FAQ: Can a Representative Office Sign Business Contracts in Vietnam?
"We have operated a representative office in Ho Chi Minh City for two years and now want to sign a distribution contract directly with a Vietnamese agent — can the RO sign it?" This is one of the most frequent questions FLAT receives from foreign traders. The short answer: no — and doing otherwise may cost the business its license.
This article answers the six most common questions on the permitted scope of a foreign trader's representative office (RO) in Vietnam under the Commercial Law 2005 and Decree 07/2016/ND-CP.
FAQs
1. Can a foreign trader's representative office sign business contracts?
No. As a rule, an RO may not sign profit-generating business contracts. Under the Commercial Law 2005, an RO functions only as a liaison office — market research and trade promotion — and may not directly conduct profit-making activities in Vietnam.
The sole exception: the Chief of the RO, duly authorized by the foreign trader, may conclude contracts within the scope of authorization. But the legal character matters: such contracts belong to the foreign trader (the parent company), not to the RO as an independent business entity. An RO has no business legal personality to become a buyer or seller in its own name.
Two violation patterns FLAT commonly sees: (i) the RO signing goods purchase or service contracts in its own name and collecting payment — disguised business operations; (ii) the Chief signing "on behalf of the parent" without a valid authorization instrument — exposing the contract to authority-to-sign disputes.
2. What is a representative office allowed to do?
Under Article 17 of the Commercial Law 2005, an RO of a foreign trader has three functions:
- Liaison — representing the foreign trader vis-à-vis partners and Vietnamese authorities;
- Market research — studying the market and gathering business intelligence;
- Promoting investment and business opportunities for the trader it represents — introducing and connecting, stopping short of revenue-generating transactions.
To serve these functions, the RO may: lease premises; hire Vietnamese and foreign staff (foreigners require work permits); and open foreign-currency and VND accounts for operational spending. All activities must stay within the establishment license and periodic reporting to the Department of Industry and Trade.
3. Can a representative office issue invoices or file taxes?
An RO is not a business unit and may not issue VAT invoices for sales — simply because it may not sell goods or services.
But "no business" does not mean "no tax obligations". An RO must:
- Hold its own tax code;
- File and pay personal income tax for its employees;
- Account for foreign contractor tax where triggered (e.g., the parent contracts with Vietnamese partners through the RO's facilitation — assess per transaction);
- Submit periodic activity reports to the Department of Industry and Trade per Decree 07/2016/ND-CP.
Common mistake: many ROs assume no business means no tax accounting — only to discover years of unfiled obligations during an inspection.
4. Can the Chief of the RO sign employment contracts or office leases?
Yes. The Chief may sign contracts serving the office's own operations: premises leases, recruitment, equipment purchases, accounting services — within the RO's functions and the foreign trader's authorization.
The dividing line is clear: contracts serving the RO's internal operations are permitted; profit-generating contracts with customers (goods trading, fee-based services) are prohibited. Where the line blurs — e.g., a "consulting" contract that is substantively a fee-based service — authorities look at the transaction's substance, not its label.
5. What are the penalties for an RO secretly conducting business?
Direct profit-making by an RO is activity beyond its licensed functions, with consequences that may include:
- Administrative penalties in the trade sector;
- Revocation of the RO establishment license for serious or repeated violations;
- A risk that ultra vires transactions are declared void, harming counterparties too.
When genuine business needs arise, the right move is to upgrade the presence model: establish an FDI subsidiary or a branch of the foreign trader — rather than running disguised operations through the RO. Compliance costs are always cheaper than enforcement costs.
6. Which model should replace an RO for business contracts?
Three alternatives, depending on objectives:
- FDI limited liability or joint-stock company: full business entity, may sign any contract within its registered business lines; suits long-term plans, large-scale hiring, market expansion.
- Branch of the foreign trader: may conduct goods trading and directly related activities per its license; suits traders focused purely on merchandise trade without wanting a new legal entity.
- Keep the RO + direct parent contracting: the RO handles liaison and research while the overseas parent contracts directly with Vietnamese partners. Note: this triggers foreign contractor tax obligations in Vietnam to be modeled in advance.
The choice should rest on a full analysis — business lines, scale, long-term plans, tax structure — not merely on "an RO is faster and cheaper to open".
When to work with counsel
Engage counsel when: (i) choosing between an RO, branch, and subsidiary for Vietnam entry; (ii) drafting the Chief of RO's authorization within legally permitted scope; (iii) assessing risks of contracts the RO has already signed; (iv) converting from an RO to an FDI company as business scales; (v) handling administrative violations for ultra vires activity.
For advice on the right presence model, contact FLAT Law Firm — hotline 0988424851.
References
- Commercial Law No. 36/2005/QH11 (effective 01/01/2006).
- Decree No. 07/2016/ND-CP on representative offices and branches of foreign traders in Vietnam (effective 10/3/2016).