Foreign corporations entering Vietnam often debate between a Representative Office (RO) and an Employer of Record (EOR) arrangement before committing to a full company setup. Both structures provide on-the-ground capability without capital requirements of a subsidiary.
However, ROs and EOR models operate under distinct legal frameworks. An RO under Commercial Law 36/2005/QH11 is prohibited from commercial revenue generation. Conversely, an EOR under Labor Code 45/2019/QH14 covers only a limited set of listed roles (such as sales support and translation) through labor outsourcing under Decree 145/2020/ND-CP. Choosing the wrong vehicle creates compliance breaches and Permanent Establishment (PE) tax exposures.
1. The Legal Demarcation: Liaison Office vs. Labor Outsourcing
The legal basis of each model determines what it may do and who supervises it.
| Comparative Dimension | Foreign Representative Office (RO) | Employer of Record (EOR) |
|---|---|---|
| Governing Legislation | Commercial Law 36/2005/QH11, Decree 07/2016/ND-CP | Labor Code 45/2019/QH14, Decree 145/2020/ND-CP |
| Licensing Authority | Provincial Department of Industry and Trade (DOIT), or the zone Management Board inside an industrial or economic zone | No license to 28/02/2027; activity notice to the provincial Department of Home Affairs (DOHA) |
| Legal Entity Status | Dependent unit of offshore parent company | Tripartite labor outsourcing through a local provider |
| Parent Company Requirement | Minimum 01 year of certified legal operation | No operational history requirements for foreign client |
| Commercial Contracting | Strictly prohibited from signing sales contracts | The provider does not trade; sales contracts stay with the offshore parent |
| Capital Requirements | Zero statutory charter capital required | VND 2,000,000,000 bank escrow required for EOR provider |
Representative Office as a Dependent Unit
Under the Commercial Law 2005, a Foreign Representative Office is a dependent unit of a foreign enterprise established to conduct market research and promote parent business opportunities. It possesses no independent legal personality and cannot issue shares. Operational liabilities trace directly to the offshore parent.
EOR as a Regulated Labor Outsourcing Model
In Vietnam, the commercial concept of an Employer of Record maps strictly to statutory labor outsourcing (cho thuê lại lao động) under Articles 52-58 of the Labor Code 2019. The EOR agency acts as the de jure employer, executing local labor contracts, handling monthly payroll, remitting statutory insurance contributions, and obtaining expatriate work permits. The foreign client acts as the receiving enterprise (bên thuê lại lao động), directing day-to-day work tasks.
2. What an RO May and May Not Do under Decree 07/2016/ND-CP
The Decree defines the scope of a Foreign Representative Office. Exceeding it triggers administrative penalties.
| Permitted Operational Activities | Strictly Prohibited Operational Activities |
|---|---|
| Acting as a liaison office for communication with partners | Conducting direct commercial revenue-generating activities |
| Conducting non-profit market research and economic feasibility studies | Signing commercial contracts in the RO’s own name |
| Promoting business development and investment opportunities for parent entity | Issuing VAT sales invoices or collecting commercial sales proceeds |
| Supervising the implementation of contracts executed by parent company | Providing warranty, after-sales maintenance, or fee-based consulting |
The Commercial Prohibition Rule
The Decree establishes that an RO is confined exclusively to liaison functions, market research, and business promotion. The RO is legally prohibited from conducting direct commercial transactions, signing sales agreements, issuing value-added tax (VAT) invoices, or receiving sales proceeds from Vietnamese buyers.
All commercial contracts must be executed directly between the foreign parent company and local clients. The Chief Representative may sign commercial agreements only under a specific Power of Attorney (POA) from the parent company, legalized or apostilled, stating that the contract is entered into by the parent entity, not the RO.
Annual Reporting
Under Decree 07/2016/ND-CP (Article 32.1), an RO files an annual activity report with its licensing authority, the DOIT or the zone Management Board:
- Filing deadline: Before 30 January of the following year.
- Form: Form BC-1, issued under Circular 11/2016/TT-BCT.
