Until late 2019, Vietnam had more than 30,000 FDI projects with a total registered capital of over 362 billion dollars, stated Vietnam’s MPI.
Vietnam has become a promising market for foreign investments in recent years. Investors, however, may feel a bit troubled with the procedure to operate their business venture in Vietnam.
In this article, we walk you through key requirements and procedures for how to set up a company in Vietnam, helping you legally and smoothly start your business in this high-potential market!
1. An overview of types of business entities in Vietnam
There are various options for foreign investors to do business in Vietnam. Under Vietnam’s Law on Enterprises (68/2014/QH13) and Law on Investment (67/2014/QH13), some most common types of business entities are as below:
- Limited Liability Company (LLC): Is a legal entity formed by members who make capital contributions to the company. The liability of each member is limited to his capital amount contributed to the company. An LLC in Vietnam can be either a 100% foreign-owned enterprise or a joint-venture enterprise (have at least one Vietnamese investor);
- Joint-stock company (JSC): Is a legal entity formed by founding shareholders who subscribe for shares of the company. A JSC is the only type of corporate structure in Vietnam allowed to freely issue shares and securities to the public, except for certain cases.
- Partnership: Is a company formed by at least two individual partners who hold unlimited responsibility over obligations of the company.
- Business Cooperation Contract (BCC): Is a legal agreement between investors on the cooperation to carry out business activities and share profits. This type is commonly used in specific sectors like petroleum or telecommunication.
- Other business structure options available for foreign investors: Private Enterprises, Public-Private Partnership (PPP), or even investing through making capital contributions, purchasing shares in Vietnam companies.
- As regulated by Vietnam’s Law on Commerce, foreign business entities can also establish their presence in Vietnam through forms of a branch office or a representative office.
For further details on each corporate structure, please visit our blog article: Types of Business Entities in Vietnam for Foreign Investors
2. General requirements to set up a company in Vietnam
2.1. Restrictions on foreign ownership in Vietnam
Depending on specific investment sectors that foreigners engage in, there can be some limitations on the allowed percentage of the foreign ownership, form of investment as well as further requirements of Vietnamese partners.
In most circumstances, foreign investors doing business in Vietnam can have 100% foreign ownership over the share capital in a Vietnam-based company. However, if the foreign investment is made in a Vietnamese bank for instance, then the total foreign ownership by the investor cannot exceed a cap of 30%.
Certain restrictions on business ownership in Vietnam can be found in the following documents:
- Vietnam’s bilateral international agreements;
- The Schedule of Specific Commitments in Services included in Vietnam’s WTO accession package. Click here >>
- Relevant local laws and regulations – i.e., Article 18 (2) of the current Law on Enterprises stipulating specific individuals/organizations which are prohibited to incorporate a company in Vietnam.
2.2. Minimum capital requirements
There is no fixed minimum capital requirement for foreign investors to set up a company in Vietnam, except for certain conditional business lines.
For example, the minimum capital amount required to financial institutions in Vietnam (commercial banks, branches of foreign banks in Vietnam or finance companies) can be ranging between 150 billion VND and 3000 billion VND. Meanwhile, the capital requirement to invest in higher education institutions or universities in Vietnam must be at least 500 billion VND (21.5 million USD).
For many other business sectors, a capital of 10,000 USD is a base to consider before starting investment in Vietnam.
The Department of Planning and Investment is the authority that determines the capital amount required in the field of business for foreign investors.
2.3. Other requirements
Whether you are intending to incorporate an LLC or joint venture, having a registered place of business is mandatory when setting up a company in Vietnam.
In addition, the company setup in Vietnam requires at least 1 legal representative who must be residing in Vietnam at the time of registration. This person will engage in all relevant transactions on behalf of the company, take responsibility for legal proceedings, as well as exercise rights and fulfill obligations regulated by laws. It is mandatory that a legal representative must conduct a written authorization to another person to be in charge of his/her duties when moving outside of Vietnam territory.
3. How to set up a company in Vietnam for foreign investors
To legally set up a company in Vietnam, foreign investors go through two important steps:
- Obtaining Investment license
- Obtaining Enterprise license
3.1. Apply for Investment Registration Certificate
The first step to start a business in Vietnam is to obtain an Investment Registration Certificate (IRC). This application is subject to the review and assessment by the Department of Planning and Investment.
In particular, the licensing authorities to which investors send the IRC application can be different.
|Types of investment projects||Licensing authority in charge|
|The investment project situated outside of industrial zones, export processing zones, high-tech zones and economic zones||The provincial people’s committee (Department of Planning and Investment)|
|The investment project situated within industrial zones, export processing zones, high-tech zones and economic zones||The provincial industrial zone management authority or economic zone management authority|
In practice, it takes no less than 15 days so that the Investment Registration Certificate is approved.
Note: Other than investments by foreign investors or considered-to-be foreign investors or companies with foreign ownership of more than 51% of charter capital in the company, the requirement of obtaining IRC is not necessary to other business owners.
