This article provides guidance on how to establish a branch, representative office, or business location for a company, and how to file taxes for a dependent branch.
1. Regulations regarding the establishment of company branches
A branch is a subsidiary unit of a business, responsible for performing all or part of the business's functions, including the function of representation by authorization.
A branch is a unit dependent on the head office, legally established and possessing its own seal and bank account, but not completely independent in terms of assets. It must act in the name of the head office in legal relationships, not in the name of the branch itself, therefore a branch does not have legal personality.
Establishing a branch also has certain requirements, as follows:
Branch name conditions
– The branch name must be written using letters from the Vietnamese alphabet, the letters F, J, Z, W, numbers, and symbols.
– The branch name must include the company name followed by the phrase "Branch". For example, ABC Company Limited Branch or ABC Company Limited Long An Branch, etc.
– The branch name must be written or displayed at the branch office. The branch name should be printed or written in a smaller font size than the Vietnamese name of the enterprise on transaction documents, files, and publications issued by the branch.
– In addition to the Vietnamese name, a business branch may register a foreign name and an abbreviation. The foreign name is a translation of the Vietnamese name into one of the foreign languages using the Latin alphabet. The abbreviation is a shortened version of either the Vietnamese name or the foreign name.
– The proper noun portion of a business branch's name must not use the words "company" or "enterprise".
Branch office requirements
Similar to the company's headquarters, the location of a branch office also has certain requirements, such as:
– The branch's head office has a clearly defined address including house number, alley, lane, street, road or village, hamlet, commune, ward, town, district, county, city, province, or centrally governed city; telephone number, fax number, and email address (if any).
– Businesses have the right to establish branches both domestically and internationally. Businesses may set up one or more branches in one or more localities within administrative boundaries.
– Apartment units must not be used for purposes other than residential use.
Conditions regarding the business lines and activities of the branch.
The business lines of a branch must be consistent with those of the parent company. Therefore, when registering a branch, it can only register business lines within the scope of those already registered by the parent company. Furthermore, the branch does not necessarily have to register all the business lines of the parent company; it can register fewer business lines than the parent company.
Requirements for the branch manager
– The head of the branch must be an individual with full legal capacity;
– It could be someone else or a member of the company;
– The head of the branch may also be the legal representative of the enterprise;
– The head of the branch performs duties as authorized by the legal entity within the scope and time limit of the authorization.
2. Independent and dependent accounting branches
2.1. Common points
Businesses can choose either independent or dependent accounting for their branches. The common features of both accounting methods are:
– The personnel structure is organized by the parent company;
– The branch's working capital and business performance belong to the company;
– All branch activities must comply with the company's policies or authorizations.
2.2. Tax filing and accounting methods
Independent accounting branch
Independent accounting means that the branch's financial system is completely independent of the parent company. All economic transactions arising at the branch are recorded in the unit's accounting books, and the branch is responsible for self-declaration and tax settlement. This branch has its own seal and tax identification number (13 digits).
- The branch submits the corporate income tax return for income generated at its subsidiary to the tax authority that directly manages the subsidiary.
- Proactively determine taxable expenses and taxable income.
- Maintain complete accounting records and financial reports… for the independent branch only.
- The parent company compiles the accounting records for the parent company.
Dependent accounting branch same province
Provincial dependent accounting can be understood as a financial regime where the branch is entirely dependent on the parent company.
- Branches are not required to file corporate income tax, value-added tax, or personal income tax returns. The parent company is responsible for filing all returns at its head office, including those generated at its subsidiaries.
- The figures in the books are part of the company's accounting records.
- The branch only collects the documents and sends them to the head company at the end of the month for tax declaration and settlement.
- Subsidiary branches within the same province can share invoices with the parent company.
Dependent accounting branch different provinces
Although the branch's financial system remains entirely dependent on the parent company, there are differences in tax declaration and accounting as follows:
- Branches are not required to file corporate income tax and personal income tax returns. The parent company is responsible for filing centralized returns at its head office, including those generated at its subsidiaries.
- How to declare VAT for dependent branches in different provinces: Declare separately for the VAT portion of each branch in a different province.
- Maintain separate accounting records and inventory tracking for the branch related to VAT.
