VI When penetrating the Vietnamese market, many foreign traders choose the Representative Office model as an “extended arm” to conduct market research and build relationships with local partners. However, one of the biggest challenges that investors often face is determining the limits of activities that this office is allowed to implement, especially in the field of trade promotion. Although the Commercial Law stipulates that Representative Offices have the function of promoting business opportunities, whether they are allowed to directly organize sales promotions, display goods, or sign advertising contracts is a complex legal story. Misunderstanding the scope of authority not only causes difficulties for traders during the operation process but also poses a potential risk of being sanctioned for operating beyond the permitted scope. To have an overview of the regulations on the trade promotion authority of this model, let’s join Pham Consult in exploring the current legal regulations.
I. Can Representative Offices of foreign traders in Vietnam perform trade promotion activities?
A Representative Office of a foreign trader in Vietnam is a dependent unit of the foreign trader, established in accordance with the provisions of Vietnamese law to conduct market research and perform a number of trade promotion activities permitted by Vietnamese law. According to the provisions of Article 16 of the 2005 Commercial Law and Article 3 of Decree No. 07/2016/ND-CP, foreign traders are allowed to establish their Representative Offices in Vietnam in accordance with Vietnam’s commitments in international treaties to which Vietnam is a member and shall be responsible before Vietnamese law for all activities of their Representative Offices in Vietnam.
According to Article 30 of Decree 07/2016/ND-CP, a representative office performs the functions of a liaison office, conducting market research, and promoting investment and business opportunities of the trader it represents, excluding service industries where the establishment of a Representative Office in that field is regulated by specialized legal documents. Besides, Article 18 of the 2005 Commercial Law stipulates the obligations of a representative office as follows:
– Not allowed to perform direct profit-making activities in Vietnam.
– Only allowed to perform trade promotion activities within the scope permitted by the Commercial Law.
– Not allowed to enter into contracts, or to amend or supplement contracts already entered into by foreign traders, except where the Head of the Representative Office has a legal power of attorney from the foreign trader or the cases specified in Clauses 2, 3, and 4, Article 17 of the Commercial Law.
– Pay taxes, fees, charges and fulfill other financial obligations in accordance with the provisions of Vietnamese law.
– Report on the activities of the Representative Office in accordance with the provisions of Vietnamese law.
– Other obligations as prescribed by law.
Combining the above regulations, it can be seen that the representative office of a foreign trader in Vietnam can perform trade promotion activities to promote investment and business opportunities for the trader it represents. However, not every trade promotion activity can be performed; only those activities permitted by the Commercial Law are allowed to be carried out by the representative office.
II. Trade promotion activities that the Representative Office of a foreign trader in Vietnam is allowed to perform
Trade promotion is an activity to promote and seek opportunities for the purchase and sale of goods and the provision of services, including sales promotions, commercial advertising, display and introduction of goods and services, and trade fairs and exhibitions. Trade promotion activities are stipulated in detail in Chapter IV of the 2005 Commercial Law. In general, the representative office of a foreign trader in Vietnam is not allowed to directly perform trade promotion activities by itself. In cases where it is authorized by the trader it represents, the representative office has the right to sign contracts with traders providing trade promotion services to perform trade promotion activities.
- Sales promotions
Sales promotion is a trade promotion activity of a trader aimed at promoting the purchase and sale of goods and the provision of services by offering customers certain benefits, including forms of sales promotion specified in Article 92 of the 2005 Commercial Law.
According to the provisions of Article 91 of the 2005 Commercial Law, the representative office of a foreign trader in Vietnam is not allowed to perform sales promotions in any form, and at the same time, is not allowed to hire other traders to perform sales promotions in Vietnam for the trader it represents. This means that the representative office does not have the right to perform trade promotion activities in the form of sales promotions, including hiring or authorizing any third party to perform sales promotion activities in Vietnam.
- Commercial advertising
Commercial advertising is a trade promotion activity of a trader to introduce its business activities, goods, and services to customers.
The representative office of a trader is not allowed to directly perform commercial advertising activities. In cases where it is authorized by the trader, the Representative Office has the right to sign contracts with traders engaged in commercial advertising services to perform advertising for the trader it represents.
- Display and introduction of goods and services
Display and introduction of goods and services is a trade promotion activity of a trader using goods, services, and documents about goods and services to introduce those goods and services to customers.
According to Article 118 of the 2005 Commercial Law, the Representative Office of a trader is not allowed to directly display or introduce goods and services of the trader it represents, except for display and introduction at the headquarters of that Representative Office. In cases where it is authorized by the trader, the Representative Office has the right to sign contracts with traders engaged in the service of displaying and introducing goods and services to perform the display and introduction of goods and services for the trader it represents.
- Trade fairs and exhibitions
Trade fairs and exhibitions are trade promotion activities carried out in a concentrated manner for a certain period and at a certain location for traders to display and introduce goods and services for the purpose of promoting and seeking opportunities to enter into purchase and sale contracts or service contracts.
According to Article 131 of the 2005 Commercial Law, the Representative Office of a trader is not allowed to directly organize or participate in trade fairs and exhibitions. In cases where it is authorized by the trader, the Representative Office has the right to sign contracts with traders engaged in trade fair and exhibition services to organize or participate in trade fairs and exhibitions for the trader it represents.