3. Establishment Procedures and Licensing Timelines
An RO needs a license from the provincial Department of Industry and Trade (Sở Công Thương, DOIT) where the office is headquartered. Inside an industrial or economic zone, the zone Management Board issues it instead.
| Establishment Milestone | Statutory Timeline | Operational Benchmarks |
|---|---|---|
| Dossier Compilation & Legalization | 1 to 2 weeks | Consular legalization (or Apostille) of parent certificate, POA, and financial records |
| Dossier Submission | Day 1 | Filing through the licensing authority’s public administrative portal |
| Statutory Completeness Check | Within the licensing period | The authority verifies completeness and requests amendments if required |
| Substantive Review & Grant | 07 working days | The authority issues the Establishment License of the Representative Office |
| Post-Licensing Registration | 10 to 15 working days | Seal engraving, tax code registration, and operational bank account setup |
Core Application Dossier Requirements
Under the Decree, the application dossier comprises:
- Application Form: Registration notice signed by parent legal representative.
- Parent Certificate of Incorporation: Proof of at least 01 continuous year of operation (consularly legalized, or apostilled if issued by a Hague Apostille Convention member state, from September 11, 2026, under Decree 293/2026/ND-CP).
- Financial Statements: Financial reports or documents proving tax obligations for the latest fiscal year.
- Appointment Letter: Designating Chief Representative, with certified passport copy.
- Office Lease Contract: Signed lease agreement with valid commercial property title.
4. How an Employer of Record Works under the Labor Code
For foreign enterprises that need on-the-ground staff without incorporating, the Employer of Record (EOR) model can cover a narrow set of listed roles, such as sales support and translation, for a limited period. For a wider view of hiring routes, see the EOR vs direct hiring comparison.
| Regulatory Parameter | Statutory Rule (Labor Code 2019, Decree 145/2020/ND-CP) | Compliance Benchmark |
|---|---|---|
| Activity Notice | From 1 July 2026 to 28 February 2027 no outsourcing license is issued; the provider keeps the deposit, notifies DOHA and reports quarterly by the 5th (Resolution 66.18/2026/NQ-CP). Licensing under Article 22 of Decree 145/2020/ND-CP is suspended for that period | Ask the provider for its deposit confirmation and DOHA notice |
| Financial Escrow | Statutory bank deposit of VND 2,000,000,000 | Guarantees employee wage and insurance arrears |
| Maximum Term | Capped at 12 months per outsourced employee | Extensions require entity transition or restructuring |
| Permitted Positions | Strictly limited to 20 statutory job categories | Includes translators and sales support, as listed in Appendix II; excludes management positions and general IT roles |
Statutory Limits on Labor Outsourcing (Article 53)
Under Article 53 of Labor Code 45/2019/QH14:
- Labor outsourcing is permitted only for temporary workload surges, replacement of staff on maternity leave or absent due to work accident, occupational disease or civic duties, or roles requiring high technical expertise.
- Maximum duration for an outsourced employee at the receiving enterprise is 12 months.
- Outsourced labor cannot replace workers on strike or in a labor dispute, or workers dismissed for restructuring or economic reasons.
Operational Allocation of Liabilities
In an EOR arrangement, statutory liability is apportioned between the provider and the client:
- EOR Agency Responsibilities: Employer status, labor contracts, salary payment, insurance contributions (SHUI), tax withholding (PIT), and work permits under Decree 219/2025/ND-CP.
- Foreign Client Responsibilities: Operational management, KPIs, workplace safety oversight, and commercial direction.
5. Tax Governance, SHUI Compliance, and Permanent Establishment Risks
Operating an RO or EOR in Vietnam carries distinct tax and social insurance compliance profiles. Mismanagement exposes foreign enterprises to financial sanctions.
| Compliance Area | Foreign Representative Office (RO) | Employer of Record (EOR) |
|---|---|---|
| Corporate Income Tax (CIT) | Exempt (Provided no direct commercial revenue is generated) | Paid by EOR provider on its service margin; zero CIT on client |
| Value-Added Tax (VAT) | Exempt (Cannot issue VAT invoices or charge output VAT) | Standard VAT charged on EOR service fee (10%; 8% through 31 December 2026 where eligible) |
| Personal Income Tax (PIT) | Withholding and finalization under current PIT rules for RO staff | Handled entirely by EOR provider via payroll withholding |
| Social Insurance (SHUI) | Mandatory enrollment for local staff (32% total rate) | Enrolled and remitted directly under EOR provider’s code |
| Permanent Establishment Risk | High if staff negotiate terms or sign commercial contracts | Not eliminated: depends on who negotiates and concludes contracts |
Permanent Establishment (PE) Risk for Representative Offices
An RO is exempt from Corporate Income Tax because it generates zero revenue. However, if RO staff negotiate pricing, execute sales orders, or habitually conclude contracts on behalf of the offshore parent, tax authorities can re-characterize the RO as a Permanent Establishment (Cơ sở thường trú) under DTAs and CIT legislation.
