Setting up a Company in Vietnam for Foreign Investors: 07 Comprehensive Steps

Setting up a company in Vietnam for foreigners is a significant challenge. The complexity of the legal and regulatory framework often poses difficulties, as unfamiliarity with Vietnamese laws and the intricacies of engaging with local government officials can create obstacles to set up in Vietnam a company.

This guide offers a comprehensive, step-by-step approach to assist foreign investors in forming a company in Vietnam. It provides insights into the necessary steps, legal requirements, and practical considerations for opening a business in this dynamic market.

With this insight, we believe it is shining the light for you to generally approach the process of investment and company registration in Vietnam.

Table of Contents

Must know before setting up a company in Vietnam for Non-Vietnamese residents

Understanding Vietnam’s Economic and Investment Climate

Before investing in Vietnam, investors should know that Foreign Direct Investment (FDI) is crucial to Vietnam’s economic growth and transformation. The government has implemented policies to attract FDI, especially in export-oriented manufacturing. Key factors driving foreign investment interest include:

Political Stability and Economic Growth: Vietnam’s stable political climate and robust economic growth make it a favorable investment destination.
Demographic Advantages: A young, urbanized, and educated workforce provides a dynamic and affordable labor market, supporting economic expansion.
Trade Agreements: Vietnam’s participation in free trade agreements like the EU-Vietnam Free Trade Agreement (EVFTA), the UK-Vietnam Free Trade Agreement, and the Regional Comprehensive Economic Partnership (RCEP) enhances market access and reduces trade barriers, although it may increase competition for U.S. exports.
Energy Transition: Vietnam aims to achieve net zero emissions by 2050, supported by the Just Energy Transition Partnership (JET-P), which plans to mobilize $15.5 billion. Implementation details are still being developed.
Regulatory Reforms: New laws, including updates to the Securities Law, Labor Code, and the Law on Investment, are designed to attract high-tech industries, remove foreign ownership limits, and improve investment conditions.

Legal Framework for Foreign Investment

Law on Investment No. 61/2020/QH14: This law establishes the principles and procedures governing foreign investment in Vietnam. It details the types of permissible investments and outlines the rights and responsibilities of investors.
Law on Enterprises No. 59/2020/QH14: This law governs the creation, operation, and dissolution of enterprises, including those with foreign ownership.
Additional Regulations: Other relevant regulations include decrees issued by the government and circulars from various government ministries, which provide further details and guidelines for implementing the laws.

Available Investment Forms in Vietnam for Foreigners

According to Article 21 of the 2020 Law on Investment, there are 05 forms of investment in Vietnam, including:

Investment to establish new economic organizations.
Investment to contribute capital or purchase shares or capital contributions.
Implementation of investment projects.
Investment in the form of BCC.
New forms of investment and new types of economic organizations

Foreign Direct Investment (FDI) vs. Foreign Indirect Investment (FII)

In common usage in Vietnam, Foreign Direct Investment (FDI) typically refers to the “Investment to establish new economic organizations” form, while Foreign Indirect Investment (FII) generally pertains to the “Investment to contribute capital or purchase shares or capital contributions” form.

Foreign Indirect Investment (FII):

FII allows investors to acquire shares or contribute capital to a company already fully owned by Vietnamese entities.

This method is generally quicker, simpler, and more economical, as it bypasses the need for obtaining both the Investment Registration Certificate (IRC) and the Enterprise Registration Certificate (ERC). Investors only need approval from the Department of Planning and Investment (DPI) for their capital contribution or share acquisition.

FII is particularly well-suited for small companies or investors seeking to establish a business presence in Vietnam rapidly. However, nominees or due diligence is essential to avoid potential issues with the target company, and certain industries may restrict companies set up through this method.

Foreign Direct Investment (FDI):

FDI involves the creation of a new investment project and the establishment of a new company for that specific project.

This approach offers greater flexibility in choosing business activities and industries, making it an ideal choice for larger ventures or projects that intend to work closely with state authorities.

However, FDI is typically more intricate, requiring additional time, effort, and financial resources to secure both the IRC and ERC.

