Starting a business in Vietnam 2022 Update | LTS LAW

While many Vietnamese people seek to invest in foreign markets, many foreign investors choose to set up their businesses in Vietnam. With many investment incentive policies of the Vietnam Government, it has become easier to start a business in Vietnam. However, foreign investors must understand the requirements and procedures for setting up a company in Vietnam. This article provides helpful information for foreign investors looking to set up a company in Vietnam!

Starting a company in Vietnam
Starting a company in Vietnam

Can foreigners set up a business in Vietnam?

According to the current law of Vietnam, foreign investors can start a business in Vietnam through various forms of investment, such as establishing economic organizations; making capital contributions, share purchases, purchases of contributed capital; implementation of investment projects; investment in the form of business cooperation contracts (BCCs) and new forms of investment and types of economic organizations by the provisions of law. In particular, it can be divided into two (2) primary forms of investment: direct investment (investment through establishing economic organizations, entering into BBCs) and indirect investment (investment through making capital contributions, share purchases, purchases of contributed capital).

  • Direct investment: Foreign investors can establish companies in Vietnam or enter into business cooperation contracts with domestic partners upon obtaining investment registration certificates and enterprise registration certificates.
  • Indirect investment: Foreign investors make capital contributions, share purchases, and purchases of contributed capital in existing Vietnam companies upon obtaining a pre-approval for the same from the Department of Planning and Investment, where the target company is headquartered. In this case, they are not required to apply for investment registration certificates.

Forms of commercial presence in Vietnam for foreign investors

Foreign investors can easily establish their commercial presence in Vietnam in many forms, such as joint stock companies, single-member limited liability companies, two or more member limited liability companies, branches, representative offices, or investments under business cooperation contracts (BCCs). Depending on the foreign ownership rate of foreign investors, a company will be classified as a wholly (100%) foreign-owned company or a joint venture company between foreign and local investors.

Setting Up A Joint stock company.

A joint stock company (JSC) must have at least three (3) shareholders, and there is no limit to the maximum number of shareholders. Shareholders can be individuals or organizations. Foreign individuals or organizations may become shareholders of a Vietnam company unless otherwise prescribed by law or an international treaty to which Vietnam is a member. The charter capital of a joint stock company is divided into equal parts called shares. Each shareholder holds shares corresponding to the amount of capital that shareholder has contributed to the company.

Shareholders can freely transfer their shares, except for cases in which the share transfer is restricted under law or the company charter. The facts that a joint stock company can issue additional shares to increase its charter capital and shares are freely transferable make it different from other forms of company.

A joint stock company may have its shares listed on a stock exchange if it meets the listing requirements prescribed by law. This form of company is recommended for medium and large enterprises to raise capital from the stock exchange through an initial public offering (IPO).

A joint stock company is one of the forms of investment for many foreign investors in Vietnam.
A joint stock company is one of the forms of investment for many foreign investors in Vietnam.

A joint stock company exists as a separate legal entity from its shareholders. Therefore, the company’s shareholders only have limited liability to the extent of the number of shares held.

A joint stock company can survive independently for a long time without being affected by the existence of shareholders. Regardless of the death, retirement, or other problems that cannot continue to hold shares in the company, the company will continue to exist and operate until it is liquidated or dissolved under Vietnamese law.

Limited Liability Company/ Company Limited

A limited liability company (LLC) is considered the most popular form of investment by foreign investors in Vietnam because of its simple membership and management structure, especially for small and medium-sized enterprises (SMEs). Company members are only liable for the debts and property obligations of the company to the extent of the amount of capital they have contributed or undertaken to contribute to the company. Unlike a joint stock company, a limited liability company is not allowed to issue shares to its company members. However, a limited liability company can be easily converted into a joint stock company through a straightforward company conversion process.

A limited liability company is a type of business that exists independently of its owners or company members. It limits the liability of the owners or company members to the extent of their contributed capital. It means that the owners or company members of the limited liability company are not personally liable for the company’s debts or any property obligations.

Limited liability companies are divided into single-member limited liability companies, and two or more member limited liability companies. This provides investors with more options in organizing and managing their company, and investors are free to choose the form of company that best suits their needs.

