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WHAT ARE DIFFERENCES BETWEEN REPRESENTATIVE OFFICES AND FOREIGN-INVESTED COMPANIES

WHAT ARE DIFFERENCES BETWEEN REPRESENTATIVE OFFICES AND FOREIGN-INVESTED COMPANIES

Friday 18, 10 2019
The main functions of representative offices are contact address, researching market, promoting business investment opportunities. Representative office’s scopes may not include doing business, signing contracts, amending and supplementing contract
The main functions of representative offices are contact address, researching market, promoting business investment opportunities. Representative office’s scopes may not include doing business, signing contracts, amending and supplementing contract signed. 

Meanwhile, Foreign-Invested Companies have the right to conduct business activities. Foreign investors who invest in Vietnam will receive many incentives under the Government's policy. It is also legal for Foreign-Invested Companies to signs contracts and improve their competition in the market.

In general, the most fundamental difference between a representative office and a Foreign-Invested Company is that the company can process business activities while the representative office cannot. This difference leads to other differences in organization, management, operation, rights and obligations, etc., of these two forms, as follows:

Function:

- Representative Office: No business function, plays the role of contact point and market discovery

- Foreign-Invested Company: Besides having the same functions as representative office, Foreign-Invested Company has the right to conduct business activities.

Ability to sign contracts:

- Representative Office: Not allowed to sign business contracts;

- Foreign-Invested Company: Allowed;

Tax obligations:

- Representative Offices shall only declare personal income tax for laborers working in office and other charges and fees according to regulations;

- Foreign-Invested Companies are subject to tax in accordance with the law of Vietnam including corporate income tax, value added tax, personal income tax, …

Profit:

- Representative Offices: No profit
- Foreign-Invested Company: Having losses / interests, fulfilling tax obligations and other financial obligations, ensuring payment of debts and other property obligations ...;

Duration of operating license:

- Representative Office: 05 years and entitled to extension;
- Foreign-Invested Company: 50 years and entitled to extension;

In conclusion, depending on each purpose of market entry, investors can consider one of these two types.

If investors just want to research Vietnamese market, promote company, find investment opportunities without complementing direct business, they can choose to set up a representative office in Vietnam.

In contrast, if investors want to explore the current market to do business in the future in Vietnam, they should establish a company. Because of the establishment procedures and tax liability between these two types is similar, investors can avoid administrative procedures that slow down the business plan in case that investors want to do business.

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