Vietnam is an emerging economy with a lot of potential for foreign businesses interested to open a company. The lower labor costs compared to other surrounding countries have attracted a massive growth in foreign direct investment (FDI). In the first five months of 2019, year-on-year growth of FDI in Vietnam was 69.1%, clearly, companies around the world are taking notice. In order to assist foreign investors in carrying out the procedures for open the company in Vietnam, Van Luat sends readers specific instructions as follows:
- Forms of company establishment by foreign investors in Vietnam
From 1 January 2021, the Law on Enterprises 2020 (“LE”) and Law on Investment 2020 (“LI”) replace the previous Laws of 2014 and generally govern investment activities, establishment and operation of enterprises in Vietnam. The LE and LI continuously confirm to guarantee the legal capital and assets of foreign investors in Vietnam, and allow foreigners to invest in most sectors of the economy, particularly in sectors of export-oriented, agricultural activities, new materials, high technology, development research, environment protection, and others of similar nature.
There are two principal forms of company establishment by foreign investors in Vietnam:
- 1. Direct investment – Establishing a new enterprise.
- Indirect investment – investment in Vietnam by investing in an existing enterprise: With the majority of foreign-owned capital (51%), it requires at least 2 shareholders. The foreign investor could hold up to 99% shares.
- 2. Legal provisions on the establishment of foreign companies in Vietnam
2.1. Direct investment – Establishing a new enterprise.
Foreign invested enterprises with a single investor may only be established as a limited liability company. A joint stock company must have at least three shareholders. Different considerations should be taken into account in selecting the entity to be established, as the governance regime, financing options, disclosure requirements and other operational aspects of the entities differ depending on whether the investment is carried out by a limited liability company or a joint stock company.
It is worthy of note that for establishment of any new economic organization, it is required to attach the establishment to an investment project in Vietnam. The LI and LE separate application for the issuance of Investment Registration Certificates (“IRC”) of investment projects and application for the issuance of Enterprise Registration Certificates (“ERC”) of the newly-established economic organization.
2.1.1. Procedures for applying for IRC (for investment projects not subject to approval of investment policies)
Before establishing an economic organization, a foreign investor must have an investment project and carry out procedures for granting and adjusting the IRC, except for the case of setting up a small and medium-sized enterprise with a start-up. Creation and investment funds for innovative start-ups in accordance with the law on supporting small and medium-sized enterprises.
- Condition:
- Investment projects not in industries or trades banned from business investment;
- Having a location for the implementation of the investment project;
- Investment projects in accordance with the planning specified at the LI;
- Satisfy the conditions on investment rate per land area, number of employees (if any);
- Meeting market access conditions
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2.1.2. Procedures for applying for ERC
- Conditions: An enterprise is granted an Enterprise Registration Certificate when it fully meets the following conditions:
- The registered business lines and trades are not banned from business investment;
- The name of the business is set according to regulations;
- Have a valid business registration file;
- Fully pay the business registration fee in accordance with the law on fees and charges.
- 2. Indirect investment – investment in Vietnam by investing in an existing enterprise
Investors may also choose to indirectly invest in Viet Nam by acquiring a stake in an existing Vietnamese enterprise. Often, extensive internal and external authority approvals will be required. The precise procedural requirements for effecting such an acquisition will differ depending on:
- whether the target entity already has foreign investors and an Investment Certificate for an approved project;
- whether the investor is acquiring existing equity by way of transfer, or newly issued equity;
- the form of the target entity (whether a single or multiple-member limited liability company, or a shareholding company); and
- the sector in which the entity operates.
With the above article, Van Luat hopes to be able to bring useful information to readers about the procedure for START BUSINESS IN VIETNAM. Van Luat helps with a full service package START BUSINESS IN VIETNAM with optimal spending and maximum efficiency for customers. If you have any questions regarding this matter, don’t hesitate to contact Van Luat immediately at 0919 123 698. We always have a specialist ready to give you a free consultation.
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