Clause 2, Article 44 of the Law on Enterprises 2020, a representative office is a dependent unit of the enterprise, with the task of representing, according to authorization, the interests of the enterprise and protecting those interests. Representative offices do not perform business functions of the enterprise.
For representative offices, the main function is to communicate, understand the market, and promote business investment opportunities, excluding the service industry where the establishment of a representative office in that field is specified in Clause 1 of this Article. specialized legal documents. In addition, representative offices are not allowed to enter into contracts, amend or supplement contracts already signed by foreign traders, unless the Head of the Representative Office has a legal power of attorney from the foreign trader. outside. Mainly representative offices are only allowed to perform work to protect the legal rights and interests of foreign traders.
Meanwhile, for the Company, it is possible to carry out business activities to bring profits to investors; Besides, when doing business in Vietnam, foreign traders can receive many incentives in the Government’s investment attraction policy. A company with 100% foreign capital is considered a legal entity, so it can sign contracts and transactions on its own, improving its competitiveness in the market.
In general, the most basic difference between a representative office of a foreign trader and a company with 100% foreign capital is that a company can carry out business investment activities while a representative office cannot. This basic difference leads to other differences in the organization, management, operation, rights and obligations,… of the above two forms, which can be mentioned as follows:
The company has a multi-level management organization system that is stricter and more complex than a representative office.
The Company’s management complies with the provisions of enterprise law. The company also needs to have internal regulations so that business processes are clear and unambiguous.
The company’s reporting and management regime is more complex than that of a representative office, so it requires a team of highly qualified personnel with legal knowledge to ensure full compliance with the company’s obligations to the company. with the State.
THE COMPARISON LIST OF TWO INVESTMENT PLANS IN VIETNAM
| THE FIRST OPTION | THE SECOND OPTION | |
| NAME OF THE OPTION | The foreign investors contribute capital and purchase shares of Vietnamese companies | Appling for an investment registration certificate |
| ACTIVE FUNCTION | Does not have a business function, only plays a liaison role, promoting business investment opportunities for foreign traders | Has the function of operating business and making profits in the Vietnamese market. |
| SUBJECT SIGNS A BUSINESS CONTRACT | Signing a contract is not allowed Overseas traders are the subjects signing the contract | Self-conclude contracts with partners |
| CONTRACT PERFORMANCE | Overseas traders are responsible for implementing contracts with partners in Vietnam, representative offices play a liaison and support role. | Self-implement signed contracts |
| TAX | Representative Office only declares and pays personal income tax on behalf of employees working at Representative Office and fees, charges and performs other financial obligations in accordance with Vietnamese law. Foreign traders have tax obligations according to the tax regulations of the country of their nationality | Companies with 100% foreign capital established in Vietnam with Vietnamese nationality are subject to tax in accordance with Vietnamese law. Types of taxes payable: Corporate income tax, license tax, value added tax, personal income tax. In addition, depending on the company’s business activities, it may be subject to additional taxes: special consumption tax, import-export tax, land rent, fees, charges or other taxes. |
| PROFIT | Representative offices do not do business so they do not generate profits. Foreign traders earn profits from their business activities and must pay separate taxes on those profits (if any) | In case the business is profitable, has completed tax obligations and other financial obligations according to the provisions of law and ensures full payment of debts and other due property obligations, the foreign trader is Company owners share in profits. Repatriating profits is subject to the laws of the trader’s country of citizenship. |
| ESTABLISHMENT AND OPERATION COSTS | Similar | |
| PERIOD OF OPERATION UNDER LICENSE | 5 years with the right to extend | 50 years with the right to extend. Long operating time with large investment costs required. Establishing a company with 100% foreign capital is suitable for traders who intend to develop long-term, stable and serious business with the Vietnamese market. |
Depending on the investor’s purpose of entering the Vietnamese market, PHAVILA believes that it is necessary to rely on two cases:
If the investor’s upcoming business plan is to only learn about the Vietnamese market, promote its image, promote investment opportunities by implementing PR and marketing policies, and in the future there will be no such thing. If you intend to do business directly, you can choose to establish a representative office.
On the contrary, although the current investor only wants to learn about the market and also implements PR and marketing policies and intends to do business in the future in Vietnam, he should establish a company because of the issue of establishment procedures. Management and tax obligations between these two types are similar. Investors can avoid legal procedures that slow down the business process when they want to officially operate their business.
With a team of nearly reputable legal consultants, with professional qualifications and extensive experience in domestic and international business cooperation. Phavila always strives and commits to providing customers with quality, effective legal services and a professional, fast, dedicated, responsible and reasonable price.
