How can a foreigner open a business in Vietnam

Vietnam is an attractive business destination with a growing economy, young population and low labor costs. Want to start a business in Vietnam but don't know what to prepare for? This guide will help you navigate your new market.

Can foreigners do business in Vietnam?

A citizen of another state can start a business in Vietnam through direct or indirect investment.

Foreign direct investment involves working with a Vietnamese partner in a JV or a 100% foreign-owned company. To receive direct investment in Vietnam, you will need to obtain a business license and go through legal procedures in accordance with local laws.

The format of indirect foreign investment involves the purchase of shares in a Vietnamese company. This allows you to get a position in the management of the company in accordance with the terms of the agreement between the foreigner and the company.

How can a foreigner start a business in Vietnam?

There are many factors to consider before starting a business in the country.

Restrictions for foreigners to start a business in Vietnam

Foreign nationals may not carry out certain activities in accordance with Article 6 of the Investment Law (2020) (LOI).

In particular, you may not conduct business that includes:

• narcotic substances (listed in Schedule 1, LOI);
• toxic chemicals, precursors and minerals (listed in Appendix 2, LOI);
• natural samples of endangered, rare and valuable species of wild fauna and flora (listed in Appendix I, CITES and Appendix 3, LOI);
• prostitution, human trafficking or human cloning;
• fireworks business
• collecting debts.

Recently, the Investment Law 2021 added new "contingent business investment" while excluding sectors such as commercial arbitration or logistics.

For "contingent business investment" there are no restrictions, but a foreigner must meet certain criteria. Category include the following activities:

• accounting and audit services;
• tax service;
• customs business, customs agency services, duty-free trade, bonded warehouses or container loading stations;
• securities related business;
• insurance, reinsurance, insurance broker, insurance agency, ancillary insurance services;
• assessment services;
• other financial businesses: lotteries, debt collection, credit assessment, electronic games with prizes for foreigners, casinos.

Restrictions on foreign property

Depending on the specific sector of investment, there may be restrictions for foreigners on the share of ownership of foreign property, the form of investment, as well as additional requirements of Vietnamese partners.

In most cases, foreign investors doing business in Vietnam can have a 100% share in the authorized capital of a Vietnamese company. However, if foreign investments are made, for example, in a Vietnamese bank, then the total share of the foreign investor cannot exceed 30%.

Some restrictions on owning a business in Vietnam are specified in the following documents:

• Vietnam's bilateral international agreements
• List of specific service sector commitments included in Viet Nam's WTO accession package
• Relevant local laws and regulations, such as Article 18(2) of the current Enterprise Law, name specific individuals and entities that are prohibited from registering a company in Vietnam.

Tax considerations when starting a business in Vietnam

Top 4 taxes Vietnamese businesses pay:

Value Added Tax (VAT) — applies to all companies providing services or goods for production, business or consumption. The rates, depending on the group of goods and services, are 0%, 5% and 10% (from February 1, 2022 reduced to 8% with the exception of some categories).

Corporate Income Tax (CIT) — applies to company income generated in Vietnam. Rate — 20%.

Personal Income Tax (PIT) — progressive tax, from 5% to 35% for residents, 20% — for non-residents.

Foreign Contractor Tax (FCT) — applies to organizations or individuals who earn income in Vietnam under agreements with Vietnamese contractors.

There are also many tax incentives in the country. Here are just a few of the available options:

• CIT — preferential tax rate and tax holidays,
• PIT — allowable deductions from mandatory insurance premiums, charitable causes, family-related benefits,
• VAT — VAT exemptions for specific businesses,
• FCT — dividends from foreign corporate shareholders are not subject to withholding tax.

A suitable business structure for foreigners

Different forms of business organization are available to a foreign investor.

According to Vietnam's Enterprise Law (68/2014/QH13) and Investment Law (67/2014/QH13), the most common forms of business entities are:

Limited Liability Company, LLC. This is a legal entity created by members who contribute to the capital of the company. In Vietnam, limited liability companies can have a maximum of 50 members. The liability of each member is limited to the amount of capital contributed by him to the company.

An LLC in Vietnam can be 100% foreign owned or be a joint venture (i.e. have at least one Vietnamese investor).

Joint-stock company (JSC). This is a legal entity created by the founders who receive shares in the company. To create a joint-stock company, at least three founding shareholders are required.

This is the only type of corporate structure in Vietnam that is allowed to freely issue shares and securities to the public, except in certain cases.

Partnership. This is a company created by at least two individual partners who have unlimited liability for the obligations of the company.

Business Cooperation Contract (BCC). BCC — this is a legal agreement between investors on cooperation for the implementation of entrepreneurial activities and the distribution of profits. Investors usually use this form in certain sectors such as oil or telecommunications.

Most often, members of the BBC have unlimited liability for any debts or financial obligations to the company.

Other options for business structures available to foreign investors: Private Enterprises, Public-Private Partnership (PPP) or investment through capital contributions, buying shares of Vietnamese companies.

In accordance with the Viet Nam Trade Law, foreign commercial organizations can also establish their presence in Viet Nam in the form of a branch or representative office.

Procedure for starting a business in Vietnam for foreigners

In order to legally establish a company in Vietnam, foreign investors need to obtain investment and corporate licenses.