A limited liability company allows the investors to raise additional capital in many ways, such as raising additional capital contributions from existing or new company members, raising loans or issuing bonds, etc.

A limited liability company can generally be wholly (100%) owned by foreign investors, except for some business activities requiring Vietnamese parties, such as advertising services, telecommunications services, movie production, etc.

Setting Up a Representative Office or Branch

Other investment forms for foreign investors in Vietnam are representative offices or branches of foreign companies.

Representative Offices

This is a form of establishing a commercial presence in Vietnam at a low cost for foreign investors. This form is best suitable for foreign companies with business relations or investment projects in Vietnam that need to open an office to carry out liaison work, market research, or promotion of business investment opportunities in Vietnam.

Or, if a new foreign company enters the Vietnamese market, a representative office will be the first step to preparing for future business promotions. However, it should be noted that a representative office is not an independent legal entity, so it will be restricted from carrying out commercial activities and will not be allowed to generate revenue. Foreign companies established and operating for at least one (1) year can register to set up representative offices in Vietnam.

Branches

Branches are the least common form of commercial presence in Vietnam and are only allowed to be registered in typical areas (e.g., banking services). A branch is not an independent legal entity but a dependent unit of a foreign company.

Unlike a representative office, a branch can conduct revenue-generating activities in Vietnam. One of the conditions for establishing a branch in Vietnam is that the foreign parent company must have been doing business in the host country for at least five (5) years.

Business Cooperation Contracts (BCC)

A business cooperation contract (BCC) is a contract signed between investors for business cooperation, profit sharing, and product distribution under the law without establishing a company. This form usually applies to conditional sectors such as real estate development, oil, gas, or telecommunications.

When conducting business investment transactions, the parties to a business cooperation contract will act on their behalf or behalf of the other party to the contract. Investors participating in business cooperation contracts will have unlimited liability for any debts or financial obligations arising from the contracts.

Conditions for foreign investors to set up a company in Vietnam

Conditions for foreign investors to set up a company in Vietnam
Conditions for foreign investors to set up a company in Vietnam

Required documents

To establish foreign-invested companies in Vietnam, foreign investors must prepare the following necessary documents:

  • Legal documents of foreign investors:
    • For corporate investors: certificate of incorporation, company extract on the register of directors & addresses, company charter, memorandum and articles of association, or constitution and all amendments thereto.
    • For individual investors: Passport of individual investors.
  • ID card/citizen ID card /passport of the legal representative;
  • ID card/citizen ID card /passport of the authorized representative of the foreign corporate investor;
  • Letter of confirmation of the investor’s bank balance or bank account statement (the account balance must be equal to or greater than the charter capital of the new company);
  • Proof of company address, i.e., an office lease contract or memorandum of understanding on an office lease.

Minimum investment capital

Under Vietnamese law, there is no minimum capital requirement for most business lines except for conditional business lines requiring legal capital. Commonly, the investment capital must be sufficient to cover the costs until the business can sustain itself.

The relevant provincial Department of Planning and Investment (registrar of companies) will assess whether your investment capital suits your proposed business. Depending on the business’ size and nature, each company’s minimum investment capital will vary from one to one.

Some of the business lines requiring minimum capital are below:

  • Vocational schools,
  • Traveling services,
  • Banking services,
  • Insurance services,
  • Financial services.

The minimum capital will be stated in the enterprise registration certificate. Any changes in the charter capital must be updated in the enterprise registration certificate and the company charter.

Company address

One of the essential things when setting up a company in Vietnam is to have a head office. A head office of a company in Vietnam must be in the territory of Vietnam and used as its official contact address.

Service providers like consulting companies can use virtual office addresses to save costs. However, some business lines must always have a physical location or headquarters, such as manufacturing businesses, restaurants, training centers, etc.

The relevant Department of Planning and Investment will reject the company formation application if the company’s head office does not meet the requirements set out by law.

Resident Director in Vietnam

A Vietnamese company may have one or more legal representatives who can act concurrently as director(s). One of them must reside in Vietnam.

