Vietnam is regarded as a potential investment environment with a fast-growing economy in the Southeast Asia region. In addition, the Vietnamese government’s policies such as tax exemption, deduction, preferential tax rate, etc. have contributed to encouraging foreign investors to enter the Vietnamese market.

To ensure effectiveness in investment, labor management, utilization of resources, and Government policies, the investor shall prepare for the basic steps required when setting up a company in Vietnam.

1. Step-by-Step procedure for establishing a 100% foreign-owned business in Vietnam (direct investment)

Step 1. Performing the survey

We consider this as an essential first step because it assists Investor gather the necessary information about the business sector, location, difficulty level of procedures, expected time to obtain permits, etc. By analyzing this information, the Investor can acquire a comprehensive overview of the conditions for doing business in Vietnam, precisely estimate the necessary time and costs for completing establishment procedures, and modify his/her plans accordingly if they discover that his/her original plans are unsuitable.

Step 2. Preparing the documents

Based on the survey results, the Investor prepares the necessary documents for establishing a company. The documents usually include:

• Legal information of the Investor, If the Investor is an individual, a passport is required, and if the Investor is an organization, legal documents of the Investor are necessary, such as a document recording the legal status of the investor (Business license, Business Charter, or any other equivalent documents), documents proving the financial capacity of the Investor, and a Passport of the investor’s representative in Vietnam. 
• Legal documents about the intended location of the head office and a document recording the lease status of the Investor. For Investment registration procedures, submitting documents about the intended head office is mandatory. Therefore, at the time when the company is not yet set up, the Holding company (if the investor is an organization) or one of the members (if the investor is an individual) establishes a document leasing the head office with the lessor.

Step 3. Registering for the investment project

The documents shall be submitted to the Investment Registration Office of the Department of Planning and Investment. Usually, the processing time is about 15 working days. However, if the intended business sector is not committed by Vietnam, the investment registration agency shall consult with the specialized management agency.

Step 4. Business registration

After completing the investment registration and receiving the Investment Registration Certificate, the Investor submits the dossier for Enterprise Registration Certificate. The processing time shall be 03 working days and the result that the Investor shall receive is the Enterprise Registration Certificate. This document records the legal entity status of the investment project management organization according to the Investment Registration Certificate that has been issued.

Immediately after receiving the Enterprise Registration Certificate, the Investor proceeds to complete the procedure to make the company’s seal and announce the seal sample.

Step 5: Performing Bank Account Procedure

After completing Step 3, the Enterprise has the right to establish contracts and agreements. However, to contribute capital and make payments, the Investor shall open a bank account at any commercial bank. It shall be noted that the Investor shall open 02 separate accounts for the two purposes of capital contribution and payment transactions.

Step 6: Performing Tax Registration Procedure

The law sets a specific time limit for newly set-up companies to complete the initial tax declaration procedures. At this step, the company shall fulfill its obligations of paying the business license tax, registering for digital signatures, and electronic invoices. These are the conditions for the enterprise to issue invoices to the Client and perform other tax-related activities.

2. Procedure for Foreign Investors to contribute the capital or purchase shares in Vietnam

To engage in business operations in Vietnam via indirect investment forms, (such as capital contribution or share acquisition), the Investor shall perform the following sequential steps as delineated below:

Step 1. Applying for a Written Approval of the contribution of capital for Foreign Investor

This is the first step that the Investor shall perform, accordingly, the organization receiving the Investor will represent the Investor to submit a dossier at the Department of Planning and Investment where the enterprise’s head office is located.

At this step, the Department of Planning and Investment will consider overall issues from business lines, capital of the company in which the Investor intends to invest, the capacity of the Investor, and other relevant issues. Based on the provided dossier and the content of the explanation, the Department of Planning and Investment will consider the approval of the investment permit or require implementation, or reject it on a case-by-case basis. In case the business lines of the company have not been committed to the WTO Schedule Commitment, the Department of Planning and Investment shall normally be forced to consult other management agencies, the written response of these agencies will be a basis for the Department of Planning and Investment approving or rejecting the Investor’s dossier.

