With the development of the economy and many incentives in policies, Vietnam continues to become a promising destination for many foreign investors, especially after Vietnam has effective solutions to control the COVID-19 epidemic and open its economy. According to the Nikkei Asia COVID-19 Recovery Index in 2021, Vietnam ranks 14th and rises 48 places in the ranking.

Before and after the COVID-19 pandemic, the Government of Vietnam has always created many opportunities for foreign traders to access and carry out economic activities, which includes allowing foreign traders to set up representative offices in Vietnam.

A representative office is a dependent unit of the enterprise, which has the task of representing by authorization for the interests of the enterprise and protecting those interests. Although, foreign traders when setting up representative offices in Vietnam can support their business activities abroad, limiting the risks and costs of complying with regulations of value add tax, corporate income tax, accounting records and financial statements… but there are also many risks that foreign traders have encountered during the establishment and operation of representative offices in Vietnam due to failure to grasp and not fully comply with Vietnamese laws and international treaties to which Vietnam is a member. The following limitations and legal notes will contribute to foreign traders’ visualization of the operation of a representative office in Vietnam.

1. Activities of representative offices

Representative offices may only perform the functions of liaison offices, market research, and promotion of business investment opportunities of the traders they represent. The operation content of a representative office does not include directly performing services and business activities of foreign traders as prescribed in Article 30 of Decree No. 07/2016/ND-CP.

2. The head of the representative office performs the rights and obligations in Article 33 of Decree No. 07/2016/ND-CP

a) Responsibilities of the head of a representative office:

The head of the representative office must be responsible to the foreign trader for his/her activities and that of the representative office to the extent authorized by the foreign trader. At the same time, the head of the representative office must also be responsible for his/her activities in case of performing activities outside the scope authorized by the foreign trader.

b) The presence of the head of the representative office in Vietnam:

– The head of a representative office must authorize in writing another person to perform the rights and obligations of the head of the representative office at law upon exiting Vietnam. This authorization must be approved by the foreign trader. The head of the representative office is still responsible for the performance of the authorized rights and obligations.

– In case the authorization period expires but the head of the representative office has not returned to Vietnam and has no other authorization, the authorized person has the right to continue to exercise the rights and obligations of the head of the representative office within the scope of authorization until the head of the representative office returns to work at the representative office or until the foreign trader appoints another person as the head of the representative office.

– In case the head of the representative office is not present in Vietnam for more than 30 days without authorizing another person to perform the rights and obligations of the head of the representative office or is dead, missing, detained, sentenced to prison, restricted or lost civil act capacity, the foreign trader must appoint another person to be the head of the representative office.

c) Conditions to become the head of a representative office:

The head of a representative office of a foreign trader may not concurrently hold the following positions:

– Head of branch of the same foreign trader;

– Heads of branches of other foreign traders;

– The legal representative of that foreign trader or other foreign trader;

– The legal representative of an economic organization established in accordance with the laws of Vietnam.

d) Issues of authorization of foreign traders for the head of a representative office:

In case the head of a representative office is authorized by a foreign trader to enter into a contract, amend or supplement the signed contract the foreign trader must authorize in writing each time a contract is entered into, modified or supplemented with a signed contract.

3. Rights and obligations of representative office

Representative offices in Vietnam are entitled to have their legitimate rights and interests protected during their operation in accordance with Vietnamese law and perform their rights and obligations in accordance with the provisions of the Commercial Law and in accordance with the content of the License.

4. Cases of termination of representative office operations

A representative office shall terminate its operation in the following cases:

– At the request of foreign traders;

– When a foreign trader terminates its operation under the laws of the country or territory where such trader establishes or registers its business;

– The term of operation under the License for establishment of a representative office expires but the foreign trader does not request an extension;

– Expiry of the operation period according to the License for establishment of a representative office without the approval of the licensing agency to extend;

– The License to establish a representative office is revoked according to the provisions of Article 44 of Decree No. 07/2016/ND-CP;

– Foreign traders or representative offices no longer satisfy one of the conditions specified in Article 7 of Decree No. 07/2016/ND-CP.

5. Cases of revocation of representative office establishment license

A representative office’s establishment license shall be revoked in the following cases:

– Inactive for 1 year and no transactions with the licensing agency;

– Failure to report on the operation of the representative office for 2 consecutive years;

– Failing to send the report as prescribed in Clause 2, Article 32 of Decree No. 07/2016/ND-CP to the licensing agency within 06 months from the deadline for sending the report or having a written request;

– Other cases as prescribed by law.

6. Other notes

In addition to complying with the above regulations, foreign traders need to keep the following issues in mind to avoid being sanctioned according to the provisions of administrative law.

a) Before January 30 of each year, the representative office is responsible for sending a report on its activities in the previous year by post to the License-Issuing Agency. The report is made according to the form set by the Ministry of Industry and Trade and according to the provisions of Article 32 of Decree No. 07/2016/ND-CP. At the same time, representative offices are obliged to report, provide documents or explain issues related to their operations at the request of competent state management agencies.

b) Foreign traders must carry out procedures for adjusting the License to establish a representative office within 60 working days in the following cases:

– Changing the name or address of the foreign trader’s head office;

– Change the head of the Representative Office;

– Change the name of the representative office;

– Change the operation content of the representative office;

– Changing the address of the representative office’s head office in a province or centrally run city or in a geographical area under the management of a Management Board.

Penalties for the above acts will be implemented in accordance with the provisions of Articles 67 and Article 68 of Decree No. 98/2020/ND-CP dated August 26, 2020.

Contact us if you need further advice.

Note: This article is for informational purposes only and it is not a legal advice. The content of the article represents its own of TTVN Legal, it subject to change without prior notice.