REQUIRED PROCEDURES FOR ESTABLISHING A FOREIGN-OWNED COMPANY

According to data from the United Nations Conference on Trade and Development (“UNCTAD”),  foreign direct investment (“FDI”) in the Asia-Pacific region, which is the main global investment driver, recorded a decline of 9%, including a decline of 6% in China, a decrease of 47% in India and a decrease of 16% in ASEAN. However, Vietnam is one of the countries that still maintains impressive FDI growth throughout 2023 with an increase of 32.1%, 42% and 13.7%, respectively, of which Vietnam ranks first in terms of recorded FDI.

Foreign-owned companies play an important role in the operation of Vietnam’s economy. With foreign direct investment, foreign-invested companies in Vietnam can participate in business activities, thereby creating several job opportunities for employees and promoting the development of many different industries in Vietnam.

The procedure for establishing a foreign-owned company in Vietnam is quite a complicated procedure and requires many factors to consider. The following article will help readers better understand the procedures for establishing a foreign-owned company.

1. What is a foreign-owned company?

Currently, the Law on Investment 2020 no longer has the concept of foreign-owned companies. The cluster of foreign-invested companies has been replaced by the cluster of foreign-invested economic organisations. According to clause 22 Article 3 of the Law on Investment 2020, a foreign-invested economic organisation is an economic organisation with foreign investors as members or shareholders. Thus,  it can be understood that a foreign-owned company is a company established in accordance with the provisions of Vietnamese law and in which at least one foreign investor is a member or shareholder.

2. Procedures required when establishing a foreign-owned company

• Conditions for setting up a foreign-owned company

Regarding the business sectors chosen by investors: there are some business sectors require foreign investors to meet market access conditions when establishing foreign-invested companies. Investors shall consider Article 9 of the Law on Investment 2020 and Article 15 of Decree 31/2021/ND-CP detailing and guiding the implementation of a number of articles of the Law on Investment to understand which business sectors are not allowed to access the market or are allowed to access the market with specific conditions. It can be said that foreign investors are only allowed to operate in business sectors that are allowed by the state and are not allowed to operate in the restricted ones.

Regarding the financial capacity of investors: in order to make accurate investment decisions, it is necessary to assess the financial capacity of investors. According to point c, clause 1 Article 33 of the Law on Investment 2020, in order to be approved for investment policies, investors must provide documents proving their financial capacity. However, the requirements for financial capacity are different depending on specific regulations for each business sectors.

Regarding the subject conditions for the domestic investors and the foreign investors: as per the Law on Investment 2020, domestic investors can be individuals with Vietnamese nationality or economic organisations without foreign investors as members or shareholders. Foreign investors are individuals with foreign nationality or organisations established under foreign laws that carry out business investment activities in Vietnam. In addition, Vietnamese law does not have specific regulations on the nationality of foreign investors, that is, investors from any country can invest in Vietnam if they fully meet the statutory conditions.

2.2. Procedures for applying for an investment registration certificate

2.2.1. Registration and application for approval of investment policy (in case the project is subject to investment policy decision)

Articles 30, 31 and 32 of the Law on Investment 2020 have listed investment projects that must be approved by the competent authority. If the project is subject to investment policy approval, investors must apply for investment policy approval from the National Assembly, the Prime Minister or the provincial-level People’s Committee. The components of the dossier of application for appraisal and approval of investment policy are specified in Article 33 of the Law on Investment 2020 and Article 31 of Decree 31/2021/ND-CP. Regarding the order and procedures for approval of investment policy, within the prescribed time limit from the date of receipt of a complete dossier, the competent authorities will conduct an appraisal of the dossier, including the contents that need to be appraised. After that, the competent authority will issue a decision on approval on the investment policy.

2.2.2. Carrying out procedures for issuance of investment registration certificates

In case of a foreign investor, after fully satisfying the conditions for a foreign investor to be allowed to invest in Vietnam, the foreign investor must carry out the procedures for applying for an investment registration certificate. Clause 1, Article 37 of the Law on Investment 2020 specifies the cases in which procedures for applying for an Investment Registration Certificate must be carried out, including investment projects of foreign investors.

Articles 35 and 36 of Decree 31/2021/ND-CP stipulate that, for an investment project that has been approved for investment policy, the investment registration authority must issue an investment registration certificate within 05 working days from the date of receipt of the written approval for the application for an investment registration certificate.

For projects that are not subject to the issuance of investment registration certificates but still need to be granted investment registration certificates, investors can submit necessary documents to the investment registration agency to be granted investment registration certificates within 05 working days from the date of receipt of the written request.

It is worth noting that the procedure for issuing an investment registration certificate may take longer than expected because it depends on many objective factors.

2.3. Carrying out procedures for issuance of enterprise registration certificates

Enterprises can apply the following types of foreign-invested companies: Joint stock companies, limited liability companies with two or more members or a partnership in case the parties to the joint venture are only individuals. Each party is responsible for the capital contribution to the company’s charter capital.

After receiving the Investment Registration Certificate, the investor can continue the procedures for establishing a foreign-owned company. The investor will consider and select the type of enterprise in accordance with the business objectives and the provisions of Vietnamese law. To be granted an Enterprise Registration Certificate, the investor needs to carry out business registration procedures. The order of enterprise registration is detailed in Decree 01/2021/ND-CP on enterprise registration. The investor will based on the selected type of enterprise to carry out appropriate business registration procedures. After submitting the enterprise registration dossier at the Business Registration Office where the enterprise is headquartered, if the dossier meets the conditions specified in Clause 2, Article 32 of Decree 01/2021/ND-CP, the dossier will be received. Within 03 working days from the date of receipt of a valid dossier, the Business Registration Office will issue an Enterprise Registration Certificate if the foreign-invested company fully meets the conditions specified in Clause 1, Article 27 of the Law on Enterprises 2020.

Above is an overview of the procedures required when establishing a foreign-invested company that Phuoc and his associates share with readers. 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 & Associates is also considered one  of the law firms with  a leading team of staff in the legal field in Vietnam. practice fields are rated as the top in the legal market such as Labor and Employment, Tax, Mergers and Acquisitions, Litigation. We are confident to be one of the law firms providing the best legal services to our clients.