Foreign entrepreneurs from across the globe have been landing across Asia for decades. In August, Harvard ranked Vietnam as one of the top six fastest-growing nations in terms of its economy in 2023. Stop watching from a distance and learn how to set up a business in Vietnam.
The economy of Vietnam has seen exponential improvement over the last 30 years. Since the beginning of the millennium, roughly half of the population has been catapulted from poverty. More recently, the pandemic has swept its way across the world and has been relentless and unforgiving. Vietnam has shown superb resilience during this crisis, and unlike other nations, its economy has continued to climb during 2021.
Prospective investors in Vietnam continue to grow annually. New entities are emerging in the manufacturing, retail, and service sectors. If you are considering setting up a business, the following information may be of particular interest to you.
Requirements for setting up a business in Vietnam
Before you begin, please be aware that not every industry is suitable or legal for 100% foreign-owned management. Industries that allow foreign ownership include trading, manufacturing, IT, and education sectors, but for tourism and advertising, you must have Vietnamese partnerships. At any point in the process of setting up a business, having a trusted Vietnamese partner will come in handy. Below is a more detailed list of barriers foreign investors face in Vietnam.
These are the sectors prohibited from foreign investments:
- Drugs and narcotics;
- Hazardous chemicals and minerals;
- Range of specimens of endangered flora and fauna;
- Prostitution;
- Human trafficking, sale of human body parts and tissue;
- Human cloning or asexual reproduction.
The list goes further to follow the accordance of Vietnam's WTO Commitments. Vietnam can restrict or close certain sectors to foreign investments. The barriers apply to the following sectors:
- Courier services;
- Advertising services;
- Equipment maintenance and repair (except for ships);
- Road and rail transport;
- Travel agents and tour operators;
- Services related to manufacturing and mining;
- Aircraft repair and maintenance;
- Telecom and Electronic games or services;
- Maritime transport and container handling.
The Vietnamese government has been updating corporate legislation for years, and the majority of these improvements are designed to simplify the transition of foreign entities. There are a number of important guidelines to adhere to, and therefore, understanding the requirements of establishing a business in Vietnam is paramount.
When it comes to legal entities in this country, they fall into two primary classifications:
- A Limited Liability Company (LLC) must have at least one member but may have up to 50. These members are known as owners or founders. Be advised that Vietnamese LLC companies don't have any shareholders. Moreover, an LLC cannot be listed on any public stock exchange.
- A Joint-Stock Company (JSC), on the other hand, is required to have three shareholders at the absolute minimum. Additionally, there is no upper threshold, making this option attractive for creative entrepreneurs with limited capital. A JSC is particularly tailored for medium to large endeavors, especially those with complex corporate structures.
As the majority of foreign investors own Limited Liability Companies in Vietnam, this article will focus mostly on entities of this nature.
Vietnam's regulations for foreign ownership
Foreign ownership within most industries is regulated by the World Trade Organisation (WTO). In circumstances where the WTO or local law has little jurisdiction, approval from the relevant ministry is required.
What is the minimum amount foreigners can invest?
Luckily, there are no regulations in terms of the minimum amount of capital a foreign investor must have at their disposal, at least for most business types. New business lines must have enough collateral to cover expenses until the business becomes profitable. Many businesses typically begin with at least USD 10,000. However, some have successfully set up shop with as little as USD 3,000.
The following types of businesses are required to have a minimum amount of capital:
- Banking;
- Insurance;
- Finance & Fin-tech;
- Real estate;
- Education / Language schools.
As a foreign investor, your capital should surpass equipment expenses and the overall cost of setting up the company. With new visa laws that have gone into effect in August 2023, an Investor visa or a DT1 Visa means you must have a total capital investment of no less than 100 billion VND or US$ 4,101,730.00. This DT1 visa is applicable to people who are not starting their business and are already living in the country and will grant a five-year stay upon approval. Other investor visa options in Vietnam include:
- DT2 – capital contribution of 50 –99 billion VND(2,050,865- 4,060,712 USD), or investing in the business fields of investment encouragement decided by the Vietnam Government. Valid for up to 5 years.
- DT3 – capital contribution of 3 – 49 billion VND (123,051- 2,009,847 USD). Valid for up to 3 years.
- DT4 – capital contribution of less than 3 billion VND (123,051 USD). Valid for up to 12 months.
Is a registered business address mandatory?
In order to successfully and legally establish a company in Vietnam, a registered address is mandatory.
During the business' transition into Vietnam, the Department of Planning and Investment will observe and inspect proceedings. You may be required to present documentation to evidence your physical address. This documentation must assert that this address will remain in use after the incorporation of your business in Vietnam.
Is a resident director necessary?
At least one resident director is required to ensure the company is completely legitimate in Vietnam. There is no legislation that stipulates this person must remain in Vietnam. However, the resident director is required to have a residential address in the country.
If the director of the company is also one of the founders of the company, they are exempt from requiring a work permit. However, if the director is a foreign national but isn't one of the founding members, a work permit will need to be sought.
The process of legal company registration in Vietnam
While successfully registering a foreign Limited Liability Company in Vietnam is straightforward, it can still take several months to finalize everything legally.
How to obtain an investment registration certificate
Registering a company owned by foreigners can only proceed after an Investment Registration Certificate has been acquired. This is issued by the Department of Planning and Investment after roughly a month of deliberation.
