Should you set up a subsidiary or a representative office? Let's take a look at our article!
What is a subsidiary?
The subsidiary is the company dominated by the parent company. Subsidiary may not invest capital, buy shares of the parent company. Subsidiaries with the same parent company, which owns at least 65% of state capital, may not jointly contribute capital to establish the enterprise.
What is a representative office?
According to the Enterprise Law 2020, the representative office is a dependent unit of the enterprise, which is responsible for authorized representation of the interests of enterprises and protects those interests. The representative office does not perform the business function of the business.
Functions and main tasks of the subsidiary
– Subsidiaries owned by the parent company are 100% owned by the charter capital and are responsible for fully implementing the instructions of the parent company on business strategy and financial management. The subsidiary is obliged to fully implement the agreements in the charters, rules and regulations of the group of companies. The subsidiary is responsible for the implementation of economic contracts assigned by the parent company, coordinating the organization of business activities together with the parent company and other companies in the group.
– The subsidiary held by the parent company, which governs the operation more independently than the subsidiary held by the parent company with 100% charter capital, is responsible for fulfilling the obligations arising from the business agreement with the parent company.
Functions and main tasks of the representative office
The representative office was established as an intermediary office responsible for communicating and dealing with partners; conduct research activities, provide information, support enterprises to access new markets and partners; can conduct market reviews, detect infringements that adversely affect the company's business, unfair competitive behavior of rival enterprises, representatives of the company to complain about the aforementioned violations.
Advantages and disadvantages of subsidiary
Advantages
- Opening a subsidiary will help businesses that want to invest profit in new industries without affecting the parent company.
- Favorable multi-industry activities, favorable in the management of profit revenue, development in specialized fields, increased competitiveness, legal status, being granted business registration certificates, …
- An established subsidiary will be an individual operating independently in each specific field, the parent company will be a source of financial investment, equipment, technology to create the best conditions for the company to still operate, gaining high efficiency with specialized fields.
- A parent company can create many subsidiaries, and if those subsidiaries specialize in the same field, it will create a healthy competitive environment, promoting production and business efficiency for the corporation.
Disadvantages
- In terms of the responsibility of the owner, the owner of the parent company is only responsible to the extent that it has contributed to the company.
- Regarding tax payment obligations, subsidiaries may not transfer pre-tax profits to the parent company, must pay CIT at the company's headquarters.
Advantages and disadvantages of representative office
Advantages
- The representative office does not have to pay the license tax, which is the tax that the enterprise tax rate must pay annually based on the charter capital stated on the enterprise establishment certificate.
- Representative offices create convenience in communication, working with customers compared to the company by easy to establish and can be present everywhere, in a certain geographical area.
- The representative office may have a more favorable location to display, sell products, bring products closer to customers as well as promote to the public.
Disadvantages
- The representative office only has the function of promoting, marketing, representing the operation of the business without business functions, which is the use of the methods, forms and means that the subject uses to carry out his or her economic activities (including the investment process, production) on the basis of applying the law of value along with other laws, in order to achieve the goal of maximum profitability
- The representative office does not have the function of signing contracts as well as buying and selling products but must approve the decisions of the enterprise or in case it is authorized and regulated by the managing enterprise. Usually, the representative office is only allowed to introduce products without being purchased directly.
The above is our advice on subsidiaries and representative offices, each of which has different advantages and disadvantages. Depending on the purpose of the investor, choose the appropriate form, if the investor wants to expand the business, profit on new industries without affecting the parent company, it is recommended to choose to open a subsidiary and if the investor wants to explore the market, Promoting and marketing company products to new markets, it is recommended to set up a representative office in Vietnam.
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