Notes on establishing a foreign-invested Company in Vietnam

Vietnam is becoming an attractive destination for foreign investors thanks to its stable economic growth, abundant workforce, and open integration policies. In line with this trend, foreign investors and even Vietnamese enterprises looking to establish and operate a foreign-invested company in Vietnam effectively must first clearly understand the relevant legal regulations and conditions. This article will outline some considerations when establishing a foreign-invested company in Vietnam, including market access conditions, investment incentives, the use of foreign labour, and regulations on the transfer of profits abroad.

1. Market Access Conditions

Before deciding to invest in Vietnam, foreign investors need to thoroughly research the regulations related to market access. This includes understanding the business investment conditions and market access conditions for foreign investors.

Business investment conditions are the requirements that both individuals and organisations (including domestic and foreign investors) must meet when conducting business investment activities in conditional sectors in Vietnam. These requirements aim to ensure that business activities occur within the legal framework and contribute to the sustainable development of the economy. In principle, foreign investors can engage in any business lines not prohibited by Vietnamese law, similar to domestic investors. However, for certain specific lines, mandatory conditions must be met to be allowed to register an enterprise. Foreign investors can refer to the national system of business lines (CPC) for an overview of the sectors and specific conditions.

Market access conditions for foreign investors are specific requirements that foreign investors must comply with to access the Vietnamese market. These regulations include laws, resolutions of the National Assembly, ordinances, resolutions of the Standing Committee of the National Assembly, decrees of the Government, and international treaties to which Vietnam is a member[1]. These conditions may include limits on ownership ratios, requirements for special permits, or other restrictions related to specific business lines, including lines where foreign investors are not yet allowed to operate in Vietnam and lines where foreign investors are allowed to operate but must meet certain conditions or restrictions. These conditions may include requirements for minimum investment capital, foreign investor ownership ratios, or other regulations to ensure market competition and stability.

For business lines with limited investment capital of foreign investors (usually no more than 50% of capital contribution in an economic organisation in Vietnam), foreign investors must accept joint ventures, and cooperate with Vietnamese investors to establish economic organisations with the abovementioned business lines in Vietnam. In addition, according to Article 23 of Law on Investment 2020, foreign capital in a Vietnamese enterprise is determined to include both direct investment capital from foreign investors and investment capital from an economic organisation with 50% foreign capital or more).

2. Investment Incentives

Vietnam has commitments to open the market as well as many investment incentive regulations related to corporate income tax for certain business lines or investments in localities with difficult socio-economic conditions.

Regarding forms of investment incentives, the Law on Investment 2020 stipulates specific investment incentives as follows: corporate income tax incentives; tax exemption and tax reduction; exemption from import tax for goods imported to create fixed assets; raw materials, supplies, components imported for manufacture according to the provisions of the law on export tax and import tax; exemption or reduction of land use fees, land rent fees, land use tax; accelerated depreciation, increasing deductible expenses upon calculation of taxable income[2].

To receive the above incentives, investors must invest in projects in business lines eligible for investment incentives that Vietnam encourages investment in such as high-tech activities, new material production, clean energy, electronic products production, mechanical engineering, information technology, cultivating and processing agricultural, forestry and aquatic products, producing biotechnology products, collecting and handling waste, etc[3]. Investors can also receive incentives when investing in areas with investment incentives such as areas with difficult socio-economic conditions, areas with extremely difficult socio-economic conditions and industrial zones, export processing zones, high-tech zones, economic zones. In addition, some projects that have an impact on socio-economic development will also receive a number of separate investment incentives such as projects with a capital scale of VND 6,000 billion or more, projects on social housing construction investment, projects on creative start-up investment, innovation centres, research and development centres,…

In addition to subjects eligible for specific incentives, the Vietnamese Government has decided to apply incentives and special support for the following projects[4]:

• Newly established investment projects (including the expansion of that newly established project) of innovation centres, research and development centres with a total investment capital of VND3,000 billion or more, disbursing a minimum of VND1,000 billion within 03 years from the date of issuance of Investment Registration Certificate or approval of investment policy; the national innovation centre was established by decision of the Prime Minister.
• Investment projects in business lines are eligible for special investment incentives with an investment capital of VND30,000 billion or more, with a minimum disbursement of VND10,000 billion within 03 years from the date of issuance of the Investment Registration Certificate or approval of investment policy.

