Representative Office Dissolution Part 3: Documenting Expenses

Vinh LeManager, Dezan Shira & Associates

In the final part of this three-part series, we examine how to deal with expenses related to the parent company and local RO, ‘suspect’ payments and expenses paid to foreign suppliers.

Expenses incurred for expatriate employees of parent company

For employees of the parent company visiting the RO’s office for short periods of time, traveling and accommodation costs are typically covered by the RO.

Several common expenses incurred for such employees are visa application fees, flight tickets, accommodations, and meal allowances.

Businesses sometimes make errors thinking that the expenses incurred for the parent company’s employees should be similar to those of the RO’s employees.

However, as per tax authorities, employees of the RO’s parent company are not under the RO’s payroll, and any expenses incurred for such employees should be treated as their assessable income and be taxed at the applicable tax rate of 20 percent for non-tax residents accordingly.

Therefore, the rational approach is that traveling expenses incurred for parent company’s employees to visit Vietnam should be paid by the parent company instead.

However, if the traveling costs must be paid by the RO, there should be documented agreements to justify that the RO is only making payments on behalf of the parent company. It is important to note that the expenses might still be subject to the tax auditors’ inquiries and they will consider if the RO has solid grounds to justify the nature of such expenses.

In addition to the required travel expense documents as mentioned earlier, the RO may use supporting evidence such as:

  • Internal agreement between the RO and its parent company, which stipulates terms of payment-on-behalf and reimbursements of travel expenses for employees;
  • Assignment letter from the parent company showing the duration of the employees’ trip in Vietnam;
  • Itinerary specifying such employees’ work and vacation details during their visit to Vietnam; and
  • Evidence of payments and reimbursements of travel expenses between the RO and its parent company.

“Suspect” payments or reimbursements

Investors should be aware that during tax finalization, the tax authority often undertakes a thorough audit of the RO’s cashbooks, bank statements and other bookkeeping records to review the legitimacy of the RO’s expenses incurred during its operation.

If any payments or reimbursements are deemed vague or suspicious, they will be subject to an intense review with tax officers requesting extensive supporting evidence.

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This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asia with over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region.

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