Vietnam continues to affirm itself as an attractive FDI destination with stable GDP growth and more than 36 billion USD of registered capital in 2023. Establishing a Representative Office is a strategic step to help foreign investors effectively explore the market before making large investments. This report provides comprehensive information on the process, industry, benefits and ways to simplify procedures for opening a representative office, helping FDI investors confidently penetrate this potential market. A representative office is not only a legal procedure but also a strategic bridge to collect information, build relationships and assess the market with low financial risk, especially useful for pre-exploration of large projects.

I. What is a Representative Office of a Foreign Trader in Vietnam?

Representative Office of foreign traders in Vietnam:

• As a subsidiary, operating under Vietnamese law.
• No legal status: Not an independent legal entity, all activities are the responsibility of the parent company.

Main function: Market research and trade promotion. Specifically, representative offices can:

• Act as liaison office.
• Market research.
• Promote business investment opportunities for the parent company.
• Labor recruitment (Vietnam and foreign).
• Open a bank account in foreign currency or VND with foreign currency origin (only for representative office operations).
• Have a seal bearing the name of the representative office as prescribed.

A key point that needs to be clearly understood is the fundamental difference between “market research and trade promotion” and “direct profit-making activities”. Vietnamese law strictly prohibits representative offices from carrying out direct profit-making activities in Vietnam. This legal boundary is the most important factor that determines the scope of activities of representative offices. Failure to clearly understand and strictly adhere to this distinction can lead to serious legal risks. Emphasizing this distinction helps FDI investors clearly understand the operational limits of representative offices, thereby making appropriate decisions on market penetration models, whether opening a representative office meets the objectives or requires a more complex form such as a branch or subsidiary to carry out revenue-generating activities.

II. Conditions for Establishing a Representative Office in Vietnam

To be granted a License to open a Representative Office in Vietnam, foreign traders need to meet a number of important conditions according to the provisions of Vietnamese law, especially Decree 07/2016/ND-CP.

First, on the legal status of foreign traders, they must be established and registered to do business in accordance with the laws of the country or territory that is a member of an international treaty to which Vietnam is a member (such as the WTO), or recognized by the laws of that country or territory. This ensures that foreign traders have sufficient legal conditions to operate in the host country before expanding to Vietnam.  

Second, foreign traders must have a continuous operating history of at least 01 year from the date of establishment or business registration.. This requirement shows that Vietnam prefers foreign traders with a certain history of operation and stability. This implies that the regulatory authorities want to cooperate with entities that have proven operational and compliance capabilities, minimizing the risk to the Vietnamese market from new or speculative businesses. For startups or newly established foreign businesses, this condition can be a challenge, requiring them to consider other market entry methods or wait until they have met the required operating time.  

Third, if the Business Registration Certificate or equivalent document of a foreign trader stipulates a term of operation, that term must be at least 01 year. from the date of application submission. This ensures continuity and stability in the operations of the representative office in Vietnam.  

Fourth, the business activities when opening a representative office must comply with Vietnam's commitments in international treaties to which Vietnam is a member.. In case the content of the activities is not consistent with these commitments, or if the foreign trader is not from a country or territory participating in an international treaty to which Vietnam is a member, the establishment of a representative office will require the approval of the Minister or Head of the specialized ministerial-level agency. This shows Vietnam's strict control over sensitive business activities or cases not covered by international commitments.  

Finally, about the location requirements, the application must include documents proving the right to use the proposed location of the representative office, such as a copy of the memorandum of understanding or lease agreement. This ensures that the representative office has a legal and stable operating address in Vietnam.

III. Procedures for Registration to Open a Representative Office

The registration process for establishing a Representative Office of a foreign trader in Vietnam includes many specific steps, requiring careful preparation of documents and compliance with regulations on processing time of state agencies.

Step 1: Prepare Application Documents

Preparing complete and accurate documents is the key to the success and speed of the process. Required documents include:

Table 1: Documents required to open a Representative Office

Requiring consular legalization and notarized translation of foreign documents is an important factor, showing Vietnam's strictness in verifying the legality and transparency of foreign investors. This is a mechanism to minimize risks associated with unclear or potentially fraudulent foreign entities. Investors should note that this process may take additional time and cost, so it is necessary to prepare early and may need support from professional services to ensure the accuracy and validity of the documents.

Step 2: Submit Application to Competent Authority

After preparing all the documents, the foreign trader will submit the application to the Licensing Authority where the Representative Office is expected to be located. The agencies receiving the application include the Department of Industry and Trade of the provinces and centrally-run cities (for representative offices located outside industrial parks, export processing zones, economic zones, high-tech zones) or the Management Board of industrial parks, export processing zones, economic zones, high-tech zones (for representative offices located in these areas). Investors can choose to submit the application directly, send it by post, or submit it online if the local public service system supports it.

