This Article focuses on provisions affecting ROs as they are the simplest and most popular presence for foreign companies in Vietnam. ROs are not permitted to generate profit; instead, their role is to promote business opportunities for the parent company and to supervise the performance of contracts that the parent company has entered into with Vietnamese enterprises. Vietnam should encourage the establishment of ROs as they are often used by foreign companies to ‘test the market’ before committing to large investment projects.

It is thus unfortunate that Decree 72 makes it harder, not easier, to establish and operate ROs in Vietnam.

Time limit

Article 4.3 of Decree 72 re-introduces a five-year (extendable) limit on the duration of ROs. This is disappointing given that Decree 45 had abolished such limits in 2000. It is also inconsistent with Government regulations in specialist sectors such as banking, which permit ROs of unlimited duration.

Restriction on parent company

Decree 72 requires foreign companies to have been in operation for at least one year prior to applying for a RO licence. In practice, for tax or accounting purposes, many foreign firms prefer setting up offshore shelf companies to establish ROs in Vietnam. This will be difficult under Decree 72, as firms will have to wait one year after establishing the shelf company before applying for an RO in Vietnam. Even then, there is no guarantee that a shelf company set up, for example, in the British Virgin Islands could obtain an RO licence since generally it would not have an audited financial statement as discussed further below.

Onerous application procedures

Procedures for obtaining RO licence are more complicated under Decree 72. In addition to the written application and legalized certificate of business registration from the parent company’s home country (as required under Decree 45), the applicant must also provide a legalized copy of the parent company’s audited financial report for the previous financial year (or equivalent document evidencing the actual existence and operation of the parent company for the latest financial year) and the company’s charter. It may be difficult in practice for foreign companies to comply with these requirements. Some private enterprises may not have audited financial records. Even if they exist, translation and legalization of such documents will certainly increase the time and expense of RO applications, discouraging foreign investors from establishing ROs in Vietnam.

Article 6 of Decree 72 also gives the licensing authority broad discretion to reject an application. Six grounds for refusal are stipulated, including where documents are not ‘properly’ prepared, or where ‘supplementary’ documents are not provided, or in ‘other circumstances in accordance with the law’. The vagueness of these provisions opens the door for ad hoc interpretation by provincial-level officials with associated uncertainty and inconsistency in application. It is hoped that forthcoming circulars from the Ministry of Trade will clarify and confine these powers of authorities to reject applications.

Restrictions on chief representatives

Chief representatives of ROs are prohibited from holding certain positions under Decree 72. They cannot be the director or legal representative of another enterprise in Vietnam. Nor are they allowed to be the legal representative of the parent company. The policy reason behind these restrictions is unclear. In practice, a number of chief representatives are currently legal representatives of the parent company. They will be forced to resign one of these posts as a result of Decree 72, which may affect the viability of the RO.

It is noted that there are no restriction on a person acting as chief representative of more than one RO. However, it is unclear how the local licensing authorities will see this issue in practice. Some local authorities currently do not allow a person to be chief representative of more than one RO, relying on a provision from the Commercial Law that an RO cannot represent more than one foreign business entity.

Press announcements

Within 45 days from the issuance date of the licence, ROs are now required to publish details of the RO such as name, name of its parent company, office location, chief representative, etc for three consecutive days in a printed or electronic newspaper. This requirement is in addition to the requirement on notification to the local Trade Service Office on the operation of the RO. It is unclear what information is required to be stated in the notification. Under the previous Decree 45, ROs were required to notify the Service of Trade on the location of the RO, the number of Vietnamese staff, and the number of expatriate staff. This requirement seems to be simple on its surface. However, in practice, notification would take a number of weeks, and sometimes months, to complete due to documentary requirements such as a notarized lease contract attached to the notification. It is hoped that the notification procedures will be made as simple and practical as possible.

Termination of RO licence

Decree 72 lists certain circumstances where the RO needs to terminate its existing licence and re-apply for a new licence; where the RO changes its location to a different province, where the RO changes its name or changes the place of incorporation of the parent company to another country, and where the parent company changes details of its operations.

It is unclear why Decree 72 requires ROs to terminate their licence in such circumstances rather than allowing amendment. Changes in location, business name or business operations are common occurrences and termination could prove problematic for existing ROs in terms of their subsisting contractual obligations. For example, would ROs be required to pay severance allowance to employees when they terminate and obtain a new licence? Would existing lease agreements have to be novated? For the avoidance of doubt, the implementing circulars should address these points.

Re-registration requirement for existing ROs

Decree 72 also requires all existing ROs to re-register in accordance with the new provisions within 6 months of their entry into force. This is a very short time to re-register the thousands of ROs currently operating in Vietnam. It is also most unsatisfactory for investors who have recently obtained RO licences, only to be forced to submit a further application for re-registration.

Unfortunately, Decree 72 provides no guidance on the procedures of re-registration, so re-registration cannot commence until the issuance of implementing circulars. If the Government is serious about this 6 month timeframe then the procedures must be issued promptly, and kept as simple and automatic as possible. They should not require re-registering ROs to submit the same level of documentation as new applicants. The existing RO licence and a written application should be sufficient.