Foreign Contractor vs Rep Office vs Company

Consideration Foreign Contractor (“FC”) Representative Office (“RO”)/Operation Office (“OO”) New Company (“NewCo”)
  • No local legal presence will be created, as no business license and no capital commitment will be needed.
  • By default, the business will be taxed under the withholding tax regime, unless the FC elects to be taxed as if it were an ordinary taxable entity in Vietnam.
  • No statutory reporting nor tax filing will be required, and hence the operating costs will be cheaper.
  • Acting as a FC without setting up a legal entity in Vietnam is the easiest, quickest, and most convenient way to do business in Vietnam.
  • Easy to start up and wind up, minimal administrative burden and, hence saving administrative costs.
  • A FC is allowed to invoice and receive foreign currency from Vietnamese customers. Note however that a FC is now allowed to open a VND bank account and local customers may in some cases insist on some part or all the payments to the FC being in VND.
  • No capital commitment will be required.
  • RO/OO is a usual form of presence in Vietnam for foreign companies at early market entry stage.
  • RO/OO is not a taxable entity and is therefore not subject to statutory financial reporting or corporate tax reporting requirements.
  • No requirement on books of accounts or audited financial statements. The only report required to be submitted is an annual report of activities the RO/OO.
  • Management structure is not complicated.
  • A RO/OO is easy and quick to set up. Set-up and operational costs are minimal.
  • NewCo creates a legal entity in Vietnam and therefore creates a stable business presence and structure in Vietnam.
  • NewCo can directly control the import and distribution of its products, customer base, delivery of products and receipt of sales proceeds.
  • NewCo can recover input VAT charged by local suppliers and VAT paid at import stage.
  • NewCo may have an advantage in bidding cases where a customer requires or prefers bidder to have stablished and stable business presence in Vietnam.
  • Its liabilities are limited to the registered charter capital.


  • A FC does not have legal presence in Vietnam and is therefore not a stable business structure.
  • A FC cannot recover input VAT charged by local suppliers or subcontractors and subject to deemed VAT and CIT rates unless FC registers for VAT (see details in Table 2).
  • FC is not allowed any tax incentive, which may be otherwise granted by the Vietnamese government to NewCo.
  • FC may be viewed less preferred by the prospective customer and Vietnamese government in terms of demonstrating long term business commitment to Vietnam.
  • In case of long-term contracts, or multiple contracts, there could be pressure on the foreign company to carry on business in Vietnam under a limited liability company form rather than the FC form. The tax status of a FC may come under greater scrutiny by tax the authorities.
  • A RO/OO is prohibited from engaging income-generating activities in Vietnam. In practice, this means that a RO/OO is not allowed to enter commercial transactions in its own name, collect payments or invoice its customers.
  • Since 2016, a RO is no longer allowed to perform the role of “monitoring, supervising and facilitating the execution of contracts between the head office and customers in Vietnam” which is a key activity of most ROs.
  • Depending on activities undertaken by the RO/OO, it may be deemed as a “permanent establishment” of its head office, which may result in tax liability in Vietnam. This has not occurred in practice to date but may change in the future.
  • A RO/OO cannot recover input VAT charged by local suppliers.
  • Capital commitment and a company license will be needed. Future wind-up can be problematic and time-consuming.
  • NewCo will have tax liabilities in Vietnam and will be subject to all relevant statutory reporting and tax filing requirements.
  • NewCo will incur administrative burden and costs (VAS application, audit, tax registration, tax filings etc.), and hence more expensive to set up and run.
  • Licensing procedures are more time-consuming and cumbersome.
  • Corporate governance structure requirements are heavier.
  • NewCo must invoice local customers in local currency (VND). There is no option to receive part of payment in foreign currency, except for special cases.
 Conclusion The FC form is appropriate for early market entry stage or short-term business presence. It is the simplest and most efficient way to start commercial activities in Vietnam immediately. It keeps the flexibility of for later long-term business presence in Vietnam in the form of NewCo if the business prospers, or quick exit otherwise. A RO/OO is appropriate at the pre-entry stage to station personnel in the country or to hire local staff to explore business opportunities and to provide permissible administrative support to the head office during the early market entry stage or short-term presence in the form of a FC. It can be set up and run concurrently with the FC form. It also keeps the flexibility for later long-term business presence in Vietnam in the form of NewCo if the business prospers, or quick exit otherwise. A RO/OO can be quickly closed as soon as NewCo is set up. NewCo is appropriate when:

  • The business is ready to commit to long-term business presence in Vietnam.
  • It is certain that business in Vietnam will prosper.
  • It is essential that NewCo be set up to get business in Vietnam as expected/required by its customers; and/or
  • Its local expenditures are expected to be so significant that require VAT registration to recover the input VAT suffered on local purchases through the VAT system.

