Tax obligations for representative offices of foreign enterprises

1. Can representative offices of foreign enterprises be established in Vietnam?

According to the provisions of Article 3 of Decree 07/2016/ND-CP on the right to establish representative offices of foreign traders in Vietnam as follows:

“Article 3. Right to establish representative offices and branches of foreign traders in Vietnam Nam

1. Foreign traders are allowed to establish their own Representative Offices or Branches in Vietnam according to Vietnam’s commitments in international treaties to which Vietnam is a member.

2. A foreign trader is not allowed to establish more than one Representative Office or Branch with the same name within a province or centrally run city.”

In which, Foreign traders are defined according to Clause 1, Article 6 of the 2005 Commercial Law as follows:

Traders include legally established economic organizations, individuals operating commercially independently, regularly and with business registration.

Accordingly, foreign traders can be understood as legally established foreign economic organizations, individuals who are foreigners operating conduct trade independently, regularly and with business registration.

From the above regulations, we see that foreign traders are businesses that have the right to establish their own Representative Offices in Vietnam. However, in this case, the foreign enterprise must meet the conditions to be granted a License to establish a Representative Office according to Article 7 of Decree 07/2016/ND-CP as follows:

– Foreign traders are established and registered for business in accordance with the laws of countries and territories participating in international treaties to which Vietnam is a member or recognized by the laws of these countries and territories. receive;

– Foreign traders that have been operating for at least 01 year from the date of establishment or registration;

– In case the Business Registration Certificate or equivalent document of a foreign trader stipulates an operating period, that period must be at least 01 year from the date of application;

– The operational content of the Representative Office must be consistent with Vietnam’s commitments in international treaties to which Vietnam is a member. member;

– In case the operational content of a Representative Office is not consistent with Vietnam’s commitments or the foreign trader does not belong to a country or territory participating in an international treaty to which Vietnam is a member, the establishment of a Representative Office must be approved by the Minister or Head of the ministerial-level agency managing the sector (hereinafter referred to as the Minister of specialized management).

2. How is a representative office of a foreign enterprise established?

Foreign enterprises establishing a representative office prepare documents and carry out procedures according to Article 10 and Article 11 of Decree 07/2016/ND-CP as follows:

* 01 set of documents includes:

– Application for issuance License to establish a Representative Office according to the form of the Ministry of Industry and Trade signed by an authorized representative of the foreign trader;

– Copy of the Business Registration Certificate or documents of equivalent value of the foreign trader;

– Document of the foreign trader appointing/appointing the head of the Representative Office;

– Copy of the audited financial statement or document A confirmation of the performance of tax or financial obligations in the most recent fiscal year or documents of equivalent value issued by a competent agency or organization where the foreign trader is established or confirming and proving the existence and operations of the foreign trader in the most recent fiscal year;

– Copy of passport or ID card or citizen identification card (if Vietnamese) or copy of passport (if foreigner) of the person head of the Representative Office;

– Documents on the expected location of the Representative Office include:

+ A copy of the memorandum of understanding or location rental agreement or a copy of documents proving that the trader has the right to exploit and use the location to locate the Representative Office;

+ Copies of documents on the expected location of the Representative Office according to the provisions of Article 28 of this Decree and relevant laws.

Documents specified in Point b, Point c, Point d and Point dd (in case the copy of the passport of the head of the Representative Office is a foreigner) Clause 1 of this Article must be translated into Vietnamese and authenticated according to the provisions of law. Vietnamese law. Documents specified in Point b, Clause 1 of this Article must be certified or consularly legalized by Vietnamese diplomatic missions and consulates abroad in accordance with Vietnamese law.

* Order and procedures for granting a Representative Office Establishment License

– Foreign traders submit applications directly or by post or online (if applicable) to the issuing agency. License for the place where the Representative Office is expected to be located.

