Tax accounting for representative offices of foreign traders

According to the provisions of Clause 2, Article 16 of the Commercial Law 2005, foreign traders have the right to establish a representative office in Vietnam. However, representative offices are only allowed to carry out trade promotion activities but not directly profitable activities in Vietnam; Therefore, the tax liability of a foreign representative office is narrower than that of a company. In this article, Viet An Tax Agent will provide information to customers about tax obligations for foreign representative offices.

Rights and obligations of foreign representative offices

According to Articles 17 and 18 of the Commercial Law 2005, it is stipulated that:

Foreign representative offices are not allowed to enter into and carry out directly profitable activities in Vietnam, but may only carry out trade promotion activities including sales promotion, commercial advertising, display and introduction of goods, services and fairs, etc  trade shows.

Tax obligations of foreign representative offices

Representative offices of foreign enterprises in Vietnam will have to fulfill tax obligations for the following taxes:

Tax obligations of foreign representative offices

License tax

Pursuant to the provisions of Article 2 of Decree 139/2016/ND-CP with the following contents: License fee payers are organizations and individuals engaged in the production and trading of goods and services, except for the case specified in Article 3 of this Decree, including

• Enterprises are established in accordance with law.
• The organization is established under the Law on Cooperatives.
• Non-business units are established in accordance with law.
• Economic organizations of political organizations, socio-political organizations, social organizations, socio-professional organizations, people’s armed forces units.
• Other organizations engaged in production and business activities.
• branches, representative offices and business locations of organizations specified in Clauses 1, 2, 3, 4 and 5 of this Article (if any).
• Individuals, groups of individuals and households engaged in production and business activities.

Thus, representative offices of foreign traders will be subject to license tax. However, there are also cases where the representative offices of foreign traders are not subject to license tax. Cases eligible for exemption from license fees include:

• Individuals, groups of individuals and households engaged in production and business activities with an annual turnover of VND 100 million or less.
• Individuals, groups of individuals and households engaged in irregular production and business activities; there is no fixed location under the guidance of the Ministry of Finance.
• Individuals, groups of individuals and households producing salt.
• Organizations, individuals, groups of individuals and households engaged in aquaculture, fishing, seafood and fishery logistics services.
• Commune cultural post offices; press agencies (print, audio, video, electronic newspapers).
• Branches, representative offices and business locations of cooperatives providing technical services directly in service of agricultural production.
• Commune People’s Credit Fund; cooperatives specializing in providing services for agricultural production; branches, representative offices, business locations of cooperatives and private enterprises doing business in mountainous areas. Mountainous areas are determined according to the regulations of the Committee for Ethnic Minorities.

Thus, if the representative office only performs transactions, office administrative and trade promotion tasks and does not conduct business activities as well as sign contracts, it is not required to pay tax.

For representative offices carrying out production and business activities, they will have to pay a license fee of 1,000,000 VND/year according to the provisions of Point c, Clause 1, Article 4 of Decree 139/2016/ND-CP.

Personal Income Tax

Unlike the license tax, personal income tax is a compulsory tax payable for representative offices of foreign traders, based on the provisions of Clause 1, Article 24 of Circular 111/2013/TT-BTC, Article 2; Article 3 of Decree 65/2013/ND-CP and Clause 2, Article 3 of the Law on Personal Income Tax.

When paying income tax, the representative office shall deduct, declare and pay personal income tax on the income from wages and salaries of the representative office employees

Procedures and payment of personal income tax shall comply with the guidance in Article 16 of Circular No. 156/2013/TT-BTC dated November 6, 2013 of the Ministry of Finance guiding the implementation of a number of articles of the Law on Tax Administration and Decree No. 83/2013/ND-CP.

The representative office must submit a monthly (quarterly) tax declaration dossier for the taxes incurred by the representative office that must be paid or paid on behalf of the representative office; taxes are not incurred, the representative office is not required to submit tax declaration dossiers. And the tax declaration dossier for Vietnamese individuals includes the following forms:

• Personal income tax deduction declaration (Form 02/KK-TNCN) (According to Circular 156/2013/TT-BTC)
• Detailed statement of regular income.
• Form for registration of dependents with family circumstance deduction (Form 16/DK-TNCN) (according to Circular 156/2013/TT-BTC) (If any) enclosed with supporting documents.

The time limit for a representative office to pay income tax and the tax registration declaration is divided into two cases:

For monthly tax returns

• No later than the 20th of the following month from the month in which the tax obligation arises for cases of declaration and payment on a monthly basis.

For quarterly tax returns

• No later than the 30th of the quarter following the quarter in which the tax obligation arises for cases of declaration and payment on a quarterly basis.

PIT finalization

• Annual PIT finalization for employees
• Tax finalization for representative offices as prescribed
• Submission of tax finalization reports to tax authorities

Report on the operation of the Representative Office

According to the Government’s Decree No. 07/2016/ND-CP detailing the Commercial Law on Representative Offices (Offices) and Branches of Foreign Traders in Vietnam: “Annually, before the last working day of January of the following year, the Representative Office or Branch must send a written report on its annual operation to the licensing agency set up representative offices and branches”.

Therefore, the Office is obliged to report, provide documents or clarify issues related to operations at the request of competent state management agencies.

Deadline for submission of annual operational reports

Offices should submit an annual operation report to the Department of Industry and Trade – according to the place where the license is issued, no later than January 30 of the following year.

What does the Office’s annual report on activities include?

Number of people who have/are currently working at the office (including the Head of Representative Office and staff):

• Information and number of current employees.
• Information and number of employees who have taken leave.

Office Activities:

• Commercial activities (Main activities and results achieved during the year).
• Other activities.

Tax accounting services for foreign representative offices of Viet An Tax Agent

• Advising on tax issues related to the operation of foreign representative offices in Vietnam;
• Consulting on issues related to labor contracts; work permits, temporary residence cards for foreign employees working at foreign representative offices in Vietnam;
• Consulting on the development of salary, bonus, welfare, social insurance, and health insurance regimes for employees working at foreign representative offices in Vietnam;
• Representatives for tax declaration and finalization for foreign representative offices in Vietnam;
• Make payroll, declare and submit PIT deduction declarations on a monthly basis;
• Make a cash fund book, review bank account statements with actual expenses of the Representative Office;
• Declaration and payment of social insurance to the representative office on a monthly basis;
• Declare and submit the annual PIT finalization declaration to the Representative Office;
• Make a letter confirming income and PIT deduction documents for employees of the Representative Office;
• Make an annual (annual) report and send it to the Department of Industry and Trade.

If you have any difficulties or questions related to the service of foreign representative office in Vietnam, please contact Viet An Tax Agent for the most specific advice.