As an emerging market, Vietnam attracts foreign investors with its countless opportunities. However, first-time foreign investors seeking to establish a wholly foreign-owned enterprise (WFOE) in Vietnam are frequently confronted with various legal issues and difficulties.
1. What is a wholly foreign-owned company (“WFOE”)?
A WFOE is established by foreign investors. They will oversee and manage the company’s business activities. The company can be a limited liability company (1 to 50 investors) or a joint stock company (minimum of 3 investors). All shareholders or company members in a WFOE company are foreign individuals or companies. Foreign investors must apply for an investment registration certificate and an enterprise registration certificate (similar to a certificate of incorporation in some jurisdictions).
For foreign investors seeking to enter the Vietnamese market, limited liability companies (LLCs) are a common form of investment. Investors should decide which type of company is suitable before setting up a company in Vietnam.
2. Determining the business sectors and capital
WFOE companies are regarded as Vietnamese legal entities and protected by Vietnamese Law. Investors can completely keep their technology, techniques, business development, and business processes autonomous, without relying on Vietnamese partners. However, there are some business sectors that foreign investors are not allowed to invest in Vietnam. Foreign investors are only allowed to invest in business sectors that Vietnam has opened to foreign investors by international treaties to which Vietnam is a member or by Vietnamese Law.
The following is a list of some of the sectors that foreign investors are not allowed to carry out in Vietnam:
- Goods and services are under the State monopoly in the field of commerce.
- Press activities and news gathering in any form.
- Services related to investigation and security.
- Judicial and administrative services, including judicial expertise, property auction, notary, bailiff, and asset management services.
- Labour export services.
Furthermore, Vietnam has over 200 business sectors and industries that impose conditions on both foreign and domestic investors. Accordingly, conditional business sectors refer to sectors or industries where the investment activities must meet the necessary legal conditions for the purpose of national defence, national security, public order, safety, social ethics and public health. Therefore, investors should determine the nature of the business they want to conduct.
Vietnam has no minimum capital requirements for most sectors and business lines. The Department of Planning and Investment will evaluate the registered capital to determine whether it is sufficient to cover the business’s expenses. In some cases, it is possible to establish a company for less than USD 10,000, but in most cases, depending on the nature of the business, it will be at or above this threshold.
3. Procedures for setting up a WFOE in Vietnam
Apply for an investment registration certificate (“IRC”)
The provincial Departments of Planning and Investment or the Management Boards of Industrial Parks/Export Processing Zones (hereinafter referred to as the investment registration authorities) are the competent State authorities that can issue an IRC. Depending on where the company will be registered.
In some cases, foreign investors must apply for investment policy approval before applying for an IRC for investment projects that come under the Prime Minister’s or provincial People’s Committee’s investment policy approval competence. For investment projects subject to investment policy approval, the investment registration authorities will issue an IRC within five (5) days of submitting a valid application dossier, however, please note that the process for investment policy approval is complicated and take longer than setting a normal company.
For those not subject to investment policy approval, foreign investors must register online information about the proposed investment project at the National Foreign Investment Information System (https://fdi.gov.vn). Upon the online declaration, the investors must submit the hard copy of application documents at the investment registration authority. Within fifteen (15) days, if the application dossier is complete and clear, the investment registration authority will issue an IRC.
Apply for an enterprise registration certificate (ERC)
After being granted an IRC, foreign investors must carry out procedures for obtaining an enterprise registration certificate (ERC).
Foreign investors must submit a set of application documents to the Business Registration Office under the Department of Planning and Investment in the province where the newly formed company will be established. According to the laws, an enterprise registration certificate will be issued three (3) working days after a proper application dossier is submitted. From the date of the enterprise registration certificate, the newly established company has legal existence and can carry out the registered business activities.
4. Post-licensing procedures
- Making company seals: After obtaining an enterprise registration certificate, the company must have a licensed vendor make a company seal in accordance with the laws. The company has the right to decide on their seals’ type, quantity, form and content, being solely responsible for their seals. However, a company seal must contain mandatory information such as the company name, address, and tax code.
- Preparing and submitting one (01) initial tax declaration: Newly registered companies in Vietnam must submit two sets of initial tax registration documents to the tax authority where the registered office is located.
- Purchasing and activating the Company’s e-token: A e-token is an electronic device that has all of a company’s primary identity information encrypted. In digital transactions, the token is used to replace handwritten signatures.
- Registering the VAT e-invoice sample: Companies in Vietnam must use the e-invoice service of a licensed vendor. The vendor will help them create e-invoices for their companies. After the e-invoices are completed, the companies shall give written notice of the e-invoice issuance to the tax authority.
- Opening of one (01) Direct/Indirect Investment Capital Account (“DICA”) and an account in Vietnamese dong: Foreign investors must open a DICA to transfer their capital to the new company and contribute the capital within 90 days of receiving the ERC. The Vietnam dong account is used for the company daily activities such as contracts, paying taxes and employee’s salary.
In addition, if the new company has expats or foreign employees, foreign employees must have a work permit before they can start working in Vietnam. Failing to comply with labour regulations will lead to possible fines and penalties.
5. Applications for other sub-licenses (if any)
After completing the procedures for establishing the enterprise and investment project, the company is recognized as an independent business entity and possesses the rights and obligations prescribed by law, and is allowed to operate in the registered fields. Although the company has the right to conduct business in any field that is not legally prohibited, some industries have specific conditions that must be met in order to apply for licenses and certifications related to their conditional business sectors.
Types of sub-licenses are expressed in various terminologies, including but not limited to license, certificate, written confirmation, approval, decision, etc. For example:
- Retail service – Trading license;
- Restaurant business – Minutes of fire prevention inspection and Certificate of Food Hygiene Safety;
- Manufacture of cosmetics- Announcement of product registration circulation;
- Kindergarten – Decision to allow the establishment of a school.
It is essential to work with consultant to ensure that you have the necessary license and permit to conduct your business.
Investment projects undertaken in export-processing zones, industrial parks, high-tech parks and economic zones shall be registered under specialized regulations and laws which cannot be specifically listed due to limitation of this article size. The process to establish a company involves obtaining an Investment Registration Certificate and an Enterprise Registration Certificate. Professional guidance is advised to navigate legal complexities and ensure compliance with sector-specific licenses and permits in Vietnam.