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Setting Up a Business

In this section, we discuss the various options that a business has for market entry into Vietnam and overview the entity types, requirements, and processes, as well as some key considerations that will help ensure a company is set up for success.

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There are also tips for what the procedures are if you are seeking a Vietnam presence without first setting up a legal entity, and what the procedures are for closing a business, should the need arise.

Establishing a company typically requires moderate or greater amounts of investment capital than other entry modes and can require several months to complete all steps in the process, before the company becomes operational. This is an expected risk of a fixed investment strategy, and for these reasons, it is important that investors first understand the Vietnam business, financial, consumer, or local cultural landscapes, and the options that might best help realize the goals of the investment.

Choosing a corporate structure

Vietnam permits 100% foreign ownership of a business for most sectors. Yet before choosing which type of company to open in Vietnam, it is important to consider different aspects of the target entity types, such as differences in structure, legal liability, statutory compliance requirements, time required to establish it, what types of activities it can engage in, and more. These considerations help to identify the appropriate business constraints, costs, requirements and risks, necessary to enable the company’s future targeted capabilities, developments, and growth. The below links explain these factors for each of the main entity types that can be set up in Vietnam.

There are several types of foreign-invested corporate vehicles in Vietnam, the 3 more common of these are:

Comparison of Business Structures

 

RO

Representative Office

BO

Branch Office

LLC

100% Foreign-Owned Enterprise

Separate legal entity

No

No

Yes

Liability

Extension of parent company

Extension of parent company

Laibility limited to capital contribution.

Naming of the Entity

Must be same as parent company

Must be same as parent company

Can be the same or different from parent company

Permitted Activities

 

Only market research and coordination.

No business activities that yield profit.

 

Commercial activity within parent company’s scope

Can be the same or different from the parent company

How many Weeks to set up this Entity Type?

6 to 8 weeks

12 weeks

8 to 16 weeks

Is an Annual Tax Return filing required?

 

See Audit guide

 

No.


Companies required to declare all employees’ Personal Income Tax (read about PIT).

 

Yes

Yes

Audit required?

See Audit guide

 

Yes

Yes

Yes

Summary of Pros

Easy registration procedure

Can remit profits abroad

·    Limited liability to capital contribution

·    Freely engage in any registered business lines that are not banned by local laws

Summary of Cons

  • Cannot conduct revenue generating activities
  • Parent company bears liability
  • Limited to certain industry sectors
  • Parent company bears liability
  • Cannot issue shares
  • Maximum of 50 shareholders
To read further details about any of these entity types, click on the FIE Structure Type to read from more in our Types of Business in Vietnam guide section.

 

Company set up process in Vietnam

An LLC, or 100% Foreign-Owned Enterprise, generally requires 3 to 4 months to establish in Vietnam. A Representative office can generally be set up in half that time.

For LLCs, while some sectors may require a ‘Pre-Investment Approval’, most skip to their service provider directly applying for the required Investment Registration Certificate (IRC), which requires 15 working days, unless the sector of intended operation is not governed by the WTO, in which case it may take longer.

With the IRC in hand, an organization may pursue the subsequent steps, including securing a physical business address, applying for an Enterprise Registration Certificate (sometimes referred to as a Business Registration Certificate).

Below is a summary of the 4 main stages of set up.

Requirements for setting up a business

Minimum capital requirements

For most sectors and business lines, Vietnam requires no minimum capital requirements. However, the registered capital will be assessed by The Department of Planning and Investment for whether it is adequate to cover the expenses of the business until it generates enough revenue to cover its costs, usually for the first year or two of operation, based on the calculation of the investors. It is possible to set up a basic business services company with less than USD 10,000 in some cases, but in most cases, it would be at or above this threshold, depending on the nature of the business.

However, it is best to verify whether your business may require minimum capital investment, given that some industry sectors (business lines) do have requirements. Examples include:

  • Finance, Banking, Insurance and Fin-tech;
  • Language centers or Vocational schools;
  • Real estate companies;

Charter capital and total investment capital

The total investment capital of the company can combine both charter capital and loan capital. Loan capital, or mobilized capital, covers shareholders’ loans or third-party finance. Charter capital, or contributed capital, together with loan capital must be registered with the license issuing authority of Vietnam. 

Once approved, Investors cannot increase or decrease the charter capital amount without prior approval to make amendments from the local licensing authority.

Capital contribution schedules

Capital contribution schedules are set out in foreign-invested enterprise (FIE) charters (articles of association), joint venture contracts and/or business cooperation contracts, in addition to the FIE’s investment certificate.

