Company formation in Vietnam has a number of steps and can be somewhat complicated. This article breaks down the finer nuances of the process and details the technical steps that need to be completed.
Where to start
To form a company in Vietnam, non-Vietnamese will need to have a specific project they wish to implement. This project will need to be approved before a company can be formed. To make the process as simple as quick as possible, there are a number of steps that can be taken before a project plan is developed.
Check foreign ownership limits
There are foreign ownership limits in a number of industries in Vietnam. These are usually relative to the importance of the sector in which they exist to the national economy. The financial sector, for example, specifically banks, have some of the most stringent foreign ownership limits. Alternatively, manufacturing has almost none though it does sometimes depend on what a firm intends to produce.
For more information see: Vietnam’s Foreign Ownership Limits: Quick Guide
Check Vietnam’s conditional business lines
Aside from foreign ownership limits, Vietnam applies conditions to some business lines. For example, a foreign insurance firm needs to prove it has experience in the last seven years, providing the insurance services it intends to provide in Vietnam. It must have had total assets of at least US$2 billion in the year preceding its application. A list of conditional business lines can be found in the Law on Investment.
Get pre-approval
Some projects in Vietnam may require pre-approval. This is typically required when the project may cause a considerable disruption to a local community. For example, a power plant or large manufacturing facility requiring large tracts of land–projects of considerable size and scope. In the event this is necessary, firms should engage the support of a local experienced consultancy that can guide the pre-approval process. For the majority of businesses, however, this will likely not apply.
Choose a business structure
After confirming that Vietnam allows investment in the sector in which a foreign firm intends to invest and confirming that any conditions can be met, a firm needs to choose a business structure.
Professional employer organisation
Firstly, depending on the size of the organisation and its objectives, professional employer organisations–or PEO services–are a low-exposure option to get boots on-the-ground quickly. Under a PEO arrangement the foreign firm contracts a local business, usually a consultancy, to employ a local worker on their behalf. Whereas the foreign firm manages the local worker with respect to their daily duties and tasks, the local firm handles the employee’s wages and entitlements for a fee.
Representative office
A representative office is a cheap and relatively easy option for foreign firms to test the waters in Vietnam. A representative office can conduct market research and usually functions as a liaison office between its parent company and local partners–basically promoting the parent company. They cannot generate profits or issue invoices but they can employ both local and foreign staff. A representative office generally functions as a stepping stone for bigger investments down the line.
Limited liability company
For firms that are ready to take the leap and begin operating in Vietnam, they will need to establish a limited liability company. These can be established as either joint ventures with a local business partner or as wholly foreign-owned enterprises.
Joint ventures
For firms that choose to partner with a local business, this can reduce some administrative hurdles, in particular a joint venture will not require an Investment Registration Certificate or IRC (see below).
Joint ventures, however, can be risky. A mismatch in work ethics and management styles can cause conflict in the workplace, particularly in cross-cultural settings. Foreign businesses that pursue this route should prepare themselves accordingly.
Wholly foreign-owned
A wholly foreign-owned foreign enterprise, allows a foreign investor complete control over a company’s operations. This can alleviate some of the problems that come with working in a cross-cultural setting. It is, however, more costly and time-consuming to establish than other business structures.
Nominate a legal representative
All businesses in Vietnam are required to have a legal representative. A legal representative can be either a local or a foreign employee of an organisation but they must reside in Vietnam. They will essentially assume responsibility for the business in Vietnam. In practice, this usually means attending meetings with the authorities, most commonly, the General Department of Taxation.
Apply for an Investment Registration Certificate
After choosing a business structure, foreign firms will need to apply for an Investment Registration Certificate or IRC. (Note that this step is not necessary when working with a local partner).
The function of the IRC process is more-or-less to confirm that the investors are equipped to complete the project–in a nutshell it is a business plan with proof of financing.