- Subsidiary branches located in different provinces use invoices issued separately from the parent company.
2.3. How to declare VAT for dependent branches
2.4. Procedures for dissolving a foreign-invested enterprise
The procedure for dissolving a foreign-invested enterprise is similar to that of a Vietnamese enterprise in the process of terminating the validity of its business registration certificate.
The procedure for dissolving a foreign-invested enterprise may involve two additional issues as follows:
- Procedures for terminating the Investment Registration Certificate for foreign-invested enterprises holding an Investment Registration Certificate (ERC).
- The procedure for transferring the remaining investment capital back to the home country is through the bank where the investment account/Capital Account was opened.
If you require this document, please contact Expertis for assistance.
3. Should a business establish a subsidiary or a branch?
What is a subsidiary company?
Simply put, a subsidiary company is a company in which the parent company owns more than 50% of the charter capital or the total number of common shares; or where the parent company has the right, directly or indirectly, to decide on the appointment of the majority or all members of the Board of Directors, the Director, or the General Director of that company; or where the parent company has the right to decide on the amendment or supplementation of the charter of that company.
What is a business branch?
A branch is a subsidiary unit of a business, responsible for performing all or part of the business's functions, including the function of representation by authorization.
Characteristics of Branches and Subsidiaries
Business Branch: Upon registering a branch, the branch will be issued a Branch Registration Certificate and a branch code based on the company's registration number. The branch will not have its own capital; its operating capital will be based on the capital of the parent company. The parent company is fully responsible for all obligations arising at the branch.
Subsidiary Company: Upon establishment, a subsidiary company will be issued a Certificate of Business Registration similar to a regular company and will have its own business registration number. The charter capital of the subsidiary company is clearly stipulated in the Articles of Association and recorded in the Certificate of Business Registration. The parent company is only liable for obligations arising in the subsidiary company to the extent of its capital contribution.
Should you establish a subsidiary or a branch?
Essentially, both subsidiaries and branches are capable of performing production and business functions such as participating in signing contracts for the purchase and sale of goods with partners and customers; carrying out production activities, etc. In addition, regardless of their form of establishment, both branches and subsidiaries are responsible for fulfilling their tax obligations.
Therefore, whether to establish a subsidiary or a branch will depend on the objectives of each entity.
When should you establish a branch office?
When you want to expand the company's scale.
+ Once a company has stabilized and developed to a certain level, opening branches becomes essential. Opening branches expands the company's market reach to a different locality or country, thereby enabling access to a wider customer base.
+ To accelerate the company's development and take its scale to a new level.
Promote the company brand everywhere.
Establishing multiple branches makes it easier for businesses to promote their brand on a wider scale. Naturally, a business with many branches will gain more recognition. This is one of the reasons why a company should establish more branches if it wants to grow.
Increase business productivity.
When a business wants to increase its productivity effectively, it should establish additional branches. The productivity generated by these branches will help supplement the company's revenue.
Therefore, if a business wants to achieve the three reasons above, it should establish a branch office.
When should you establish a subsidiary company?
– When an entity wants to invest and profit in new industries without affecting the parent company.
– This helps diversified companies break down their business activities into smaller, independent units, making management and operations easier. Specializing in a specific field allows the subsidiary to grow stronger and operate more efficiently.
– Reduces risk for the parent company, helping to lessen the workload for the parent company.
– The subsidiary receives a large amount of investment capital from the parent company, making it easier to invest in designs and machinery.
– This is especially true when undertaking a large project that requires multiple companies specializing in a particular area.
The goal of tax payment processing is to obtain confirmation from the tax authorities that there are no outstanding tax debts. To obtain this confirmation, businesses should follow the guidelines below.
1. In which cases is tax settlement not required upon dissolution?
Corporate income tax is paid as a percentage of revenue.
Businesses and organizations subject to corporate income tax at a percentage rate on revenue from the sale of goods and services as stipulated by the law on corporate income tax are undergoing dissolution or cessation of operations.
The business has not generated any revenue and has not used any invoices.
A business is dissolved or ceases operations, but from the time it was granted a Business Registration Certificate or Enterprise Registration Certificate until the time of dissolution or cessation of operations, the business has not generated any revenue and has not used any invoices.
