1. Legal basis

– Investment Law 2020

– Decree No. 118/2015/ND-CP dated November 12, 2015 of the Government regulating investment in the form of public-private partnership (PPP)

– Decree No. 60/2015/ND-CP dated June 26, 6 of the Government regulating investment in the form of build-own-operate (BOO), build-own-transfer (BOT), build-transfer (BT)

– Enterprise Law 2020

– Decree 01/2021/ND-CP dated January 04, 01 of the Government on business registration

2. What is an affiliate?

According to Clause 1, Article 44 of the Enterprise Law 2020, it is stipulated:

“A branch is a dependent unit of an enterprise, tasked with performing all or part of the functions of the enterprise, including the function of authorized representative. The branch’s line of business must be consistent with the business line of the enterprise.”

A branch is a unit under an enterprise, a branch is established for the purpose of expanding the scale and business market of the enterprise. According to Article 84 of the Civil Code 2015, the branch does not have legal status.

Regarding the permitted location of branches, enterprises can set up one or more branches and representative offices in a locality according to the boundaries of administrative units and can establish branches at home and abroad.

3. Conditions for granting licenses for establishment of foreign company branches in Vietnam

Pursuant to Article 8 of Decree 07/2016/ND-CP on Conditions for granting a branch establishment license:

“Foreign traders shall be granted branch establishment permits when satisfying the following conditions:

• Foreign traders established or registered for business in accordance with the laws of countries and territories acceding to treaties to which Vietnam is a contracting party or recognized by the laws of these countries and territories;
• Foreign traders that have been operating for at least 05 years from the date of establishment or registration;
• Where the business registration certificate or a document of equivalent value of a foreign trader stipulates the operation term, such term must be at least 01 year from the date of submission of the application;
• The operation contents of the branch must be consistent with Vietnam’s commitments to open the market in international treaties to which Vietnam is a contracting party and in accordance with the business lines of foreign traders;
• In case the operation contents of the branch are inconsistent with the commitments of Vietnam or foreign traders not belonging to countries or territories acceding to treaties to which Vietnam is a contracting party, the establishment of the branch must be approved by the Minister of specialized management”.

4. Extension of branch establishment license

• The application for renewal of the Branch Establishment License must be submitted within at least 30 days before the License expires.
• Foreign traders submit dossiers in person or by post or online (if eligible) to the Ministry of Industry and Trade.
• Within 03 working days from the date of receipt of the dossier, the Ministry of Industry and Trade shall check and request additional if the dossier is incomplete and valid. Requests for additional documents are made up to once during the application processing process.

• Within 05 working days from the date of receipt of a complete and valid dossier, the Ministry of Industry and Trade shall extend the branch establishment license. In case of non-renewal, there must be a written statement clearly stating the reason.
• In case the extension of the branch establishment license is not specified in specialized legal documents, the Ministry of Industry and Trade shall send a written request for opinions of the specialized management ministry within 03 working days from the date of receipt of a complete and valid dossier. Within 05 working days from the date of receipt of the written statement from the Ministry of Industry and Trade, the Ministry of Specialized Management shall issue a written statement clearly stating its agreement or disagreement to extend the branch establishment license. Within 05 working days from the date of receipt of comments from specialized management ministries, the Ministry of Industry and Trade shall extend or not renew the branch establishment license for foreign traders. In case of non-renewal, there must be a written statement clearly stating the reason.

5. Responsibilities of branch heads

• The head of the branch legally represents the branch before the law and the authorities.
• Responsible for managing and operating the branch in accordance with the law and decisions of the parent company’s board of directors.
• Ensure the operation of the branch complies with the laws of Vietnam and other relevant regulations.
• Regularly report on the operation of the branch to the parent company and competent state agencies.
• Exercising rights and performing obligations as prescribed by the Law on Investment and other regulations related to investment of foreign investors.
• To abide by decisions and instructions of the parent company and the parent company’s board of directors.
• Protect the rights and interests of the parent company and its affiliates, not causing damage to the rights and interests of the parent company.
• Participate in developing development strategies, branch business plans and proposals for the parent company.

6. Competence to grant licenses for establishment of foreign company branches in Vietnam

Pursuant to Article 6 of Decree 07/2016/ND-CP stipulating the competence to grant branch establishment licenses as follows:

“The Ministry of Industry and Trade shall grant, re-grant, adjust, extend and revoke the branch establishment license and terminate its operation in case the branch establishment has not been prescribed in specialized legal documents”.

Thus, in principle, the Ministry of Industry and Trade will have the authority to grant licenses for establishment of branches of foreign traders in Vietnam (unless otherwise provided for by specialized laws).

