Which structure is best for foreign companies that want to explore market possibilities in Vietnam?

Many traditional buyers tend to lean towards the representative office structure, purely driven by the preference of not having to inject registered capital into Vietnam. For this reason, the RO structure is often recognized as the “safe” and “cheap” model, and the best option for a Vietnam office whose primary purpose is to explore market possibilities and help get the overseas head office more value for their purchases.

For ROs, expenditures are funded directly by the overseas headquarters at regular intervals. For a service company or a trading company, most of this funding would instead come from the registered capital, which is committed right at the beginning. Registered capital can be used for ongoing operational expenses and is much closer to the definition of working capital.

Moreover, the costs of financing the ongoing activities of an RO are very different than a limited liability company (LLC), since the RO cannot deduct input value-added tax (VAT) while the LLC will deduct costs and pay tax on profits.

An RO is generally seen as a good starting point for entry. However, the added benefits of a wider business scope provided by an LLC service company or an LLC trading company could prove much more valuable and self-sustainable than the traditionally “safe” and “cheap” RO.