Detailed comparison:

Consideration Foreign Contractor (“FC”) Representative Office (“RO”)/Operation Office (“OO”) New Company (“NewCo”)
Legal status No legal status in Vietnam. Legal status as a unit of its overseas head office (“HO”). A legal entity in Vietnam.
Risk management
  • No limited liability status.
  • No limited liability status.
  • A legal entity in Vietnam has limited liability status.
  • Its liabilities are limited to the registered charter capital.
Legal form and licensing requirements
  • No license is required.
  • A foreign company may engage in business transactions with a “Vietnamese contracting party”, under a cross-border commercial contract.
  • A RO/OO license is required.
  • For a RO, the foreign company must have been incorporated in the home country for at least one year.
  • Two licenses (namely “Certificate of Investment Registration” or CIR and Certificate of Enterprise Registration” or CER) are needed.
  • The legal form may be a 100% foreign owned limited liability company.
Business scope restrictions
  • There is no restriction in business scope, as far as, the Vietnamese contracting party is legally allowed to enter the transactions with the foreign contractor.
  • However, in certain type of business (eg. construction), the FC may be required to obtain project-specific permit.
  • The permissible scope of business of a RO is limited to liaison, market research, exploring business opportunities, except where otherwise specifically permitted.
  • A RO is not allowed to engage in income-generating activities, and it is no longer allowed to engage in service supervision or project management, since 2016.
  • NewCo is allowed to carry on business transactions within the licensed scope of business.
  • To conduct business activities that fall outside the licensed scope of business, Newco must apply for a change in the licensed scope of business.
  • For a trading or distribution company, there are specific restrictions on the type of merchandise which Newco may or may not trade/distribute.
Ability to conduct import directly
  • No applicable, unless the FC has obtained the import permit (which is difficult to obtain due to regulatory restrictions). In practice, the customers in Vietnam who buy goods from a FC act as importer of record.
  • A RO/OO is not allowed to engage in income-generating activities. Therefore, it cannot import directly for commercial purposes.
  • NewCo may obtain full rights of import and export, provided that the transactions and the associated goods fall within its licensed scope of business.
Tax incentives N/A N/A
  • A NewCo may enjoy certain tax incentives which are normally based on the two key criteria – the geographical location of the project being in a promoted (less developed) area – and the type/sector of the business.
Capital/ funding commitment
  • No capital or funding commitment is required.
  • No capital commitment is required.  An RO/OO may only receive funding from its HO and may not invoice or collect payments customers on behalf of its HO.
  • The capital of Newco is made up of “charter capital” (i.e., the compulsory equity) and “loan capital” (i.e., the optional debts).
  • There is no minimum charter capital requirement or equity-to-debt ratio for NewCo, with few exceptions for certain type of businesses (e.g., a real estate business).
  • However, the licensing authority expects that the charter capital must be adequate for NewCo to be set up and to carry on its intended business.
  • The charter capital must be paid up within 90 days following the date of issue of the licenses.
  • Although the charter capital may be reduced, subject to pre-approval by the licensing authority, such pre-approval may be difficult to obtain.
Term of operation
  • Generally, the term of the commercial contract with the Vietnamese contracting party.
  • A license of a RO is for up to 5 years and renewable.
  • A license of an OO normally last for the same period of the commercial contract with the Vietnamese contracting party and is renewable if the contract is renewed.
  • The maximum term of operation for NewCo is 50 years (or 70 years in special cases) and is renewable.
Governance structure


  • A RO/OO is represented and managed by a Chief Representative (“CR”) who  does not have to live in Vietnam.
  • However, whenever the CR is absent from Vietnam for more than 30 days, another person must be appointed to act on behalf of the CR.
  • A CR may not concurrently act as the head of branch in Vietnam, or the legal representative of any other legal entity incorporated under Vietnamese laws.
  • Newco must have a Governance Board and appoint a Regal Representative (“LR”), Chief Accountant.The Chairperson and/or Board may appoint one or more authorised representatives and up to three “controllers”.
  • Technically, the LR must live in Vietnam and when they are absent from Vietnam for more than 90 days, another person must be appointed to act on their behalf.
  • In practice, it is acceptable that the LR does not live in Vietnam if they can become available to represent the company when requested by the authorities.
Timeframe for setting up
  • N/A. Business can start as soon as a commercial contract is executed.
  • In practice, a RO/OO license can be obtained in one month following submission of all required application documents to the licensing authority, although the statutory timeframe is 7 days.
  • In practice, the licenses can be obtained in from 3 to 6 months following submission of all required application documents (depending on the proposed scope of business), although the statutory timeframe is 45 days.
Regulatory reporting requirements