Revenue has been generated and invoices have been issued, but the following conditions must be met:
Businesses subject to corporate income tax based on self-declaration may dissolve or cease operations if they meet the following conditions:
- The average annual revenue (calculated from the year before tax settlement or audit to the time the business is dissolved or ceases operations) does not exceed 1 billion VND/year.
- From the time a business has not yet undergone tax settlement or inspection until the time of its dissolution or cessation of operations, it has not been penalized for violating the law regarding tax evasion.
- The amount of corporate income tax paid from the year that has not yet been settled or audited until the time of dissolution or cessation of operations is higher than the corporate income tax if calculated as a percentage of revenue from the sale of goods and services.
|
Regulations regarding percentage of revenue
|
For the cases mentioned in points 1, 2, and 3 above, no later than 05 (five) working days from the date of receiving the dossier submitted by the taxpayer (including the dissolution or cessation of operations decision; documents proving that the taxpayer falls under the above-mentioned cases and has paid all applicable taxes, if any), the tax authority shall confirm that the enterprise has fulfilled its tax obligations.
2. Cases requiring tax settlement upon dissolution.
For cases where a business dissolves or ceases operations and does not fall under the exemptions mentioned above, based on actual needs, the tax authority directly managing the taxpayer will conduct tax finalization according to the plan issued by the tax authority.
To have the tax authorities plan the tax settlement for the dissolution of a business, the company needs to complete and submit the following procedures:
- A document from the General Department of Customs confirming the fulfillment of tax obligations related to import and export activities, if your business engages in import and export operations. Alternatively, a written commitment stating that there are no outstanding tax debts or other payments due to the State budget related to import and export activities up to the date of the tax debt confirmation from the General Department of Customs, and that the business takes responsibility for this commitment.
- Minutes of asset liquidation (if any assets are to be liquidated).
- Notification of invoice cancellation results and report on invoice usage up to the time of filing the dissolution application.
- Corporate income tax (CIT) settlement report and personal income tax (PIT) report up to the time of submitting the dissolution application.
- Submit Value Added Tax (VAT) returns up to the time of submitting the business dissolution documents.
- Financial statements are prepared up to the settlement date. FDI enterprises must submit corresponding audited financial reports.
Time limit for processing dissolution documents at the tax authority.
After submitting all the above-listed documents, the deadline for tax settlement to dissolve the company is forty-five (45) days from the date of submission of all documents. During this time, the business needs to prepare thoroughly, complete accounting books and appoint personnel to handle explanations to work with representatives of the tax authority.
The goal of settling social insurance obligations is to obtain confirmation from the social insurance agency that there are no outstanding social insurance debts. To obtain this confirmation, businesses should follow the guidelines below.
In addition to fulfilling its obligations to employees, businesses are also responsible for confirming the completion of their financial obligations to the social insurance management agency as follows:
1. Finalize the employee's insurance record as follows:
According to Article 47 of the Labor Code, the following is stipulated: “Article 47. Responsibilities of the employer upon termination of a labor contract: Within 07 working days from the date of termination of the labor contract, both parties are responsible for fully settling all amounts related to the rights and benefits of each party; in special cases, this period may be extended but not exceeding 30 days.”
The employer is responsible for completing the verification procedures and returning the social insurance book and other documents that the employer has retained from the employee.
2. Please confirm that you do not owe any mandatory insurance premiums:
- Conduct a reconciliation of mandatory social insurance contributions up to the time of dissolution.
- Please confirm that you have no outstanding social insurance debts.
The goal of settling import and export tax obligations is to obtain confirmation from the Customs authority that there are no outstanding import and export tax obligations. To obtain this confirmation, businesses should follow the guidelines below.
1. Principles of Obligation Confirmation
Goods subject to export and import taxes must be paid before customs clearance or release. This excludes cases where the taxpayer is entitled to preferential treatment as stipulated in the Customs Law.
Therefore, most import and export taxes have been paid in full, except for cases where issues arise requiring post-audit: Export processing; Tax adjustments discovered before dissolution.
2. Verification procedures
The documents required to confirm that there are no outstanding customs tax debts for the purpose of dissolution include:
- I would like to confirm that I have no outstanding customs tax debts.
- Minutes of the meeting, decision to dissolve the company.
