Whether you have an eye on foreign investment in Vietnam or are all armed-up ready to set up your business foothold in the country, the elaborate procedure of incorporating a foreign company can be foot-dragging to some. In fact, the Vietnamese company registration process has been simplified and streamlined in recent years through the attempt of the government to stimulate foreign investment into the market. This article will walk you through the process of incorporating a foreign company in Vietnam, from the broad legal regulations concerning foreign-ownership to the step-by-step procedures of incorporation.
Pre-conditions for establishing foreign companies in Vietnam
Before getting to the meat of the process, it is necessary to understand the larger legal framework regulating foreign-invested companies in Vietnam in preparation of incorporation.
According to the Investment Law and Business Law, a foreign-owned company is an enterprise with a legal status in Vietnam established by foreign investors. Enterprises with 100% foreign investment capital may also cooperate with one another and with foreign investors in establishing new 100%-foreign-investment enterprises. Domestic as well as foreign investors may invest in the form of limited liability companies, joint-stock companies, representative offices, or branches. (See more below: What types of legal entities should investors choose?)
According to Vietnam Law on Investment and Vietnam WTO’s Commitments, it is allowed to set up entirely foreign-invested businesses in Vietnam in most sectors. For example, trading, IT, and manufacturing welcome FDI. Some business lines such as tourism and advertising, however, require a Vietnamese joint venture partner. Thus, it helps to first determine what would be the best business line and activities for your company when investing in Vietnam.
In Vietnam, the World Trade Organization (WTO) agreements in tandem with Vietnamese Law on Investment regulate the allowed foreign ownership in businesses. However, sometimes Ministry approval is needed for business-lines that are not under the regulation of either the WTO or domestic laws.
Minimum capital requirement
Vietnam law does not explicitly require a minimum amount of investment capital in setting up a company. However, the Department of Planning and Investment will assess the amount of capital contribution and see whether it corresponds to the planned expenses of the company. For example, for manufacturing businesses, the funds should exceed the cost of machinery. Thus, it is advisable that your planned capital be realistic and align with your planned business activities.
The most common amount of minimum capital in Vietnam is USD 10,000 – 150,000. However, depending on your business line, the amount could be higher or lower. For instance, the bar for real estate is approximately USD 250,000 worth of capital.
Some business lines in Vietnam have a minimum capital requirement. These include language centers, vocational schools,and real estate companies.
To incorporate a company in Vietnam, you need a registered physical address.
Serviced-based businesses can use a virtual office for registration purposes. Manufacturing companies or companies that require a retail or operating space, however, need a physical location in Vietnam.
In some cases, the Department of Planning and Investment can require investors to provide proof such as a contract lease and related document after incorporation.
What types of legal entities should investors choose?
For the most part, choosing the type of legal entity for your business is an individualized process that depends on many circumstantial factors. There’s definitely no right answer. But with a basic understanding of the advantages and disadvantages of some of the most common types of legal entities for foreign-owned companies, hopefully, you can have some raw materials to form your own opinions and decisions.
Limited Liability Company (LLC) is the most common type of legal entity in Vietnam and an excellent choice for medium and small enterprises with a limited number of associates. It offers the advantage of a simple structure, which requires only one founder who is liable for the debt of the company to the extent of the charter capital.
The company owner can decrease or increase its charter capital and appoint a representative or Board of Manager to exercise the rights of the owners. With its simple governing structure and concentrated authority, it offers great stability. An LLC is also authorized to establish independent units like branches and representative offices.
An common alternative to LLC is a Joint stock company (JSC), formed by the subscription for shares. This type of legal entity is suitable for medium and large businesses as its corporate structure is complicated and requires a minimum of 3 founders (shareholders). However, this is the only type of business entity that can issue shares under Vietnamese legislation.
Shareholders are responsible for the debts and liabilities of the enterprise to the extent of the amount of their contributed capital. JSC thus has the advantage of acquiring large capital compared to LLC by issuing shares and bonds. However, this can create instability because of the relative ease of share buying. The complex management structure and required transparency can also delay decision-making and make the internal workings of the company vulnerable.
SEE MORE: What are the Types of Legal Entity in Vietnam for detailed insight into the advantages and disadvantages of different types of legal entity.
