Most Frequent Questions and Answers
Registering a 100% foreign-owned company in Vietnam is possible. However, foreign investment is subject to regulatory limitations applied on each specific business sector.
In most cases, investors shall implement the following steps to establish a company:
Step 1: Obtaining an Investment Registration Certificate, abbreviated IRC (if any non-Vietnamese investors).
Step 2: Obtaining an Enterprise Registration Certificate, abbreviated ERC or BRC for Business Registration Certificate.
The company is established but the following steps are required for regulatory compliance:
Step 3: Post establishment procedures.
Step 4: Obtaining sub-licenses (if any).
IRC stands for Investment Registration Certificate which shall be obtained (in most cases) when a foreign investor wants to set up a project (such as establishing a company) in Vietnam at the beginning.
ERC stands for the Enterprise Registration Certificate which every company in Vietnam must have. In other jurisdiction it is sometimes referred to as the “Incorporation Certificate” or “Company Certificate”.
Joint Stock Company (“JSC”) and Limited Liability Company (“LLC”) are the most common types of company in Vietnam since they offer the following advantages:
- Limitation in liabilities of their shareholders/ members/ proportionate to their capital contribution;
- Flexible management structure;
- Conversion from JSC to LLC and conversely is possible.
In general, there is no minimum capital required by law when registering a company in Vietnam. Only some conditional business sectors such as real estate trading, banking or education have specific capital requirements.
However, the capital shall be sufficient in light of the intended business sectors and scale of operation.
For non-conditional business sectors, we usually need from 6 to 8 weeks to setup a foreign-invested company and 1 week for a Vietnamese-invested one.
However, especially for foreign-owned companies, the time can be extended due to various reasons such as additional requirements from the licensing authorities.
Personal Income Tax (“PIT”) is the tax which applies to the residents earning taxable income within and outside Vietnam’s territory and to non-residents who earn taxable income within Vietnam’s territory.
Tax regulations provide for many kinds of tax-exempt income, for example:
- Income from transfer of real estate between relatives in family (depending on each specific relationship);
- Income from the value of land use rights of individuals to whom land is allocated by the State;
- Income from receipt of inheritances or gifts that fall under the spectrum of real estate between relatives in family (depending on each specific relationship);
- Income from foreign exchange remittances.
Reductions: Taxpayers who face difficulties caused by natural disasters, fire, accidents or severe diseases which affect their tax paying ability may be considered for tax reduction corresponding to the extent of damage they suffer from but not exceeding payable tax amounts.
Opening a branch is allowed by law for both domestic and foreign companies.
Although domestic companies (even foreign invested) can open a branch without issue, foreign companies usually face obstacles when trying to open their branch in Vietnam.
Vietnamese law provides for “leasehold” and not “freehold. Foreign individuals are not allowed to buy land, but they can buy apartments from the developer of the housing construction project or from another foreign individual. They are not allowed to purchase from Vietnamese owners.
The products shall be registered or at least the standards that apply to them shall be announced (depending on the type of the product). That step is mandatory before importing and distributing the products into the Vietnamese market. Some products require the company to obtain an additional license for import, the “import license”.
Yes, there are import duties which are applied to goods exported and imported through Vietnam’s borders and border checkpoints; goods exported from the domestic market to free trade zones; goods imported from free trade zones into the domestic market; or goods indirectly exported/imported.
There are several personal income tax rates which depend on the kinds of personal income such as:
- monthly wages with progressive rates ranging from 5% to 35%;
- income from capital investment with a fixed rate of 5%;
- income from real estate transfer with rates of 2% or 25% depending on the case.
A foreign worker must apply for a work permit or work permit exemption certificate to legally work in Vietnam. The permit allows the foreigner to work in a specific position, company and location. Thus, foreigner workers might hold several work permits.
More importantly, the work permit or work permit exemption certificate do not exempt foreigners to obtain a visa or a temporary resident card.
The steps and procedures to register a trademark are as follows:
- Step 1: Submit the declaration dossier for registering the trademark at the “National Office of Intellectual Property” (“NOIP”).
- Step 2: Evaluation of the formality of the application.
- Step 3: Official announcement of the formality evaluation result.
- Step 4: Evaluation of the contents or substance of the application.
- Step 5: The NOIP issues the notice of intent to grant a trademark protection certificate and requests payment of the licensing fee (if have fulfilled the regulatory requirements).
- Step 6: The submitter pays the fee and the NOIP issues the trademark protection certificate.
In practice, 12 to 18 months are required to complete all the steps.
The following investment sectors benefit from tax incentives:
- Investment projects in preferential investment industries and trades such as: high-tech activities, production of new materials, new energy, clean energy, pre-school education, general education;
- Investment projects located in preferential investment geographical areas;
- Projects with a scale of capital being 6,000 billion Dong or more of which at least 6,000 billion Dong is disbursed within a period of three years from the date of issuance of the IRC;
- Investment projects located in rural areas and employing 500 employees or more.