7. Cases of non-issuance of a license for establishment of a branch of a foreign company in Vietnam

The agency issuing the branch establishment license shall not grant a branch establishment license to a foreign trader in the following cases:

• The branch is not financially qualified: If the branch does not have enough finance to maintain its operations and fulfill its commitments in accordance with the provisions of law.
• Activities not in accordance with the provisions of law: If the operation of the branch violates the regulations, commitments or laws of Vietnam.
• Permitted field of activity: If the field of activity proposed by the branch is not allowed according to the provisions of law.
• Fraud, violation of investment regulations: If a branch provides false information, fraud or violates investment regulations when proposing to establish a branch.
• Violation of national security or national interests: If the branch violates national security, national interests or affects social stability, security and public order.
• Failure to meet mandatory requirements: If the branch does not fully and accurately meet the required requirements in the permit application process.

8. Dossier of branch establishment

• Application for establishment of a branch of a foreign company in Vietnam
• Certificate of business registration (consular legalization – judicial notarized translation)
• Operation charter of an external company’s branch in Vietnam – 2 copies
• A document appointing the head of the branch at the same time clearly stating the scope of operation
• Audited financial statements for the most recent year. (judicial notarized translation)- 3 copies
• Venue lease agreement
• Passport (or Citizen ID) copy of the head of the branch – 5 copies

Place of application: Department of Industry and Trade where the enterprise intends to set up its head office

Settlement time: Within 03 working days, the Department of Industry and Trade shall grant the operation license of the branch, if refusing, it must notify the trader and clearly state the reason.

Dossiers for establishment of foreign company branches in Vietnam need to be prepared:

• A copy of the business registration certificate or a document of equivalent value of the foreign trader certified by the competent authority where the foreign trader is established or registered. Where a business registration certificate or a document of equivalent value stipulates the operation term of a foreign trader, such term must be at least 03 years;
• Audited financial statements or other documents of equivalent value proving the existence and actual activities of foreign traders in the most recent fiscal year;
• Passport/ID card of the head of the representative office;
• Office lease agreement.

Note:

• Foreign papers and documents must be translated into Vietnamese, certified by diplomatic missions and consular offices of Vietnam abroad and consular legalization in accordance with the provisions of Vietnamese law.
• In case, the investor authorizes other organizations or individuals to carry out the procedures, when submitting the application, they must present the ID card/passport/legal personal identification and the authorization document.

9. Procedures for applying for a license to establish a branch of a foreign company in Vietnam

Step 1: Prepare documents, complete legal documents

Step 2: Apply, track and receive registration results

Competent authority to receive and license: Ministry of Industry and Trade

• Application form: Submit paper copies (01 set) according to traditional one-stop administrative procedures. The licensing period is 15 days from the time the application is valid. According to the time stated in the appointment certificate, the applicant brings the appointment letter to the Ministry of Industry and Trade to receive the license to establish a branch of a foreign company in Vietnam.
• Within 03-07 working days from the date of receipt of the dossier, the licensing agency shall inspect and request additional if the dossier is incomplete and valid. Requests for additional documents are made up to once during the application processing process.

Step 3: Make a round seal of the branch and representative; buy digital signatures and open a bank account for the branch after obtaining an operation license.

Step 4: Carry out procedures for registration of Tax Code and Customs Code for foreign company’s branch in Vietnam.

Step 5: Post the branch establishment license information in a written or electronic newspaper in 03 consecutive issues, do this within the first 45 days from the date of receipt of the license.

Step 6: The branch notifies the Ministry of Commerce and the local Department of Commerce about the opening of operations.

Step 7: Publish information about the branch.

Within 15 days from the date of issuance, re-issuance, modification, renewal and revocation of a branch establishment license, the licensing agency shall publish on its website the following contents:

• Name and address of the head office of the branch;
• Name and address of the head office of the foreign trader;
• Head of Branch;
• Number, date of issuance and duration of the license for establishment of a branch or licensing agency;
• Contents of the Branch’s activities;
• Date of re-issuance, adjustment, renewal and revocation of the Branch Establishment License.

10. Service of setting up a foreign company branch at KALF

• Initial Consultation and Evaluation:

Advising on legal regulations related to the establishment of foreign company branches in Vietnam. Evaluate requirements, conditions and necessary procedures.

• Planning and Strategy:

Advising on company structure, business lines, investment capital, management, tax, finance.

Develop a strategic plan for the new branch.

• Carry out establishment registration procedures:

Support customers to prepare and submit documents for branch establishment. Monitor and supervise the application process.

• Paperwork and Legal Processing:

Carry out procedures related to the receipt of investment licenses, business registration certificates and other documents.

• Tax and Finance Consulting:

Provide information on tax regulations for foreign-invested enterprises.

Advising on financial management and financial reporting.

