Foreign investors commonly establish Representative Offices (ROs) in Vietnam as an initial step to explore the market, conduct research, and promote business cooperation. Since ROs are not permitted to engage in profit-making or commercial activities, many investors eventually seek to convert their ROs into Foreign-Invested Enterprises (FIEs) once they decide to formally enter the Vietnamese market.
1. Legal Framework
Vietnamese law currently does not provide a specific legal procedure for the “conversion” of a representative office into a foreign-invested enterprise. Instead, this transition must be achieved through two separate but coordinated processes:
- Establishment of a new FIE: The foreign investor must apply for an Investment Registration Certificate (IRC) and Enterprise Registration Certificate (ERC) under the Law on Investment No. 61/2020/QH14 and the Law on Enterprises No. 59/2020/QH14.
- Dissolution of the representative office: Upon successful establishment of the FIE, the RO must be formally terminated in accordance with Decree No. 07/2016/NĐ-CP on representative offices and branches of foreign traders in Vietnam.
This effectively means that investors cannot “convert” an RO into an FIE by amendment; rather, they must establish a new legal entity and close the existing representative office in compliance with Vietnamese law.
2. Key Considerations
During this transition, investors should take into account the following practical issues:
- Contractual relationships: ROs cannot enter into contracts for profit-making purposes. Therefore, any ongoing arrangements must be reviewed and re-executed by the newly established FIE.
- Employees: Employment contracts under the RO should be lawfully terminated and new contracts concluded under the FIE. Proper notice and statutory entitlements must be observed to avoid labor disputes.
- Asset transfer: Office leases, equipment, and other assets may be transferred or liquidated depending on ownership and tax implications.
- Tax and reporting obligations: The RO must finalize all outstanding tax and social insurance obligations prior to dissolution, while the FIE must register for tax and accounting purposes from its date of incorporation.
- Timing and coordination: To ensure business continuity, the establishment of the FIE should be strategically aligned with the closure of the RO.
3. Strategic Advantages
Transitioning to an FIE allows investors to:
- Engage directly in revenue-generating activities;
- Participate in local procurement, sales, and service delivery;
- Expand operational control and strengthen their long-term market presence in Vietnam.
However, investors should also anticipate increased compliance responsibilities, including annual reporting, tax filings, accounting audits, and corporate governance obligations applicable to enterprises under Vietnamese law.
4. Conclusion
While Vietnam’s legal framework does not expressly recognize a direct “conversion” mechanism, the establishment of a new FIE and dissolution of an existing representative office remains a well-established and practical route for foreign investors seeking to formalize and expand their business activities in Vietnam.
A carefully planned and legally compliant transition ensures smooth continuity of operations and lays the foundation for sustainable commercial growth in one of Southeast Asia’s most dynamic investment environments.
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