Vietnam is an attractive country for foreign direct investments. Many international groups run manufacturing operations there. At the same time, representative offices are often the first step in order to “test the water”. That’s why Đinh Thị Hoàng Nhung, managing lawyer at HNLAW & Partners based in Ha Noi, sets out to show the legal framework for representative offices in Vietnam.
Ms Nhung, can a representative office of a foreign company in Vietnam sign a contract with a client on behalf of the foreign company?
Nhung: Under current Vietnamese regulations on representative offices, the scope of activities is rather narrow. It is only permitted to carry on non-revenue generating activities which are specified in its establishment license.
What does “non-revenue generating activities” mean?
Nhung: Representative offices are not permitted to engage in direct business activities, provide services relating to remittances in foreign currency by overseas and receive payments on behalf of affiliated offices, buy goods and commodities for export or to sell goods imported into Vietnam.
Does that mean that representative offices cannot have an implementation function for foreign companies in Vietnam?
Nhung: Correct – and representative offices cannot involve in the foreign company’s business implementation activities which are aimed at gaining profits. This means that representative offices cannot represent a foreign company for signing contracts.
Are there any exceptions for signing of contracts by representative offices?
Nhung: Signing a contract with a client is still able to be implemented by representative offices in a more strictly-managed way. Branches of foreign businesses in Vietnam, in case, the foreign company authorizes the Head of representative offices to sign, amend the signed contract, it must implement the authorization by the documentation for each time of signing, amending or supplementing the signed contract. Therefore, if there is any authorized contract for the foreign company needed to sign by the Head of the representative office, he or she shall sign on behalf of the foreign company and not for the representative office.
Which activities are permitted for representative offices in Vietnam?
Nhung: In general, a representative office can operate as contact office, promote cooperation projects of the foreign company in Vietnam, do market research in order to push up chances to purchase commodities, supply and consume commercial services of the foreign company in Vietnam. In addition, supervising implementation of the foreign company’s contracts signed with Vietnamese partners or related to the Vietnamese market are possible.
Talking about contact offices, what does this mean?
Nhung: It means that the representative office can operate as a contacting representative for the foreign company. Thus, it acts as an information connection network and business promotion channel between the foreign company and the client in Vietnam. The representative office can engage in signing a contract with the client on behalf of the foreign company through a letter of authorization or a contract for authorization.
Does that letter of authorization always need involvement of the authorized?
Nhung: No, it does not always need involvement of the authorized. But in some cases, No, its contents convey messages of unilateral authorization from the authorizer only. In this case, the letter of authorization also does not require that the authorized agrees and signs for the authorized contents. So, iIt also has no binding force for the authorized assignment.
Which formal measures are recommendable?
Nhung: We recommend to use a contract for authorization for ensuring commitments as well as protecting rights of the Head of the representative office as the authorized. The authorized contract can also eliminate legal risks through requirements for participation of both parties signing the authorization: the authorized and the authorizer.