Establishing A Foreign Business: Process And Rules

In the context of an increasingly globalised market, attracting investment resources from abroad not only helps organisations and businesses take advantage of advantages but also expands opportunities to access international markets, while creating a competitive environment to promote the sustainable and comprehensive development of businesses. Therefore, establishing a foreign business is an important strategy to connect enterprises with foreign capital and international development potential. For a more detailed understanding of establishing a foreign business, the following article will delve into the issue of “establishing a foreign business: process and rules”.

What is a foreign business?

Foreign business means an enterprise invested by an investor of another country with part or all of its capital to establish itself in the territory of Vietnam in order to conduct profit-making business activities. Accordingly, foreign businesses have the following characteristics:

• Enterprises established and operating under the laws of Vietnam;
• Enterprises invested by foreign investors in part or all of the contributed capital;
• Have legal status under Vietnamese law.

Currently, according to Vietnamese  law, the concept of foreign business has no longer been used, instead, the law has implemented a clear separation between foreign investors and foreign-invested economic organisations. This separation is specified in Clauses 19 and 22, Article 3 of the Law on Investment 2020.

According to Clause 22 Article 3 of the Law on Investment 2020, a foreign-invested economic organisation is defined as an economic organisation whose foreign investor is a member or shareholder. Thus, foreign businesses are one of the types of foreign-invested economic organisations.

An important point emphasised is that the law does not specify the level of capital that an economic organisation needs to receive investment from abroad. Instead, this decision may depend on the specific project and line of business. This flexibility helps facilitate businesses and economic organisations of various sizes and financial conditions.

Process of establishing a foreign business

Forms of establishment of a foreign business[1]

Establishment of a foreign business in the form of investment in the establishment of economic organisations:

Accordingly, foreign investors will contribute capital right from the beginning of the establishment of the business in Vietnam with the capital contribution rate from 1% to 100% of the charter capital of the enterprise.

Establishment of a foreign business in the form of capital contribution, share purchase, purchase of contributed capital:

In this form, foreign investors will contribute capital to Vietnamese companies that have obtained the Certificate of Business Registration by carrying out procedures for capital contribution, share purchase, capital contribution purchase of Vietnamese economic organisations. Forms of capital contribution, share purchase, purchase of contributed capital are specified in Article 24 of the Law on Investment 2020.

In addition, foreign investors can invest in Vietnam in the form of BCC contracts. From the perspective of investment law, BCC contract is a contract signed between investors for business cooperation, profit sharing, product division in accordance with law without establishing an economic organisation. However, the parties to the BCC contract must carry out procedures for issuance of the Investment Registration Certificate in accordance with the provisions of investment law.

Some notes when establishing a foreign business

When foreign investors decide to establish a foreign business in Vietnam, it is necessary to follow the procedures prescribed by law and note:

• For foreign investors who contribute capital or buy shares in Vietnamese companies that already have an Enterprise Registration Certificate (including the case of buying up to 100% of the contributed capital of the company), there is no need to carry out procedures for issuance of an Investment Registration Certificate, unless the company operates in the field of education and training. In this case, if a foreign investor buys from 1% of the contributed capital, they must also carry out procedures for issuance of an Investment Registration Certificate.
• For companies doing business in the field of retailing goods to consumers or setting up retail establishments of goods, it is necessary to apply for additional business licenses and licenses for setting up retail establishments.

Procedures for establishing a foreign business

Procedures for issuance of the Investment Registration Certificate

To establish a foreign business in Vietnam, foreign investors establishing economic organisations must satisfy market access conditions for foreign investors. Specifically, it is necessary to consider industries that restrict foreign investors, including: Industries and trades that have not yet accessed the market and industries and trades with conditional market access.

After satisfying all conditions for foreign investors to be allowed to invest in Vietnam, economic organisations must carry out procedures for applying for an Investment Registration Certificate. Article 37 of the Law on Investment 2020 specifies the cases in which procedures must be carried out for application for an Investment Registration Certificate, including investment projects of foreign investors and investment projects of economic organisations specified in Clause 1, Article 23 of the Law on Investment 2020. However, it should be noted that, in some cases, investors must register investment policies under the competence of the National Assembly, the Prime Minister or provincial People’s Committee agencies before applying for an Investment Registration Certificate.

According to Article 38 of the 2020 Investment Law, the process of applying for an Investment Registration Certificate is carried out according to specific deadlines and depends on each specific case. For investment projects subject to approval of investment policies, the investment registration agency must issue an Investment Registration Certificate within 05 working days from the date of receipt of the written approval of the investment policy and investor approval; and 15 days from the date of receipt  of the request for an Investment   Registration Certificate for Investment projects do not fall into the  above cases. For more details on the procedures for issuance of an Investment Registration Certificate, foreign investors can refer to Decree No. 31/2021/ND-CP guiding the implementation of the Investment Law, especially from Articles 35 to 40. After completing this process, investors can continue to choose the type of business and register for establishment as prescribed in Decree No. 01/2021/ND-CP.

Procedures for establishing a foreign business in Vietnam

After receiving the Investment Registration Certificate, foreign investors can continue the process of establishing an enterprise in Vietnam. In this process, investors need to consider and select the type of business in accordance with business objectives and regulations of Vietnamese law. According to the provisions of the Enterprise Law 2020 and Decree No. 01/2021/ND-CP, foreign investors can choose between many types of businesses such as joint stock companies, limited liability companies, or partnerships. Each type has its own advantages and limitations, suitable for each specific industry and business strategy.  Decree No. 01/2021/ND-CP provides detailed guidance on business registration procedures, including planning and giving necessary information, such as registration of business name, head office address, business lines, investment capital structure, and information about founding members.

The process of establishing a foreign business in Vietnam requires investors to pay attention to  the provisions of the Law on Investment, as well as the business registration process under  the Enterprise Law 2020 and Decree No. 01/2021/ND-CP. Understanding and complying with these regulations will help foreign investors expand their business activities effectively and legally in Vietnam.

The above is an overview related to Establishing a Foreign Business: Process and Rules that Phuoc & Partners share with readers. If you have difficulties in finding a Law Firm to advise and support in the relevant legal field, please contact us. Phuoc & Partners is a professional consulting firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Danang. Phuoc & Partners is also rated as one of the leading consulting firms specialising in business law in Vietnam that has leading practice areas in the legal market such as Labour and Employment, Taxation, Merger and acquisition, Litigation. We are confident in providing Clients with optimal and effective service.

[1] Article 21 of the Law on Investment 2020