Upon PE reclassification:
- The offshore parent becomes subject to Vietnamese CIT (20% on attributed net income or deemed FCT rates).
- Tax authorities assess retroactive tax liabilities, late interest (0.03%/day), and evasion penalties.
- The DOIT can initiate proceedings to revoke the RO Establishment License.
Social Insurance and Work Permit Compliance
Both RO and EOR models must comply with Vietnam’s labor and immigration mandates:
- Social Insurance (SHUI): Under Law 41/2024/QH15, employers enroll Vietnamese staff under labor contracts of 1+ month. Total contribution rate is 32% of salary (employer 21.5%, employee 10.5%).
- Work Permits: Under foreign worker regulations (including Decree 219/2025/ND-CP), foreign staff must obtain a work permit or exemption. Because an RO lacks charter capital, personnel cannot claim the VND 3B capital investor exemption.
6. Decision Matrix and Transition Roadmap to LLC Incorporation
Selecting between an RO, an EOR, or a full foreign-invested subsidiary (see the company vs representative office vs branch office comparison) depends on your market horizon, headcount plans, and whether you need to generate revenue.
| Decision Parameter | Representative Office (RO) | Employer of Record (EOR) | Foreign Subsidiary (LLC) |
|---|---|---|---|
| Commercial Intent | Market exploration and liaison | Short pilot with listed support roles | Full manufacturing or trading |
| Time to Market | 3 to 4 weeks | Depends on the provider | 4 to 6 weeks once the dossier is complete and valid |
| Annual Operating Budget | Low (Office lease + 2-3 support staff) | Medium (Salary + 10-25% EOR markup) | Full corporate overhead |
| Revenue Authorization | Strictly prohibited | None by the provider; contracts stay with the parent | Fully authorized with local VAT invoices |
| Optimal Lifespan | 1 to 3 years | 6 to 12 months | Long-term corporate investment |
Decision Rules
Three rules cover most cases:
- Choose an RO if: The enterprise requires a liaison office to monitor supply chains and conduct research without direct sales.
- Choose an EOR if: The business needs listed support roles (for example sales support) for a temporary surge, within the 12-month limit.
- Move to an LLC when: The 12-month outsourcing limit approaches, headcount exceeds 5-8 staff, or local VAT invoicing and imports are required.
Moving from an RO to a Subsidiary
A common sequence is to keep the RO open until the subsidiary can trade, then close it. In practice, this order avoids a gap in staff, payroll and tax filings:
- License the subsidiary first. Obtain the IRC and ERC, open the capital account, and register the digital signature and e-invoices before anyone moves.
- Move the staff. End each RO labor contract, paying severance where the employee qualifies, and sign new contracts with the subsidiary. Register the team under the subsidiary’s social insurance code and close or finalize the RO’s account.
- Re-sponsor expatriates. The subsidiary applies for new work permits under Decree 219/2025/ND-CP.
- Settle RO taxes. As part of closing its tax code, the RO finalizes personal income tax for its staff and settles any foreign contractor tax.
- Close the RO. The parent files a termination notice with the licensing authority under Decree 07/2016/ND-CP and returns the licence.
Moving from an EOR to a Subsidiary
When transitioning from an EOR to a Limited Liability Company (LLC):
- Licensing Phase: Incorporate the LLC by obtaining the IRC from the Department of Finance (or Industrial Zone Authority) and the ERC through the Business Registration Office.
- Labor Novation: Execute tripartite labor transfer agreements, preserving accrued seniority under direct LLC contracts.
- Work Permit Transition: Re-sponsor expatriate work permits under the LLC pursuant to Decree 219/2025/ND-CP.
In one ICLV engagement, a foreign medical-device manufacturer used a two-step route: five to six sales and technical staff were placed with an EOR provider to support its distributors while the subsidiary worked through its IRC, ERC and sector licences, and the team then moved to the subsidiary with seniority preserved. The route let the client support the market up to about six months before full licensing.
Indochina Link Vietnam provides representative office licensing and market entry guidance. Our specialists handle licensing compliance, Permanent Establishment risk and entity transitions. Contact our corporate advisory team to determine the optimal structure for your business.