– Within 03 working days from the date of receiving the dossier, the Licensing Agency checks and requests additional information if the dossier is not complete and valid. The request for additional documents is made at most once during the process of processing the documents.

– Except for the cases specified in Clause 4 of this Article, within 07 working days from the date of receipt of complete and valid documents, the Licensing Agency shall issue or not issue the License to establish a Representative Office for foreign traders. In case of refusal to grant a license, there must be a document clearly stating the reason.

– In the case specified in Clause 5, Article 7 of this Decree and in case the establishment of a Representative Office has not been regulated in specialized legal documents, the Licensing Agency shall send a document to seek opinions from the specialized management Ministry within 03 working days from the date of receipt of complete and valid documents. Within 05 working days from the date of receiving the written request for opinions from the Licensing Agency, the Ministry of specialized management shall issue a document clearly stating its agreement or disagreement to grant a license to establish a Representative Office. Within 05 working days from the date of receiving the opinion of the specialized management ministry, the Licensing Agency shall grant or not grant the License to establish a Representative Office for foreign traders. In case of refusal to grant permission, there must be a document clearly stating the reason.

3. Does the representative office of a foreign enterprise carry out any tax obligations?

For representative offices of foreign enterprises in Vietnam, they will have to fulfill tax obligations for the following taxes:

– License tax;

– Personal income tax.

(1) Regarding license tax:

Pursuant to Clause 1 Article 1 of Circular 65/2020/TT-BTC regulates license fee payers as follows:

License fee payers are organizations, individuals, groups of individuals, households engaged in production and trading of goods and services specified in Article 2 of Decree 139/2016/ND-CP, except for the cases specified in Article 3 of this Decree and Clause 1 Article 1 Decree 22/2020/ND-CP, specifically as follows:

License fee payers are organizations and individuals engaged in producing and trading goods and services, except for the cases specified in Article 3 of this Decree, including:

– Enterprises established in accordance with the law.

– Organizations Organizations established under the Cooperative Law.

– Public service units established under the provisions of law.

– Economic organizations of political organizations, socio-political organizations, social organizations, socio-professional organizations, people’s armed units.

– Other organizations engaged in production and business activities business.

– Branches, representative offices and business locations of organizations specified in Clauses 1, 2, 3, 4 and 5 of this Article (if any).

– Individuals, groups of individuals, households engaged in production and business activities.

We see that representative offices of foreign enterprises are subject to tax. license fees.

However, in Clause 2, Article 1 of Circular 65/2020/TT-BTC regulates cases of license fee exemption as follows:

Cases of license fee exemption are implemented according to the provisions of Article 3 of Decree 139/2016/ND-CP and Clause 1, Article 1 of the Decree 22/2020/ND-CP. Particularly for cases of license fee exemption specified in Clause 1, Clause 2, Article 3 of Decree 139/2016/ND-CP and Clause 1, Article 1 of Decree 22/2020/ND-CP.

In which there are provisions:

Exemption of license fee in the first year of establishment or production and business activities (from January 1 January to December 31) for:

– Newly established organizations (issued with new tax codes, new business codes).

– Households, individuals, groups of individuals launching production and business activities for the first time.

– During the license fee exemption period, organizations, households, individuals, or groups of individuals that establish branches, representative offices, or business locations are exempt from license fees.

Thus, if a representative office of a foreign enterprise is established during the period when the enterprise is exempt from license fees, it may not have to pay license fees.

(2) Regarding personal income tax:

Representative offices are responsible for deducting, declaring and paying personal income tax for income from wages and salaries of Representative Office employees according to Clause 1, Article 1 of the 2012 Amendment to the Personal Income Tax Law and Point b, Clause 1, Article 25 of Circular 111/2013/TT-BTC.

Thus, foreign businesses can establish their representative offices in Vietnam if they fully meet the prescribed conditions. Tax obligations for Representative Offices include payment of license fees (except for exemptions) and personal income tax for Representative Office employees.