Restrictions on representative offices of foreign traders

Restrictions on representative offices of foreign traders

Requirements for granting the Establishment License of Representative office

A representative office of foreign traders is a dependent unit established to operate as a liaison office and to conduct market research and business investment promotion activities for such traders. Being considered as a commercial presence of foreign traders in Vietnam, however, representative offices cannot perform direct profitable activities in Vietnam as prescribed by law.

Foreign traders must comply with the following requirements to apply for the Establishment License of Representative office: 

  • Having a registration of the business establishment by the laws of a country or territory participating in an international treaty to which Vietnam is a signatory or recognized by such country and territory laws;
  • Has come to operation for at least 01 year from the date of establishment or registration;
  • The Certificate of Business Registration or the equivalent document is valid for at least 01 year from the date of submission of the application;
  • The scope of operation of the representative office shall be consistent with Vietnam’s commitments to treaties to which Vietnam is a signatory. In case of inconsistency or the foreign trader is not located in the country or territory being a party in an international treaty to which Vietnam is a signatory, the representative office can only be established under the approval of the relevant Ministers, the Heads of the ministerial agencies. 

In addition to the requirements mentioned above, foreign traders should also pay attention to the restrictions relating to the head of the representative office. In order to efficiently manage the operations of the representative office, the parent company often appoints its senior management position as the head of the representative office, and these positions are usually the legal representative of the parent company or its subsidiary. However, such appointment inadvertently violates the provisions of Vietnamese law regarding the limitation of concurrent positions of the head of the representative office can hold. The representative office shall be fined from 40,000,000 VND to 60,000,000 VND for an administrative violation under Article 4 and 67 of Decree 98/2020/ND-CP if its head concurrently holds the following positions: 

  • Head of Branch of the same foreign trader;
  • Heads of Branches of other foreign traders;
  • The legal representative of that foreign trader or other foreign traders;
  • The legal representative of an economic organization established under the laws of Vietnam.

Operation of the Representative Office in Vietnam

As mentioned above, Vietnamese law does not allow representative offices to conduct direct profit-making activities in Vietnam, which means they are not allowed to enter into contracts, making amendments or supplement to signed contracts of foreign traders. However, if authorized by the foreign traders, the head of the representative office can conclude the contract and making amendments or supplement the signed contract. This authorization must be made in writing for each conclusion, adjustment, and supplementation.

In case of exiting Vietnam, the head of a representative office must authorize in writing another person to perform his or her rights and obligations in accordance with the law; such authorization must be approved by the foreign trader. The head of a representative office is still responsible for the exercise of the authorized rights and obligations.

Additionally, foreign traders need to pay attention to the following issues to avoid administrative penalties, including:

  • Annually before January 30, the representative office shall report its activities in the previous year through mail to the Licensing Authority;
  • The foreign trader shall carry out procedures for re-issuance of the representative office establishment license within 60 working days in the following cases:
    • Changing the name or address of the head offices of foreign traders;
    • Changing the contents of operation of the foreign trader that are directly related to the operation of the branch in Vietnam;
    • Changing the head of the Representative Office;
    • Changing the name of the Representative Office;
    • Changing the scope of operation of the Representative Office.

Failure to comply with the provisions above shall be fined from VND 40,000,000 to VND 60,000,000 according to Articles 4 and 67 of Decree 98/2020/ND-CP.

Although having a relatively simple organizational model, a representative office must strictly comply with the requirements of the law during its operation to avoid administrative sanctions that directly or indirectly affect the activities of foreign traders in Vietnam.

If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.

This article is for general information only and is not a substitute for legal advice.