NOTES FOR ESTABLISHING A FOREIGN-OWNED COMPANY IN VIETNAM?

Vietnam has been becoming an attractive destination for foreign investors thanks to its stable economic growth, large consumer market, and improving investment environment. However, the establishment of a foreign-owned company in Vietnam requires a deep understanding of the local law, especially the Law on Investment 2020 and related regulations. This article will provide you with information to note for establishing a foreign-owned company in Vietnam.

1. Legal framework and Regulation

The establishment of a foreign-invested company in Vietnam must comply with the Law on Investment 2020 and the Law on Enterprises 2020. Some important points in the Law on Investment 2020 should be noted as follow:

• Business investment lines: The Law on Investment 2020 classifies business investment industries according to the list of business lines banned from business investment and the list of conditional business lines for the foreign investors. Investors shall carefully check whether the industries they plan to invest in are in these categories. If it is a list of conditional business lines, the investor must meet the conditions for business investment as prescribed by law.
• Foreign capital ownership rate: Depending on each business line, the foreign capital ownership rate may be limited. For business lines in the list of business lines with limited market access for foreign investors, the charter capital ownership ratio of foreign investors in economic organisations is one of the conditions for market access for foreign investors. For example, in the air transport service, under point a, clause 3, Article 8 of the Decree No. 92/2016/ND-CP dated 01 July 2016 of the Government stipulates conditional business lines in the field of civil aviation, foreign-invested air transport enterprises, the foreign investors’ charter capital must not exceed 34% of the total charter capital of the enterprise.
• Market access conditions: The establishment of a foreign-invested company in Vietnam is not merely a legal process but also requires investors to understand the market access conditions. According to Article 9 of the Law on Investment 2020, these conditions are specifically stipulated to ensure a balance between attracting foreign investment and protecting national interests. The law clearly stipulates market access conditions for foreign investors, including conditions on the proportion of capital contribution, form of investment, and Vietnamese partners (if any). There are business lines that require investment activities to be carried out only within a specific geographical or sector, or some business lines may require an ownership rate that does not exceed a certain level (such as less than 50% or above 50%). Therefore, investors shall check the list of business lines and occupations with limited market access announced by the Government to determine whether the business lines they are interested in are restricted or not.

2. Choosing the form of business

Foreign investors can choose from many different forms of business in Vietnam:

• One-member or two-member or multi-member limited liability company: This is a popular and flexible type that is suitable for small and medium-sized businesses.
• Joint Stock Company: Suitable for large enterprises that need to raise capital from many different sources and plan to list their shares on the stock exchange.
• Representative office of a foreign trader: Usually used to survey the market and does not carry out direct lucrative activities.
• Branch of a foreign trader: It is possible to carry out direct business activities but still depends on the overseas parent company.

3. Administrative procedures

The administrative procedures for establishing a company include the preparation of documents, investment registration, and business registration. This process can take from 1 – 6 months depending on the complexity of the project and the preparation of the investor. To ensure a smooth process, investors should cooperate with reputable legal consulting firms in Vietnam. The administrative procedure for setting up a foreign-owned company involves many steps and requires careful preparation:

• Preparation of investment documents: Including investment project proposals, investors’ legal documents, financial statements, and related documents.
• Investment registration: Submit dossiers at the Department of Planning and Investment or the Management Board of industrial parks and export processing zones if the project is located in these zones.
• Business registration: After obtaining the Investment Registration Certificate, continue to submit the enterprise registration dossier at the Department of Planning and Investment to be granted an Enterprise Registration Certificate.

4. Forms of investment incentives

Article 15 of the Law on Investment 2020 stipulates forms of investment incentives to encourage investment projects in Vietnam. These incentives are designed to reduce costs and increase attractiveness for investors while directing capital resources to areas and areas that need to be developed. Some common investment incentives include:

• Corporate income tax: The current tax rate is 20%, but it may be higher for specific industries or lower if the business is entitled to tax incentives.
• Import tax: Import tax exemption for raw materials, supplies and components imported for production in accordance with the law on export tax, import tax or import tax exemption for imported goods to create fixed assets for investment projects.

The forms of investment incentives specified in Article 15 of the Law on Investment 2020 aim to create favorable conditions for investors, and at the same time direct capital sources to fields and areas that need to be developed. Understanding and complying with relevant conditions and procedures will help investors make the most of the incentives prescribed by law.

5. Expatriate

As an expatriate in a foreign-owned company in Vietnam, there are a few important things to keep in mind. In some cases, expatriates may not be entitled to the same social insurance benefits as domestic workers, but they also have their own benefits guaranteed. For example, with unemployment insurance, expatriates, according to Clause 1, Article 43 of the Employment Law 2013 and the Labor Code 2019, are not eligible to participate in unemployment insurance. Therefore, the company must pay 1% of the monthly salary to the salary of the foreign worker.

The establishment of  a foreign-owned company in Vietnam is a strategic decision that opens up many business opportunities in a potential market. However, to be successful, investors need to understand and comply with legal regulations, manage their finances effectively, and build a positive work environment. Thorough preparation, close cooperation with local partners and timely grasp of support policies from the government will be the key to helping businesses develop sustainably in Vietnam. Vietnam is currently one of the most attractive investment destinations in Southeast Asia and Asia in general. Seizing this opportunity, investors need to have reasonable preparation and strategies to maximize the potential of this market.

The above is an overview of Notes for establishing a foreign-owned company in Vietnam. 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 customers with optimal and effective service.