Representative Office vs. Subsidiary in Vietnam: Which Vehicle Fits Your Strategy

The representative office (RO) is a non-trading presence of a foreign parent. Authorised under the Commercial Law 2005 and Decree 07/2016/ND-CP, an RO can carry out market research, promotional activities, contract negotiation on behalf of the parent, and liaison with Vietnamese counterparties. It cannot generate revenue, sign contracts in its own name, or carry out profit-making activities. The RO is a window into the market, not a trading entity.

The subsidiary is a Vietnamese legal entity, typically a limited-liability company (LLC) under the Enterprise Law 2020 (Law 59/2020/QH14), capable of any business activity its IRC and ERC authorise. It signs contracts, issues invoices, employs staff, and pays taxes in its own right. It is a fully fledged trading entity with all the obligations and capabilities that implies.

The fundamental difference is operational scope: an RO is a presence; a subsidiary is a business. Almost every other distinction (capital, tax, hiring, contracting, exit) flows from this core difference.

Permitted activities. Market research; client and prospect liaison; promotion of the parent's products and services; negotiation of contracts on behalf of the parent (the parent, not the RO, signs); coordination of import-export activities of the parent (where the parent is the contracting party); supervision of contract performance by the parent.

Prohibited activities. Direct revenue generation; signing contracts in the RO's own name; issuing invoices; carrying out commercial trading; charging fees for services. An RO that begins to invoice or to take on profit-making activities is operating outside its scope and risks tax assessment, penalty, and licence revocation.

Setup procedure. Application to the relevant Department of Industry and Trade (or, in some sectors, sector-specific licensing authority). Documentation includes the parent company's certificate of incorporation, two years of audited financial statements demonstrating the parent's substance, and a statement of the proposed scope. Approval typically issues in 7-15 working days. The RO licence has a five-year term, renewable.

Staffing. ROs can employ staff (Vietnamese and foreign). The chief representative is the legal head of the office and must be either resident in Vietnam or willing to relocate. Foreign staff require work permits in the standard way. Most ROs are small — typically 2-10 staff.

Tax. ROs do not pay corporate income tax (they have no taxable income). They withhold and remit personal income tax on staff salaries and pay social-insurance contributions. There is no VAT obligation since the RO does not generate revenue.

Cost. Setup cost is modest (USD 3-8K including legal fees and registration). Ongoing operational cost is principally rent, salaries, and modest compliance overhead. ROs are the most economical foreign-presence option.

Permitted activities. Anything authorised by the IRC (sectoral activities) and the ERC (the Vietnamese-law equivalent of memorandum of association). For most market-entry investments, the subsidiary is structured to allow trading, services, marketing, and any other operational activities relevant to the parent's business model.

Setup procedure. Application for the IRC to the Department of Planning and Investment, followed by application for the ERC to the same authority. Documentation is more extensive than for an RO: parent corporate documents, business plan, charter capital contribution plan, sectoral approvals where applicable, premises evidence, and proposed management structure. Standard timing is 30-45 working days; the fast-track procedure under Article 32a of the amended Investment Law can shorten this for priority sectors.

Charter capital. The subsidiary must declare a charter capital adequate for the proposed activities (some sectors specify minimums). Capital must be contributed within 90 days of ERC issuance — late contribution exposes the company to penalty and to questions about the validity of corporate actions.

Tax. Corporate income tax (currently 20% standard rate; lower rates for certain qualifying activities and incentive zones); VAT (10% standard rate, with reduced rates and exemptions for certain activities); withholding tax on remitted profits and certain payments to foreign parties; social-insurance and personal-income-tax obligations on staff.

Compliance. Annual financial statements, audited by a licensed Vietnamese auditor for foreign-invested enterprises; corporate-income-tax filings; quarterly and annual VAT filings; transfer-pricing documentation for cross-border related-party transactions; periodic regulatory reporting depending on sector.

