From Representative Office to Subsidiary: A Simulated Case Study
Note: The scenario below is a simulated typical case based on practical experience with similar dossiers, not a specific client matter. All identifying information has been removed.
Background
An electronic-components manufacturing group (assumed headquartered in East Asia) had maintained a representative office (RO) in Ho Chi Minh City for 8 years, with 12 staff, mainly liaising with contract manufacturers and researching the market. When it decided to expand — signing sales contracts directly, issuing invoices, hiring at scale — the group asked: can a representative office be "converted" into a subsidiary?
Counsel's answer: there is no direct conversion procedure. But there is a proven 2-track roadmap, and this case study walks through each step.
The core legal issue
A foreign trader's RO is a dependent unit, not a legal entity. Under Article 18 of the Commercial Law 2005 and Decree 07/2016/ND-CP, an RO may only serve as a liaison office for trade promotion and market research — it may not conduct direct profit-generating activities in Vietnam.
A subsidiary is an independent Vietnamese legal entity with full business rights: signing contracts, issuing invoices, hiring without cap.
No legal bridge turns a dependent unit into an independent entity. So "conversion" is really two separate legal exercises run in coordination:
- Track A: form a new FDI company (IRC then ERC);
- Track B: terminate the RO in proper order.
Track A: Forming the new FDI subsidiary
The new company is formed like any FDI project:
- Apply for the Investment Registration Certificate (IRC) at the Department of Finance — dossier includes the project proposal, financial capacity proof, and the foreign investor's legal documents.
- Apply for the Enterprise Registration Certificate (ERC) after the IRC.
- Carve the seal, open the investment capital account, contribute capital on schedule, complete initial tax registration.
One decision to make early: the ownership structure. The foreign parent may own 100% of the new subsidiary or contribute capital alongside a partner. This affects the IRC dossier and the company charter, so finalize it before filing.
Track B: Terminating the representative office
This is the more complex track, touching multiple authorities. The practical sequence:
1. Notify the licensing authority. The foreign trader files the RO termination dossier with the Department of Industry and Trade. Under Article 36 of Decree 07/2016/ND-CP the dossier comprises: the termination notice on the Ministry of Industry and Trade's form; the list of creditors and unpaid debts (including tax and social insurance debts); the list of employees and their current entitlements; the original RO establishment license. The licensing authority checks the dossier within 3 working days (one supplement request at most) and publishes the termination on its website within 5 working days of receiving a complete dossier (Article 37).
2. Finalize tax — the longest step. Work with the tax authority to settle obligations: personal income tax of staff, contractor tax (if any arose), other taxes; then deactivate the tax code. In practice this takes 1–3 months, as the tax authority may re-examine several years of records.
3. Settle labor. Terminate labor contracts with all RO staff under Article 34 of the Labor Code 2019: full payment of wages, severance/job-loss allowances where eligible, social insurance book closure. Staff to be re-hired sign new contracts with the subsidiary — there is no automatic transfer of employment relationships between two different legal entities. Foreign employees need new work permits tied to the new employer.
4. Handle assets and contracts. RO assets (machinery, office equipment, vehicles) are liquidated or transferred to the new company under sale contracts with proper invoices — watch for VAT and CIT on value differences. The office lease is either terminated per its terms or assigned to the new company via a tripartite agreement with the landlord.
5. Close the bank account and handle the seal. Close the account after all financial obligations are settled. The RO's seal is handled under current seal-management regulations.
Note the blanket obligations in Article 38 of Decree 07/2016/ND-CP: beyond the above, the RO must publicly post the termination at its office, and the foreign trader remains responsible for performing contracts, paying debts (including tax debts) and fully settling the lawful rights of employees who worked at the RO.
Coordinating the two tracks: a practical 4–6 month timeline
| Phase | Track A (new company) | Track B (RO termination) |
|---|---|---|
| Months 1–2 | Prepare IRC dossier, finalize ownership | Draft termination plan, review outstanding tax/labor obligations |
| Months 2–3 | File and pursue IRC → ERC | File termination notice with the Department of Industry and Trade; start tax finalization |
| Months 3–5 | Open capital account, contribute capital, trial operations | Complete tax finalization, settle labor, transfer assets |
| Months 5–6 | Full operations, sign new contracts | Deactivate tax code, close bank account, finish |
The golden rule: only close the RO after the new company is operating stably. Closing too early creates a legal gap — staff with no new employer of record, interrupted counterparty contracts.
The three most common risks
1. The RO's hidden tax liabilities. Many ROs operating for years filed thinly; finalization then uncovers missing contractor tax or PIT. The cost is both money (tax plus penalties) and time across the whole roadmap. Lesson: run an internal tax review of the RO before launching the roadmap.
2. Labor disputes from mass termination. Terminating 10–20 contracts at once with miscalculated allowances or skipped dialogue invites claims. Each case must be computed on actual seniority.
3. Business interruption during transition. Customers and suppliers used to "Representative Office X" must suddenly contract with "Y LLC". Plan communications and sign tripartite assignment agreements before the new company goes live.
Action checklist
- [ ] Internal tax review of the RO before launching
- [ ] Finalize the new subsidiary's ownership structure
- [ ] Prepare the IRC dossier (project proposal, financial capacity proof, investor legal documents)
- [ ] Draft the RO termination plan: tax, labor, assets, contracts
- [ ] File the termination notice with the Department of Industry and Trade
- [ ] Finalize tax and deactivate the tax code
- [ ] Terminate labor contracts, close social insurance books, compute allowances correctly
- [ ] Sign new labor contracts with the subsidiary; new work permits for foreign staff
- [ ] Transfer/liquidate assets with proper invoices
- [ ] Tripartite agreements for contracts to be continued
- [ ] Close the RO's bank account after financial obligations are done
- [ ] Only close the RO once the new company operates stably
When to work with a lawyer
The 2-track roadmap touches at least 4 authorities (Finance, Industry and Trade, tax, social insurance) and 3 relationship groups (labor, assets, commercial contracts). Counsel helps review the RO's outstanding obligations before launch, design the coordinated timeline, draft tripartite assignment agreements, and handle issues with state agencies.
FLAT LAW FIRM has accompanied many investors through similar roadmaps. Call our hotline 0988424851 for advice on your specific case.
<div class="jpv-language-links" markdown="1"> Language versions: Tiếng Việt · English · 中文 </div>
References
- Commercial Law 2005 (Articles 16, 17, 18).
- Decree 07/2016/ND-CP dated 01/02/2016 (Article 17 on RO activities; Articles 35–38 on termination cases, dossiers, procedures and obligations).
- Investment Law 2025 (No. 143/2025/QH15), effective 01/3/2026.
- Labor Code 2019 (Articles 34, 46, 47).
