2023 Update: How To Start A Business In Vietnam As A Foreigner

Do you want to start a business in Vietnam, but feel overwhelmed by the challenges and difficulties awaiting you as a foreigner? We’re here to help you get on with it.

In this article, you can find a practical guide to launching a new business in Vietnam. We’ve also summarized some key factors of Vietnam’s business context that you should consider.

Can foreigners start a business in Vietnam?

The answer is yes! You can start a business in Vietnam as a foreigner, through direct or indirect foreign investments.

Direct foreign investment means you work together with a Vietnamese partner in a 100% foreign-owned company or a joint venture company.

To obtain a direct investment in Vietnam, you’ll need an enterprise license and go through legal procedures according to local law.

Indirect foreign investment, on the other hand, means you purchase shares of companies in Vietnam.

The indirect investment grants you a position in company management, depending on the agreement between you and the Vietnam company.

Read on to understand common forms of business investment and key considerations when starting a business in Vietnam as a foreigner!

How to start a business in Vietnam as a foreigner?

Starting a business in Vietnam involves many issues to consider, as well as different factors to determine. You can find the details of these matters in the following section.

Restrictions for foreigners to set up a business in Vietnam

Restricted business activities

Article 6, Law on Investment (2020) (LOI) restricts foreigners from carrying out certain business activities in Vietnam.

Particularly, you can’t run a business that involves:

• Narcotic substances (stipulated in Appendix 1, LOI);

• Toxic chemicals, precursors, and minerals (stipulated in Appendix 2, LOI);

• Natural specimens of endangered, rare, and precious wild fauna and flora species (stipulated in Appendix I, CITES, and Appendix 3, LOI);

• Prostitution, human trafficking, or clone of human-related businesses;

• Firecracker-related business; and

• Debt collection.

Recently, the Law on Investment 2021 has added new ‘conditional business investment‘ while eliminating sectors like commercial arbitration or logistics.

For ‘conditional business investment‘ activities, you’ll not be restricted; however, you’ll need to satisfy certain criteria to gain access to the Vietnam market.

In summary, these ‘conditional business investments include:

• Accounting and Auditing services

• Tax agency service

• Customs-related business: Customs agency services, Trading duty-free goods, bonded warehouse or container freights stations

• Securities-related business

• Insurance/ Reinsurance/ Insurance brokerage/ Insurance agency/ Insurance auxiliary services

• Price valuation service

• Other financial businesses: Lotteries business, Debt collection services, Credit rating services, Prize-winning electronic games for foreigners, Casino business

Foreign ownership limitations

Depending on specific investment sectors that foreigners engage in, there can be some limitations on the allowed percentage of foreign ownership, a form of investment, as well as further requirements of Vietnamese partners.

In most circumstances, foreign investors doing business in Vietnam can have 100% foreign ownership over the share capital in a Vietnam-based company. However, if the foreign investment is made in a Vietnamese bank for instance, then the total foreign ownership by the investor cannot exceed a cap of 30%.

Certain restrictions on business ownership in Vietnam can be found in the following documents:

• Vietnam’s bilateral international agreements
• The Schedule of Specific Commitments in Services included in Vietnam’s WTO accession package
• Relevant local laws and regulations – i.e., Article 18 (2) of the current Law on Enterprises stipulating specific individuals/ organizations who are prohibited to incorporate a company in Vietnam.

Dealing with tax matters when starting a business in Vietnam

No matter what business structures you run in Vietnam, you need to pay your taxes.

Generally, the 4 common taxes that you need to take notice of are Value Added Tax (VAT), Corporate Income Tax (CIT), Personal Income Tax (PIT), and Foreign Contractor Tax (FCT).

Still, many tax reliefs help reduce your tax liabilities in Vietnam. Below are some options for you to consider:

• CIT: Preferential tax rate and tax holidays

• PIT: Allowable deductions from compulsory insurance contributions, charity purposes, family-related deductive relief

• VAT: VAT exemptions on specific businesses

• FCT: No withholding tax is levied on dividends of overseas corporate shareholders

Considering an appropriate business structure for foreigners

There are various options for foreign investors when starting your business in Vietnam.

Under Vietnam’s Law on Enterprises (68/2014/QH13) and Law on Investment (67/2014/QH13), some most common types of business entities are as below:

Limited Liability Company (LLC)

It is a legal entity formed by members who make capital contributions to the company. Vietnam LLCs can have a maximum of 50 members. And the liability of each member is limited to his capital amount contributed to the company.

An LLC in Vietnam can be a 100% foreign-owned enterprise or a joint-venture enterprise (have at least one Vietnamese investor);

Joint-stock company (JSC)

JSC is a legal entity formed by founding shareholders who subscribe to shares of the company. You’ll need at least three founding shareholders to form a joint-stock company.

It is the only type of corporate structure in Vietnam allowed to freely issue shares and securities to the public, except for certain cases.

Partnership

It is a company formed by at least two individual partners who hold unlimited responsibility over the obligations of the company.

Business Cooperation Contract (BCC)

BCC is a legal agreement between investors on the cooperation to carry out business activities and share profits. Investors commonly use this type in specific sectors, such as petroleum or telecommunication.

More often than not, BBC’s participants will have unlimited liability for any debts or financial obligations to the company.

Other business structure options available for foreign investors: Private Enterprises, Public-Private Partnerships (PPP), or even investing through making capital contributions, and purchasing shares in Vietnam companies.

As regulated by Vietnam’s Law on Commerce, foreign business entities can also establish their presence in Vietnam through the form of a branch office or a representative office.