Procedures for setting up a company in Vietnam

In order to set up a company in Vietnam, foreign investors must carry out investment procedures according to the following process:

Step 1: Applying for an Investment Registration Certificate

The first step to starting a business in Vietnam is to apply for an investment registration certificate (IRC). It is mandatory for all foreign investors who want to establish a new legal entity and the right to operate a foreign-invested company in Vietnam. In terms of direct investment, an investment registration certificate serves as a pre-approval for setting up a foreign-invested company.

A sample of investment registration certificate in Vietnam
A sample of investment registration certificate in Vietnam

An application dossier for an investment registration certificate is assessed and approved by a provincial Department of Planning and Investment. According to the law, the investment registration certificate will be issued within fifteen (15) days from submitting a complete, valid application.

Step 2: Applying for an Enterprise Registration Certificate

Upon obtaining an investment registration certificate, foreign investors must apply for an enterprise registration certificate (like a certificate of incorporation in some jurisdictions). The investors must submit a complete, valid application dossier for company formation to the Business Registration Office of the Department of Planning and Investment, where the company’s head office is located.

An enterprise registration certificate shall be issued within three (3) working days of submitting a complete, valid application dossier. A newly registered company has legal entity status as soon as its enterprise registration certificate is available.

Enterprise Registration Certificate in Vietnam
Enterprise Registration Certificate in Vietnam

Step 3: Tax declaration and license tax payment

The digit number of an enterprise registration certificate is also the enterprise code and tax code. It must obtain a digital signature token from a licensed digital signature provider upon company registration. The digital signature token will enable the company to submit an initial tax registration dossier (including but not limited to a yearly license tax declaration) to the relevant tax agency.

The license tax tariff varies depending on the level of registered charter capital, except for dependent units of companies:

Charter capital (VND) License tax (VND)
Companies with charter capital over VND 10 billion VND 3 million/year
Companies with charter capital under VND 10 billion  VND 2 million /year
Branches, representative offices of companies VND 1 million/year

According to the laws, the yearly license tax will be waived for the first year of company formation.

All companies must file tax declarations and reports and pay taxes through an online tax system regulated by the General Department of Taxation under the Ministry of Finance. Without a digital signature token, it is impossible to access this system.

Step 4: Capital contribution

Within 90 days of an enterprise registration certificate issuance, a foreign investor must fully pay for its capital contribution portion registered in the enterprise registration certificate. Failure to do so on time may result in the bank refusing to let the payment go into the company’s capital account and the company facing administrative penalties.

Step 5: Applying for Sub-licenses (if any)

Companies in Vietnam must satisfy applicable business conditions before carrying out conditional business lines. Companies must apply for a sub-license for those activities requiring a sub-license before carrying out such activities.

There is a list of a few conditional business lines requiring a sub-license:

  • Employment services,
  • Traveling services,
  • Labor sub-leasing service,
  • Retail sale,
  • Sales of special products or services.

LTS provides consulting services to set up company in Vietnam for foreign investors

Although the Vietnamese Government has been making various policies to encourage investment, foreign investors face difficulties understanding the legal documents and procedures for setting up a company in Vietnam. Understanding the challenges of many foreign investors, LTS LAW provides its clients with consulting services to set up businesses in Vietnam.

Consulting service for setting up a company in Vietnam
Consulting service for setting up a company in Vietnam

With the help of LTS LAW services, establishing a foreign-invested company in Vietnam will no longer be a problem.

  • We have a team of lawyers and consultants who are very knowledgeable about the legal system in Vietnam and have many years of practical experience.
  • We always give enthusiastic and professional advice 24/7 and offer suitable solutions for each client.
  • Our diverse service portfolio includes establishing foreign-invested companies, representative offices of foreign companies in Vietnam, changes of investment registration certificates, enterprise registration certificates of foreign-invested companies,
  • We are committed to high-quality service at an affordable cost.

If you need to consult about the service, please contact LTS LAW immediately through the following information:

LTS LAW

Address: Room 602, Floor 6, 520 CMT8, Ward 11, District 3, HCMC, Vietnam

Email: contact@lts.com.vn

Hotline: (+84) 902 798 066

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