What is the best choice for the foreign trader? A branch or a representative office?

Foreign traders are allowed to establish branches or representative offices in Vietnam. However, what should the foreign trader choose to establish between a branch or a representative office?

In accordance with Clause 6, Clause 7, Article 3 of the Law on Commerce 2005, a branch and a representative office of the foreign trader are defined as follows:

6. Vietnam-based representative office of a foreign trader means a dependent unit of the foreign trader, which is established under the provisions of Vietnamese law to conduct market survey and a number of commercial promotion activities permitted by Vietnamese law

7. Vietnam-based branch of a foreign trader means a dependent unit of the foreign trader, which is established and conducts commercial activities in Vietnam under the provisions of Vietnamese law or treaties to which the Socialist Republic of Vietnam is a contracting party.

We should analyze on rights, and obligations...of the branch and representative office:

1. Rights

1.1 For branch:

- To rent offices, rent and purchase equipment and facilities necessary for their operations.

- To recruit Vietnamese and expatriate employees to work for them according to Vietnamese law.

- To enter into contracts in Vietnam in compliance with their operation contents specified in their establishment licenses and the provisions of the Law on Commerce 2005

- To open Vietnam dong accounts and foreign-currency accounts at banks licensed to operate in Vietnam.

- To transfer profits overseas according to the provisions of Vietnamese law.

-To have seals bearing their own names according to the provisions of Vietnamese law.

- To conduct activities of goods purchase and sale and other commercial activities in compliance with their establishment licenses according to the provisions of Vietnamese law and treaties to which the Socialist Republic of Vietnam is a contracting party.

- To have other rights provided for by law.

(Article 19, Law on Commerce 2005)

1.2 For representative office

- To operate for the purposes, within the scope and duration stipulated in their establishment licenses.

- To rent offices, rent and purchase equipment and facilities necessary for their
operations.

- To recruit employees according to the provisions of Vietnamese law.

- To open accounts in foreign currencies or foreign currency-based Vietnam dong at banks licensed to operate in Vietnam, and to be allowed to use those accounts solely for their operations.

- To have seals bearing their names

- To have other rights as defined by law

(Article 17, Law on Commerce 2005)
 

2. Obligations

2.1 Branch

- To observe the accounting regime provided for by Vietnamese law; in cases where it is necessary to apply another commonly used accounting system, approval by the Finance Ministry is required

- To report on their operations according to the provisions of law

- To have other obligations provided for by law.

(Article 20, Law on Commerce 2005)

2.2 Representative office

- Not to directly conduct profit-generating activities in Vietnam

- To conduct commercial promotion activities within the scope permitted by the Law on Commerce 2005. Not to enter into contracts, not to amend or supplement contracts already entered into by foreign traders, except where chief representatives obtain valid letters of authorization from foreign traders or other cases specified in Clauses 2, 3 and 4,  Article 17 of the Law on Commerce 2005.

- To pay taxes, fees and charges, and fulfil other financial obligations provided for by Vietnamese law

- To report on their operations according to Vietnamese law

- To have other obligations provided for by law.

(Article 17, Law on Commerce 2005)

3. Conditions for establishment

3.1 Branch

- The foreign trader has been established or has registered its operation under the law of a country or territory and is a member of a treaty to which Vietnam is a contracting party or recognized by the law of such country or territory.

- Have been operating for at least 5 years since its establishment or business registration

- In case the foreign trader’s business registration certificate or equivalent paper indicates its term of operation, the remaining term must be at least one year by the date of submission of the application.

- Contents of the operation of the branch must comply with Vietnam’s commitments to market access in treaties to which Vietnam is a contracting party and with the business lines of the foreign trader.

- If the contents of operation of the branch fail to comply with Vietnam’s commitments or the foreign trader is not located in a country or territory is a member of a treaty to which Vietnam is a contracting
party, the establishment of the such branch shall be approved by the minister of the line ministry concerned.

(Article 8, Decree No. 07/2016/ND-CP)

3.2 Representative office

The foreign trader has been established or has registered its operation under the law of a country or territory is a member of a treaty to which Vietnam is a contracting party or recognized by the law of such country or territory.

- Have been operating for at least one year since its establishment or business registration

- In case the foreign trader’s business registration certificate or equivalent paper indicates its term of operation, the remaining term must be at least one year by the date of submission of the application

- Contents of the operation of the representative office must comply with Vietnam’s commitments in treaties to which Vietnam is a contracting party

In case the contents of the operation of the representative office fail to comply with Vietnam’s commitments or the foreign trader is not located
in a country or territory is a member of a treaty to which Vietnam is a contracting party, the establishment of such representative office shall be approved by the minister of the ministry or the head of the ministerial-level agency performing the specialized management of the sector concerned (below referred to as the minister of the line ministry).

(Article 7, Decree No. 07/2016/ND-CP).

It can be seen that the foreign trader can choose the suitable form depending on his/her demands, purposes as well as business orientation.
 

Note: A foreign trader may establish no more than one representative office or branch bearing the same name in the same province or centrally run city.