Step 3: Assessment and Licensing

The application review process is carried out according to specific timelines:

• Within 03 working days from the date of receipt of the application, the Licensing Authority will check the completeness and validity of the application. If the application is incomplete, the authority will request additional information only once during the processing period. 
• In normal cases, if the application is valid, the Licensing Authority will ｇｒａｎｔ or refuse to ｇｒａｎｔ the License to establish a representative office within 07 working days from the date of receipt of the complete and valid application. In case of refusal, the reason will be clearly stated in the document.  

However, there are special cases where the appraisal process may take longer. If the scope of activities of the representative office is not consistent with Vietnam's commitments in international treaties or the foreign trader is not from a country/territory that is a member of an international treaty to which Vietnam is a party, the Licensing Authority will send a written request for comments from the specialized management ministry within 03 working days from the date of receipt of a complete and valid dossier. The specialized management ministry has 05 working days to respond. After receiving the comments, the Licensing Authority will have an additional 05 working days to ｇｒａｎｔ or refuse to ｇｒａｎｔ the License. 

This specialized ministry consultation process shows flexibility but also poses risks in terms of time and complexity for special cases, especially in sensitive sectors or those not covered by clear market opening commitments. Investors in these sectors need to anticipate longer processing times and prepare more carefully.

Step 4: Post-Licensing Procedures

After receiving the License to establish a representative office, foreign traders need to carry out a number of post-licensing procedures so that the representative office can officially start operating:

• Register for tax code: When opening a Representative Office, a separate 13-digit tax code will be issued. Having this separate tax code helps the representative office fulfill its financial obligations and reports independently, even though it has no legal status.  
• Stamp: The Representative Office has the right to have a seal bearing its name in accordance with the provisions of Vietnamese law. Although having a seal is not mandatory in all cases, in practice, the use of a seal often enhances the legality and reliability of documents and transactions in Vietnam.  
• Activity Notice: Representative Offices are obliged to report their activities in accordance with the provisions of Vietnamese law.  
• Tax obligations: Although not directly engaged in profit-making activities, representative offices still have certain tax obligations. Specifically, representative offices must pay business license tax at the rate of VND 1.000.000/year.
  • In addition, representative offices are responsible for deducting, declaring and paying personal income tax (PIT) on salaries and wages of employees working at the office. The fact that representative offices, although not directly conducting business, still have their own tax codes and tax obligations and reports shows the state's close supervision even for non-profitable entities.
  • This is to ensure transparency and compliance with the law in all activities of foreign entities in Vietnam.

IV. Permitted and Prohibited Activities of Representative Offices

To operate legally and effectively in Vietnam, foreign traders need to clearly understand the scope of permitted and prohibited activities of the Representative Office.

1. Permitted Activities (Scope of Activities)

The scope of activities of a representative office is specifically regulated, mainly revolving around the functions of communication, market research and trade promotion. Specifically, a representative office has the following rights:  

• Operate for the correct purpose, scope and duration as specified in the establishment license.  
• Rent headquarters, rent or buy necessary equipment and supplies for office operations.  
• Recruiting employees, including Vietnamese and foreigners, to work at the representative office in accordance with the provisions of Vietnamese law.  
• Open bank accounts in foreign currency or in Vietnamese Dong with foreign currency origin at banks licensed to operate in Vietnam, and use these accounts only for the operations of the representative office.  
• Have a seal bearing the name of the Representative Office in accordance with the provisions of Vietnamese law.  
• Perform the function of authorized representative for the interests of the parent company and protect those interests.

2. Prohibited Activities (Obligations)

Prohibited activities for representative offices are intended to ensure that the unit does not directly engage in profit-making business activities, remaining true to its nature as a dependent unit:

• Not allowed to conduct direct profit-making activities in VietnamThis means that representative offices are not allowed to buy and sell goods, provide services directly for profit or collect service fees from third parties. 
• Foreign traders are not allowed to sign contracts, amend or supplement contracts already signed., except in cases where the Head of the Representative Office has a legal authorization from the foreign trader. each contract. This is an important detail: although the representative office is not allowed to enter into commercial contracts in general, the ability of the Representative Office Manager to delegate authority for each specific contract is a significant legal flexibility. This allows the representative office to still play a role in completing specific transactions if the parent company explicitly delegates authority for each case, avoiding the need to set up a full business entity for each transaction. 
• Do not lend or sublet your premises. 
• The Head of the Representative Office is not allowed to concurrently hold management or legal representative positions at other branches or economic organizations in Vietnam.  

Strict compliance with these scope of operations regulations is paramount to avoid violations of the law, which may result in administrative sanctions or even revocation of operating licenses.

V. Strategic Benefits of Establishing a Representative Office in Vietnam

Opening a Representative Office in Vietnam brings many significant strategic benefits to foreign direct investors (FDI), especially during the market exploration and research phase.

1. Effective market research with low cost and minimal risk

Representative offices are an ideal tool for exploring the Vietnamese market. They allow businesses to easily access and interact directly with customers and potential partners, collect in-depth market information, grasp new trends and evaluate competitors effectively.  

