Legal Issues Related To The Head Of The Representative Office Of Foreign Traders In Vietnam (Part 1)

Legal Issues Related To The Head Of The Representative Office Of Foreign Traders In Vietnam (Part 1)

In the context of market integration and opening in Vietnam, the foreign companies, enterprises (hereinafter referred to as the “Foreign Trader”) established the representative office in Vietnam in order to perform market research, trade promotion and play a role as contact office of Foreign Trader in Vietnam (hereinafter referred to as the “Representative Office” of “RO”). In the process of establishing and operating of RO, the Foreign Trader need to appoint the staffs/employees to operate and manage the RO’s operation in Vietnam. Such staffs/employees may be the foreigner or Vietnamese. Accordingly, the Foreign Traders may concern the legal issues going around such staffs/employees to clearly understand and apply them for the process of appointing the staffs/employees into Vietnam for working or hiring the Vietnamese in accordance with Vietnamese law regulations.

1. Question 1: Whether RO can be a contracting party of labor contract or not?

1.1. According to Article 18.3 of Labour Code 2019, the person executing labour contract on employer side shall include, among others, the representative of organization being not legal entity or the person authorized under laws;

1.2. Under Articles 2.2 of Decree 152/2020/ND-CP (“Decree 152”), the foreign employer shall include, among others, the representative office in Vietnam of an organization of which establishment to be licensed by competent authority;

1.3. Pursuant to Articles 17.3 and 18.3 of Commerce Law 2005, the representative office has the right to hire employees being Vietnamese and foreigner to work in representative office under Vietnamese laws and must not execute, amend, supplement the contract which had been executed by foreign traders except for the case that head of representative office was being duly authorized in written by the foreign trader;

1.4 Accordingly, RO can be a contracting party of labor contract (excluding those had been executed by Foreign Trader), in which Head of RO shall signed as a representative of employer (i.e. RO).

2. Question 2: Whether the Head of RO, regardless nationality, to reside in Vietnam or not?

2.1. Under Article 33.3 of Decree 07/2016/ND-CP (“Decree 07”) in the absence of the head of representative office from Vietnam, he shall authorize in written to another person to perform his rights and obligations in accordance with laws (“POA”). Such POA shall be made with the consent of foreign trader. However, the head of representative office shall be still responsible for implementing rights and obligations which had have been authorized;

2.2. In case authorization period as stimulated above expires and the head of representative office has not come back to Vietnam without other additional authorization, the authorized person shall continue implementing rights and obligation of head of representative office within authorized scope until the head of representative office comes back to work in representative office or until foreign trader appoints another person to the position of head of representative office in accordance with Article 33.4 of Decree 07;

2.3. In addition, in case the head of representative office is absent from Vietnam more than 30 days without authorization to any one, foreign trader must appoint another person to the position of head of representative office according to Article 33.5 of Decree 07;

2.4. Therefore, in principle, the Head of RO, regardless nationality, must be in Vietnam. If such person absence from Vietnam, it is required to authorize another person to implement obligations and rights of Head of RO in accordance with laws. Additionally, if such absence without any authorization extends more than 30 days, FOREIGN TRADER must appoint another Head of RO instead.

3. Question 3: What are significant differences on insurance and labour between executing labour contract with Vietnamese employees and foreign employees and impacts of those differences on RO and Foreign Trader?

3.1. Regarding compulsory insurance, please see below.

(a) In principle, compulsory insurance applicable to Vietnamese employees and foreign employees shall be as follows (there are some certain cases, in which Vietnamese employees and foreign employees are not subject to compulsory insurance, such as senior employees retired or foreigner working in Vietnam under form of internal transfer, as the case may be):

Social insurance Un-employment insurance Health insurance
Paid by employee Paid by RO Paid by employee Paid by RO Paid by employee Paid by RO
Vietnamese employee 8% 17.5% 1% 1% 1.5% 3%
Foreign employee  

(8% from 1 January 2022) 

 

3.5% (17.5% from 1 January 2022) N/A N/A 1.5% 3%

(b) However, for employees (including Vietnamese employees and foreign employees) not subject to compulsory insurance above, the employer (i.e. RO) must still pay an amount equivalent to the amount which RO would pay as if such employee was subject to compulsory insurance as required by laws.

(c) As the result, such differences on insurance don’t lead to any significant impacts on RO and Foreign Trader.

3.2. Regarding labour affairs, different from Vietnamese employee, in order for foreign employee to work in Vietnam, RO, unless some certain cases, must obtain work permit or work permit exemption for such employee. Also, such foreign employee must meet many difficult conditions such as having qualifications, occupational skills, practical experience and adequate health as prescribed by the Minister of Health, and other condition as the case may be. Therefore, generally, hiring foreign employees might be more complicated and difficult than hiring Vietnamese employee due to such obstacle.

4. Question 4: What are significant differences on insurance, and labour between executing labour contract and non-labour contract with staffs working in RO and impacts of those differences on RO and Foreign Trader?

Regarding insurance and labour, subject to execution of labour contract or not, RO shall act as employer of such staffs or not, which may lead to the following main differences and impacts:

Non-labour contract Labour contract
Pros

No need to pay compulsory insurances

To be able to manage staffs as employer

Cons

Not be able to manage staffs as employer

To pay compulsory insurances or corresponding amounts

This article is for general information only and is not a substitute for legal advice. Apolat Legal is a Vietnamese law firm with experience and capacity to advise on matters related to Employment. Please click here to learn more about our services and contact our lawyers in Vietnam for advice via email info@apolatlegal.com.

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