The list of documents that the Investor and the Enterprise shall be prepared includes:

• Registration document for capital contribution, purchasing shares, and contributed capital portion.
• A certified copy of the Investor’s legal documents, depending on whether the Investor is an individual or an organization, one of the following documents is required: A passport, Establishment Decision, Enterprise Registration Certificate, or other equivalent documents.
• Agreement in principle on capital contribution, purchasing shares, contributed capital portion purchase between the foreign investor and the economic organization receiving the capital contribution, purchasing shares contributed capital portion.
• A certified copy of the Land Use Right Certificate of the economic organization with foreign investors contributing capital, purchasing shares, or contributed capital portion (for cases specified in point b, clause 4, Article 65 of Decree No. 31/2021/ND-CP regarding Security and Defense issues).

Step 2: The Enterprise performs the procedure for changing members, shareholders, and owners. 

After receiving approval results in Step 1, the Enterprise submits a dossier to change the Enterprise’s information at the Business Registration Office of the Department of Planning and Investment. Within 03 working days from the date of receiving the dossier, the Business Registration Office is responsible for examining the validity of the dossier and issuing a new Enterprise Registration Certificate. In case the dossier is invalid, the Business Registration Office shall notify the Enterprise in writing of the content that shall be corrected or supplemented. In case of refusal to issue a new Enterprise Registration Certificate, the reason shall be stated in writing and notified to the enterprise.

For Step 2, the dossier for notifying changes in the enterprise registration information shall include:

• Notification of changes in the members signed by the legal representative of the enterprise;
• List of members of the joint-stock company. The list of members shall have enough signatures of new members and members who change their capital contributions. The signature of non-changing members is not required;
• Transfer contract or documents proving that the transfer has been completed;
• Copy of legal documents of individuals for new members who is an individual, or copy of legal documents of organizations and individuals in case of authorization representation. A copy of the authorization document for representation in case the new member is an organization.
• For a foreign organization as a member, a copy of the legal documents of the organization shall be consular legalized;
• Document approving the capital contribution, purchasing shares, the capital contribution of foreign investors, and foreign-invested economic organizations.

3. Determining the business sector

Vietnam has opened up its market by participating in the WTO, but not completely. Through the author’s experience, there are specific regulations for investors when performing business in Vietnam, as well as cases in which licensing authority is allowed to accept or reject investors.

Therefore, before proceeding with the initial steps to register a company in Vietnam, the investor shall determine whether the intended business sector has been committed to by Vietnam for market access, and what the conditions for implementation are.

Investors shall note that some business sectors require additional separate licenses from specialized management agencies before operating in practice. In other words, after investors have completed the process of setting up a foreign company in Vietnam, they shall meet certain specialized legal requirements before operating. For example, investors in the restaurant or hotel services business, in addition to having an Investment Registration Certificate and an Enterprise Registration Certificate, shall obtain Licenses for Food Safety and Hygiene, Confirmation of Fire safety compliance, and maintain a Certificate of eligibility for security and order…when opening a company in Vietnam.

4. Choosing the appropriate type of business entity

The investor chooses the appropriate type of business structure based on their operational demand and business plan. Currently, Enterprises Law divides business models into the following types:

• Private Enterprise;
• Partnership;
• Limited liability company with one member;
• Limited liability company with two or more members;
• Joint-stock company.

For foreign investors, the Limited Liability Company and Joint Stock Company are suitable business forms that meet his/her investment demand. The investor considers various factors such as the industries, the number of investors, the demand for strict regulations regarding changing the investor in the company, and plans related to the financial sector when choosing the appropriate operating form.

5. Charter capital

Investor shall determine the appropriate charter capital that aligns with their financial ability, ensuring that he/she obeys the capital contribution schedule when opening a company in Vietnam. Because when setting up a business directly in Vietnam, the competent authority will require you to provide a specific capital contribution plan to assess the investment project’s effectiveness. In case you do not comply with the capital contribution schedule, you will encounter many difficulties from banks, and tax authorities as well as facing the application of violation penalties, and even the termination of the investment project in Vietnam.

6. The operating location helps to optimize the operating budget

Currently, the Vietnamese Government applies some tax incentives to enterprises operating in certain special business sectors or certain locations such as high-tech zones, industrial areas, and economically difficult areas. With tax incentives such as a preferential tax rate (10%) lower than the normal tax rate (22%) and exemption or deduction of taxes for a certain period.

Taking advantage of tax incentives will help the enterprise in reducing significant expenses, as the Corporate Income Tax is a tax calculated on revenue after deducting reasonable expenses, and is temporarily calculated per quarter before finalized at the Tax finalization. Currently, the Corporate Income Tax rate for an enterprise that is not eligible for incentives is 22%.