One of the key financial advantages of a representative office is that the costs of establishing and operating it are typically significantly lower than those of establishing a branch or subsidiary. In particular, representative offices do not require charter capital, which reduces the initial financial burden. Furthermore, since they do not conduct direct profit-making business activities, representative offices are not subject to Value Added Tax (VAT) and Corporate Income Tax (CIT). The combination of low operating costs and no significant initial investment makes representative offices an ideal choice for the market exploration phase, minimizing financial risk if the market does not turn out as expected.

2. Building and enhancing brand recognition and reputation in the Vietnamese market

Having a physical presence in Vietnam through a representative office helps businesses enhance brand recognition, enhance reputation and credibility within the industry as well as the local business community. This is an important stepping stone to building long-term relationships with stakeholders.

3. Create a communication bridge, support customers and partners

A representative office acts as a direct point of contact, facilitating effective communication, information exchange and support for customers and partners. It can also be used to display products or support marketing and promotional activities.

4. Preliminary comparison with other forms of investment (Branch, FDI Subsidiary)

To help investors have an overview of market entry options, below is a preliminary comparison table between Representative Offices, Branches and FDI Subsidiaries:

Table 2: Comparison of Representative Office with Branch and FDI Subsidiary

This comparison table provides an overview of market entry options, helping investors make strategic decisions that align with their business goals and level of investment commitment in Vietnam.

VI. The Role of Professional Consulting Services in Simplifying Procedures

Although establishing a Representative Office is considered a low-cost and minimal-risk form of market entry, the process is still fraught with complications due to the unique and constantly changing nature of Vietnam’s legal system. In this context, the role of professional consulting services becomes extremely important, helping investors simplify procedures and ensure legal compliance.

1. Save time and effort

Our team of consultants with extensive experience in Vietnamese law and administrative procedures can provide comprehensive support from preparing documents, drafting documents, submitting applications to monitoring progress and receiving results. This helps businesses save a significant amount of time and effort, allowing them to focus on core business activities.

2. Ensure compliance with the law, avoid errors and legal risks

Vietnam’s legal system is diverse and complex, covering investment, corporate, labor, tax, and reporting regulations. Understanding and complying with all of these regulations on your own can lead to many unnecessary mistakes, causing serious legal and financial risks. Professional consulting services act as “risk insurance”, helping investors avoid common mistakes such as:

• Business Line Error: Failure to carefully research conditional business lines, applying the wrong industry code, or conducting activities that are not in line with the licensed business line. This may result in a license denial or subsequent penalties.  
• Investment capital error: Late capital contribution compared to commitment or capital contribution made to wrong account/process. These errors can cause the bank to refuse the transaction or the business to be fined.  
• Reporting errors: Failure to comply with regulations on investment activity reporting, periodic statistical reporting, or errors in financial reporting. These violations may result in administrative penalties, ranging from warnings to fines of VND 1.000.000 to VND 20.000.000 for late submission or failure to submit reports.  
• Work permit errors: Failure to obtain approval for the need to employ foreign workers, incomplete or invalid documents, failure to meet professional requirements, failure to renew the permit in time, or use of the visa for purposes other than the original purpose. The use of foreign workers without a valid work permit may result in a fine of between VND 30 million and VND 75 million.  
• Tax and accounting errors: Incorrect tax declaration, incomplete document storage, or non-compliance with related party transaction regulations under Decree 132/2020/ND-CP. These errors can lead to tax arrears, administrative penalties (20% of the tax arrears or evasion), and late payment interest (0.03%/day).  
• Error in seal: Do not cancel the old seal when changing business information or do not notify the cancellation of the seal sample as prescribed.  

The variety and complexity of these potential legal pitfalls creates a “compliance maze” that is difficult for investors to navigate safely on their own. Professional advice is not only a guide but also an essential risk management partner, protecting investors from costly legal and financial consequences.

3. Optimize processes and increase efficiency

With extensive experience, professional consulting firms can optimize every step of the process, from choosing the right business type, naming, to determining the location and industry of the business. This helps increase the overall efficiency of the market penetration process.

4. Support to solve arising problems

During the process of establishment and operation, legal issues may arise unexpectedly. Lawyers and legal experts will accompany the business, supporting the resolution of labor disputes, tax issues, or other problems, thereby minimizing risks and ensuring continuous operations. They also provide post-establishment advice on tax, accounting, and social insurance obligations.

VII. Conclusion

Establishing a Representative Office in Vietnam is a smart and effective strategy for FDI investors who want to explore the market before making large investments. Representative offices act as a strategic bridge, allowing businesses to build a presence, gain in-depth market knowledge and establish important relationships at low cost and with minimal financial risk. Although not allowed to conduct direct profit-making business activities, representative offices are still a powerful tool for gathering market information and building a solid foundation for further development.

However, the process of establishing and operating a representative office in Vietnam requires strict compliance with complex and frequently changing legal regulations. To simplify procedures, ensure legal compliance and avoid potential errors that can lead to serious consequences, taking advantage of professional consulting services is extremely necessary. Investing in legal consulting services not only helps investors save time and effort, but is also a smart investment to minimize risks, allowing them to focus all resources on core business strategies and optimize opportunities for success in the dynamic Vietnamese market.