Update day: October 30 , 2023

Termination of the operation of foreign traders’ representative offices

For many years, foreign trader’s representative offices have played an important role in connecting, expanding markets and creating favorable conditions for business activities between countries. With rapid changes of the world, technology trends and legal regulations, the demand and the role of foreign trader’s representative offices have been strongly challenged.

The article below will share with you things to keep in mind when terminating the operation of foreign trader’s representative offices in Vietnam.

Table of contents:

1. When does a representative office terminate operation?

Different from other business models in Vietnam, representative offices of foreign traders are governed by commercial law and by management agencies which are the Department of Industry and Trade and the Department of Taxation. Therefore, the cases leading to the termination of representative office’s operation are also different from other operation forms. Accordingly, representative offices of foreign traders will terminate the operation in the following cases:

At the request of foreign traders.
When a foreign trader terminates its operation in accordance with the law of the country or territory where that trader was established or registered its business.
The operational period under the License for Establishment of Representative Office expires and the foreign trader does not request an extension.
The operational period under the License for Establishment of Representative Office expires without the Licensing Agency’s approval to extend.
License for Establishment of Representative Office is revoked. Accordingly, this license shall be revoked if (i) Not operating for 01 year and not having any transactions with the Licensing Agency, (ii) Not reporting on the activities of the Representative Office or Branch for 02 consecutive years, (iii) Failure to submit reports to the Licensing Agency within 06 months from the deadline for sending the report or making a written request.
Foreign traders and representative offices no longer meet one of the conditions prescribed by law, which are understood as conditions for competent authorities to allow foreign traders to establish representative offices in Vietnam.

2. Procedures for terminating operation of foreign traders’ representative offices

To terminate operation of a representative office, traders should pay attention to prepare documents including:

Notification of termination of representative office’s operation signed and sealed by the authorized representative of the foreign trader in accordance with regulations;
Copy of the Licensing Agency’s refusal of extension of the License for Establishment of Representative Office or the copy of Decision to revoke the License for Establishment of Representative Office;
The representative office’s report submitted to the Department of Industry and Trade from the time of establishment until now;
Seal sample certificate;
List of creditors and unpaid debts, including tax debt and social insurance debt;
List of employees and their current respective benefits;
The original License for Establishment of Representative Office;
Notification of the Department of Taxation on the tax code and issues related to the tax obligations of the Head of the representative office, of the employees working at the representative office, and other documents depending on each specific case.

Dossier for terminating operation shall be submitted to the Department of Industry and Trade. Within 03 working days from the date of receipt of the dossier, the Licensing Agency shall check and request additional documents if the dossier is not complete and valid. Requesting additional documents can be made at most once during the dossier processing. Within 05 working days from the date of receipt of all valid dossiers, the Licensing Agency is responsible for announcing on its website the termination of the representative office’s operation.

3. What should foreign traders pay attention to?

In fact, the dossier for termination of foreign trader’s representative office is complicated at the step of receiving notice of the representative office’s completion of tax obligations. Accordingly, in case the worker is a Vietnamese individual, confirming tax information is much simpler than that of foreign workers.

In this case, considering the tax obligations of foreign workers (the Head of representative office or the employee) is the most complicated thing. Because the tax authority shall consider the individual’s status as resident or non-resident to determine tax. In addition, making tax declarations at both the Vietnamese tax authority and the tax authority at the place where income is paid at the same time forces the tax authority to consider the global income tax finalization factor and compare with agreements between two countries under the Double Taxation Avoidance Agreement. This process takes a lot of time of foreign traders as well as the representative office.

The competent authority shall review the compliance of the representative office during its operation in Vietnam. Accordingly, before making a decision to terminate the operation of foreign trader’s representative office, the management agency shall review the activities that the representative office has carried out in Vietnam, including obligations of periodic reports. In case of violation, the violation handling shall be completed before carrying out the next work. Note that the current administrative fine for representative offices is quite high.

For the above reasons, we always propose that foreign traders pay attention to the legal compliance of representative offices in Vietnam. In case of necessity, traders can build specific management processes right from the beginning of establishment to ensure that the control of representative office in Vietnam is always maintained.

Time of writing: 24/07/2023

The article contains general information which is of reference value, in case you want to receive legal opinions on issues you need clarification on, please get in touch with our Lawyer at info@cdlaf.vn

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