A representative office is a dependent unit of an enterprise established outside Vietnam’s territory. The operation of the representative office shall be solely confined to the conduct of liaison activities, market research, and promotion of its head office’s businesses.
In other words, the representative office promotes the foreign company’s businesses under which it is opened but is not allowed to generate profit by itself.
The trading license is a sub-license mandatory for foreign-owned companies in some specific cases, notably when providing services of:
- Wholesale of specific products (such as lubricants, rice, sugar, recorded items, books, newspapers and magazines);
- Logistics (except for specific cases);
- Goods leasing (excluding finance leasing and leasing of construction equipment with operator services);
- Commercial intermediary;
- Commercial promotion (excluding advertising services).
The trading license is granted by the Department of Industry and Trade and in some special cases, an approval from the Ministry of Industry and Trade can be required.
A joint-venture company is a company established based on a joint-venture agreement among individuals and/or organizations. However, the Vietnamese law does not specifically provide for joint-venture companies. Hence, the type of the company established is usually a Limited Liability Company or a Joint Stock Company.
However, investors might consider entering into a Business Cooperation Contract instead of a joint-venture agreement.
A joint venture company involving foreign and Vietnamese partners should be set up by obtaining an Investment Registration Certificate (“IRC”) to register the project of establishing the joint venture company and then by obtaining the Enterprise Registration Certificate (“ERC”).
In some cases, the Vietnamese partner(s) will establish the company without the foreign partner(s) and later transfer part of the ownership to the foreign investor(s).
Direct and indirect investment are usually defined as follows:
- Direct investment is a form of investment in which foreign investors invest in the company’s capital in order to gain direct control over the company and investment project.
- Indirect investment is a form of investment in which foreign investors invest in the company’s capital but are not directly involved in the management.
There are process export zones with tax reductions such as:
- Import duty is not applied to the goods imported from abroad to the process export zone and used within such process export zone; and goods transported from one process export zone to another; or
- Export duty is not applied to the goods exported from the process export zone to outside Vietnam’s territory.
Vietnam’s commitments to the WTO on the services detail each kind of service with specific schedules for accession to the local market by foreign investors.
The country is also member of free trade agreements and international treaties opening the market to foreign investments. Finally, the Vietnamese national regulations also open some sectors to foreign investment.
It is mandatory for all companies to have at least one of its legal representatives in Vietnam at all time; however, the legal representative does not need to be a permanent resident in Vietnam.
Foreigners can buy shares in Vietnamese companies. However, depending on each specific business sector of such company, foreign ownership might be capped, restricted or change the conditions under which the company operates.
In Vietnam, a company can be dissolved if all its debts and other property obligations have been paid and the company is not in the process of resolution of a dispute at a court or arbitration tribunal.
The dissolution can have different legal basis, for example:
- The operation term stated in the charter has expired and is not extended;
- The owners/shareholders of the company agree to dissolve the company.
VAT stands for “Value-Added Tax” and is imposed on the added value of goods or services arising in the process of production, circulation and consumption.
The general VAT rate is 10%. Other rates such as 0% or 5% can be applied depending on each specific product or service.
Appointing a local nominee as owner/shareholder of the company can allow to avoid restrictions on foreign investment and shorten the time required to establish the company. The nominee or trustee structure also protects the identity of the beneficial owner as only the name of the Vietnamese nominee will be officially registered in the company.
The Vietnamese individual appointed by the foreign investors is registered as owner of the capital or shares of the target company. Further to ensuring administrative compliance as registered owner/shareholder, the nominee can also hold key managerial positions if required by the investors.
The Vietnamese intellectual property system is divided in three areas:
- Copyright and related rights administered by the Copyright Office of Vietnam;
- Industrial property rights – administered by the National Office of Intellectual Property (“NOIP”);
- Rights to plant varieties – administered by the Plant Variety Protection Office.
IP rights registered in Vietnam can be enforced as follows:
- Administrative action: Most of the IP disputes are settled through this method, which is fast and straightforward. The authorities may apply sanctions including warnings, fines, seizure or destruction of the counterfeit goods.
- Civil Court action: This process is lengthier, but the Court of Vietnam are enforcing IP regulations and protecting IP rights holders.
Standard timeline to contribute the charter capital of the company is 90 days from the first issuance date of the Enterprise Registration Certificate.
In some cases, it is possible to obtain a longer term up to 12 months.
Although the law on enterprises and investment does not specifically stipulate the prohibition of foreign investors from establishing sole-proprietorship companies, there is no regulation on the process for foreign investors to establish sole-proprietorship company. Therefore, currently, it is not feasible to establish a sole-proprietorship company in Vietnam because the nature of the sole-proprietorship company is owned by an individual, which is fully responsible and not limited to the company’s activities with all of his/her assets, and this characteristic makes it very difficult for the State to limit the responsibility of foreign investors.