Should your business fall into a category that isn't regulated by local laws or the WTO, ministry-level approval will be required. In this instance, it will take longer before receiving the certificate.
Apply for a Business Registration Certificate
This document is also issued by the Department of Planning and Investment. The Business Registration Certificate (BRC) is also known as the Enterprise Registration Certificate (ERC). Obtaining this document typically takes less time than the former documentation. The information you need to provide includes:
- Enterprise name;
- The physical address of the head office;
- Business line;
- Number of employees;
- List of board members;
- Delegation of capital;
- Articles of association;
- Valid personal identification (TRC and work permit).
Once the BRC has been received, you must make the initial capital contribution within three months. Failure to adhere to this condition will result in mandatory fines.
How to set up your business license tax in Vietnam
Determining your company tax number is easy as it is also your business license certificate number. Tax is paid through an online system regardless of the sphere your business falls under. Additional reports and tax declarations can be submitted through the same system. An electronic signature is a compulsory requirement in order to access this system successfully. Find a trustworthy accountant to review your income and profit and ensure you are paying the correct taxes from the beginning to avoid any headaches in the future.
Good to know:
Business lines such as manufacturing, logistics, liquor or cosmetics distribution, and trading will all require sublicenses, meaning you will need to apply for a sublicense before your company can operate normally. Although company registration in Vietnam is a fairly swift process, the application for sublicenses will cause perceptible delays.
Learn the Vietnamese business etiquette
Once your business is legitimate and functional in Vietnam, you may need to collaborate with Vietnamese entrepreneurs or attend networking events. While Vietnamese citizens work hard, they also prioritize company retreats or dinners with other members of their industry. Take the time to familiarize yourself with business customs or practice the different tones of the Vietnamese language.
If you'll be maintaining a presence in Vietnam during your business endeavor, here are a couple of quick business etiquette reminders:
- At dining events, wait for the oldest member of the group to begin eating at social events before doing so yourself, or follow the lead of your host.
- Don't raise your voice or amplify your anger in group situations.
- Vietnamese people typically introduce themselves in the order of Family name - middle name - first name, and will reword your name for convenience or decide on a nickname for social comfort.
- Presenting a prospective partner with a gift is common, and fruit or artisanal spirits are always a good choice.
- Be aware of the lunar calendar and watch out for any superstitions when starting a new relationship.
What is corporate compliance in Vietnam?
Corporate compliance is another element of business that must be taken into account during your presence in Vietnam. The legislation was rectified in 2020, and a few small changes to the organizational structure of Limited Liability Companies are now in effect. In a nutshell, companies of this category no longer need to be supervised by a Board of Inspection.
Alternative methods of establishing foreign-owned entities in Vietnam
Foreign ownership restriction may, in some cases, prevent foreign business persons from establishing a presence in Vietnam. In many cases, those restricted in this manner will consider collaboration with a Vietnamese associate. In fact, this is the most common means of dodging various industrial restrictions.
Unfortunately, the Vietnamese government has identified this legal loophole and is making changes to legislation. Nominee companies have been subject to heavier sanctions under this new investment law since January 2021.
The following alternative means of establishing a business in Vietnam are as follows:
- Importer of Record - If your business is in shipping or logistics, this may be of some value. Importing goods into Vietnam isn't a simple process and requires numerous documents. Obtaining such documentation will inevitably delay the operations of your company. Using an importer or record is a legitimate way around this obstacle.
- Employer of record - Similar to the above, this method ensures that you can hire employees in Vietnam without the need for a company office.
- Representative Office - While these offices are not legally permitted to generate revenue locally, they can act as a liaison between the government and a foreign parent company. This is one of the simplest and safest ways of entering the Vietnamese market without fully incorporating your company. Typically speaking, there is little difference between foreign investors and local investors as far as parent company liability are concerned.
If this is your first time setting up a company in Vietnam, be sure to keep a ready eye on governmental updates and changes to legislation.
Frequently asked questions on starting a business in Vietnam
How should the company founder prepare?
They are required to submit notarized copies of the picture and signature pages of their passport. The founder will also need to present bank statements with their name dated within the last 6 months. The company founder may need to submit additional documentation depending on their precise relationship with the company. If the founder is a company, they must submit a list of directors, articles of association, financial statements and an incorporation certificate.
How long is the company registration process in Vietnam?
If your company doesn't require ministerial approval, the entire process can be finalized in as little as one month. Bear in mind that if any additional licenses are required, the registration process can take several months.
What are the laws regarding the potential environmental impact of a business?
Law No. 55/2014/QH13 on Environmental Protection is what regulates concerns of this type. The requirements and legislation differ slightly between industries. This is because some are more prone to causing damage to the environment than others. A manufacturing company, for example, would produce a far higher amount of carbon emissions than your typical retail outlet.
Many companies are required to liaise with the local authorities on these matters. The standard procedure is for new corporate entities to submit a Plan on Environmental Protection. This will be subject to the appropriate degrees of scrutiny and either approved or returned for careful revisions.
Useful links:
Targeted growth may be out of reach, but stay positive
How to Open a Business in Vietnam | Get Started Today
Vietnam Briefing - Doing Business in Vietnam.
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