  • A RO/OO must lodge an annual report of its activities by the last working day of January of the following year. (“Annual Tax Finalization and Remittance in Vietnam”).
  • In practice, a RO/OO must also keep limited book-keeping records such as expense ledgers, employee’s payroll records and tax returns etc.
  • There is no statutory requirement for a RO/OO to prepare financial statements nor to file corporate tax returns.
NewCo must:

  • follow the Vietnamese Accounting Standards (“VAS”).
  • maintain accounting books and records according to VAS.
  • prepare annual financial statements and have them audited by an external independent auditor; and
  • file all relevant tax returns.
  • A FCT’s income is taxed at deemed flat tax rates at a maximum of 5% Value Added Tax (VAT) and 5% Corporate Income Tax (CIT), which depend on the type of business activities carried on by the FC.
  • The taxation is through the withholding of taxes by the Vietnamese contracting party.
  • A RO/OO is not a taxable entity and therefore not subject to taxation unless it is considered to constitute a PE of its HO in Vietnam.
  • However, a RO/OO must withhold Personal Income Tax (“PIT”) and other statutory contributions (including unemployment, social security, and healthcare insurances), file quarterly returns and remit the tax and those contributions to the relevant authorities, on behalf of its local Vietnamese staff.
  • Expatriate staff must often do the same by themselves on a quarterly basis.
  • NewCo will pay CIT at the standard rate of 20% of net profits, after the tax incentive period (if any).
PE risk
  • A FC has high PE risk.
  • A RO/RO has low or moderate PE risk.
  • NewCo minimal or no PE Risk, as it will be an independent taxable legal entity.
Tax treaty and choice of home jurisdiction or holding company’s jurisdiction
  • If FC is from a country that has an effective tax treaty with Vietnam, it may claim an exemption of the CIT components of FCT under the relevant tax treaty, if eligible.
  • In addition, the PE risk is reduced because the PE tests under the tax treaty would override the PE tests under the domestic tax legislations which is very broadly defined.
  • The choice of the home jurisdiction or holding company’s jurisdiction being a country that has and effective tax treaty with Vietnam will help reduce the RO/OO’s PE risk.
  • As in the case of FC, NewCo may claim tax treaty relief in respect of the CIT part of the FCT on intercompany payments such as service payments to the holding company, if eligible.
VAT implications 
  • A FC suffers VAT charged by its local suppliers or subcontractors as an irrecoverable cost, unless it chooses (i.e., optional) to register for VAT and pay VAT as if it were a company in Vietnam.
  • A RO/OO cannot register for VAT, and therefore all VAT charged by local suppliers will become an irrecoverable cost.
  • NewCo will have to register for VAT, charge output VAT on local sales (at 5% or 10%) and allowed credits on the input VAT charged by its local suppliers i.e., VAT cost is recoverable.
  • The Vietnamese contracting party must act as importer of records.
  • A RO/OO cannot import commercially on behalf of its overseas HO.
  • NewCo can import goods directly for resale to customers in Vietnam or for export (both physical export and in-country export), provided that the merchandises are those amongst its licensed scope of business.
Regulatory audit and inspection 
  • A FC contractor is not subject statutory financial and tax reporting requirements and therefore exempt from tax audits, unless it chooses to register for VAT.
  • Tax audits and inspections of a RO/OO are restricted to employees’ PIT and other regulatory or labour compliance.
  • At times, a RO/OO may be subject to an ad-hoc regulatory compliance audit or inspection.
  • NewCo is subject to all relevant regular or ad-hoc tax, and regulatory audits or inspections.
Ability to hire employees
  • An expatriate assignee to Vietnam must obtain work permit (for which the Vietnamese contracting party must act as the sponsor) unless the assignment to Vietnam is for less than 3 months per trip and less than 3 times a year.
  • There is no clear legal basis allowing FC to employ local staff.  In practice, a FC may employ local individuals under a consulting service contract or through an employment agency.
  • A RO/OO is allowed to recruit expatriate and Vietnamese employees directly. Work permits are required for all expatriate employees.
  • The same as RO/OO.
Exit requirements
  • No wind-up is necessary, as no legal entity or legal presence is created in Vietnam.
  • Closing a RO/OO is quick. Disposal of assets of a RO/OO may attract VAT and other tax liabilities.
  • Winding up NewCo can be problematic and time-consuming.
  • Future transfer of ownership of NewCo may attract capital gain tax.


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