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Establishing an Office
20 | 09 | 2007
In order to establish a commercial presence in Vietnam, a foreign firm must obtain one of the following three types of license

Representative Office License: A representative office is generally easy to establish, but is the most restricted form of official presence in Vietnam. The license is issued by the Ministry of Trade (MOT) and allows for a narrow scope of activities, as stipulated in the “Regulations on Establishment and Operation of Representative Offices of Foreign Economic Organizations in Vietnam.”

A representative office may rent office space/residential accommodations, employ local staff and a limited number of expatriate staff, and conduct a limited range of business operations. Permitted activities include market research and monitoring of the marketing and sales programs carried out by its overseas head office, as well as pursuing long-term investment activities. As the representative office is regarded as a commercial liaison office and not an operating entity, it is strictly prohibited from engaging in any revenue-generating activities, such as trading, rendering professional services, revenue collection, or subleasing of its office space.

The representative office license permits the foreign company to open only one office at one site. Should the firm wish to open a second office in the same city or, more commonly, in a different city, another license is required. A "branch representative office" license is no longer allowed. Experts advise that a foreign company should decide at the time of application whether it wants more than one representative office in Vietnam. Experience suggests that it is easier to obtain licenses for several rep offices when all are applied for simultaneously. If an additional license application is made at a later date, the Ministry of Trade may require documentation on the performance of the first representative office.

  • Tax Considerations: A representative office is exempt from corporate tax auditing requirements. Income tax for Vietnamese and expatriate staff must be paid in accordance with relevant regulations.
  • Other Considerations: From time to time, representative offices have come under scrutiny by the local People’s Committees (municipal governments), police, tax and labor authorities, especially with respect to foreign service providers who claim they are not rendering services on-the-ground, but are merely facilitating services actually provided by their head office.

Application Procedures: The procedure to establish a representative office is relatively straightforward. An application with stipulated supporting documentation must be submitted to the MOT. The application and profile must be prepared in English and Vietnamese, and both sets of documents must be duly executed. Applicants have 90 days to register with the local People’s Committee once the license has been issued. The fee for a representative office license is VND 1,000,000 (about US $65). The license is usually valid for three years and may be extended for additional three-year periods.

Branch License: The term “branch” office under the laws of Vietnam refers to a 100 percent foreign-owned business that operates in certain designated service sectors. These sectors, which are restricted and closely monitored by the Vietnamese government, include banking, law and insurance. Many foreign branch offices first entered Vietnam as representative offices and later applied for a branch license. Branch status authorizes a foreign business to operate officially in Vietnam, including billing on-shore and the execution of local contracts.

  • Tax considerations: Branches are fully liable for Vietnamese taxes on their assets and activities.
  • Application Procedures: Applications for a branch license are generally submitted to the ministry or other competent authority for the industry in question (e.g., the State Bank of Vietnam for banking licenses, or the Ministry of Justice for law offices).

Decree 45-2000-ND-CP of the Government dated September 6, 2000 defines a Branch Offices (BO) of a Foreign Business Entity as an "affiliate" established to engage in commercial and/or tourism activities to earn profits directly. BO is limited to conducting business in:

  • Export of the following goods purchased in Vietnam: handicraft wares, processed and raw agricultural products (except rice and coffee), processed and raw vegetables and fruit, industrial consumer goods, meat, processed foodstuffs;
  • Import of the following goods for sale in the Vietnamese market: machinery and equipment for mining and agricultural or aquaculture processing, raw materials for human and veterinary medicine or fertilizers and insecticides.

Foreign Investment Licenses (FIL): Foreign investment in Vietnam is regulated by the Ministry of Planning and Investment (MPI) through FILs and related implementing regulations, decrees, and circulars. Compared to previous legislation the FIL delegates more authority over investment licensing to provinces, municipalities, and investment zones, although several provinces and large cities have been urging the Vietnamese government to expand their autonomy in this area. The Prime Minister's office retains authority over larger and "sensitive" projects. MPI remains the principal government agency dealing with foreign investors.

There are four primary forms of investment for foreigners in Vietnam:

i) Joint venture (JV) agreements have been discussed in the preceding section.

ii) A business cooperation contract (BCC) allows a foreign firm to pursue business interests in cooperation with a Vietnamese firm without conferring the right of establishment or ownership. In many respects it is the most flexible arrangement Vietnam offers to foreign investors, although the BCC license carries no tax holidays or concessions such as those given to other types of foreign investments. BCC's have predominated in the telecommunications and petroleum sectors, where the government limits foreign involvement in operations and management.

iii) 100-percent foreign-invested enterprises ("FIE's") have become more popular recently, as investors have learned to navigate the local system on their own and as problems with JV partners have become more apparent. Amendments to the Foreign Investment Law adopted by the National Assembly in May, 2000 regularized procedures for conversion of joint ventures to 100 percent FIE’s. The new law made a number of other improvements upon its 1996 predecessor which enhanced the attractiveness of investing in Vietnam. It has reduced the number of issues requiring unanimous approval by the boards of joint ventures, thereby strengthening the management control of the majority investor (which is typically the foreign partner). It simplified licensing procedures, lowered remittance tax rates, and gave foreign-invested enterprises relief from excessive government inspections. Disadvantages of FIE’s over other forms of investment include more difficult access to land-use rights (except in industrial zones and export processing zones) and a more limited duration of license.

iv.) Build-operate-transfer (BOT) investment agreements are authorized under the FIL, but the legal, regulatory, and financial framework is still incomplete. The FIL also recognizes build-operate-own (BOO), build-transfer-operate (BTO), and build-transfer (BT) forms of investment projects. Many international observers believe that BOT and other private financing mechanisms hold the key to Vietnam's future infrastructure development. Vietnam's enormous needs have largely been financed by multilateral and bilateral ODA up until now, but the Government’s project wish list threatens to overwhelm donors.

Under a BOT agreement the investor builds an infrastructure project, operates it for an agreed period of time to recover the investment and earn a profit, and then returns it to the government without further compensation. In principle, BOT projects are subject to approval by the Prime Minister's Office. BOT projects may be joint ventures or 100 percent foreign-owned. They are exempt from land tax and from payment of duties on goods imported to implement the contracts. They enjoy a lower profits tax rate (10 percent), a 5 percent withholding tax rate (the lowest normal rate), an eight-year tax holiday starting from the first profitable year, and a government guarantee for conversion of revenue from local to foreign currency. The term of a BOT can extend to fifty years, after which project ownership reverts to the government.

In 2003, the Vietnamese Government expanded the options for foreign investment in Vietnam in an effort to attract more foreign investment capital into the country and to enhance the efficiency of existing FIE’s. Effective as of May 7, 2003, the recently amended Law on Foreign Investment in VN permits the following:

  • Existing FIEs may co-operate with other foreign investors to perform a BCC.
Joint Venture Enterprises (JVEs) may be established between an existing 100 percent Foreign Owned Enterprise (FOE) and a Vietnamese enterprise or between an existing 100 percent FOE and an existing JVE. An existing 100 percent (FOE) may co-operate with another existing 100 percent FOE and/or foreign investor(s) to establish a new 100 percent FOE.

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