Required Permits and Licenses for Foreigners to invest in Vietnam

Depending on the industry and location, foreign investors must obtain various permits and licenses to legally operate a business in Vietnam. The required permits and licenses typically include:

Investment Registration Certificate (IRC)

The Investment Registration Certificate (IRC) is required for foreign investors to legally establish a new investment project in Vietnam. The IRC contains the following information:

Name of the investment project
Information about the investors
Investment project code
Location of the project implementation (e.g., company’s office)
Objectives and scope of the investment project
Investment capital
Duration of the investment project
Implementation schedule
Incentives and support available, including the bases and conditions for their application (if any)
Conditions for the investor to implement the project (if any)

Enterprise Registration Certificate (ERC)

The Enterprise Registration Certificate (ERC) is a legal document issued by the business registration authority that contains key information about the enterprise. This certificate is required to officially register a company in Vietnam and includes:

Name of the enterprise
Enterprise registration number
Head office address
Information about the legal representative (or at-law representative), owner, and company members
Charter capital

Approval for Capital Contribution, or Purchase of Shares or Contributed Capital Amounts

Foreign investors must seek approval from the relevant authorities when contributing capital to or purchasing shares or capital contributions in an existing Vietnamese company, particularly if such actions result in a substantial ownership stake.

*Note: If foreigners or foreign enterprises invest in Vietnam by contributing capital, purchasing shares, or making capital contributions, an IRC is not required. Instead, they need to obtain approval for capital contribution or the purchase of shares or capital contributions from the business registration authority and then complete the enterprise registration based on this approval.

Other permits and licenses

Depending on the industry and business activities of the target company, investors have to obtain other professional licenses, industry-specific licenses, and business activity permits, such as business licenses, licenses for establishing retail sales outlets, etc.

Taxes

Taxes are financial obligations that businesses are required to pay to the government.

In Vietnam, companies are subject to several types of taxes, including:

Corporate Income Tax (CIT)
Value-Added Tax (VAT)
Foreign Contractor Tax or Foreign Contractor Withholding Tax (FCT)
Personal Income Tax or Individual Income Tax (PIT or IIT)
Other taxes, such as Special Consumption Tax (or Special Sales Tax), Import & Export Tax, and Environmental Protection Tax, among others.

Understanding tax obligations is crucial, as failure to pay taxes or inaccuracies in tax filings can result in penalties, interest, or other legal actions. Being well-informed about your tax responsibilities ensures compliance with current tax laws and regulations, thereby preventing potential penalties or legal issues.

Choosing the Appropriate Business Structure

Selecting the right business structure (or company types) tailor your need is a critical step in setting up a company in Vietnam.

According to Article 4.6 of the Law on Enterprises No. 59/2020/QH14, the primary types of companies in Vietnam include limited liability companies (single-member limited liability companies & limited liability companies with two or more members), joint stock companies, and partnerships. Besides, foreign individuals may establish sole proprietorships, though this is not classified as a company but an enterprise and not being recommend since its unlimited financial liability.

For non-residents new company formatiom, understanding the distinctions between the types of Vietnamese business entities is crucial. Our foreign investors client commonly opt for either limited liability companies (LLCs) or joint stock companies (JSCs).

The following table outlines the key differences between these entities:

	Limited Liability Companies (LLCs)	Joint Stock Companies (JSCs)
Financial Liability	Members of LLC are only liable for the company’s obligations up to their capital contributions.	Shareholders are liable only up to their shareholding amount.
Number of Members	From 1 to 50 members	At least 3 shareholders, no maximum limit.
Shares, Bonds and Transfer	No shares or bonds issued; transfer of capital contributions requires approval from other members.	Shares can be freely transferred, unless restricted by the company’s charter.
Management and Operation	Decisions mainly made by the Director or Members’ Council.	Important decisions made by the General Meeting of Shareholders and the Board of Directors.
Information Disclosure	Requires less disclosure compared to a JSC.	Requires more frequent and transparent disclosure
Capital Raising Ability	Limited ability to raise capital from the public; can only increase capital through additional contributions from members.	Greater ability to raise capital from the public through issuing shares.
Operational Characteristics	Suitable for small and medium-sized enterprises operating in sectors that do not require large capital or extensive scaling.	Suitable for large enterprises seeking to scale up and raise capital from the public.

*Summary:

LLCs: Ideal for small and medium-sized businesses with a simpler management structure and limited public capital-raising needs.
JSCs: Suitable for large businesses with a need to raise public capital and a more complex management structure.

>> Read more: The Best Business Types in Vietnam for Foreign Investors: LLC or JSC?

Choosing the Business Name

The business name is essential for both branding and legal recognition. A distinctive name not only helps prevent conflicts with existing businesses but also establishes a strong market presence.