• Management and Development Support:

Assist in managing the day-to-day operations of the branch.

Regular advice on business development, market expansion and performance improvement.

Our KALF Law Firm will ensure that all steps and procedures comply with Vietnamese laws and fully meet the necessary requirements to establish an offshore company branch legally and effectively.

11. Benefits of using KALF services

When customers use the service of setting up an offshore company branch at KALF, they can gain many important benefits, including:

• Professional advice:KALF will provide expert advice on processes, procedures and legal regulations related to the establishment of a foreign company branch.
• Ensure legal compliance:Support customers to ensure that all processes and procedures are carried out in accordance with Vietnamese laws.
• Optimize costs and time: Guide customers on how to optimize costs and time during branch establishment, helping to save money and maximize investment efficiency.
• Solve difficulties:Handle documents, documents, and legal procedures related to the establishment of a branch accurately and quickly.
• Optimizingstrategic plans: Advising on business strategic plans, investment capital, company structure, helping clients achieve long-term and sustainable benefits.
• Effective tax management:Provides information and advice on tax regulations related to foreign enterprises, helping clients manage taxes effectively.
• Business Management Support:Assist clients in managing and developing the day-to-day business operations of foreign company branches.
• Transparency and compliance: Ensure customers understand the regulations, benefits, and commitments of branch establishment, facilitating regulatory and regulatory compliance.

12. Frequently Asked Questions

What is the difference between branches and subsidiaries?

• First, on legal status:

Although the subsidiary depends on the parent company by capital or by the governance of the company, the subsidiary is still allowed to conduct business registration at the business registration office and be granted an enterprise registration certificate, so the subsidiary has legal status.

Company branches are established by the company at the business registration office and are only granted branch operation registration certificates without legal status.

• Second, on charter capital:

Due to being registered for business and having legal status, the subsidiary has charter capital to ensure business operations.

The company’s branch does not have charter capital because the operating capital of the branch is provided by the company.

• Third, on the tax code:

Due to its independent status in business registration activities, the subsidiary is granted a tax identification number independent of the parent company.

The company’s branch is only granted a dependent unit code of the enterprise in accordance with the law.

• Fourth, on the owner’s responsibility:

The owner of the subsidiary is only limited liability to the extent of capital contributed to the charter capital of the subsidiary.

As for the branch, the company that establishes the branch has unlimited responsibility for the activities of the branch.

• Fifth, on the obligation to pay corporate income tax:

Subsidiaries are not allowed to transfer profits that they can do business to the parent company, but must pay corporate income tax at the head office of their company.

The company’s branch is allowed to transfer profits to the company so that the company can pay corporate income tax on all profits from the company’s operations.

What are the conditions of the head of a branch of a foreign company?

Heads of branches of foreign traders may not concurrently hold the following positions:

• The head of the representative office of another foreign trader;
• The head of the representative office of the same foreign trader;
• The legal representative of an economic organization established in accordance with Vietnamese law.

What are the benefits and risks of setting up a foreign company branch in Vietnam?

Benefit:

• Market expansion and access to resources: Allows foreign companies to access the Vietnamese market and take advantage of local resources, including labor, raw materials, and customer networks.
• Enhanced credibility and reputation: Establishing a branch in another country demonstrates a level of interest and commitment to the new market, which increases the company’s credibility and reputation.
• Take advantage of tax and investment incentives: It is possible to enjoy tax incentives and investment policies that the country is applying to attract foreign investment.
• Learn and update new techniques: Exposed to other business and cultural environments, branches have the opportunity to learn and update new techniques and processes.
• Increased competition and profitability: By being present in multiple markets, the company can increase competition and increase profitability through scaling up operations.

Risk:

• Policy and legal risks: Changes in policies, regulations and laws in the country in which the investment is being made may affect the operations and profitability of the affiliate.
• Remote management difficulties: Remote branch management sometimes makes it difficult to monitor, adjust, and maintain operational performance.
• Financial and economic risk: The ability to be affected by economic fluctuations, exchange rates or other financial factors in that country.
• Cultural and linguistic challenges: Adjusting and adapting to new cultures and languages can be a challenge for the branch.
• Market competition and distribution: Competing with local companies and building efficient distribution networks is a major risk and challenge.

In summary, the decision to establish an offshore company branch should be carefully evaluated, thoroughly considered the benefits and risks, and expert consultation before implementation. During the research process, if you have any questions, please contact us through the following information:

K & ASSOCIATES LAW FIRM

Address: Floor 04, No. 05 Nguyen Thi Nhung, Van Phuc Urban Area, Thu Duc City, HCM

Email: info@k-associates.vn

Phone: (+84) 338747705 (Zalo, Facebook, Viber, Instagram)

Hotline: (+84) 937298177