Currently, representative offices of foreign traders are one of the forms of commercial presence in Vietnam, which is increasingly chosen by foreign traders because the operation and functions of this type are simple, its main activities are to conduct a market survey and some commercial promotion activities permitted by Vietnamese law. Accordingly, the Commercial Law 2005 stipulates that representative offices are not allowed to conduct directly profit-generating activities in Vietnam, meaning that representative offices of foreign traders will not arise any appropriate revenue from doing business in Vietnam. However, representative offices also need to open and use payment accounts in Vietnam for several reasons as below:
1. Payment of expenses, costs for the operation of representative offices
According to Article 17 of the Commercial Law 2005, representative offices have some following basic rights:
- To conduct commercial promotion activities within the scope permitted by Vietnam law;
- To rent offices, rent and purchase equipment and facilities necessary for their operations;
- To recruit Vietnamese and expatriate employees to work for them according to the provisions of Vietnamese law.
Although representative offices have no revenue during the operation, there are a lot of expenses regarding the operation of the representative office required to pay including salaries, social insurance premiums, personal income tax of employees; office rental costs; expenses for the purchase of necessary facilities and equipment serving the operation of the representative office; and other related expenses. Therefore, representative offices should have a current account in Vietnam to facilitate the payment of incurred expenses relating to the operation of the representative office and to ensure compliance with the regulations on foreign exchange management in Vietnam.
2. To ensure compliance with legal regulations on managing foreign exchange in the territory of Vietnam
The costs and expenses of representative offices as above arising mainly from transactions in Vietnam and with individuals, organizations being residents in Vietnam. According to the regulations on restricting the use of foreign exchange in the territory of Vietnam, all transactions, payments of residents are not allowed to be conducted in foreign exchange.
Accordingly, to ensure the payment of the operating expenses to be made in compliance with foreign exchange law and properly recorded in the expenses of the representative offices, representative offices should have a separate current account in Vietnam to receive money (foreign exchange) from the holding company abroad. Then, when the representative office has a demand of payment of the operating expenses, it will use its current account to make payment in Vietnam dong.
Currently, several representative offices do not have their current accounts. Accordingly, they have paid directly the operating expenses of the representative office to individuals and organizations in Vietnam by an account of the holding companies. Therefore, while the current law of Vietnam has clearly provided for opening and using payment accounts of representative offices without limitation, difficulties as before, these representative offices need to pay attention to compliance with the laws of Vietnam in order to minimize the risks that may occur in the future for the representative offices as well as employees receiving the expenses directly from the parent company.
3. To facilitate foreign traders to follow up and manage the expenses of representative offices in Vietnam
As mentioned above, the representative offices’ the open of current accounts will not only ensure compliance with the laws on foreign exchange, the payments are properly recorded in the cost book of the representative office but also easier for the holding company abroad to manage and control effectively the operational expenses of representative offices in Vietnam through the internet banking system, other means.
In addition to the above, the representative offices also need to note that its current accounts will not be allowed to receive on behalf of the holding company any payments from Vietnamese partners because it only be used for operation of representative offices.
With the above reasons, together with Circular 02/2019 TT-NHNN amending and supplementing a number of articles of Circular No. 23/2014/TT-NHNN dated August 19th, 2014 of the State Bank of Vietnam guiding the opening and use of current accounts at payment service suppliers effective from February 1st, 2019, clearly stipulating the subjects entitled to open and use current accounts, in which, non-legal entities like representative offices of foreign traders are also allowed to open and use. Accordingly, the implementation procedures will be more simple, creating more favorable conditions for representative offices to open their current accounts. Therefore, representative offices should proceed to open payment accounts to facilitate your operations and ensure compliance with the laws of 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.