Procedure for foreigners starting a business in Vietnam

To legally set up a company in Vietnam, foreign investors go through two important steps:

• Obtaining an Investment license
• Obtaining an Enterprise license

Apply for Investment Registration Certificate

The first step to starting a business in Vietnam is to obtain an Investment Registration Certificate (IRC). This application is subject to review and assessment by the Department of Planning and Investment.

In particular, the licensing authorities to which investors send the IRC application can be different.

In practice, it takes no less than 15 days for the Investment Registration Certificate to be approved.

Apply for Enterprise Registration Certificate

The next step is to get a Business/ Enterprise Registration Certificate (ERC) from the provincial Department of Planning and Investment, regardless of whether the investment project is carried out inside or outside of the above-mentioned zones.

An ERC application is normally processed in 3 working days.

Specific investment projects subject to “conditional” sectors in Vietnam shall be required to apply for further licensing procedures and be examined by relevant government ministry levels before obtaining approval.

Some examples of “conditional” investment business, as stipulated in Appendix 4, Law on Investment is:

• Making seals
• Securities trading
• Trading in supporting tools and repair services; signaling devices of priority vehicles; duty-free goods
• Accounting/ Auditing services
• Security services
• Insurance/ Reinsurance/ Insurance brokerage/ Insurance agent training related business
• Consultancy services on project management, and other regulated sectors and trades.

In general, you’ll need specific documents to complete your business setup in Vietnam. The documents will depend on the business structure that you opt for.

Foreign investors should engage a trusted incorporation service firm to get better guidance on what they need to submit on their chosen business entity type to invest in Vietnam.

Cost of starting a business in Vietnam as a foreigner

You may ask yourself more than one: What are the costs of starting a business in Vietnam as a foreigner?

Minimum capital requirement

There is no fixed minimum capital requirement for foreign investors to set up a company in Vietnam, except for certain conditional business lines.

For example, the minimum capital amount required for financial institutions in Vietnam (commercial banks, branches of foreign banks in Vietnam, or finance companies) can range between 150 billion VND and 3000 billion VND. Meanwhile, the capital required to invest in higher education institutions or universities in Vietnam must be at least 500 billion VND (21.5 million USD).

For many other business sectors, a capital of 10,000 USD is a base to consider before starting investment in Vietnam.

The Department of Planning and Investment is the authority that determines the capital amount required in the field of business for foreign investors.

Tax registration and associated payments

Foreign investors must register with the Department of Tax the tax code number under their company.

All entities operating businesses in Vietnam are also imposed business license tax (BLT) yearly. BLT is charged at different levels for each economic entity and household or individual.

The BLT rates are based on the amount of registered capital of the company:

• With registered capital of more than 10 billion VND, the entity must be subject to a BLT charge of 3 million VND per year;
• With registered capital of less than 10 billion VND, the entity must be subject to a BLT charge of 2 million VND per year;
• Other business entities, including branches, ROs, or business premises are taxed 1 million VND per year.

Remarkably, Decree No 22/2020/ND-CP effective from 25 Feb 2020 has offered the first-year BLT tax exemption to newly incorporated businesses, ROs, branches, business premises incorporated during the exempting course, general education-related entities, households, or individuals for first-time starting business in Vietnam, and SMEs (three-year exemption granted under specific conditions).

In reality, the full cost will depend on your business structures. Additional charges that you should consider may comprise:

• Registering cost
• Office renting and salaries
• Facilities and management fees
• Compliance and maintenance fees
• Relevant fees of  the Vietnam accounting service (if applicable)

Other requirements

Whether you are intending to incorporate an LLC or joint venture, having a registered place of business is mandatory when setting up a company in Vietnam.

In addition, the company set up in Vietnam requires at least 1 legal representative who must be residing in Vietnam at the time of registration. This person will engage in all relevant transactions on behalf of the company, take responsibility for legal proceedings, as well as exercise rights, and fulfill obligations regulated by laws.

It is mandatory that a legal representative must conduct a written authorization to another person to be in charge of his/her duties when moving outside of Vietnam territory.

Seal carving, bank account opening, and public announcement on the company registration

The company should register a corporate bank account to ensure its business is running smoothly. Importantly, the minimum capital requirement, after being determined by the Department of Planning and Investment upon a specific investment sector, is required to be sent to the company’s bank account.

Under Article 14, Law on Enterprise (2014), the company is obliged to send a notice of the seal to the Business Registration Agency to be made public on the National Enterprise Registration portal before using it.

However, the recently amended Law on Enterprise No 59/2020/QH14 which will come into force from 01 January 2021 removes the step of announcing the seal specimens to the Business Registration Agency.

In addition, the enterprise can decide by itself the type, number, and content of its branch’s seals without making notices to the competent authority.

Public announcement of the company registration must be done once the company has obtained IRC/ERC licenses.

Article 33 of the Law on Enterprise regulated that the enterprise must publicly disclose the company registration on the National Enterprise Registration portal. Information to be announced should include the company’s business line as well as the list of its found shareholders and foreign investors who play the role of shareholders for joint-stock companies.

Start your business in Vietnam now

At this point, you’ve gained a fundamental understanding of Vietnam’s business context and it’s up to you to choose what to do next.

Ideally, you should do more research about Vietnam’s business culture in advance. What custom do you need to follow, and how do you show respect to your Vietnam partners? What etiquette should you express?

Starting a business in other countries can be challenging, especially if you’re a first-timer. You should always engage a professional service provider for your Vietnam company formation.

Get in touch with one of our friendly consultants via service@bbcincorp.com and receive practical advice for your business!