FOREIGN INVESTORS: CHOOSE A REPRESENTATIVE OFFICE OR AN FDI COMPANY

Author: Admin Date Submitted: 06/08/2026 06:47 PM

Many foreign investors entering the Vietnamese market spend significant time and incur substantial operating costs because they choose the wrong legal structure at the initial stage of their investment. Confusion regarding the legal powers of a Representative Office and an FDI Company may lead to serious consequences, as each model has a different scope of operation and different legal obligations. In this article, Lexsol provides a comparison of these two business models based on key legal criteria.

1. Overview

A Representative Office (RO) of a foreign trader in Vietnam is a dependent unit of a foreign company established in accordance with Vietnamese law for the purposes of conducting market research and carrying out certain commercial promotion activities, as prescribed in Clause 6, Article 3 of the Law on Commerce 2005.

An FDI Company (Foreign-Invested Company) is a company established under Vietnamese law in which a foreign investor is a member or shareholder, as provided in Clause 22, Article 3 of the Law on Investment 2025.

See more: Foreign Investment Legal Advisory in Vietnam

2. Comparison Between the Two Business Models

Criteria	RO	FDI Company
Market Research	Enables foreign investors to approach customers, conduct market research, assess consumer demand, and collect economic information legally in Vietnam. It also allows foreign companies to test the market without undergoing business registration procedures or committing investment capital.	May conduct comprehensive market research while having the ability to immediately implement commercial operations once market research has been completed.
Commercial Promotion	Commercial promotion activities are restricted[1]: - An RO is not permitted to conduct sales promotion activities; - For commercial advertising, product and service displays, exhibitions, trade fairs, and similar promotional activities, the RO may not carry them out independently but must act under authorization from the foreign company.	May independently conduct a full range of commercial promotion activities, including marketing campaigns, operating product showrooms, directly distributing products, and providing services in both the Vietnamese and international markets.
Execution of Contracts	May only execute contracts necessary for its internal operations (such as office lease agreements, procurement of office equipment, and employment contracts), or contracts specifically authorized in writing by the foreign company for each individual transaction[2].	May enter into contracts and other commercial transactions in its own name within its registered business lines without requiring authorization from the foreign investor, unlike an RO.
Issuance of VAT Invoices	As an RO does not directly conduct revenue-generating business activities, it is not permitted to issue VAT invoices.	May issue VAT invoices because it directly conducts revenue-generating business activities.
Employment	May directly recruit both Vietnamese and foreign employees.	May directly recruit both Vietnamese and foreign employees, generally on a larger scale than an RO.
Tax Obligations	- Corporate Income Tax: An RO is not subject to CIT because it does not generate business profits and does not have legal entity status. - Personal Income Tax: An RO is responsible for withholding, declaring, and remitting PIT on salaries and wages paid to its employees[3]. - Value-Added Tax: An RO is not subject to VAT because it does not conduct revenue-generating business activities.	Must fulfill applicable tax obligations, including Corporate Income Tax[4]; Personal Income Tax[5]; Value-Added Tax[6].
Term of operation	Maximum of 5 years or shorter depending on the term of the Parent Company's license[7].	Up to 50 to 70 years[8].

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3. Suitable business model

3.1. Foreign investors should establish a RO if they:

3.1.1. Conduct market research and explore the Vietnamese market;

3.1.2. Are not yet ready to make a long-term investment commitment;

3.1.3. Minimize initial legal compliance costs and tax obligations.

3.2. Foreign investors should establish an FDI Company if they:

3.2.1. Have clearly identified their business objectives and are ready to engage in revenue-generating business activities;

3.2.2. Need to enter into commercial contracts that generate revenue;

3.2.3. Need to issue VAT invoices and recognize revenue in Vietnam;

3.2.4. Intend to actively generate profits and reinvest capital.

4. Common Mistakes When Choosing a Business Model

These issues commonly arise because foreign investors are unfamiliar with Vietnam's legal system. Foreign investors should take note of the following:

4.1. Choosing to establish a RO while expecting to generate revenue quickly. Under this model, an RO is not permitted to enter into contracts that directly generate revenue.

4.2. Establishing an FDI Company without fully understanding the Vietnamese market, resulting in high compliance costs without generating corresponding revenue.

4.3. Confusing the rights and obligations of a RO with those of an FDI Company.

4.4. Confusing the operating term of a RO with that of an FDI Company.

4.5. Overlooking the validity period of the License for Establishment of a Representative Office. Under Vietnamese law, the license is valid for five (05) years, but its validity must not exceed the remaining validity period of the foreign trader's Business Registration Certificate (or an equivalent document) where such document specifies an operating term.

Foreign investors may also encounter various other issues when selecting the appropriate business model.

5. Conclusion

Choosing between a Representative Office (RO) and an FDI Company directly affects a foreign investor's operational capacity, tax obligations, and the speed of business implementation in Vietnam. To avoid procedural errors and minimize legal risks, you should contact Lexsol's team for detailed advice. Lexsol can review your specific case before your company proceeds with the establishment procedures.

[1] Clause 2, Article 18; Clause 2, Article 91; Clause 2, Article 118; and Clause 2, Article 131 of the Law on Commerce 2005.

[2] Article 17 and Clause 3, Article 18 of the Law on Commerce 2005.

[3] Clause 2, Article 3 of the Law on Personal Income Tax 2025.

[4] Articles 2 and 3 of the Law on Corporate Income Tax 2025.

[5] Clause 2, Article 3 of the Law on Personal Income Tax 2025.

[6] Articles 3 and 4 of the Law on Value-Added Tax 2024.

[7] Clause 1, Article 9 of Decree No. 07/2016/ND-CP.

[8] Enterprise law does not yet contain any specific provisions regarding the term of operation of an enterprise, except for the provisions under the Law on Investment 2025 regarding the operational duration of an investment project, which is capped at a maximum of 70 years within an economic zone and a maximum of 50 years outside an economic zone (Clause 1 and Clause 2, Article 31 of the Law on Investment 2025). Accordingly, the operational duration of the Company may be up to 50 years or up to 70 years, calculated from the date on which the business registration authority issues the Enterprise Registration Certificate.

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06/08/2026

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