That said, IRC applications do have a number of specific requirements. These are outlined in the Law on Investment and include:
- A request in writing for approval of the project;
- Identification of the legal entity initiating the project–a passport for individuals or business registration certificate for a company;
- A business plan that includes the project’s: investors, scale, objectives, duration, location, capital requirements, and labour demand, as well as a socio-economic impact assessment and details pertaining to how the project will be funded;
- Proof of funds in the form of financial statements or a commitment of financial support from the parent company or a financial institution–anything that can prove the investors capacity to support the project financially;
- An office lease agreement or proof that the business has permission to use the land it intends to operate on;
- The business cooperation contract if a firm has one; and
- A list of any technology or equipment that the business intends to use in Vietnam that is restricted. These are usually items that can be high-polluting or dangerous–for example, thermal power generators that use oil or coal or equipment for recycling solvents. There are complete lists under Appendix 2 and Appendix 3 of Decree 76/2018/ND-CP.
According to the Law on Investment, IRCs should be issued in between 5 to 15 days. In reality, however, it is usually around 30 to 45 days. It’s not unusual for IRC applications to be returned with a request for further information or clarification.
Note that an IRC application template created by the Ministry of Planning and Investment can be accessed here.
Apply for an Enterprise Registration Certificate
After receiving an IRC a business needs to apply for an Enterprise Registration Certificate. This is a somewhat easier process and requires limited documentation also outlined in the aforementioned Law on Investment. These are:
- A business registration application form;
- A copy of the company charter;
- A list of the owners or stakeholders in the company including certified identification;
- A notarized copy of proof of a businesses registration in its home country; and
- The aforementioned IRC.
An enterprise registration certificate can be applied for online through the National Business Registration Portal. An enterprise registration certificate should be issued within three days.
Publicly announce the formation of the company
Per Chapter Two Article 32 of the Law on Enterprises once an enterprise registration certificate has been granted it must be announced on the National Business Registration Portal
This announcement must include the details in the Enterprise Registration Certificate as well as:
- The firm’s business lines; and
- A list of the founding shareholders.
Complete any additional licensing requirements
Depending on the type of business or the project, there may be additional licensing requirements. For example, a restaurant or cafe will need a food safety certificate, a bar or nightclub will need an alcohol licence, and travel agencies must be licensed by the Ministry of Culture, Sports and Tourism.
Contribute capital
The minimum capital contribution is determined in the process of applying for an investment registration certificate. As a general rule, new businesses should expect to contribute a minimum of around US$10,000 in capital.
A business has 90 days from when the enterprise registration certificate is issued to deposit the funds into a Vietnamese bank account. Opening a bank account in Vietnam can be time consuming but it is relatively easy. Depositing funds can be as easy as making an international transfer through online banking. As far as services go for foreign firms, banking in Vietnam is fairly developed.
Get a seal (stamp) made
Firms will need to get their own seal or stamp made. These stamps are used to make documents official. Paper invoices, for example, must be stamped in red. Stamps can be made at a number of locations in and around just about every decent sized town in Vietnam and only cost a few dollars.
Costs
The costs associated with forming a company in Vietnam are relatively small in theory. A business registration certificate, for example, only costs around VND 50,000 (US$2). However, in reality it would be unusual for a foreign firm to be able to setup a company in Vietnam without the support of a local law or consulting firm
In this respect, there are a myriad of consulting and law firms that can assist foreign firms to form a company in Vietnam. Their fees can vary from a few hundred dollars to a few thousand. It’s important to remember that Vietnam in large part works through unofficial networks and connections. Accessing those networks can be costly but it can also make the process much smoother and faster.
What’s next?
This article provides a broad overview of the technical aspects of company formation in Vietnam. Carrying out this process, however, can be challenging and utilising a boots-on-the-ground expert may be key to ensuring the process is as smooth and seamless as possible.
Moreover, the business environment in Vietnam can be dynamic and change quickly. With this in mind, firms considering establishing themselves in Vietnam should make sure to keep up with the latest industry developments by subscribing to the-shiv.