Members and owners of a limited liability company (LLC) must contribute charter capital within the capital contribution schedules set out in these documents and within the contribution timeframes established by the Law on Enterprises.

Transferring capital to the FIE

To transfer capital into Vietnam, after setting up the FIE, foreign investors must open a direct investment capital account (DICA) in a legally licensed bank.

Registered address and resident director

Company registered address

A business requires a legal address in Vietnam in order to incorporate a company in the country. Most businesses require that it have its own physical location, such as an office or building leased or acquired.

Company resident director

A company is required to have a Resident Director – and may have one or more. A qualifying resident director requires a residential address in Vietnam. The residency status of the resident director is preferable but should not be a qualifying requirement during the incorporation process; Their residency status may be addressed separately.

Corporate compliance requirements

An established corporation in Vietnam will require ongoing corporate compliance, including:

List of Compliance Requirement Types for a Corporation in Vietnam

Type

Description of areas of compliance

Accounting and Tax Compliance

Maintaining the company’s accounting and tax compliance and reporting includes annual and quarterly filings relating to corporate income tax, as well as value-added tax, and personal income tax, according to Vietnam’s accounting standards. In many cases, there shall arise ad-hoc or periodic fillings relating to import and export tax and business license tax.  

Annual Audit Compliance

Annual Audit reports must be filed on time within Vietnam’s set annual finalization calendar by LLC and Representative offices alike, although the audit requirements for RO are easier. An independent Vietnamese auditing company must review your financial statements at the end of each fiscal year.

Employment Compliance

Employing people under your company, requires that you remain in compliance with Vietnam’s HR and employment laws, and following Vietnam’s national public holidays.

 

There are numerous requirements, such as limitations to the types and quantities of employees, ensuring that foreign employees receive and maintain the necessary work permits and visas, and registering and paying employees social insurance as a component of payroll.  

Business License Tax and Special License Compliance

Annual business license tax payment, beginning in a company’s second business year. Compliance and renewals may also apply for required special business licenses.

Foreign Investment Report Compliance

Foreign investment reports are required to be submitted in quarterly, semi-annual and annual basis, including the Report on Investment Implementation (quarterly and annually), and the Report on Investment Supervision and Assessment (semi-annually and annually).

FAQ: Other Considerations When Setting up a Business in Vietnam

How can I choose the right way to enter the Vietnam?

Start With the Right Plan and Support. As with any foreign country, Vietnam’s legal entity requirements, options and processes are unique, and establishing a legal entity requires the various costs of such an investment, time, and can bear other investment risks. Once investments are made, reversing strategies can be more challenging so it is vital that a company avoid missteps from the outset.

To optimize the chances for success, a business would do well to have better

  • Informed and guided business model;
  • Selection of business partners or suppliers to work with;
  • Options for initial service lines, products, and pricing models;
  • Options to set up in the right locations and more.

Obtaining on-the-ground information and practical experience in the market, can significantly help in these areas, and help position an enterprise for successes in Vietnam. Besides researching this Doing Business in Vietnam guide thoroughly, it is advisable to leverage professional assistance for further guidance with pre-market entry, investment decisions, entity set up, and all business, operational and financial factors that will arise along the path to achieving your investment objectives. In this respect, the contributors of this Guide are available to provide this expertise, via the Chat or Contact us link buttons.

What should I consider when choosing a location in Vietnam?

Vietnam is a diverse country, where each industry, market, and location are different and one size does not fit all. To evaluate potential locations, there are numerous factors to consider including, the availability of materials, government policy, taxation, proximity to market, labor availability, incentives, infrastructure, local laws, and political stability.

To gain certainty with location selection, business investors are advised to employ a location-by-location comparative approach is essential for identifying which locations provides the best opportunity and optimally suits their needs. In some cases, this may require that a rigorous Location Selection process be undertaken, entailing a market study, a comparison model, long listing locations and screening, due diligence, and a final site selections, and arrangement of site visits.

Available download: Finding an Ideal Location – Utilizing Vietnam’s Economic Regions.

What are the steps to open a bank account in Vietnam?

One of the first decisions that will have to be made by investors is that of banking. Upon entering the Vietnamese market, foreign investors who wish to remit profits to their home markets will be required to open a foreign currency bank account. This account is to be utilized for all foreign currency transactions carried out within the country.

For companies considering investment in Vietnam it is important to note that, while the use of foreign bank accounts becomes important at the latter stage of the remittance process, it is in fact important to finalize banking arrangements on the front end of the investment.