Regarding principles and conditions for incentives, the Law on Investment 2020 sets out specific conditions for projects to receive investment incentives in a selective, targeted, reasonable manner, maximizing benefits for investors but must be consistent with the social and economic policies of the State. According to Clause 6 and Clause 7, Article 15 of Law on Investment 2020, investment incentives are implemented according to the following principles:

• Investment incentives are applied for a limited time and are based on the investor’s project implementation results. Investors must meet the conditions for receiving incentives according to the provisions of law during the investment incentive period.
• Investment projects that meet the conditions for different levels of investment incentives, including special investment incentives, will be eligible for the highest level of investment incentives.

3. Using Foreign Employees

When establishing an economic organisation in Vietnam, foreign investors need to carry out a number of procedures according to labour laws such as a report explaining the need to use employees when starting operations; establishing and using labour management books; developing and announcing pay scales and payroll; develop and announce labour productivity norms; develop and register internal labour regulations; establish a trade union within the company.

According to the Labour Code 2019 and Decree 152/2020/ND-CP, foreign investors in Vietnam can be granted a Work Permit or a Work Permit exemption Certificate, depending on the value of the investor’s capital contribution to the project. The use of foreign employees in Vietnam must also follow the above procedures.

Specifically, foreign employees working in Vietnam who have foreign nationality and are not subject to Work Permit exemption are required to be granted a Work Permit. The investor is a foreign individual or the representative of the investor is a foreign organisation that meets the conditions specified in Article 154 of Labour Code 2019, guided by Section 2 Chapter II, Decree 152/ 2020/ND-CP are not subject to Work Permit, specifically as follows:

• Be an owner or capital contributing member of a limited liability company with a capital contribution value of VND3 billion or more.
• Be the Chairman of the Board of Directors or member of the Board of Directors of a joint stock company with a capital contribution value of VND3 billion or more.

4. Transferring Profits Abroad

Foreign investors investing in Vietnam can transfer profits abroad at two times: transferring profits abroad annually and transferring profits abroad when ending direct investment activities in Vietnam[5]. Profits of foreign investors transferred from Vietnam to foreign countries are legal profits shared or earned from direct investment activities in Vietnam, after fully fulfilling financial obligations to the State of Vietnam according to regulations.

Conditions for foreign investors investing directly in Vietnam to transfer profits abroad include:

• Profits are transferred abroad in the form of money or objects. For objects, the value of objects must be converted according to the law on import and export of goods and relevant laws.
• Has fully fulfilled its financial obligations to the State of Vietnam according to the provisions of law.
• Must be done through a direct investment capital account.
• Profits from enterprises in which foreign investors invest in the year in which profits arise no longer have accumulated losses after carrying forward losses according to the provisions of law. In the case of an enterprise’s financial statement in the year arising profits which the foreign investor invests are still accumulated losses after carrying forward losses according to the provisions of law on corporate income tax, then the foreign investors are not allowed to transfer abroad the profits shared or earned from direct investment activities in Vietnam.
• Enterprises in which foreign investors invest have submitted audited financial statements and corresponding corporate income tax finalisation declarations.

The above are some share from Phuoc & Partners related to Notes on establishing a foreign-invested Company in Vietnam. If you encounter any difficulties related to the legal field, please contact us. Phuoc & Partners is a law firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Da Nang. Phuoc & Partners is also considered one of the law firms with a team of staff specialising in the leading legal field in Vietnam and whose practice areas are rated top in the legal market such as Labour and Employment, Taxation, Mergers and Acquisitions, and Litigation. We are confident that we are one of the Law Firms providing the best legal services to our customers.

[1] Article 9.2 Law on Investment 2020.

[2] Article 15 Law on Investment 2020.

[3] Article 16 Law on Invesment 2020

[4] Article 20 Law on Invesment 2020

[5] Article 4 Circular 186/2010/TT-BTC.