Cost. Setup cost USD 8-25K (depending on sectoral complexity and capital structure). Ongoing compliance cost USD 15-50K annually for a typical mid-sized subsidiary, before legal advisory work or sector-specific compliance.

The table below distils the practical comparison. Capital, tax, and contracting are the dimensions on which the choice usually turns.

| Dimension | Representative Office | Subsidiary (LLC) |

| --- | --- | --- |

| Legal status | Branch of foreign parent | Vietnamese legal entity |

| Revenue generation | Not permitted | Permitted (per IRC scope) |

| Contracting in own name | Not permitted | Permitted |

| Charter capital | None | Required (sector-dependent) |

| Setup time | 7-15 working days | 30-45 working days (fast-track 15) |

| Setup cost | USD 3-8K | USD 8-25K |

| Annual compliance cost | USD 5-15K | USD 15-50K |

| Corporate income tax | None (no taxable income) | 20% standard |

| VAT | None | 10% standard |

| Maximum staff (practical) | 10-15 | Unlimited |

| Term | 5 years (renewable) | Indefinite |

| Conversion to subsidiary | Available, 3-6 months | N/A |

Where the RO wins. Cost, speed of setup, low compliance overhead, no tax exposure on operations, and adequacy for genuine market-research and liaison activities. For a business genuinely scoping the market or supporting a foreign-parent contracting model, the RO is exactly fit for purpose.

Where the subsidiary wins. Operational capability — the ability to invoice, sign contracts, hire at scale, and build a Vietnamese business in its own right. Where revenue generation is part of the strategy, even modestly, the subsidiary is the only viable option.

Many foreign investors begin with an RO, validate the market over 12-24 months, then convert to a subsidiary as the operations scale. The conversion procedure is straightforward but takes time and requires planning.

The procedure is not technically a 'conversion' — Vietnamese law does not transform an RO into a subsidiary in a single step. Rather, the parent establishes a new subsidiary while the RO is wound down. The two entities can co-exist for a period; the RO is then closed once the subsidiary is operational.

Practical sequence: (1) prepare the subsidiary application (IRC then ERC) and target premises and management — typically 4-8 weeks of preparation; (2) file the IRC and ERC and obtain certificates — 30-45 working days; (3) contribute charter capital and begin operations — 90 days; (4) wind down the RO once the subsidiary is operating, typically over 1-2 months including final tax clearance and licence return.

Costs of the conversion process are essentially the costs of establishing the subsidiary plus the modest costs of winding down the RO. Total time from decision to fully operational subsidiary is typically 4-6 months. Investors should plan this transition rather than scrambling once an operational need (a customer who wants an invoice, a contract that needs to be in the local entity's name) forces the conversion.

When advising on this choice, I work through five questions with the client. Honest answers usually point clearly to one option.

Question 1: Will the Vietnam operation generate revenue from Vietnamese customers within the planning horizon? If yes, the subsidiary is required. If no, an RO can serve.

Question 2: Will the Vietnam operation sign contracts in its own name? If yes, the subsidiary is required. The RO can negotiate but only the parent can sign.

Question 3: How many staff will the Vietnam operation employ within 24 months? Up to 10-15 is comfortable for an RO; above that, the subsidiary is more practical, both for compliance and for management.

Question 4: Is the parent prepared to commit charter capital and to maintain Vietnamese tax and compliance overhead? The subsidiary requires real charter capital and meaningful compliance — not prohibitive, but real. If the parent is not prepared for that commitment, the RO is the right starting point.

Question 5: What is the strategic time horizon? For a 1-2 year market-test, the RO is often the right answer — establish a presence, validate, decide. For a multi-year operational commitment, the subsidiary is almost always the right structure from the start, even if scale is initially small.

Where the answers are mixed (some yes, some no), the typical right answer is to start with the RO, validate over 12-18 months, and convert to a subsidiary on a planned timeline. The reverse — starting with a subsidiary and finding it over-engineered — is rarer but also costly, since winding down a subsidiary is administratively heavier than winding down an RO.