There are many options for entering the Vietnamese market, among which the establishment of a representative office is chosen by many foreign investors.

This article was consulted by Lawyer Nguyen Quang Trung

Legal grounds:

• Enterprise Law 2020;
• Decree No. 07/2016/ND-CP.

Currently, Vietnamese law has many regulations that create conditions for foreign investors to do business in Vietnam in many forms such as:

• Contribute capital and buy shares in domestic enterprises;
• Establishment of representative office;
• Establishment of company branches;
• Establishing a company with 100% foreign capital;
• Participate in business cooperation contracts;
• Participate in public-private partnership (PPP) projects.

Many foreign investors have chosen to establish branches in Vietnam, or establish 100% foreign-owned companies to take control of all business activities in Vietnam.

In addition, the option of establishing a representative office is also chosen by many investors to promote business for the parent company abroad.

Below are 5 reasons foreign investors should consider establishing a representative office in Vietnam:

1. Simple establishment procedures

Compared to the investment plan of establishing a branch or establishing a foreign-invested company, establishing a representative office is quite simple, that is:

• The foreign parent company has been legally established in the country and territory where it is headquartered.
• The parent company has been operating for at least 1 year abroad since the date of establishment.
• If the parent company has an operating term, the remaining operating term is at least 1 year from the date of submitting the application to establish a representative office.

2. Fast licensing time

According to current regulations, the time to issue a certificate of establishment of a representative office is only about 7 working days from the date of submitting all valid documents. After being granted a certificate of establishment, the representative office can go into operation immediately.

3. Costs are more economical than establishing a company with foreign capital

While establishing a foreign-invested company in Vietnam has complicated procedures and long time, the establishment cost can be up to thousands of USD.

As for representative offices: licensing procedures and time are faster than establishing a branch or company with foreign capital, so the cost to establish a representative office in Vietnam and put it into operation will be more economical and suitable for initial market exploration without needing to invest too much capital.

Therefore, establishing a representative office is an option worth considering in the initial stages of exploring the Vietnamese market to limit future risks.

4. The purpose is to explore the market and find customers for the parent company

Normally, foreign businesses always take the step of understanding the actual market by sending permanent personnel to Vietnam without actually investing heavily in direct investment in production and business here.

According to current law regulations, representative offices are not allowed to directly conduct business activities in Vietnam. However, the representative office still has the right to promote the brand, be the focal point to find and connect customers in Vietnam with the parent company abroad to create revenue for the parent company.

Therefore, a representative office is an ideal solution for initially learning about the Vietnamese market.

5. It is a reasonable stepping stone before establishing a foreign-invested company

A representative office is not allowed to directly do business in Vietnam but can still conduct trade promotion activities, creating conditions for the parent company abroad to export goods to the Vietnamese market.

Once the Vietnamese market gets used to the new brand, or the parent company’s sales from the Vietnamese market are large enough, the investor can completely terminate the operation of the representative office to switch to establishing a company with foreign capital in Vietnam.

Terminating representative office operations is not too difficult. Because the representative office does not generate direct sales revenue, tax settlement for dissolution is not complicated.