Therefore, the Investor shall identify the intended business industry and the location intended to be leased, whether it is in an area eligible for a tax incentive or not, to determine the annual tax obligations of the enterprise and optimize the costs in business operations.

7. Types of locations that are not allowed for use as business headquarters

Apartment Building, Apartment: Currently, many enterprises have their offices located in apartment buildings and high-rise buildings when established their enterprises in Vietnam. However, not all cases are allowed to have their offices in these buildings. 

Investor shall determine the intended use of the location they plan to rent and identify whether the apartment he/she intends to rent as their office is located in an Apartment Building to be built as a “residence” or a mixed-use apartment building – a type of apartment building that serves both residential and office functions. Investor relies on legal documents issued by authorized agencies for the lessor to determine the function of the apartment. 

Using an apartment with a residential purpose as an office is contrary to legal regulations, and the business registration agency will reject the applications for business registration of the investor.

The restricted business area: In addition, certain areas limit business activities for specific industries. Some localities have zoning regulations that do not allow certain industries to operate or limit the number of businesses operating in the same industry within a geographic area. This is often seen in large cities such as Ho Chi Minh, Hanoi, and Da Nang… 

Environmental impact: There are industries whose operations have a strong impact on the surrounding environment, so some areas shall not be allowed to operate certain industries, or if allowed, there shall be limit on the operating capacity. Some factors such as the expected amount of water and electricity consumption, the amount of waste expected to be discharged into the environment, and whether the waste is hazardous or non-hazardous shall be specifically evaluated before allowing businesses to operate.

All of the above factors shall affect the choice of the business location, so the Investor shall clearly determine the factors related to the industry, operating capacity if it is a manufacturing industry, the intended rental area, and future expansion plans from the outset…

Investor shall note that agreements between the Investor and the lessor shall be established only after determining that the rental location is suitable, in order to avoid potential disputes that may arise between the parties. 

8. The Separate Licenses that a business must acquire to operate legally

In addition to the procedures for obtaining the Enterprise Registration Certificate (ERC) and Investment Registration Certificate (IRC), the enterprise is required by law to complete certain formalities to obtain permits and approvals from specialized management agencies before commencing business operations in Vietnam.

• Food Safety and Hygiene Certificate

Performing the Certificate of Eligibility for Food Safety and Hygiene is a mandatory requirement that food and beverage service businesses, restaurants, processing plants, etc. shall comply with. This is the legal basis for businesses to operate and avoid penalties, product recalls, suspensions, or requests to terminate business operations.

• Business License

Foreign-invested enterprises engaged in certain special service industries and goods trading activities shall obtain a business license commencing operations in Vietnam, such as logistics, intermediary trade, e-commerce, etc.

• Registration of Foreign Loan

Currently, for short-term loans, Vietnamese law only requires the establishment of a loan contract between Vietnam and the foreign lender, while also fulfilling reporting obligations. However, for medium and long-term loans, Vietnam requires businesses to complete procedures for registering foreign loans at the State Bank of Vietnam.

Complying with the registration requirements for foreign loans will facilitate the repayment of loans and interest to foreign lenders, or the conversion of loans into capital contributions, while also avoiding administrative penalties.

• Registration of commercial franchising

Franchising activities from foreign countries in Vietnam are considered activities that shall be registered before the franchising model is applied in Vietnam. Depending on whether the franchised object has been granted a protection certificate or not, as well as whether the franchisor is the original or the sub-franchisor, the submitted documents shall be adjusted accordingly to be suitable.

The article contains general information which is of reference value, in case you want to receive legal opinions on issues you need clarification on, please get in touch with our Lawyer at info@cdlaf.vn

You can refer for more information:

• Reports that Investors shall perform in 2023
• Establishment of Enterprise in Vietnam, What Foreign Investors Need to Consider (Part 1)
• Establishment of Enterprise in Vietnam, What Foreign Investors Need to Consider (Part 2)
• Procedure for Foreign Investor to contribute capital, purchase shares in the enterprise in Vietnam.
• The enterprise with opening and using direct investment capital account
• Avoiding the risks when leasing the office in Vietnam – some recommendations
• Foreign Investors provide Employment Services in Vietnam
• Franchise in Vietnam (Part 1)
• Franchise in Vietnam (Part 2)
• Tax preference when trading business in service and software product in Vietnam