KEY REGULATIONS FOR DOING BUSINESS IN VIETNAM

Vietnam stands out as a promising investment destination in Southeast Asia, boasting a dynamic economy and a favorable business environment. However, navigating the regulatory landscape can be a complex endeavor for foreign investors.

COMPANY SET UP PROCESS

Establishing a company in Vietnam involves several distinct steps, each of which is essential for ensuring compliance with local regulations and securing the necessary licenses and permits. Below is an elaboration on the company setup process in Vietnam:

1. Pre-Investment Approval (Optional):

In rare cases where investors intend to operate in specific sectors designated by the government, they may need to seek pre-investment approval. This step involves submitting detailed proposals to relevant authorities for review and approval.

2. Investment Registration Certificate (“IRC”) Application:

Most investors can proceed directly to this step, which involves applying for an IRC from the Department of Planning and Investment (“DPI”). The IRC serves as official recognition of the investment project’s viability and compliance with regulations.

3. Enterprise Registration Certificate (“ERC”) Application:

Upon obtaining the IRC, investors can apply for an Enterprise Registration Certificate (ERC), also known as a Business Registration Certificate. This certificate is issued by the DPI and confirms the establishment of the company as a legal entity in Vietnam.

4. Fulfilling Post-Licensing Requirements:

Once the company is licensed, there are additional administrative tasks to complete. These may include:

• Registering company seals: Companies are required to have official seals, which must be registered with the local authorities.
• Opening bank accounts: Companies must open bank accounts for conducting business transactions. This typically involves providing documentation such as the ERC and identification of company representatives.
• Securing a physical business address: Companies must have a registered business   address in Vietnam, which may require leasing or purchasing commercial property.

MINIMUM CAPITAL REQUIREMENTS:

Vietnam does not impose minimum capital requirements for most sectors; however, the registered capital must be deemed adequate by the Department of Planning and Investment. Although it is possible to establish a business with less than $10,000 in capital, the amount required varies depending on the nature of the business.

ECONOMIC LANDSCAPE:

Since the late 1980s, Vietnam has transitioned to a market-oriented economy, experiencing significant growth driven by foreign direct investment (FDI), which has been instrumental in modernizing its industries and boosting its global economic standing. Key industries contributing to this growth include food processing, textiles, construction, mining, and services. The country’s investment potential continues to attract investors, positioning Vietnam as a leading destination for business opportunities in the region.

POPULATION AND LANGUAGE:

With a population of approximately 97 million, Vietnam is ethnically diverse, with the majority being of Kinh (Vietnamese) descent. The official language is Vietnamese, and all legal documents are published in Vietnamese. While unofficial translations are available, they are for reference purposes only.

RECENT LEGISLATION:

On June 17, 2020, Vietnam’s National Assembly passed the Investment Law 2020 (“LOI”) and the Enterprises Law 2020 (“LOE”), which replaced the 2014 versions and took effect on January 1, 2021. These laws, pivotal in Vietnamese corporate governance, apply universally to local and foreign enterprises. Notable in the 2020 LOI is the inclusion of investment guidelines concerning national defense and security. Activities deemed detrimental to Vietnam’s defense or security will face suspension or termination. The 2020 LOE streamlines the organizational structure of LLCs, removing the obligation for certain LLCs to appoint an inspection board. It also enhances shareholder rights, lowering the threshold for calling shareholder meetings and eliminating the six-month shareholding requirement.

FOREIGN INVESTMENT REGULATIONS:

Foreign investors must register their investments, with approvals required from relevant government bodies. Restrictions may apply, including limitations on foreign ownership, sector-specific regulations, and geographic restrictions. Additionally, foreign acquisitions are subject to similar conditions as subsidiary establishments.

• Government Authorizations

Foreign investors must register foreign investments. The provincial Department of Planning and Investment or the board of management of the relevant industrial zone or park with jurisdiction over the location of the project has the power to approve foreign investment projects. However, larger scale projects and projects in certain sectors also require a “decision on in-principle investment” approval from higher-level government bodies, such as the National Assembly, the Prime Minister, or the provincial People’s Committee, prior to submission to the local investment authorities.

• Restrictions on Acquisition of Shares

The restrictions for foreign investors investing via the acquisition of shares are applied similarly to those for investment via setting up a subsidiary. As such, foreign investors need to satisfy the conditions on limitation of ownership, scope of investment, conditions on the qualification of Vietnamese partners and other conditions or requirements relating to specific business sectors.

• Specific Industries

Vietnam acceded to the World Trade Organization (“WTO”) in 2007 and, as part of its accession, made several commitments to various service sectors through the Schedule on Specific Commitments in Services. If a foreign investment involves the business activities specified under these WTO commitments, the investment conditions and restrictions set out there will apply in addition to relevant local legislation (which is normally in line with Vietnam’s WTO commitments). If a foreign investment involves business activities not specified under Vietnam’s WTO commitments, only domestic law will apply. If domestic law is silent, the foreign investment may still be approved on a case-by-case basis.

SUMMARY:

Navigating business regulations in Vietnam requires a thorough understanding of the legal framework, procedural requirements, and sector-specific regulations. Despite its complexities, Vietnam offers abundant opportunities for foreign investors, supported by its growing economy, strategic location, and favorable investment climate. By staying informed and seeking professional guidance, businesses can successfully establish and operate in Vietnam’s vibrant market landscape.

HOW WE CAN HELP?

A corporate firm can offer various services to help set up a business in Vietnam. Here are some ways we can assist:

• Our team will conduct thorough market research to assess the viability of business ventures, examining consumer trends, competitors, and regulatory landscapes. With the help of this insight, we can guide through the intricacies of legal procedures, including company registration and compliance with local laws.
• Tax, accounting, and staffing are crucial aspects of any business. Our team can help in providing expert advice on tax optimization, financial reporting, and recruitment, ensuring your operations are efficient and compliant. Furthermore, we act as liaisons with government entities, expediting bureaucratic processes and minimizing delays.
• We can offer strategic guidance for expansion, whether through mergers, joint ventures, or franchising opportunities. Leveraging our extensive network, we will facilitate partnerships and business development, empowering growth in the Vietnamese market.
• Our team is a trusted partner for navigating the complexities of setting up and expanding business in Vietnam. With our expertise and support, businesses can embark on an entrepreneurial journey in this vibrant economy.