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A representative office (RO – văn phòng đại diện) does not carry out profit-making business, so many parent companies assume closing it will be simple. In reality, closing a representative office still requires dealing with staff, finalizing personal income tax, and closing the tax code and bank account in the right order. ACCA Consulting Vietnam summarizes the process and the mistakes that drag the file out for months.
1. How does closing a representative office differ from dissolving a company?
An RO is a dependent unit of a foreign trader, with no separate legal personality, and it may not conduct business directly. Its tax obligations are therefore mainly the personal income tax (PIT/TNCN) of its staff and certain other withholdings, with no corporate income tax finalization as for a company. However, the RO still has a tax code and may have a bank account, a seal, an office lease and employment contracts that need to be closed out.
| Item | Representative office | FDI company |
|---|---|---|
| Licensing authority | The trade authority that issues the RO licence | Investment registration and business registration authorities |
| Main taxes | PIT, withholding on behalf of others | VAT, CIT, PIT, foreign contractor tax |
| CIT finalization | Not applicable | Mandatory up to the dissolution date |
| Assets, capital | Operating funds provided by the parent company | Charter capital, transferred through the DICA |
| Insurance | Yes, if it employs staff | Yes, if it employs staff |
2. Dealing with staff and social insurance
This is usually the most sensitive stage. Notify employees early and calculate in full their salary, untaken annual leave and allowances under their contracts and current regulations. Then close out each person's social insurance record.
As a reminder of the mandatory insurance rates for checking the final month: the enterprise/unit contributes 21.5% and the employee 10.5% of the salary subject to social insurance (BHXH). The chart below is an illustrative example for an assumed insurable salary of VND 20 million/month (approximately USD 784 at a reference rate of VND 25,500/USD).
Illustrative example at rates of 21.5% (17.5% + 3% + 1%) and 10.5% (8% + 1.5% + 1%). Check the rules for foreign employees separately.
View as table
| Employer contribution | Employee contribution | |
|---|---|---|
| Social insurance (BHXH) | 3,500,000 VND | 1,600,000 VND |
| Health insurance (BHYT) | 600,000 VND | 300,000 VND |
| Unemployment insurance (BHTN) | 200,000 VND | 200,000 VND |
3. PIT finalization and closing the tax code
As an income-paying organization, the RO must withhold, declare and finalize PIT for its staff up to the termination date. For foreign employees leaving Vietnam, remember to finalize before departure. See the general guidance in PIT finalization.
- 1Review filing periods
Check the PIT periods filed and identify any period with tax withheld but not declared.
- 2File the final period
Declare and pay PIT for the last month/quarter in which salaries were paid.
- 3Finalize
Prepare the PIT finalization up to the termination date.
- 4Other items
Check foreign contractor tax if the RO paid foreign organizations.
- 5Close the tax code
Submit the file to terminate the tax code and respond to requests for additional information.
No PIT return is required for a month or quarter in which no PIT was withheld. However, when closing the tax code the tax authority reviews the entire history, so any period with tax withheld but not declared will have to be dealt with before closure.
4. Checklist for closing a representative office
- Parent company decision to close the RO and appoint a person in charge
- Notice of termination sent to the licensing authority as required
- Terminate employment contracts and pay salaries, leave and allowances
- Close out insurance records and return social insurance books to employees
- Finalize PIT and pay any outstanding amounts
- Terminate the office lease and recover the deposit
- Complete the procedure to close the tax code
- Close the bank account and transfer the balance to the parent company
- Deal with the seal and archive documents for at least 10 years
5. Mistakes that prolong the process
- Closing the bank account too early: penalties or late-payment interest then arise and there is no account to pay them from.
- Filing the final-period return late: a late-filing penalty applies; for organizations 1–30 days late, VND 2–5 million (Decree 125/2020/ND-CP and its amending documents).
- No one left in Vietnam: the RO's chief representative returns home and no one can sign or receive notices from the tax authority.
- Lost documents: the income paid cannot be proven, requiring repeated explanations.
- Foreign contractor tax overlooked: payments to foreign suppliers that were never declared.
FAQ
Does an RO have to submit financial statements when it closes?
An RO does not prepare financial statements like a company, but it must still keep books and records of operating fund receipts and payments for explanation purposes. Periodic activity reports required by regulations must still be completed.
What if the RO's chief representative is a foreigner who has already returned home?
The parent company can authorize another person in Vietnam to carry out the procedures. The power of attorney must be legalized as required by the receiving authority.
Should we convert the RO into a subsidiary instead of closing it?
If the parent company wants to do business in Vietnam, setting up a subsidiary is the common route. The RO can then be closed once the new company is operating smoothly.
Close your representative office cleanly and in the right order
ACCA Consulting Vietnam provides accounting services in Ho Chi Minh City: closing the books, PIT finalization and following the tax code closure for ROs. Get advice.
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