Applying for an Investment Registration Certificate

The first step to starting a business in Vietnam — Obtain an Investment Registration Certificate (IRC). The application is being reviewed by the Planning and Investment Department.

In some cases, the application is sent to different licensing authorities.

• An investment project located outside of industrial zones, export processing zones, high-tech zones and economic zones is submitted to the Provincial People's Committee (Department of Planning and Investment).
• An investment project located outside of industrial zones, export processing zones, high-tech zones and economic zones is submitted to the Provincial Industrial Zone Management Authority or Economic Zone Management Authority

In practice, the approval of the Investment Registration Certificate takes at least 15 days.

Note: the requirement to obtain an IRC applies only to foreign investors, including prospective ones, as well as companies with a foreign participation share in the authorized capital of more than 51%.

Applying for a Business Registration Certificate

Next step — obtain an Enterprise Registration Certificate (ERC) from the provincial planning and investment department, regardless of whether the investment project is carried out inside or outside the above-mentioned zones. An ERC application is usually processed within 3 business days.

Note: Specific investment projects subject to "conditional" sectors in Vietnam will need to apply for additional licensing procedures and be reviewed by the relevant government ministries before approval.

Here are some examples of "conditional" investment business, provided for in Appendix 4 to the Investment Law:

• making seals;
• securities trading;
• sale of auxiliary tools and repair services; signaling devices of priority vehicles; duty-free trade;
• accounting and audit services;
• security services;
• Insurance/reinsurance/insurance brokerage/insurance agent training business
• consulting services in the field of professional activity, project management and other regulated sectors.

The last stage of business registration requires obtaining specific documents depending on the chosen form of organization.

Foreign companies that want to establish a branch or representative office in Vietnam must obtain a Branch/Representative Office License applications instead of IRC and ERC.

The application is submitted to the provincial department of industry and trade and is usually processed within 7 business days.

Foreign investors can get individual advice on the type of legal entity in a registration services company.

Cost of starting a business in Vietnam for foreigners

Let's figure out how much a foreigner will have to spend to open a business in Vietnam.

Minimum Capital Requirements

There are no fixed minimum capital requirements for foreign investors to set up a company in Vietnam, except for certain conditional lines of business.

For example, the minimum amount of capital required for financial institutions in Vietnam (commercial banks, branches of foreign banks in Vietnam or financial companies) can range from 150 to 3,000 billion VND. Meanwhile, the capital required to invest in higher education institutions or universities in Vietnam must be at least 500 billion dong ($21.5 million).

For many other business sectors, it is worth targeting a capital of $10,000.

The required amount of capital in a particular business area for foreign investors is determined by the Planning and Investment Department.

Tax registration and related payments

Foreign investors must register their company's tax code number with the Tax Department.

All organizations doing business in Vietnam are also subject to business license tax (BLT) annually. BLT is charged at different levels for each business entity, as well as for households or individuals.

BLT rates are based on the company's share capital:

• An enterprise with a capital of more than 10 billion VND is subject to income tax of 3 million VND per year;
• with an authorized capital of less than VND 10 billion — 2 million VND per year;
• other business entities, including branches, representative offices or commercial premises, — 1 million dong per year.

It is noteworthy that Decree No. 22/2020/ND-CP, effective from February 25, 2020, offers an exemption from BLT tax for the first year for new businesses, legal entities, branches, commercial premises registered during the grace period. period, organizations related to general education, households or individuals starting a business in Vietnam for the first time, and SMEs (a three-year exemption is granted under certain conditions).

In fact, the total cost depends on the structure of the business. Possible additional fees:

• registration fee,
• office rent and salaries,
• management and service fee
• compliance and maintenance fee,
• Vietnamese accounting service fees (if applicable).

Other requirements

Whether you intend to form an LLC or a joint venture, you must have a registered place of business in Vietnam.

In addition, to set up a company in Vietnam, at least 1 legal representative is required, who must be resident in the country at the time of incorporation. This person will participate in all relevant transactions on behalf of the company, take responsibility for litigation, and exercise rights and fulfill obligations governed by laws.

It is imperative that the legal representative give written permission to another person to perform their duties when leaving the territory of Vietnam.

Print order, bank account opening and public announcement of company registration

A company must register a corporate bank account to ensure the smooth running of its business. It is important to note that the minimum capital requirements, once determined by the Planning and Investment Department for a specific investment sector, must be sent to the company's bank account.

According to Article 14 of the Business Law (2014), a company is required to send a stamp notice to the Business Registration Agency, which will be posted publicly on the National Business Registration Portal, before using it.

However, the Law on Entrepreneurship No. 59/2020/QH14, which entered into force on January 1, 2021, cancels the stage of declaring samples of seals to the Business Registration Agency. In addition, the enterprise can independently determine the type, number and content of the seals of its branch without notifying the competent authority.

Public announcement of company registration must be made after the company has obtained IRC/ERC licenses.

Article 33 of the Entrepreneurship Law regulates that an enterprise must publicly disclose company registration information on the National Enterprise Registration Portal. The information to be declared must include the direction of the company, as well as a list of its founders and foreign investors who play the role of shareholders in joint-stock companies.