3.2. Apply for Enterprise Registration Certificate
The next step is to obtain a Business/Enterprise Registration Certificate (ERC) from the provincial Department of Planning and Investment, regardless of whether the investment project is carried out inside or outside of the above-mentioned zones.
An ERC application is normally processed in 3 working days.
Note: Specific investment projects subject to “conditional” sectors in Vietnam shall be required to apply for further licensing procedures and be examined by relevant government ministry levels before obtaining approval.
Some examples of “conditional” investment business as stipulated in Appendix 4, Law on Investment are:
- Making seals
- Securities trading
- Trading in supporting tools and repair services; signaling devices of priority vehicles; duty-free goods
- Accounting/Auditing services
- Security services
- Insurance/Reinsurance/Insurance brokerage/Insurance agent training related business
- Consultancy services on project management, and other regulated sectors and trades.
** For Branch or Representative office:
Foreign companies want to set up their presence in Vietnam through the form of a branch or representative office, the IRC and ERC applications will be replaced with Branch/Representative Office License applications.
The application procedure usually takes 7 working days or longer, and the state authority for this type of license is the provincial Department of Industry and Trade.
It is recommended that foreign investors should engage a trusted incorporation service firm to get better guidance on what you need to submit on their chosen business entity type to invest in Vietnam.
4. Post-registration related matters for a company in Vietnam
There are certain requirements after licensing registration that foreign investors need to do when starting a business in Vietnam. Below are important matters in the post-registration process:
Tax registration and associated payment. Foreign investors must register with the Department of Tax the tax code number under their company.
All entities operating businesses in Vietnam are also imposed business license tax (BLT) on a yearly basis. BLT is charged at different levels for each economic entity and for households or individuals.
The BLT rates are based on the amount of registered capital of the company:
- With registered capital of more than 10 billion VND, the entity must be subject to a BLT charge of 3 million VND per year;
- With registered capital of less than 10 billion VND, the entity must be subject to a BLT charge of 2 million VND per year;
- Other business entities, including branches, ROs or business premises are taxed 1 million VND per year.
Remarkably, Decree No 22/2020/ND-CP effective from 25 Feb 2020 has offered the first-year BLT tax exemption to newly incorporated businesses, ROs, branches, business premises incorporated during the exempting course, general education-related entities, households or individuals for first-time starting business in Vietnam, and SMEs (three-year exemption granted under specific conditions).
Initial capital contribution. It is obliged that the company must make an initial capital contribution after obtaining the Enterprise Registration Certificate.
Capital contribution is the number of assets contributed by members to constitute the company’s charter capital. Capital contribution can be either the contribution to set up a new company, or additional amount of charter capital of an existing company.
Be advised that the capital contribution must be made during 90 days after the company’s ERC receipt.
Other considerations on seal carving, bank account opening, and public announcement on the company registration
The company should register a corporate bank account to ensure its business running in smooth operations. Importantly, the minimum capital requirement, after determined by the Department of Planning and Investment upon a specific investment sector, is required to be sent to the company’s bank account.
Pursuant to Article 14, Law on Enterprise (2014), the company is obliged to send a notice of the seal to the Business Registration Agency to be made publicly on the National Enterprise Registration portal before using it.
However, the recently amended Law on Enterprise No 59/2020/QH14 which will come into force from 01 January 2021 removes the step of announcing the seal specimens to the Business Registration Agency. In addition, the enterprise can decide by itself the type, number, and content of its branch’s seals without making notices to the competent authority.
Public announcement of the company registration must be done once the company has obtained IRC/ERC licenses.
Article 33 of Law on Enterprise regulated that the enterprise must publicly disclose the company registration on the National Enterprise Registration portal. Information to be announced should include the company’s business line as well as the list of its found shareholders and foreign investors who play the role of shareholders for joint-stock companies.
5. Key takeaways
To wrap up, we clarify key highlights on how to set up a company in Vietnam for foreign investors:
- Foreign investors can register a company in Vietnam under the legal common forms like Limited Liability Company, Joint Stock Company, Partnership, Business Cooperation Contract, and other business. Foreign companies can also set up their presence in Vietnam by forming a branch or representative office.
- Depending on certain investment sectors that foreigners engage in, requirements for a company set up in Vietnam can relate to the foreign ownership restriction and minimum capital requirement.
- Two crucial steps for registering a business in Vietnam: Obtaining Investment and Enterprise license.
- Depending on the location of each investment project (inside or outside of regulated zones), applicants shall work with different licensing authorities to obtain Investment Registration Certificate (IRC).
- Business/Enterprise Registration Certificate (ERC) is issued by the Department of Planning and Investment, regardless of whether the investment project carried out inside or outside of the regulated zones.
- The IRC and ERC applications will be replaced with Branch/Representative Office License applications for branch or representative office establishment.
- Post-registration related concerns should comprise of tax registration, BLT payment, capital contribution, public announcement on the company registration, opening bank accounts, etc.
For further information about the company registration in Vietnam, you may look into BBCIncorp’s related blog articles: Tax incentive for foreigners investing in Vietnam