment for the operation of the Representative Office; Recruiting Vietnamese and foreign employees to work in the Representative Office in accordance with Vietnamese laws; Opening an account in foreign currency or Vietnamese Dong with foreign currency origin in a bank licensed to operate in Vietnam and only use this account for the activities of the Representative Office. In other cases, the head of the Representative Office can only enter into contracts under the authorization of the foreign trader. According to Clause 3 Article 18 of the  Commercial Law 2005, the foreign trader's authorization to the representative office manager must be in the form of a power of attorney.

     

    15. What is the duration of the extended license to establish the RO?
    As mentioned in Section 13, the RO must submit an application to extend the license to establish the RO within 30 days before the expiration date. However, in some provinces, the Department of Industry and Commerce will accept applications submitted before the above deadline. In this case, the term of the RO's establishment license will commence from the date the application for extension is received by the licensing authority.

     

    16. Is the RO required to conduct an annual report? What are the consequences of failing to conduct the annual report?
    Pursuant to Clause 1 Article 32 of Decree 07/2016/ND-CP, the RO is required to conduct a report in accordance with the form issued by the Ministry of Trade and Industry (Form BC1 attached to Circular 11/2016/TT-BCT) to declare the previous year's activities by mail to the licensing authority. Failure to submit the report or submitting a false report will result in a fine ranging from VND20,000,000 to VND40,000,000 as prescribed in Point b Clause 2 Article 67 and Point b Clause 4 Article 4 of Decree 98/2020/ND-CP.

     

    17. If a representative office has a dispute with an employee or other third party, can it terminate its operations?
    As will be analyzed in Section 19 below, the nature of operations of representative offices of foreign traders in Vietnam is based on the authorization of foreign traders. Therefore, disputes between employees or other third parties and the representative office are essentially disputes with foreign traders. Therefore, this does not affect the termination of the representative office's operations. In addition, according to the current regulations, after the representative office ceases to operate, the foreign trader must be responsible for the performance of contracts, the payment of debts, including tax debts, and the settlement of all legal rights of employees who have worked at the representative office. Thus, it can be seen that the occurrence of a dispute does not affect the representative office's ability to terminate its operations.

     

    18. What are the steps to be taken if the RO terminates its operation?
    Firstly, the RO must submit an application to terminate the RO to the Licensing Authority in person at the counter, by mail, or online (if applicable). The application consists of the following documents:
    •    The notice of termination of the RO according to the form issued by the Ministry of Industry and Trade, signed by the competent representative of the foreign trader, except in the case of license revocation;
    •    A copy of the document issued by the licensing authority on non-extension of the license to establish the RO (in case the licensing authority refuses to extend the license to establish the RO) or a copy of the decision of the licensing authority on revocation of the license to establish the RO (in case the license to establish the RO is revoked);
    •    List of creditors and debts to be paid, including unpaid taxes or social security contributions;
    •    List of employees and their corresponding benefits;
    •    The original copy of the license to establish the RO.
    Thereafter, the RO must publicly announce the termination of the RO at its head office. Finally, the foreign trader who established the RO must fulfill all contracts and pay all debts, including unpaid taxes or benefits of employees who worked for the RO according to the law.

     

    19. Can the RO terminate the employment contract with the employees?
    In reality, many ROs want to terminate the employment contract with the employees. However, the ROs are not sure whether they have the right to terminate the employment contract. In order to find out whether the RO has the right to terminate the employment contract with the employee, it is necessary to determine the employer of the employee working at the RO. According to Clause 6 Article 3 of the Commercial Law 2005, the RO is the dependent unit of the foreign trader and operates under the authorization of the foreign trader. It can be understood that the operation of the RO depends on the authorization of the foreign trader. However, in order to be able to operate, the RO must carry out some specific work, such as renting premises, hiring employees, etc. Therefore, Clause 3 Article 17 of the Commercial Law 2005 stipulates that the RO has the right to hire Vietnamese or foreign employees to work for the RO in accordance with Vietnamese laws. In the author's opinion, the RO is exercising the rights permitted by law on behalf of the foreign trader (in the form of a legal representative as stipulated in Article 135 of the Civil Code 2015). Therefore, the RO signs the contract on behalf of the foreign trader and the employment relationship is established between the foreign trader and the employee. The law allows the RO to hire employees, but does not mention that it has other rights of an employer. Therefore, if the RO wishes to terminate the employment contract with an employee, the RO must be authorized in writing by the foreign trader to exercise this right. At the same time, the procedures for terminating the employment contract must comply with Vietnamese law. In our opinion, in addition to complying with the laws, the RO must also comply with the internal rules established by the foreign trader. In addition, it should be noted that the foreign trader is still liable for the operation of the RO within the authorized scope of work.

    Disclaimer: This publication has not been prepared for any particular client situation. The contents of this publication do not constitute our legal advice in any form. If you require specific advice, please reach out to us.

     

    Please read more and download the publication (PDF File) here.