Establishing a company in Vietnam

Investment related activities in Vietnam are mainly regulated by the Law on Investment (“LOI”) and the Law on Enterprises (“LOE”) and their respective guiding and implementing regulations. The current versions of LOI and LOE have come into force from 1 January 2021.

The LOI governs investment activities in Vietnam and sets out the rights and obligations of investors, investment incentives, etc. The LOE resembles corporate law, stipulating allowable business entities and their governance, liability, and operations in Vietnam.

Business scope

In Vietnam, Vietnamese-owned companies can theoretically conduct any lawful business activities as long as they register with or notify the licensing authority. However, foreign-invested companies established in Vietnam can only engage in business activities expressly permitted in their incorporation documents. Vietnam has no concept of a "general trading company" or other broad category allowing 100% foreign-owned enterprises to conduct any lawful business. Therefore, it is crucial to specify intended business activities of the company. The permissible scope of operations is narrower for foreign-invested versus domestic companies.

Licensing procedures/processes and licensing documents required

Foreign investors who wish to establish company in Vietnam (either in form of LLC or JSC) must have an investment project and go through a general licensing process as follows:

(i) Investment Registration Certificate (“IRC”) which is issued for the investment project.

The IRC registration process depends on the size and type of investment project. For projects located outside of special economic zones, foreign investors must apply for an IRC from the provincial Department of Planning and Investment (DPI). For projects inside industrial, export processing, high-tech or economic zones, the application is submitted to the management authority of the respective zone.

Once issued, the IRC confirms the foreign investor's eligibility and outlines all key information relating to an investment project such as investor, total investment capital, capital contribution and its capital injection schedule, tax incentives, investment objectives, scale of production (if any), duration of the project.

(ii) Enterprise Registration certificate (“ERC”) for the company.

After obtaining the IRC, foreign investors must apply for an ERC from the provincial department of planning and investment. The ERC application includes the company charter, authorized representative appointments, and other documents like parent company registration. Foreign documents must be legalized and translated into Vietnamese with notarized certification.

The ERC formally establishes the company as a legal entity in Vietnam with no duration for the ERC. Once issued, the company can proceed with operational licensing, hiring, capital contributions, and business activities within the approved scope of business.

(iii) Sublicenses:

On the case-by-case basis, additional licenses might be required depending on the business scope. The most common sublicenses are business license (also called as “trading license”) for retail activities,e-commerce license for e-commerce activities; medical sub-licenses.

Some practical licensing challenges

It is common that, during the review process, the licensing authorities will request additional clarification/explanation from the investor(s) and this may delay the licensing process. In general, the licensing authorities normally evaluate the following major criteria:

The feasibility of the investment
The investor’s establishment and its operation;
The reputation and experience of the investor in carrying out the proposed activities;
The financial capability of the investor to conduct the business;
The satisfaction of other conditions applicable to the industry.
Land and/or premises usage for certain manufacturing projects.

It is therefore critical that the application documents address these matters in a clear and persuasive manner so that IRC and ERC will be issued.

Capital structure and requirements

The capital structure of a company will be as below:

Contributed capital/charter capital

The equity contributed or to be contributed by the investor/owner through an investment capital bank account opened by the company within 90 days of receiving the ERC. Failure to do so can lead to capital reduction and potential liquidation.

Normally, no requirement for a minimum charter capital level for a company engaging in trading or manufacturing activities. The licensing authority however will evaluate the charter capital to consider the feasibility of implementation of the proposed business.

Loan capital

The company may source debt funding by way of domestic borrowings (from banks operating in Vietnam) or foreign borrowings (from foreign sources such as foreign banks or parent, group companies, or third parties).

If the company borrows from overseas, registration with the State Bank of Vietnam is required if the term of the loan is over 12 months.

Legal capital

The minimum capital required by law for certain conditional businesses

In summary, the investor will in principle have full discretion in determining the capital requirements for its subsidiary, but the licensing authority, when reviewing the application, will assess the project's feasibility and will consider the sufficiency of the charter capital for the project. Loan can also be provided if needed but is not compulsory. Only certain sectors, such as banking and finance or real estate are subject to minimum charter capital requirements under the relevant laws.

Post licensing

After obtaining the IRC and ERC, additional steps must be completed to start operations:

Seal engraving
Opening a bank account(s)
Tax filing
Employment (taking into account the immigration related matters if hiring foreigners) and other internal labour policies.