A Kinds of Legal Entities for Foreign Businesses When Opening a Company in Vietnam

Vietnam is an attractive market with numerous business opportunities for foreign enterprises. However, to access this potential market, companies need suitable strategies and forms of presence. For companies based abroad that wish to explore the market, registering a Representative Office in Vietnam is one of the options, instead of a limited liability company, branch, etc. So, why do foreign businesses choose to establish a Representative Office in Vietnam? In this article, Onehub Saigon will explain the main reasons and the benefits that Representative Offices bring to foreign enterprises.

Why Do Foreign Businesses Choose Vietnam for Investment?

Vietnam is a strategically located country with a favorable business environment, active participation in significant trade agreements, and maintains stable GDP growth rates. These strengths attract foreign investments and provide favorable conditions for the business activities of foreign enterprises in Vietnam.

Vietnam is a country with a favorable strategic location

In terms of geographical location, Vietnam is situated in the heart of Southeast Asia, sharing borders with China, Laos, and Cambodia. This makes it easy for Vietnam to connect with major economies in the region such as China, Japan, and South Korea. Furthermore, with a coastline extending over 3,260 kilometers along with a system of deep-water ports, Vietnam serves as a vital gateway for businesses to access the vast ASEAN market as well as connect with Asia and the world.

Regarding the business environment, according to the World Bank’s Ease of Doing Business ranking in 2022, Vietnam ranks 70th out of 190 countries and territories, rising 23 spots since 2016. The Vietnamese government has implemented significant reforms to improve the business environment, such as streamlining administrative procedures, reforming investment policies, taxes, and customs. This attracts foreign investors looking to expand into the Vietnamese market.

Moreover, Vietnam is a member of 15 crucial free trade agreements like CPTPP and EVFTA with the EU. These FTAs help expand export markets, reduce import tariffs, enhance economic and legal cooperation with countries, thereby boosting foreign investment in Vietnam.

Vietnam’s economy also maintains stable growth, with a projected GDP growth of 8% in 2022 and 6.7% in 2023 according to the IMF. Macroeconomic stability provides investors with greater confidence when injecting capital into Vietnam.

Vietnam’s GDP growth in 2011 – 2022

Thanks to these advantages, Vietnam is increasingly attracting a multitude of Foreign Direct Investment (FDI) projects. According to the Ministry of Planning and Investment, the total FDI capital into Vietnam in the first 9 months of 2022 reached nearly USD 14.7 billion, a 7.8% increase compared to the same period in 2021. This signals that foreign investors highly appreciate the potential and investment opportunities in the Vietnamese market.

Establishing a Representative Office in Vietnam

In the context of Vietnam becoming increasingly appealing for foreign investment, many international businesses choose to establish representative offices to penetrate the market. The number of foreign Representative Office in Vietnam has sharply risen in recent years, reaching over 1,500 in 2022, nearly a 40% increase compared to 2020. So why do businesses favor this form?

Grade A office rent in Ho Chi Minh City is lower than major cities in the region

One of the biggest advantages is cost-effectiveness. According to a survey by Knight Frank Vietnam, the average rent for Grade A offices in the central areas of Ho Chi Minh City is approximately USD 57.6/m2/month in the third quarter of 2023. A representative from Knight Frank believes that the trend of reducing rents for Grade A offices is partly the result of new office buildings opening in outlying areas – where the rent are quite attractive compared to the central district 1.

Additionally, the procedures for establishing a Representative Office are straightforward, taking only about 1 month to become operational, helping businesses shorten the preparation time compared to establishing a subsidiary or joint venture. This overcomes the time barrier when entering a new market.

Procedures for setting up a representative office are simple

Representative Offices also serve as gateways for businesses to explore the market, promote trade, and communicate with partners before making long-term investment decisions. Support services such as legal advice, accounting, and recruitment also make initial operations smoother.

Therefore, with low costs, simple procedures, and initial effectiveness, establishing a Representative Office is becoming the choice of many foreign enterprises looking to explore and conquer the potential Vietnamese market.

Limitations to be Aware of

While representative offices bring many benefits to foreign businesses when entering Vietnam, this form still has some limitations to be aware of.

There are some limitations to note when setting up an office in Vietnam

• First, the activities of the Representative Office Vietnam are limited to market research and product marketing. Business and direct investment activities such as contract signing and importing goods are not allowed.
• Second, from a legal perspective, Representative Offices do not have legal status, so they face many disadvantages in transactions and contract signing in Vietnam.
• Third, the number of foreign staff working in the Representative Office is limited, with a maximum of only 3 foreigners according to the latest regulations. This affects the daily operations of the office in the new market.

