What is a Foreign Subsidiary? When Do You Need One?

You are ready to expand your business to Asian markets. But, you are unsure about setting up a foreign subsidiary or foreign branch. Yes, it is a complex decision. However, liability-wise, setting up a foreign subsidiary in Vietnam is a wise option.

Let us know more about why and when you should do so.

What is a Foreign Subsidiary in Vietnam?

A foreign subsidiary in Vietnam is a company registered in Vietnam. Here, it is known as a Subsidiary Company. Its shares are, partly or wholly, owned by a parent company registered in another country.

Vietnam treats your Subsidiary Company as a local company. As it has a separate identity from your parent company, it must comply with the Companies Act. The authorities, here, expect you to comply with the local statutory, tax, employment, and disclosure requirements.

Advantages & Disadvantages of a Vietnam Foreign Subsidiary

Foreign companies wanting to expand in Southeast Asia favours setting up a company in Vietnam. It gives them easy access to established and emerging markets in Asia. They also benefit from low corporate tax rates, pro-entrepreneur policies, and an effective legal system.

Your foreign subsidiary company in Vietnam gives you a base of operation to spread from into Asia. Do not have any doubt about its potential. Because as a type of limited liability private limited company in Singapore, it is a great business or legal structure to incorporate.

Do not proceed further without knowing the advantages and disadvantages of setting up a foreign subsidiary.

Advantages

Access to New Opportunities and Talent

Your subsidiary company first opens the Singaporean market for you and creates opportunities for you to go places. It gives you a chance to increase your revenue by selling your products and services. You also get to hire local professionals to augment your combined skill sets.

Local Tax Benefits and Exemptions

As a local company, your subsidiary company is liable to pay its taxes. Your parent company is not responsible for it. You get to pay low tax rates on your income instead of those charged at home. It enables you to save money.

Limited Liability for Parent Company

By setting up a foreign subsidiary, you get to limit the liability of your parent company. If a drastic financial and legal incident happens, your subsidiary is liable for it. Your parent company remains unaffected. At its worst, your parent company loses the amount it has invested in subsidiary’s share capital.

Division of Workload

The staff working for your Vietnam subsidiary shoulder their part of the workload. It means your parent company does not have to do all the tasks as it would happen if you start a Vietnam Branch Office.

Your domestic teams and foreign teams get to focus on their specialised tasks. Diversification divides the work and allows you to achieve your goals faster.

Disadvantages

Expanding your business through your Vietnam foreign subsidiary also poses challenges to you. You have to master differences in culture, new regulatory rules, and operational challenges.

Winding Up a Company

Winding up or dissolving a company is not an easy process. If you want to exit the Vietnam market, it may take months to dissolve or wind up your subsidiary. The process is lengthy and costly.

Compliance Risks

Yes, you must comply with the pre-incorporation rules and regulations while setting up a foreign subsidiary. However, these requirements are easy to fulfil. You can also hire a registered filing agent. These professionals are well-versed in the process of setting up a company in Vietnam.

These firms are authorised to communicate with government agencies and pay official fees. These firms apply to Department of planning and investment (D.P.I) on your behalf to form your company. Accounting and Corporate Regulatory Authority Department of planning and investment (D.P.I) is the Company Registrar of Vietnam.

These agents advise you on each stage of the company incorporation process. They obviously know it inside out.

Vietnam Subsidiary Company – Legal and Financial Aspects

As has been stated, your subsidiary company in Vietnam has a separate identity from its parent company. As a locally registered company, it must follow all the Singaporean tax and employment regulations.

Your subsidiary is responsible for its actions, such as non-compliance or defending itself in a court of law in a lawsuit filed against it or for paying a fine or penalty.

When Should You Register Your Vietnam Subsidiary Company?

Your long-term business goals play an influencial role in when to set up your Vietnam subsidiary company. You should consider it if you plan to:

Be in Vietnam market for the long-term
Employ a number of employees in Vietnam
Minimise company taxes on global profits
Own physical assets in Vietnam

Before you go and form your subsidiary in Vietnam, you must conduct market research and surveys to determine its potential.

Alternatives to a Foreign Subsidiary in Vietnam

What if you want to expand your business without forming a Vietnam subsidiary company? Yes, it is possible.

To avoid starting a subsidiary company in Vietnam, you can hire indipendent contractors or freelancers or strike a relationship with an Employer Of Record (EOR).

Hire Contractors or Freelancers

An experienced contractor or a freelance will help you establish a toe-hold in the Vietnamese market. Hire these on a service fee or per project basis to save money. It also gives you flexibility in staffing and access to international talent. It also reduces your legal exposure.

Employer Of Record (EOR)

Another reliable option for entering a foreign market like Vietnam is to strike a partnership with an EOR.

An EOR is a company that acts as the legal employer of employees. In reality, these professionals work for you. EOR takes the legal and administrative responsibilities of employment in Vietnam.

An EOR, here, is necessary because you have chosen not to start your subsidiary. So, you cannot hire employees in Vietnam.

Setting up a foreign subsidiary company in Vietnam will help you expand your business to new horizons. This a most favoured business structure as it limits the liability of your parent company.