- Copies of the business registration certificate and establishment decision of the entity (certified).
Within 5 working days, the General Department of Customs will issue a written response regarding whether or not the unit owes customs tax.
Upon receiving a confirmation letter from the General Department of Customs stating that the business has no outstanding tax debts, the business must submit this document to the tax authorities before its tax identification number expires.
The Enterprise Law stipulates who organizes the liquidation of assets and the order of debt payment. Accordingly, the owner of a private enterprise, the Board of Members or the owner of a company, or the Board of Directors directly organizes the liquidation of the enterprise's assets, except in cases where the company's charter stipulates the establishment of a separate liquidation organization.
The company's debts are paid in the following order:
- Wage arrears, severance pay, social insurance contributions as stipulated by law, and other employee benefits as per collective bargaining agreements and signed employment contracts.
- Tax debt.
- Other debts.
- After all debts and expenses have been paid, the remaining assets will be distributed to the private business owner, members, shareholders, or company owners in proportion to their ownership of capital contributions or shares.
According to the Enterprise Law, the contract liquidation period cannot exceed 06 months from the date the dissolution decision is approved. This timeframe is only suitable for small businesses with no complex transaction relationships and highly liquid assets. For large businesses or those with many assets requiring a longer time for liquidation and debt repayment, this period may not be sufficient to settle all contracts and debts. Therefore, businesses need to review and plan their liquidation appropriately.
4. Instructions on the procedure for establishing a company branch.
Company branch establishment documents
Documents for establishing a branch of a private company.
- The notification of branch establishment must be signed by the legal representative of the enterprise.
- Copies of the individual's legal documents for the branch manager.
Documents for establishing a branch of a single-member limited liability company.
- The notification of branch establishment must be signed by the legal representative of the enterprise.
- A copy of the resolution or decision of the company owner regarding the establishment of a branch in a single-member limited liability company;
- Copies of the individual's legal documents for the branch manager.
Documents required for establishing a branch of a limited liability company with two or more members.
- The notification of branch establishment must be signed by the legal representative of the enterprise.
- Copies of resolutions, decisions, and minutes of meetings of the Board of Members for limited liability companies with two or more members regarding the establishment of a branch;
- Copies of the individual's legal documents for the branch manager.
Documents for establishing a branch of a joint-stock company.
- The notification of branch establishment must be signed by the legal representative of the enterprise.
- Copies of resolutions, decisions, and minutes of meetings of the Board of Directors of a joint-stock company regarding the establishment of a branch;
- Copies of the individual's legal documents for the branch manager.
Documents for establishing a branch of a partnership company.
- The notification of branch establishment must be submitted by the legal representative of the enterprise.
- Copies of resolutions, decisions, and minutes of meetings of the Board of Members of a partnership company regarding the establishment of a branch;
- Copies of the individual's legal documents for the branch manager.
Procedures for establishing a business branch
The procedure for establishing a business, whether in the same province/city or a different province/city from the head office, follows these basic steps:
- Step 1: Prepare all necessary documents and records in accordance with legal regulations for each type of business entity of the main company.
- Step 2: Submit your application in person or online to the Business Registration Authority under the Department of Planning and Investment.
- Step 3: Within 03 working days, the business will receive the results from the Business Registration Authority. If the application is valid, a Branch Registration Certificate will be issued. If the application is not valid, a Notice requesting amendments or additions to the application will be received.
The only difference in the procedure for establishing a branch within the same province/city versus a branch in a different province/city is that the registration application for the branch will be submitted to the Business Registration Authority in the province/city where the branch is located, not to the address of the main company.
A few things to note when establishing a branch in a different province.
- First: Choose the appropriate dependent or independent accounting method to suit the branch's operational needs when registering the branch for operation;
- Secondly: Regarding business lines, the business lines of the branch must match those of the parent company. Currently, according to Decision 27/2018/QD-TTg on the Vietnamese business classification system, which is now in effect, businesses established before this Decision came into force must code and update their registered business lines according to the new decision for their branches;
- Thirdly: For companies in the food service industry, independent accounting is the default. Since food-related businesses are registered in a particular district or county, that district or county is responsible for their management. Therefore, even if a company establishes a branch within the same province or in a different province, it must still register for independent accounting.