The difference between a Representative Office and a Foreign Invested Company

In general, the most fundamental difference between a representative office and a Foreign Invested Company is that the company can process business activities while the representative office cannot.

The main functions of representative offices are contacts, market research and promotion of business investment opportunities. The scope of a representative office must not include business activities, signing contracts, amending or supplementing signed contracts.

Meanwhile, foreign invested companies have the right to conduct business activities. Foreign investors investing in Vietnam will receive many incentives according to government policies. It is also legal for foreign invested companies to sign contracts and improve their competitiveness in the market.

This difference leads to other differences in organization, management, operation, rights and obligations, etc., of these two forms, as follows:

Function:

• Representative Office: No business function, plays the role of contact point and market discovery
• Foreign Invested Company: Besides having the same functions as representative office, Foreign-Invested Company has the right to conduct business activities.

Ability to sign contracts:

• Representative Office: Not allowed to sign business contracts;
• Foreign Invested Company: Allowed;

Tax obligations:

• Representative Office: shall only declare personal income tax for laborers working in office and other charges and fees according to regulations;
• Foreign Invested Company: are subject to tax in accordance with the law of Vietnam including corporate income tax, value added tax, personal income tax, …

Profit:

• Representative Office: No profit
• Foreign Invested Company: Having losses / interests, fulfilling tax obligations and other financial obligations, ensuring payment of debts and other property obligations …;

Duration of operating license:

• Representative Office: 05 years and entitled to extension;
• Foreign-Invested Company: 50 years and entitled to extension;

In conclusion, depending on each purpose of market entry, investors can consider one of these two types.

If investors just want to research Vietnamese market, promote company, find investment opportunities without complementing direct business, they can choose to set up a representative office in Vietnam.

In contrast, if investors want to explore the current market to do business in the future in Vietnam, they should establish a company. Because of the establishment procedures and tax liability between these two types is similar, investors can avoid administrative procedures that slow down the business plan in case that investors want to do business.