What are the requirements for establishing a representative office in Vietnam? (Part 2)

3. Comprehensive comparison between representative offices and local subsidiaries in Vietnam

When considering expansion into Vietnam, many companies struggle to decide whether to establish a representative office or a local subsidiary. The two differ significantly in terms of permitted activities, taxation, and establishment costs. This section compares requirements, operational scope, and management considerations to clarify which option is more suitable for different purposes and business phases. Understanding these differences makes it easier to choose the optimal entry structure.

3.1. Differences in scope of activities and restrictions

Representative offices are limited to activities permitted by Vietnamese law, such as liaison work, market research, and promotion of business cooperation. Commercial activities, contract execution, sales promotion, advertising, product or service display, establishment of subsidiaries, or capital investment are not allowed. In contrast, local subsidiaries may engage in a wide range of business activities, including contract execution, sales promotion, advertising, and product or service display. They may also expand operations under their own name and establish branches or representative offices domestically and internationally. Selecting the appropriate structure based on business objectives and plans is essential.

3.2. Taxation and Accounting Considerations

Representative offices have no revenue-generating activities and therefore are not subject to corporate income tax or value-added tax (VAT). However, personal income tax is required for the Chief Representative and expatriate staff. There is also no obligation to prepare audited financial statements. Local subsidiaries, on the other hand, are subject to corporate income tax, business registration tax, and VAT, and must prepare annual financial statements and undergo audits. Accounting and tax compliance require a thorough understanding of local regulations, and operational burdens differ significantly depending on the chosen structure. Consulting a reliable accounting firm in advance is highly recommended.

3.3. Comparison of Establishment Costs and Timelines

Representative offices involve relatively simple procedures and can be established in a shorter time and at lower cost. This makes them suitable for minimizing initial investment risk. Local subsidiaries require more complex procedures, including capital contribution and government approvals, resulting in longer timelines and higher costs. A phased strategy—starting with a representative office for market research and transitioning to a local subsidiary for business expansion—is often effective.

3.4. Business Flexibility of Local Subsidiaries

Local subsidiaries are permitted to conduct commercial activities in Vietnam, including contract execution, sales, advertising, negotiations, and supply chain development. They also have the flexibility to establish branches and sales offices domestically and abroad. For companies aiming for long-term growth and competitiveness in the Vietnamese market, establishing a local subsidiary is a strong option.

3.5. Advantages of Introducing a Representative Office as an Initial Step

Representative offices are ideal during the preparatory phase prior to full-scale business operations, serving as bases for market research, local network development, and cooperation framework building. With low cost and short establishment timelines, companies can assess market conditions and risks before making significant investments. Many companies first establish a representative office and later transition to a local subsidiary. For first-time overseas expansion or phased business development, leveraging a representative office is highly effective.

4. Key Precautions and Common Pitfalls in Meeting Establishment Requirements

When establishing a representative office in Vietnam, accurately understanding local regulations and procedures is essential. Only foreign companies operating for more than one year are eligible, and permitted activities are limited to liaison and market research. Common causes of failure include document deficiencies and procedural delays related to office leases, translations, and notarization.

Below are common stumbling points and countermeasures.

4.1. Preventing Document Deficiencies

The most common issue is incomplete documentation. Required documents include certificates of incorporation, audited financial statements, appointment letters, passports, and office lease agreements. Original documents may be required, and additional submissions may be requested. Preparing while confirming the latest local requirements, conducting multiple checks, and keeping spare copies are effective preventive measures. Leveraging local networks helps avoid unnecessary issues.

4.2. Points to Note on Translation and Notarization

Since many documents are prepared in Japanese, Vietnamese translation and notarization are required. Translations must be conducted by designated institutions, and even minor errors may require resubmission. Public and private documents follow different notarization procedures, and the order of authentication, translation, and notarization must be strictly observed.

Confirming local procedures and timelines in advance and preparing with sufficient buffer time is essential.

4.3. Negotiation and Communication with Local Authorities

Interaction with Vietnamese government authorities is unavoidable. Since interpretations may vary by office, communicating in advance with responsible officials helps clarify requirements. If there are concerns about language barriers, using reliable interpreters or local support is recommended. 

Continuous follow-up after submission and prompt responses to additional requests are key to smooth negotiations.

4.4. Optimizing the Establishment Process

The establishment process proceeds through office leasing, document preparation, translation and notarization, application submission, license issuance, seal registration, tax code acquisition, and initial setup. To avoid unnecessary delays, designing a comprehensive schedule in advance and sharing it with stakeholders is crucial. Office leasing and document acquisition may take longer than expected, so planning with ample buffer time is advisable. Even if unexpected issues arise, completing tasks step by step helps minimize overall delays.