Article 38 of the Law on Enterprise No. 59/2020/QH14 prohibits certain naming practices. Specifically, companies must not:

Use a name that is identical or confusingly similar to the name of an already registered enterprise.
Incorporate the name of a Vietnamese state agency, armed forces unit, political organization, socio-political organization, socio-politico-professional organization, social organization, or socio-professional organization into the enterprise name
Use words or symbols that violate Vietnam’s historical traditions, culture, ethics, or customs.

Therefore, once you have chosen a name for your new company, it is advisable to consult with a legal expert to ensure that the name complies with all legal requirements.

Choose the Bussines Lines

Selecting the appropriate business line in Vietnam requires careful consideration to ensure effective operation and compliance with local regulations.

Follow this structured approach to make an informed decision when registering your new company:

Understand Your Business Objectives:

Define your business goals, target market, and competitive advantage.
Determine the products or services you plan to offer and the industry you will operate in.

Review Classification Systems:

Foreign investors and target companies must specify their business lines using both the Vietnam Standard Industrial Classification (VSIC) and the Provisional Central Product Classification (Provisional CPC).
Be aware that discrepancies may arise between VSIC and Provisional CPC due to their differing international standards. This means that a business line under one system might not directly correspond to a line in the other system.

Consult with Legal Experts:

Obtain advice from legal and business consultants who are well-versed in Vietnamese regulations and classification systems.
Ensure that the business line you select aligns with both the VSIC and CPC classifications, and confirm that it complies with local laws and industry standards.

Apply for an Investment Registration Certificate (IRC)

Identify the competent agency

Before applying for an Investment Registration Certificate (IRC), investors must identify the competent authority responsible for processing their business registration. Generally, there are two types of competent agencies:

Department of Planning and Investment (DPI) of the respective province or city, such as Ho Chi Minh City DPI or Dong Nai DPI.
Management Boards of industrial parks, export processing zones, hi-tech parks, or economic zones.

Check with the competent agency

Once the relevant agency is identified, investors should consult with agency officials to confirm the specific requirements, documents, and processes for applying for an IRC.

Since each DPI or management board may have unique requirements and interpretations, this step is crucial. The variability in requirements often makes the investment process complex and time-consuming.

Prepare the necessary documents

In general, the investors need to gather the following documents for an IRC application:

Written Request for implementation of the investment project, including also the investor’s commitment to bear all expenses and risks in case the project is not approved;
Document on the Legal Status of the investor (Passport for individual, ERC for corporate);
Documents explaining the investor’s financial capacity, including at least one of the following documents: the investor’s financial statements of the last 2 years; financial support commitment of the parent company; financial support commitment of a financial institution; guarantee for the investor’s financial capacity; and another document proving the investor’s financial capacity;
The investment project proposal;
A copy of the paper on land use rights or another document certifying that the investor has the right to use the project implementation site;
Explanations about the technology used in the investment project for projects subject to appraisal of, or solicitation of opinions on, technologies.
The BCC, for investment projects in the form of BCC;
Additional Documentation based on project-specific conditions and investor qualifications.

However, as mentioned, each agency could have its own requirements and interpretations, so the list may be longer for each business registration.

*Note: If the document submitted during business registration process from abroad, it must be consular-legalized for use in Vietnam

Submit the application

After gathering the necessary documents, investors submit the application through various methods depending on the agency, including online, in person, or by mail.

Pay the application fees

IRC applications require payment of fees, which can be made via cash, online transfer, or QR code.

Wait for the approval

After submitting the application and fee, investors will need to wait for the IRC to be approved.

The investment registration agency shall grant an IRC to the investor within 15 days after receiving a valid dossier when the project satisfies the following conditions:

Not being in sectors or trades banned from business investment
Being implemented in a location that is determined on the basis of valid copies of papers on land use rights or a valid copy of the location rent agreement or other documents determining the right to use the location for implementation of the project;
Being conformable with master plans
Satisfying the condition on investment ratio per land area unit (if any) set by the provincial-level People’s Committee based on practical local conditions and approved by the standing body of the provincial-level People’s Council and the condition on the number of employees (if any);
Satisfying market access conditions

Once approved, the IRC will be issued, and the investor can proceed with further steps in their business registration.

Apply for an Enterprise Registration Certificate (ERC)

After receiving an Investment Registration Certificate (IRC) from the competent authority, the next step for an investor is to apply for an Enterprise Registration Certificate (ERC) (or Business Registration Certificate) to formally set up a company.

