“In the recent investment report 2021 of the United Nations Conference on Trade and Development (UNCTAD), Vietnam ranked among the top 20 countries attracting most FDI in the world. For business expansion in Vietnam, investors can set-up subsidiaries to explore the market before establishing independent companies in Vietnam. Such subsidiaries and dependent entities are generally subject to fewer obligations than independent legal entities..”
Currently, there are two types of subsidiaries that foreign investors can consider: (i) representative offices and (ii) branches. To select the right type of subsidiary, let’s compare the basic differences between these two types.
|Licensing authorities||Departments of Industry and Trade||Ministry of Industry and Trade|
|Function||Market research and several trade promotion activities.||Carrying out appropriate purchasing and trading activities and commercial activities.|
|Signing business contracts||Foreign traders (parent company) must sign business contracts||Can enter into contracts directly with partners|
|Tax||Must declare and pay personal income tax on behalf of employees working at the representative office.|
|Profit||Not allowed to directly conduct profit-making activities in Vietnam||Has the right to carry out profitable activities and remit such profits abroad.|
|Term of operation license||Up to 5 years, but not exceeding the remaining term of the business registration certificate or a document of equivalent value of the foreign trader, provided such document has provisions on the term of business registration.|
|Conditions of establishment|
The head of a representative office cannot concurrently hold the following positions:
The Head of the branch cannot concurrently hold the following positions:
For an enterprise already established under Vietnamese law, expanding operations through the establishment of a representative office or branch is a simple procedure. However, for foreign investors, the establishment procedure is complex, especially for establishing a branch. The branch of a foreign investor must be approved by the Ministry of Industry and Trade along with compliance with strict conditions. Hence, usually the establishment of a branch takes a lot of time for the investor. Currently, to carry out business activities in Vietnam, establishing a business in Vietnam is preferred by foreign businesses because of the convenience of this method. Enterprises operating in only some industries must consult the Ministry of Industry and Trade. However, this does not apply to all cases.
Writing period: 30/08/2021
The article is based on applicable law at the time noted above and may no longer be relevant at the time the reader approaches this article due to the change in applicable law and the specific case in which the reader wishes to apply. Therefore, the article has only reference values.