A company can also establish its Representative office in Vietnam provided that the company has been operating overseas for at least one year. A representative of foreign companies is not allowed to perform profit-making activities, and their activities are limited to market research and other non-profit activities. This option is suitable when a decision to invest in Vietnam is not yet certain and the investors want to observe the local market and gain market presence before setting up a subsidiary. A representative office can support the business of the parent company, save cost, and avoid risks of local compliance procedures.
Foreign companies that have been operating for five years or more can establish Branches in Vietnam. According to Decree 72/2006/ND-CP branches in Vietnam are allowed to perform trading business and other commercial activities in accordance with their establishment licenses, open accounts in Vietnam, and transfer their profits abroad.
This article focuses on the incorporation procedure of a foreign-owned LLC, whose process once understood can be applied to other forms of legal entities.
The preparation checklist pre-incorporation includes:
- Clarify your business lines and activities: some restricted business fields may require additional licenses, higher share capital injection, a local shareholder, etc.;
- Check the capital and proposed scale;
- Get a company address: present a memorandum of understanding stating that founders will use the premises for conducting the company’s activities;
- Confirm the management structure: nominate the owners of the business and verify their credentials.
- Check and reserve a Vietnamese company name (See more: Regulations of company name in Vietnam)
Once you are ready to advance into the next step of incorporation, you can prepare the necessary documents. Documents required of a foreign company or individual may vary according to the planned business activities. A standard set of documents generally include:
- Personal identification, proof of address and bank statement of all shareholders and owners of the business.
- Incorporation documents
- A Vietnamese legal representative’s passport and recent address proof if authorized to act on behalf of the company.
- Investment Registration Certificate
The first step of any foreign-owned company registration in Vietnam is to obtain an Investment Registration Certificate from the Foreign Investment Agency of the Ministry of Planning and Investment.
Overall, the process takes up to one month. In the event that the business line does not fall under WTO commitments or additional licenses are required, the processing time will be significantly longer.
- Business Registration Certificate
The next step is to obtain a Business Registration Certificate, or the Enterprise Registration Certificate. Documents to prepare include:
- Application form for business registration
- Outline of company rules
- Owners list
- Passport or other personal identification of individual members
- Incorporation Certificate and equivalent documents if the founder is a foreign corporate.
- Investment registration certificate.
All documents are submitted to the Business registration office. Processing time is up to one week.
- Apply for Company seal
Once the Business registration and Foreign Investment Certificate are approved, a company seal can be attained at the Administrative Department for Social Order under the Municipal Police Department. Without a seal, a Vietnamese company cannot register with the tax department, open a bank account, or proceed with further procedures. Processing time is 3 working days.
- Issue announcement
Company can then publish an announcement making public the name and type of company, the number and issuances date of the Business Registration Certificate, the headquarters and business objectives, charter capital, etc.
What comes after incorporation
- Tax registration
The next thing you need to do is to complete tax registration at the local tax department, which includes enterprise Income tax, value-added tax, foreign contractor tax, special consumption tax, import, export duties, tax incentives, and personal income tax.
You have 30 days from receiving the Business Registration Certificate to complete the tax registration and pay the annual business license tax which is approximately $90.
- Capital account and Corporate bank account opening
The next step is to secure a capital account for capital injection and repatriation of profits overseas. The initial capital contribution must be made within 90 days of receiving the Business Registration Certificate. A corporate bank account can also be opened at this point, as well as merchant accounts.
- Employment registrations
Before the company can hire employees, it needs to register with the Ministry of Labour and the Vietnam general confederation of Labour
- Other additional licenses and permits
To wrap up the process of company registration, check if other permits are required (for example, trading companies may need to complete product registration which can take up to several months). Some business lines such as manufacturing, lodging, and trading may also require additional sub-licenses which will extend the process.
In short, foreign-owned company incorporation can be a trouble-free process once you follow the basic steps of Vietnamese company registration outlined above. While some steps may vary depending on the different business lines and legal entity, getting a broad view of the process will put you in control of the endeavor. Our Viettonkin FDI specialists are ready to assist you all the way through the process of company incorporation in Vietnam.