Here is the typical process for registering your company with the Department of Planning and Investment (DPI):

Submit the application for obtaining the ERC:

The investors prepare and submit the application dossier for an ERC to the relevant DPI. The specific requirements for the dossier may vary depending on the business structure, but it generally includes the following documents:

Written Request for enterprise registration
The Investment Registration Certificate (IRC)
Company Charter
List of Members or Founding Shareholders
Documentation on the Legal Status of the owner/members/founding shareholders (Passport for individual, ERC for corporate);

*Note: Any documents originating from abroad must be consular-legalized for use in Vietnam

DPI Approval and Granting of the ERC

Once the application dossier is submitted, the DPI will review it and may request revisions or additional documents if necessary. If the dossier is complete and valid, the DPI will issue the ERC within 03 working days of receiving the application.

This ERC officially establishes a company in Vietnam, allowing the business to operate legally in Vietnam.

This is the final step for the company formation process in Vietnam!

Understand your compliance requirements

Once your company has been granted an Enterprise Registration Certificate (ERC) in Vietnam, several important tasks must be completed to ensure legal compliance and efficient operation.

Obtaining a Company Stamp

After receiving the ERC, the company of foreign investors is required to purchase an official company stamp from a licensed provider.

In Vietnam, company documents, contracts, and legal papers are generally considered valid only if stamped with the company’s seal. This stamp is essential for the authentication of business transactions.

Public Display of Company Sign

In accordance with Vietnamese law, every company must publicly display its company sign at its registered office location. This sign serves as a form of identification and confirms the company’s legal presence.

Failure to comply may result in penalties from the competent authorities.

Electronic Signature and E-Invoice

As of now, all companies in Vietnam must acquire and utilize electronic signatures (e-signatures) and electronic invoices (e-invoices) to engage with the tax authorities.

Work Permit (WP) Requirements

Foreigners who intend to work in Vietnam must obtain a Work Permit (WP), including company managers, staff, and even the company’s legal representative.

However, some foreign investors who meet certain criteria under the Labor Law may be eligible for an exemption and can apply for a Work Permit Exemption Certificate.

Visa/Temporary Resident Card (TRC) for Foreigners

Foreign nationals residing in Vietnam must obtain a suitable Visa and/or a Temporary Resident Card (TRC). This ensures legal residency and allows business management on-site.

A registered company can sponsor foreign managers and staff for a working visa or TRC, valid for up to three years. However, a valid Work Permit is required before a working visa or TRC can be issued.

If these foreigners are eligible for permanent residency, they can apply for a Permanent Resident Card (PRC).

Opening a Bank Account and Meeting Capital Requirements

Foreign companies need to open a local bank account for business transactions and to meet capital requirements.

Typically, there are two types of bank accounts for foreign-invested enterprises:

Direct Investment Capital Account (DICA): Is a foreign currency or VND payment account opened by a FDI company or foreign investors at an authorized bank in Vietnam. DICA is used in case of foreign loan transactions, capital transfer transactions, and investment capital contribution.
Indirect Investment Capital Account (IICA): This account is used by foreign investors for Foreign Indirect Investment (FII) transactions.

The conditions, required documents, and process for opening a bank account may vary by bank, so it’s important to consult with your bank to ensure all requirements are met.

After opening the account, investors must transfer the registered capital to comply with the law and avoid penalties.

Hiring Local Staff and Complying with Labor Laws

In addition to foreign managers and staff, hiring local employees is vital for efficient business operations.

Companies with foreign investment capital must adhere to Vietnamese labor laws, which include the establishment of employment contracts, paying wages, social insurance contributions, and formulating internal labor regulations (ILRs).

Tax Registration and Compliance

Upon company registration, a foreign-invested company must register with the local Tax Authority for tax purposes.

Monthly or quarterly, the company is required to submit corporate income tax report and other relevant tax reports to the Tax Authority to ensure compliance with Vietnamese tax regulations.

Protecting Intellectual Property

Protecting your company’s intellectual property is essential to safeguard your innovations and brand from unauthorized use or infringement.

Companies should register their trademarks, patents, and copyrights with the National Office of Intellectual Property (NOIP) to secure legal protection for their intellectual property rights in Vietnam.

Common Challenges and Solutions

Typical Challenges for Foreign Entrepreneurs

Navigating Local Regulations and Bureaucratic Procedures

Foreign entrepreneurs often struggle with the complexity of local regulations and bureaucratic processes. This can lead to delays and misunderstandings.