A Thriving Business Ecosystem at Saigon High-Tech Park

Setting up a Representative Office at Saigon High-Tech Park (SHTP) will bring many benefits and development opportunities for foreign technology companies.

Set up a representative office at SHTP – Spacious, comfortable office space and many opportunities to connect and develop

• SHTP has a high-quality workforce in information technology and communication, with a concentration of many engineers, programmers, and top technology experts in Vietnam. This helps businesses easily access and utilize high-quality human resources for research and development activities.
• SHTP is the houseof many leading technology corporations in Vietnam and the world. Foreign businesses have the opportunity to collaborate on research and technology transfer with potential partners.
• The modern and synchronized infrastructure of SHTP, including transportation systems, internet, urban utilities, will effectively support the daily operations of the Representative Office Vietnam.
• The innovative and entrepreneurial community at SHTP provides many opportunities for learning, networking, and working with potential partners.
• The procedures for establishing businesses or investment projects receive maximum support from the management board of the high-tech park. Businesses have the opportunity to expand into direct investment later with simpler procedures.

In general, SHTP is an ideal destination for foreign technology companies to establish a Representative Office in Vietnam, maximizing the advantages of human resources, technology, and development opportunities. When choosing to set up a Representative Office at Ho Chi Minh City High-Tech Park, foreign businesses should consider Onehub Saigon with its attractive incentives.

>>> Read more: Why should you choose to locate an office in Saigon Hi-Tech Park?

Set up a representative office at Onehub Saigon – an ideal destination for foreign businesses

OneHub Saigon is a 12-hectare integrated business park, located in the Saigon High-Tech Park (SHTP). This is an ideal working space for foreign businesses intending to invest in:

• Suitable for businesses in high-tech fields such as microelectronics, information technology and communication, precision mechanics, automation and robotics, new and advanced materials, new energy, biotechnology, etc.
• Businesses will benefit from the city infrastructure, security, and amenities of OneHub Saigon, including 7 internationally standard office towers, multi-functional commercial area, training center, and entertainment facilities.
• Businesses will connect with leading high-tech businesses both domestically and internationally, as well as functional agencies and startup support organizations in SHTP.
• Businesses will participate in activities promoting trade, business cooperation, technology transfer, and high-quality human resource training in SHTP.

>>> Read more: Why choose to set up an office at Onehub Saigon?

How to establish a representative office in Vietnam?

Steps to establish and rent a representative office in Vietnam

5.1. Conditions

• Foreign businesses must be legally established and operating in their home country.
• The industry and business activities of foreign businesses are not prohibited from investing in Vietnam.
• Have a power of attorney from the foreign business to the individual representative to carry out the procedures for establishing the Representative Office.

5.2. Steps to Establish and Set Up a Representative Office Vietnam

• Register the business.
• Find a location and complete office rental procedures.
• Register for taxes.
• Register with relevant authorities.
• Prepare the registration dossier for the Representative Office.
• Wait for the operational license to be issued.
• Complete the remaining procedures after obtaining the license.

5.3. Rights and Obligations of Representative Office Vietnam

Enterprises setting up representative offices in Vietnam need to note the following rights and obligations:

• Comply with Vietnamese law.
• The Representative Office is a dependent unit of the business, with the task of representing and authorizing for the interests of the business and protecting those interests.
• The main function of the Representative Office is to represent, under authorization, the business, carrying out supporting, communicating, and engaging with partners in accordance with the Business Registration Certificate issued to the business.
• The name of the Representative Office must be written in Vietnamese alphabet, the letters F, J, Z, W, digits, and symbols. Additionally, the full name must include the name of the business followed by the phrase “Representative Office”.

Conclusion

The Vietnamese market is experiencing robust growth with stable GDP growth rates, a young population, and increasing per capita income. This presents a great opportunity for foreign enterprises to expand their markets and seek profits. Establishing a Representative Office helps foreign businesses quickly establish a presence in Vietnam, save costs, and enjoy the benefits and conveniences provided by Vietnamese law for Representative Office in Vietnam. This is the main reason why many foreign enterprises choose this form to enter the Vietnamese market.

>>> See more: Hybrid Working model is ideal for businesses