A company established under the laws of Vietnam may set up 3 types of dependent units anywhere in Vietnam, namely “branch”, “representative office” and “place of business”. The differences are discussed below:
A branch is defined as dependent unit of a company and is obliged to perform part or all of the company’s licensed scope of business, subject to proper authorisation. The scope of business of a branch must be consistent with that of the company.
In accordance with Civil Law, a branch is not a legal entity. The Head of Branch must perform his/her duties in accordance with the company’s authorisation and the company remains responsible for all matters arising from, or transactions conducted, by the branch.
A company may set up one or more branches in any location in Vietnam. To establish a branch, a company must register with the relevant local licensing authority for a separate permit namely Certificate of Registration of Operation (“CRO”). After registration, the branch is granted a registration code which is also its tax code (with 13 digits, among which the first 10 digits are as the same as the company’s tax code). Thereafter, the branch is required to apply for a separate corporate ID seal.
For accounting and taxation purposes, a branch may be a “dependent accounting branch” or an “independent accounting branch”. However, the laws do not distinguish them clearly. In practice, there are following distinctions:
- As for an independent accounting branch (“IAB”), all transactions conducted by the branch are accounted for separately from its head office accounts. At the year-end, the head office prepares a set of consolidated financial statements which consolidate all transactions of the branch and its head office.
- As for a dependent accounting branch (“DAB”), all transactions conducted by the branch are accounted for directly in the head office’s accounts and financial statements.
- In term of tax filings, the requirements are as follow:
- For Value Added Tax (“VAT”), a branch in the same city or province of its head office reports VAT in the same VAT returns of its head office. A branch in a different city or province must file separate VAT returns at the local tax office. However, if the branch does conduct sales transactions directly nor earn any revenue, it may report VAT in the same VAT returns of its head office.
- For Corporate Income Tax (“CIT”), an IAB must file separate CIT returns at the local tax office. Whereas, a DBA reports CIT in the same CIT returns of its head office.
- For Personal Income Tax (“PIT”), the tax filing depends whether the branch hires personnel and pay them directly. If so, it must file the withholding PIT returns separately at the local tax office.
- In respect of business registration tax (“BRT”), if a branch is in the same province of its head office, its BRT is paid together with the head office’s BRT. However, a branch in a different city or province must file BRT returns and pay tax separately.
A branch has the following pros and cons:
- A branch may conduct all business activities that are permissible to a company (including sales, issuing invoicing, hiring staff etc.) if such activities do not fall outside of the licensed scope of business of the company.
- A branch may be set up in any location in Vietnam without limitation.
- If a branch conducts transactions in its own name and capacity (such as entering into sales contracts, invoicing customers directly, hiring employees directly etc.), it will be subject to all relevant tax administrative requirements like its head office (such as filing VAT, CIT, PIT, BRT returns etc.).
- Setting up a IAB involves more onerous administrative procedures like setting up a company, including:
- Applying for a separate corporate ID seal, separate tax filing number (or tax code) and registration of the Head of Branch with the local authority.
- A branch in a different city or province must file separate VAT and BRT returns at the local tax office, unless it does not conduct sales directly.
- An IAB must maintain separate sets of accounts and file CIT returns separately.
- A branch which hire employees and pay them directly must file separate withholding PIT returns for their employees.
A representative office (“RO”) is defined as a dependent unit of a company and is obliged to represent and act in the company’s interests and protect such interests.
To set up a RO, a company must register with the relevant local authorities for a separate permit, tax code, corporate ID seal and a Head of Office.
An RO’s functions are generally limited to a liaison, market research and prospecting business opportunities. It is strictly prohibited from engaging directly in income-generating activities.
A RO has the following pros and cons:
It is easier to set up and operate a RO than a branch because:
- It is just a cost center, and hence, it is subject to CIT and VAT filing requirements;
- It is not required to maintain a separate set of accounts;
- It is exempt from business registration tax provided that it does not conduct any income-generating activities nor does it collect payments from customers.
The key disadvantage of a RO is that it is prohibited from engaging directly in income-generating activities. In practical terms, it means that a RO cannot enter into sale contracts, issue invoices or collect payments, on behalf of its head office.
In summary, a RO is suitable where the company plans to set up a contact/liaison office without conducting commercial activities or transactions.
Place of business
A place of business (“PoB”) is defined as a place where a company conducts limited business activities or transactions. To set up a PoB, a company must register it with to the local licensing authority for a separate permit.
A PoB has the following pros and cons:
- PoB is the simplest form of business presence as it is not required to have tax code, corporate ID seal or a Head of Office.
- It is not required to maintain a separate set of accounts nor is it required to file tax returns locally.
- A PoB is exempt from BRT if it is solely used for warehousing purpose without conducting any commercial activities or transactions.
- A PoB may only be set up for particular business purposes. So, it cannot operate the full scope of business of the company. Since a PoB does have a tax code or corporate ID seal, certain business activities or transactions (i.e. sales, purchase, invoicing, hiring staff) cannot be carried out by itself and they must be carried out by the company’s head office or a branch.
- In summary, a PoB is suitable where a company requires a place to conduct limited business activities or transactions (such as warehousing, delivery points or sales outlets).
The various considerations of the three forms of dependent units of a company are compared below:
|Considerations||Branch||Rep Office (RO)||Place of Business (PoB)|
|Permissible functions||Full functions as a company||Liaison, market research and prospecting business
No commercial activity or transaction is permitted
|Limited functions (including some commercial activities/transactions)|
|Registration requirements||A branch may be set up in any location without restriction of number||A RO may be set up in any location||A PoB may only be set up in the same city or province of the company’s head office or a branch|
|Key personnel appointment||Head of Branch||Head of Office||N/A|
|Tax code and Corporate ID seal requirements||Applicable||Applicable||N/A|
|Ability to conduct commercial activities and transactions||Full ability||No ability||Limited ability|
|Ability to raise invoices and collect payments from customers||Full ability||No ability||Only cash collection at sales outlets.|
|Tax liabilities and filing requirements||VAT, CIT, PIT and BRT||PIT only||Only BRT if involved in commercial activities or transactions|
|Requirement to maintain a separate set of accounts||
|Consolidated tax returns||
||N/A||Applicable to all relevant taxes|