The Establishment of a Company Branch: Conditions, Procedures, and Legal Basis

Expanding a business through the establishment of a company branch is a strategic decision for many enterprises. This approach allows a company to tap into new markets, increase market share, and enhance its operational efficiency. However, setting up a branch involves specific legal requirements, procedures, and considerations. This article provides a comprehensive overview of establishing a company branch in Vietnam, drawing from the 2020 Enterprise Law and relevant legal regulations. Read this article from NT International Law Firm for more information.

The Establishment of a Company Branch: Conditions, Procedures, and Legal Basis

What is a Company Branch?

A company branch, as defined in Article 44(1) of the 2020 Enterprise Law, is a dependent unit of an existing company established to perform all or part of the company’s functions, including acting as its authorized representative. The branch operates within the same business line as the company and derives its legal authority from the company itself.

Why Establish a Company Branch?

Several key factors motivate companies to establish branches:

• Market expansion: Entering new geographical areas to access new customers and opportunities.
• Operational efficiency: Reducing transportation costs and streamlining logistics by being closer to customers or resources.
• Increased brand awareness: Establishing a local presence to enhance brand recognition and trust in new markets.
• Flexibility and autonomy: Branches can operate with some degree of independence from the head office, allowing for quicker decision-making and adaptation to local market conditions.

Conditions for Establishing a Branch

Before establishing a branch, your company must fulfill the following essential conditions:

• Valid business license: The company must have a valid business registration certificate issued by the competent authorities.
• Qualified branch head: The branch must have a qualified head appointed as per Article 13(2) of the Enterprise Law.
• Ownership of the branch: The company must be the legal owner of the branch, with clear ownership rights documented.
• Compliance with legal requirements: For certain business lines, the branch may require additional licenses or certificates as per specific laws and regulations.

Procedures for Establishing a Branch

The process of establishing a company branch involves several key steps:

1. Document preparation:

• Prepare an official announcement of the branch establishment.
• Obtain a written decision from the company on establishing the branch, along with a copy of the branch head’s legal certificate.
• Issue a decision appointing the branch head.

2. Application submission:

• Submit the completed application package to the Business Registration Office within the Department of Planning and Investment where the branch headquarters will be located.

3. Registration and certificate issuance:

• The Registration Authority reviews the application and, if valid, issues a Certificate of Branch Operation Registration within three working days.
• If the application is invalid, the Agency will notify the company of necessary amendments and request resubmission.

4. Post-registration procedures:

• Within ten days of receiving the certificate, the company must register any changes to the branch information and business location with the Business Registration Authority.
• Obtain the official seal for the branch.
• Publicly announce the branch’s business information.
• Complete any additional procedures required by specific regulations.

Legal Basis for Branch Establishment

The legal framework for establishing company branches is primarily governed by the 2020 Enterprise Law, with additional regulations and details outlined in decrees and circulars issued by the Ministry of Planning and Investment. Key legal provisions include:

• Article 44: Defines the concept of a company branch and its relationship with the head office.
• Decree 01/2021/ND-CP: Provides detailed regulations and procedures for business registration, including branch registration.
• Circulars and instructions: Issued by the Ministry of Planning and Investment to clarify and interpret legal provisions related to branch establishments.

Advantages and Disadvantages of Company Branches

While establishing a branch offers significant advantages, it also comes with certain drawbacks to consider:

Advantages:

• Market expansion and increased profitability.
• Enhanced operational efficiency and reduced transportation costs.
• Greater autonomy and flexibility in responding to local market conditions.
• Increased brand awareness and customer engagement.
• Separate business location and potential for independent tax declaration (in certain cases).

Disadvantages:

• Complex establishment and registration procedures.
• Financial and administrative burden of maintaining a separate branch operation.
• Potential for increased tax liabilities depending on the branch’s structure and location.
• Challenges in managing and coordinating operations between the head office and the branch.

Taxes and Accounting for Company Branches

The tax and accounting treatment for company branches depends on their structure and location:

• License tax: Branches pay an annual license tax based on their registered capital.
• Value Added Tax (VAT): Branches generally register and pay VAT independently, though exceptions may apply for branches in the same.

NT International Law Firm is Here to Help

NT International Law Firm has addressed the question of how you can open a branch for your company. If you have any further questions or concerns regarding corporate law, please contact our law firm immediately for expert legal advice.

If you require any legal assistance, please feel free to reach out to us via phone at 090 252 4567 or through email: info@ntpartnerlawfirm.com. At NT INTERNATIONAL LAW FIRM, our team is committed to offering you prompt and personalized advice.

You also might be interested in:

• The 2015 Civil Code in English
• The 2020 Law On Enterprises in English