Should companies establish representative office or branch in Vietnam?
While most industries were severely impacted by the COVID-19 pandemic, start-ups continued to receive funding. In addition, the government is increasing public spending on businesses. So, many entrepreneurs want to start their businesses to make some profit. Once businesses settled down, they want to expand the scale of the businesses but do not know whether to establish a representative office or a branch. So, in this article LSX legal firm would like to give you: “Should companies establish representative office or branch in Vietnam?”
Legal ground
- Law on Enterprise 2020
Company branch
Firstly, according to Clause 1, Article 44 of the Law on Enterprise 2020:
Article 44. Branches, representative offices and business locations of an enterprise
1. A branch of an enterprise is its dependent unit which has some or all functions of the enterprise, including authorized representative. The business lines of a branch shall match those of the enterprise.
As can be seen, a branch is no different from a subsidiary of an enterprise. It can perform to the fullest extent of all functions of an independent business even though it has no legal status.
Particularly, a branch can directly perform transactions of purchase and sale, export goods within its rights, import goods, input materials, and perform the production and storage of goods, inventory, and distribute products to the market. At the same time, it can also operate PR activities to promote products and goods, and services provided by the company.
The scope and function of the branch may be similar to that of the company. And of course, the company can decide to reduce the branch’s powers at any time. In addition, the company can authorize the branch to perform the work beyond the scope and authority of the branch.
Representative office
Secondly, according to Clause 2, Article 44 of the Law on Enterprise 2020:
Article 44. Branches, representative offices and business locations of an enterprise
2. A representative office of an enterprise is its dependent unit which acts as the enterprise’s authorized representative, represents and protect the enterprise’s interests. A representative office shall not do business.
Thus, a branch has larger scope and operation than a representative office. Representative offices cannot conduct business, produce and supply the company’s goods and services to the market. It can only perform the function as an authorization of the business.
That means that a representative office can only be a place to market products and services. In other words, a representative office means a place where businesses use to display samples, promote products and services, answer and advise customers, and meet the company’s partners…
Should companies establish representative office or branch?
To consider and decide to establish a branch or representative office of a company, businesses need to determine their actual needs. Each business operating in a different industry will have different needs. Even in the same industry, due to the management culture and operating methods, the expansion needs of each business differ.
According to current regulations, a branch or representative office of a company does not have legal status. They are both a subsidiary of the company, established by the company to perform the tasks as assigned, and authorized by the leaders.
Branches perform more functions than representative offices
In terms of operational functions, if your company produces and supplies kinds of goods, you should set up a branch. If your company provides services, you should set up a representative office.
Accounting forms
Because they are allowed to do their own production and business activities, thereby generating revenue and profit. Therefore, the branch can choose one of two forms of accounting for business results: independent accounting and dependent accounting.
Registration of dependent accounting form:
If the branch is established in the same province as the parent company, the parent company will be responsible for the quarterly and annual tax reports. The branch will also use the parent company’s digital signature to pay license tax.
In case the branch and parent company are in different provinces, the branch must have its own seal and digital signature to make quarterly tax reports and pay license tax. Additionally, the year-end financial statements will be settled by the parent company.
Registration of independent accounting form:
In this case, if the branch established in the same province as the parent company or not, it cannot use the same digital signature but must purchase a separate digital signature and make an initial tax return like the profile of the parent company. In addition, the branch also has to make quarterly reports and tax finalization at the end of the year.
Meanwhile, the representative office has no choice but to choose the dependent accounting method. Because they do not have their own seal, so they cannot make tax declarations and payments on their own. All declarations of license fees, license taxes, and license tax declarations of the representative office performed by the parent company.
Branches must pay license fees, while representative offices do not
Branches of the company are allowed to perform the function of producing and trading goods and providing services, generating revenue and profits. Therefore, if the independent accounting method is applied, the branch will have to pay the license fee annually.
As for representative offices not allowed to carry out production, business, and service provision activities. So, it will save the annual license fee.
After all, it must be based on the actual needs of each business to be able to make a choice to establish a branch or a representative office.
Related articles
- Procedures to establish electronic components company in Vietnam
- The latest procedures to establish a branch of an LLC in Vietnam
- Procedures to establish a bicycle manufacturing company in Vietnam
Related questions
– The enterprise’s name and EID number;
– The enterprise’s headquarters address;
– Full name, signature, mailing address, nationality and legal document number of the legal representative (for limited liability companies and joint stock companies), each partner (for partnerships), the owner (for sole proprietorships). Full name, mailing address, nationality and legal document number of each member that is an individual; name, EID number and headquarters address of each member that is an organization (for limited liability companies);
– The charter capital (or investment capital if the enterprise is a sole proprietorship).
The fee is 100,000 VND. In addition, you will also have to pay some taxes for the state such as license tax, personal income tax, corporate income tax.
After you prepare all the documents and submit them to the Business Registration Office; Within 03-05 working days, the Business Registration Office will process and return the results of registration of the establishment of a company branch for you.
Contact LSX
Finally, hope this article is useful for you to answer the question about “Should companies establish representative office or branch in Vietnam?”. If you need any further information, please contact LSX Law firm: +84846175333 or Email: [email protected]
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