Understanding and complying with local regulations is crucial for avoiding legal issues and ensuring a smooth business setup.

Language and Cultural Barriers**

Language barriers and cultural differences can hinder communication and business negotiations.

Effective communication and cultural understanding are essential for building relationships and conducting business successfully in a foreign country.

Effective Strategies to Address Challenges

Collaborating with Local Professional Legal Expert

Engaging local experts who understand the regulatory environment and business practices can help navigate challenges and streamline the setup process.

Local Professional Legal Experts as Fareast Legal provide valuable insights and support, reducing the risk of errors and ensuring compliance with local laws.

Building Strong Local Partnerships and Networks

Establishing relationships with local partners and business networks can facilitate market entry and provide support in overcoming challenges.

Strong local partnerships offer access to resources, market knowledge, and support, enhancing the likelihood of successful business operations.

How can Fareast assist you in forming a Company in Vietnam?

Fareast makes it simple to establish a company, guide you through the entire company formation process, and obtain Investment Registration Certificate (IRC) and Enterprise Registration Certificate (ERC) in Vietnam.

Fareast can assist clients throughout the entire process of establishing a company in Vietnam, including:

Comprehensive Legal Consultation: We offer tailored legal advice to ensure clients fully understand the complexities of Vietnam’s business laws. This includes evaluating their business objectives and recommending the most suitable business structure to align with their goals, such as an LLC, JSC, or even sole proprietorship.
Document Preparation & Review: Ensuring that all documents are accurate and complete is critical in company formation. We guide clients through gathering necessary documents, from drafting the required forms to ensuring compliance with both local laws and international standards.
Investment Registration & Representation: We represents clients before the Department of Planning and Investment (DPI) and management boards, helping them obtain Investment Registration Certificates (IRC) and Enterprise Registration Certificates (ERC). We works closely with the relevant authorities, navigating any regulatory challenges that may arise during the application process.
Post-Incorporation Support: Beyond company formation, we could assist clients to set up essential post-formation procedures themselves, including tax registration, obtaining work permits for foreign employees, visa/travel card (TRC) applications, and opening bank accounts. This ensures that our clients remain fully compliant with Vietnamese regulations as they start and operate their businesses.
Ongoing Legal Compliance & Advisory: We offer ongoing legal support to help clients meet their obligations, including labor law compliance, tax filing, and regulatory reporting. This ensures that clients can operate efficiently, avoid penalties, and focus on their core business activities.
Intellectual Property Protection: We also help clients protect their intellectual property, offering services to register trademarks, patents, and copyrights with the National Office of Intellectual Property (NOIP), safeguarding their innovations and brands from unauthorized use or infringement.

Our extensive experience in these areas ensures that clients not only meet legal requirements but also successfully build and expand their businesses in Vietnam with confidence.

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Frequently Asked Questions (FAQs)

What are the types of businesses available for foreign investors in Vietnam?

Foreign investors can set up different types of businesses, including a Limited Liability Company (LLC), a Joint Stock Company (JSC), Branch Offices, Representative Offices, and Business Cooperation Contracts.

What is the minimum capital required to set up a company in Vietnam?

There is no general minimum capital requirement for most businesses, except for specific sectors like real estate or education where minimum capital requirements apply.

Can a foreign investor fully own a company in Vietnam?

Yes, foreign investors can fully own companies in most industries, except for certain sectors where restrictions apply, such as telecommunications and defense.

What sectors are restricted for foreign investment in Vietnam?

Some sectors with restrictions for foreign investors include telecommunications, banking, and education. Specific regulations apply to these industries, including foreign ownership caps.

References

1. Business Information Portal of Ho Chi Minh City DPI (in Vietnamese):

Website: https://doanhnghiep.hochiminhcity.gov.vn/ThuTucHanhChinh

2. National Business Registration Portal (in English):

Website: https://dangkykinhdoanh.gov.vn/en/Pages/default.aspx

3. National Investment Information Portal (in Vietnamese):

Website: https://vietnaminvest.gov.vn/SitePages/home.aspx

4. Legal documents (laws, decrees, circulars, decisions) on business registration:

Website: https://dangkykinhdoanh.gov.vn/en/Pages/LegalDocument.aspx

Disclaimer: The contents of this article are for informational purposes only and may not apply to all situations. For assistance related to your specific issues, please contact us for support from our team of legal experts.

This article was first published on August 16, 2024, and last updated on October 05, 2024.

Author: Tony Nguyễn

Category: Business Law

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