For companies that have already established operations in Vietnam, foreign currency accounts will have been set up during the transfer of funds to capitalize on given projects.

Did You Know?
Understanding which actions require the use of a foreign currency account, where restrictions are placed upon these types of accounts, and what documents must be prepared will all ensure that operations are optimized effectively.

How well developed is Vietnam’s IP protection environment?

As Vietnam develops as an economy and becomes more integrated globally, partly through its free trade agreements, IP rights have become a highly important factor in how organizations view the business climate in Vietnam. Vietnam is thus keenly developing its IP laws to help further support its attractiveness and, at the same time, participates in numerous international IP conventions, notably as follows:

  • The Paris Convention for the Protection of Industrial Property,
  • The Berne Convention for the Protection of Literary and Artistic Works,
  • The Rome Convention,
  • The Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement,
  • The World Intellectual Property Organization,
  • The Patent Cooperation Treaty,
  • The Madrid Protocol and
  • The Hague Agreement.

Vietnam’s IP system is divided into three areas as show in the below table, together with the respective administration organ.

Vietnam’s 3 Main Intellectual Property Protection Offices

IP area

Administered by

Copyright and related rights

The Copyright Office of Vietnam

Industrial property rights

The National Office of Intellectual Property (NOIP);

Rights to plant varieties

The Plant Variety Protection Office.

These offices function in conjunction with international conventions in most regards, though some unique treatment distinctions and protection time limits exist, that companies should be aware of.

What are the alternatives to setting up an LLC or FIE in Vietnam?

A company can choose from several business types options when aiming to enter Vietnam: A 100% Foreign-Owned Enterprise in the form of an “LLC” (Limited Liability Company) or Joint-Stock Company; a Branch Office; a Joint Venture; or a Public Private Partnership. Each of these types may require a significant period of time and investment to set up and may bring about certain amounts of risk to the investment.

Aside from setting up a corporation, there are a few other alternatives that are available that may help a company to get started doing business in, and with Vietnam, in shorter periods of time and with less risk, as are detailed below in this section.

Representative office

One such type is a Representative Office (RO), which offers a low-cost entry option for many companies, and are among the most common for companies that are first-time entrants to the Vietnamese market. RO’s are often suitable for companies that may be seeking to gain a better understanding of the Vietnamese market with a smaller initial investment, and may be used to pave the way for a larger presence within the country in future years.

Ros are currently permitted to engage in the following activities:

  • Conducting market research;
  • Acting as a liaison office for its parent company;
  • Promoting the activities of its head office through meetings and other activities that leads to business at later stages.

Employer of Record in Vietnam: Get started without an entity

An increasingly well-known alternative to establishing an entity worldwide, is that of the EOR (Employer Of Record) model often provided by a Professional Employer Organization (PEO). This model can allow a company in one country to hire employees in another country, without first establishing a local company or representative office.

An increasing number of firms today are beginning their market entry in this manner, to first learn about and test a market before making a larger commitment to it. Other companies use the model to meet short-term project-based needs in a country. Whichever the case, companies enjoy a lower cost route to market, which helps to hedge against the risks more inherent to fixed investment entry.

In Vietnam, PEO services can enable foreign investors to compliantly onboard, manage and ensure the payment of people, without the costs and risks associated with setting up a legal entity – in the short-term. This enables companies to place boots on the ground, without needing to physically set up a local establishment, which can save companies time and money. Your PEO provider would put your employees on their payroll, and take care of maintaining compliance with all local employment laws, and could assist you in sourcing and recruiting candidates in Vietnam as well.

Importer of Record in Vietnam: Fast-tracking your supply chain

An Importer of Record can greatly reduce the amount of time needed before a business can start importing goods into Vietnam. This can be very important for businesses.

To import goods into Vietnam, certain certificates and licenses are required which take time and knowledge to apply for and receive. This can delay how quickly a business can begin producing, distributing, and operating. Waiting to receive these documents can be costly to your business plans.

How difficult is it to close a business in Vietnam?

Closing a business in Vietnam requires a number of steps over an extended time process. It may take time for executives to become fully aware of the responsibilities they can face in dissolving or liquidating a company, but they are somewhat extensive. Here is a very brief summary of the procedural stages required to close a business in Vietnam:

  • Issue a decision of dissolution statement
  • Numerous Steps in Debt resolution
  • Closing of the import-export tax code
  • Bank account closure and stamp destruction
  • Submission of a dossier to the proviscial Department of Planning and Investment (DPI)

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