The footsteps of foreign investors in Vietnam have brought a new breath of life into our nation’s economy. With a rich history and promising development potential, Vietnam has become an attractive and noteworthy destination for international investors.
However, in order to establish a presence and engage in commercial activities in Vietnam, foreign investors must thoroughly research and choose a suitable legal form.
Business Cooperation Contract
Vietnamese Law allows foreign investors to operate under a form of business cooperation contract (BCC) without establishing a separate legal entity. According to the Law on Investment (2020), a business cooperation contract is an agreement between domestic and foreign investors or between foreign investors. Under this form, the parties engage in joint business activities, contribute capital, share profits, and bear common risks without forming a new legal entity as specified in Vietnam’s WTO Commitments on Trade in Services (October 27th, 2006). BCC contracts can save time and effort for investors.
This form allows parties to operate with independent legal status, address issues flexibly, and still support each other in the production and business process of a specific project. However, because no separate legal entity is established, investors must pay close attention to the consensual project management , choice of seal, authorization for contract signing, and others to avoid disputes during the cooperation process.
Depending on the industry or business sector, the Vietnamese government allows foreign investors to establish enterprises with 100% foreign-owned capital according to Vietnam’s WTO Commitments on Trade in Services or to invest by contributing capital, purchasing shares, or participating in the capital of Vietnamese economic organizations in accordance with the prescribed ratios and in line with Vietnam’s international agreements.
In the case of establishing an enterprise with 100% foreign-owned capital, foreign investors must have an investment project and complete the procedures for obtaining an Investment Registration Certificate as stipulated in Article 36 of the Law on Investment (2020). They must also meet certain conditions before setting up the company as follows:
- The rate of ownership of charter capital of foreign investors is not limited in economic organizations, except for the following cases:
- The percentage of foreign investors’ ownership in listed companies, public companies, securities trading organizations and securities investment funds following the Law on Securities (2019);
- The percentage of foreign investors’ ownership in state-owned enterprises which are equitized or converted into other forms shall comply with the laws on equitization and transformation of state-owned enterprises;
- Foreign investors’ ownership ratio not falling under the above two regulations shall comply with other relevant laws and treaties to which Vietnam is a contracting party.
- Investment form, scope of activities, Vietnamese partners participating in the implementation of investment activities, and other conditions as prescribed by international treaties to which Vietnam is a signatory.
This is one of the most popular forms of investment today. By establishing a new legal entity and operating independently, the investor conducts business activities in Vietnam more proactively.
Branches and representative offices
Another form of establishing a commercial presence is through representative offices or branches in Vietnam, as it agreed to in international agreements as a member. According to Decree 07/2016/NĐ-CP, foreign investors who meet certain legal conditions will be granted a license to establish a representative office if they have been in operation for at least 1 year, and a branch if they have been in operation for at least 5 years from the date of establishment or registration.
It is important to note that a foreign trader is not allowed to establish more than one representative office or branch with the same name within a province or central city as specified in Decree 07/2016/NĐ-CP.
Regarding representative offices of foreign traders, investors can only use them for market research and trade promotion. Profit-generating business activities are not permitted in Vietnam under this form, so when engaging in economic contracts, investors will choose the foreign parent company as the contracting party. Furthermore, investors need to adhere to the periodic reporting regimes of their representative offices to relevant authorities to avoid violations of their obligations in Vietnam.
Depending on specific needs and plans, investors can choose the most appropriate form to establish a commercial presence in Vietnam. However, one of the forms that has many advantages and is often prioritized is establishing an independent legal entity (foreign-invested enterprise) with foreign ownership of up to 100%, depending on the specific industry and business field.