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Knowledge Hub Vietnam
Cost of Operating a Representative Office
Latest Update: August 24, 2021
This is relevant for: Foreign companies running a Representative Office in Vietnam
In a hurry? 🏃♀️ to overview of costs by clicking here!
A Representative Office (RO) can be a relatively easy and low cost option to establish a sourcing operation or - well - representation. It often serves as a vehicle to employ local staff in Vietnam. While it has a lot of legal boundaries (shown here), investors may save some costs at establishment and administration because founding it is cheaper and accounting not as complex as with a Limited Liability Corporation.
Within this article, we will take a look at how much it costs to establish and operate an RO. All costs below are rough estimates and including 10% Vietnamese VAT.
🏗 RO Establishment
Legal registration
First step is to register the RO. This process should be supported by a lawyer. Typically, this partner will provide some initial consulting and send a list of to-be-provided documents to the investor. The law firm will submit these documents to the authorities and finalize the RO establishment. This process should take one to three months.
💸 Cost: EUR 2,400 (@ an international law firm)
HR Setup
Most ROs are externalizing their payroll processes. While this incurs monthly costs (see below) there will mostly also be a setup fee.
💸 Cost: EUR 100 per employee
HR Search
Looking for HR will typically take six weeks to two months. Further information on this process can be found here. Posting a job description online can be quite reasonable with roughly EUR 150 to 200 per position. Utilizing more extensive support from an HR consultant may cost two months gross salary or more. In our experience, most newcomers will use this more extensive service at the start and switch to online postings later.
💸 Cost: EUR 3,000 per employee (for HR consultant)
Procurement of IT equipment
Most of the laptops, cell phones and other IT tools available in Europe can also be found in Vietnam; albeit in some instances for higher prices . Typical items to be procured are laptop, screen, keyboard/mouse as well as a cellphone.
💸 Cost: EUR 2,500 per employee
Overall, the establishment of an RO may cost up to 💸 EUR 8,000 if one staff member is employed to it.
Overview: Setup Costs for an RO (incl. 10% VAT)
⚙️ RO Operation
Salary
The expectations for remuneration vary widely depending on qualification and position as displayed here. However, most likely, in a (small) RO there will be at least one high-skilled and experienced "Head of RO" (not necessarily the "legal" Chief Representative, see below). Hence, if just one person is employed, planning at least the following gross salary (including PIT/SHUI) might be prudent.
💸 Cost: EUR 1,500 per employee per month
Payroll and Accounting Service
These two functions will probably be outsourced due to the relatively small size of most ROs. It should be noted that an RO does not need to follow full accounting procedures. It only needs to submit an "Annual Report" to the authorities. Some "parent companies" abroad will however want to receive a monthly "expense report" which can be issued by an accounting firm or similar. There are numerous providers in the market (for German law firms, please click here).
💸 Cost: EUR 400 per month (if one staff member is employed)
Nominee Director/Proxy @ Legal Partner
We have discussed this here. For many young and/or small ROs it might be necessary/wise to appoint a nominee director/proxy to act as "Chief Representative" through a legal firm.
💸 Cost: EUR 700 per month
Secure RO Chop @ Legal Partner
Same as above, it might be necessary/wise to entrust the chop (stamp) to a lawyer.
💸 Cost: EUR 80 per month (invoiced annually)
Desk @ Co-Working Space
Many ROs will be "spawned" 👾 at co-working spaces. Renting a desk there with the purpose of RO registration may be a cost-effective alternative to renting a private office. Depending on the co-working space and "actual" use of the desk prices may vary heavily. More info on office space here.
💸 Cost: EUR 450 per month
Calculative Cost for the "Leading Employee"
One employee will have to take over certain administrative tasks regarding planning and administration, even if a payroll, accounting and proxy provider shoulders contact to authorities. These tasks will likely be done by the highest qualified and hence most expensive person in the team. When fulfilling them, this employee will not be able to focus on her primary job, e.g. doing sourcing. While there will not be "concrete" costs, there will be "calculative" (or opportunity) costs incurred. We assume that for an RO, about 10 % of the time of the "leading employee" depending on the external support given may be spent on such planning/admin tasks. These should be counted as costs of operating an RO in Vietnam.
💸 Cost: EUR 250 per month
Audit Fee
ROs are not obligated to be audited. Still, some "parent companies" might mandate such a validation.
💸 Cost: EUR 100 per month (invoiced annually)
🏁 Conclusion
Operating an RO with the above-mentioned costs may add up to EUR 4,700 per month or EUR 64k for the first year of operation (including RO setup) if one staff member is employed to it. Some costs can be internalized (such as proxy, chop or even accounting/payroll) but would then lead to more calculative costs (if an ordinary staff member does them) or to more actual costs (e.g., if an admin assistant will be employed).
Overview: Overall costs of an RO in its first year of operation (incl. 10% VAT)
📣 Commercial break for our services: Instead of establishing an RO as a vehicle to employ local staff it may be cheaper to outsource this "employing" function. With "Office-in-Office" we can offer to support clients with dedicated project managers for sales, sourcing and other roles. More information here on our website or by contacting us directly by mail. 📣
📊 👉 📧 If you would like to receive an excel list of the images above feel free letting us know by mail.
Please consider this information without liability for any data with respect to content, completeness or up-to-datedness. For legally valid information you should turn to a lawyer. A list of German law firms can be found here.
Overview
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