Process for foreigners to open an incorporation in Vietnam

Vietnam’s economy has a starting point as a backward agricultural country, badly damaged by successive wars and a series of sanctions and embargoes. However, in the past 30 years, Vietnam’s economy has significantly developed due to practical renovation policies. Vietnam has transformed itself from a poor agricultural country to a low-middle income country. Vietnam’s GDP has grown steadily by 5-10% over the past 15 years. In the complicated situation of Covid – 19, Vietnam still has a growth rate of 2.4% in 2020. With the advantage of being a densely populated country, the labor force is abundant, cheap, and relatively skilled, Vietnam has become an ideal destination for foreign investors to make commercial investments, such as opening a business in Vietnam. Van Luat would like to inform an overview of the investment process and procedures in Vietnam for foreigners in the following article

Invest in Vietnam

There are many forms for foreign investors to choose to invest in Vietnam, options can be listed such as:

Wholly Foreign-Owned Enterprises (WFOEs)
Foreign Joint Ventures Enterprises
Buying Equity in Vietnam
Business Cooperation Contract (BCC)
Public-Private Partnership Projects (PPP)
Representative Offices
Company Branches

Within this article, Van Luat will inform about the most chosen investment form, a form of direct investment in Vietnam is establishing a 100% foreign-owned enterprise. WFOEs are Vietnamese companies with 100% foreign ownership. Multiple foreign investors are permitted. Investors can choose company forms such as Limited Liability Company (LLC) or Joint Stock Company (JSC). In general, foreign enterprises are allowed to operate in many fields. In general, foreign enterprises are allowed to operate in many economic sectors. However, unlike domestic enterprises, foreign enterprises are only allowed to do business in the areas permitted by the State. The government updates this list frequently

Issuance of Investment Registration Certificate

Before establishing a WFOE, a foreign investor must obtain foreign investment permission by applying for an Investment Registration Certificate (IRC). Projects with large-scale environmental, social, or environmental impacts, or in specific areas, require additional written approval, called “Decision on Investment Policy” (DIP) from the National Assembly, the Prime Minister, or the provincial People’s Committee. To apply for an IRC, an investor needs a complete set of documents about the project they want to invest in Vietnam, including:

A detailed plan of the investment plan in Vietnam (if it is to establish a company with 100% foreign capital, the company itself must be in the investment plan);
Documents proving the investor’s legal status – Copy of identity card or passport (Applicable in case the investor is an individual); Copy of Business Registration Certificate (Applicable in case the investor is a legal entity);
Investment project proposal (scale, capital…);
Copies of one of the following documents:
- Commitment to financial support of the parent company.
- Commitment to financial support from a financial institution.
- Guarantee of investor’s financial capacity; document explaining the financial ability of the investor

The licensing authorities (usually the provincial Department of Planning and Investment or the Director of the industrial park or export processing zone) will assess the IRC application dossier for foreign investment limitations, the adequacy of capital contributions, and the feasibility of the proposed business plan and require the investor to provide considerable detail and justification. Investor can directly apply for IRC if the project has been issued DIP from the State, the IRC is issued within five working days by the relevant foreign investment authorities with jurisdiction over the economic sector. If a project is not subject to a DIP, the relevant foreign investment authority will process the dossier within 15 calendar days of applying an IRC.

Process for foreigners to open an incorporation in Vietnam

However, for some investment activities that fall within the jurisdiction of specific ministries (government bodies at a national level), such as Trade and Communication Ministry; or Health Ministries, the foreign investment body processing the IRC will usually contact those ministries for their input and opinion. These consultations are often time-consuming because they involve submitting formal requests from the local foreign investment authority to relevant ministries, which can be also cross-consultation. Due mainly to this reason, the actual processing times often go beyond the legally prescribed time frames as a matter of practice.

Business establishment and operation

After receiving the IRC, the foreign investor must apply for an Enterprise Registration Certificate (ERC) to establish the Foreign Invested Enterprise (FIE) that will implement the investment project. The procedure for ERC can be done the same way as setting up a domestic ERC, including submitting the enterprise registration dossiers to the Business Registration Office (directly or online). The processing time is typically one to two weeks from the date of submission. After completing IRC and ERC, investors must complete other post-licensing tasks to be effective enough to go into operation.

3.1. Corporate seals

Registration of the company seal to authorities is no longer required. However, the administrative system of Vietnam still requires an FIE has a physical seal or seal under a digital signature when sending documents to the state agency during the operation period.

3.2. Bank account

An FIE is required to open a corporate bank account with a commercial bank in Vietnam, including at least one Direct Investment Capital Account if the FIE has 51% or more foreign ownership

3.3. Necessary licenses for foreign employees

A foreign employee working for an FIE must apply for a work permit at the Department of Labor, Invalids and Social Affairs, and a residence card at the Department of Immigration. Investors in LLC who is both an employee and a member of the Board of Membership of the company; members of the Board of Management of JSC with a charter capital minimum of VND3 billion (approximately USD130,000) may request an exemption from work permits.

3.4. Registration with Social Insurance Authority

An FIE must register with the Social Insurance Authority to comply with its employees’ health insurance, unemployment insurance, and other social insurance contribution requirements.

3.5. Register and pay taxes with Tax authorities

When registering to establish an enterprise, a foreign-invested company must also submit a notice of ERC to the provincial Department of Taxation to provide the enterprise’s Tax Identification Number (TIN) and pay excise. Enterprises will be exempt from license tax in the first fiscal year, from the second year onward, besides corporate income tax, the business will have to pay additional license tax (1,000,000 VND for enterprises with charter capital under 10 billion VND, 2,000,000 VND for enterprises with charter capital over 10 billion VND)

Above is an overview of the establishment of foreign-invested business in Vietnam. In general, with the open-door development policy and encouraging foreigners to invest in the country, Vietnam is an ideal place for foreign investors to invest in recent years. Although there are many shortcomings and overlaps in administrative procedures, investors can choose a reputable company that can help to complete the issues related to the incorporation establish. If you still have any questions about this issue, don’t hesitate to contact Van Luat for assistance.