Setting Up a Foreign-Owned Travel Business In Vietnam and China
HCMC – Tourism is big business throughout Asia. With its rising middle class, Chinese tourists are traveling throughout the region. Countries like Vietnam are seeing significant growth in their tourism industries. As a result, more and more companies are looking to set up operations in the region. In this article we look at the regulations around setting up a tourism company in Vietnam and China, and give you a brief snapshot into each countries’ tourism industry. There are a number of important differences between the regulations of the two countries and it is important to consult a professional before moving forward with your operations.
Vietnam: A travel destination
Vietnam’s tourism industry has been gaining in strength for some time now. The country has a variety of enticing locations for tourists to visit, these range from beaches, to mountains, to exploring caves and ancient ruins.
Vietnam has seen substantial increases in the number of visitors coming to the country. In 2013, there were over 7.57 million international visitors. The figures, released by the Vietnam National Administration of Tourism (VNAT), represented a rise of 10.6 percent from 2012 (6.85 million). Revenues generated from tourism in 2013 came to over US$9.4 billion.
The vast majority of visitors to Vietnam come from China, with the Asian superpower sending 1.9 million visitors in 2013— a considerable increase of 33.5 percent from 2012, and representing over a quarter of Vietnam’s international visitors. The country sending the second highest number of visitors to Vietnam is South Korea, which sent 749,000 in 2013 (up 6.8 percent from the previous year).
The VNAT’s target for 2014 is eight million visitors, and it is well on track to reach this number. Many of the months of 2014 saw significant year on year (YoY) increases, for example January saw an estimated 722,350 international visitors (a 20.8 percent YoY). Total international arrivals as of November were 7,217,008, an increase of 5.4 percent over the same period last year.
Turning to the rules and regulations involved with starting a travel business in Vietnam, there are a number of areas that foreign investors must pay particular attention to. In accordance with the laws on tourism of Vietnam, only foreign tourism companies (not individuals) can collaborate with a Vietnamese tourism company in order to establish a joint venture (JV) company that provides tourism services in Vietnam.
There are a number of conditions for the foreign investor and the Vietnamese party, these are as follows:
For the foreign investor:
- Must be an enterprise
- The enterprise must be carrying out tourism services in the country where it was established
For the Vietnamese party:
- Must be an enterprise legally established under the laws of Vietnam
- The enterprise must be carrying out tourism services
- The enterprise must have a license issued by the Vietnamese government in order to carry out foreign tourism services
Once both parties have meet the above requirements, the conditions applied for the formation of the JV company are as follows:
- Apply for a license from the Vietnamese government to carry out foreign tourism services
- Create a business plan for the provision of the tourism services; and create a tourism program for the foreign tourists
- The manager of the foreign tourism business must have at least four-years’ experience in tourism services
- The company must have at least three tour guides who have a foreign tour guide license
- The company must have sufficient deposits on hand for the running of their business, these are as follows:
- VND 250,000,000 (~US$12,500) for an enterprise carrying out tourism services for customers coming to Vietnam
- VND 500,000,000 (~US$50,000) for an enterprise carrying out tourism services for customers going out of Vietnam, or for both customers going out of Vietnam and customers coming to Vietnam
China: Stepping out into the world
Now that China’s income levels are rising across the board and a massive middle class is being created, there has been a large increase in the levels of outbound tourist travel. While the top two international destinations for Chinese tourists remain Hong Kong and Macau, these countries share is dropping as Chinese travelers begin to explore further afield.
In particular, nearby Asian countries such as Thailand, Taiwan, South Korea, Vietnam, and Singapore all expect to see an influx of Chinese tourists in the near future. Additionally, Western locations, such as the United States and France are increasingly popular destinations for Chinese tourists.
CLSA, the CITIC-owned Asian investment and brokerage advisory firm, issued a report at the beginning of 2014 which estimated that the number of mainland Chinese outbound tourists will double from 100 million in 2013 to 200 million by 2020. As a result, Chinese tourist spending is expected to triple, from about RMB500 billion to around RMB1.4 trillion during the next six years.
China’s regulations on setting up a travel company differ from Vietnam in a number of important aspects. The country allows for three forms of foreign invested travel agencies, these are:
- Sino-foreign equity joint venture
- Sino-foreign cooperative joint venture
- Wholly foreign-owned travel agency
Like Vietnam, China also lays out a series of conditions for both parties involved in a joint venture. The conditions for the foreign party are as follows:
- Being a travel agency or an enterprise mainly undertaking tourism
- Being in good international credit and having advanced management experience of travel agencies
- Abiding by Chinese laws and the relevant Chinese regulations of tourism
- Being a member of the tourism association of its home country
- The total annual turnover amount for the company must be more than:
- For Hong Kong/ Macao-based:
- US$25 million for a wholly foreign-owned travel agency
- US$12 million for a Sino-foreign equity joint venture
- For other foreign countries:
- US$40 million for a Sino-foreign equity joint venture and a Sino-foreign cooperative joint venture
- US$500 million for a wholly foreign-owned travel agency
The conditions for the Chinese party in the JV are as follows:
- Must be a company established according to Chinese law
- Have no record of law breaking or serious regulation breaking in the past three years
- Meet the prudence requirements and the requirements for special industry as specified by the competent tourism administration department of the State Council
Additionally, China implements further conditions for both parties involved in the JV, these are as follows:
- Having a registered capital of not less than RMB 4 million (approximately US$41,000)
- An investor who applies for foreign holding and wholly foreign-owned travel agencies will be approved for only one agency
The scope of the business that the travel agency may engage in is as follows:
- May engage in the entry travel business and domestic travel business
- May not set up branches
- May not directly (or in disguise) engage in tourism businesses relating to going abroad of Chinese citizens or Chinese people in other regions going to Hong Kong, Macao, and Taiwan regions
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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