Types Of Company In Vietnam For Foreign Investors

Starting a business as a foreigner in Vietnam can be a long and bumpy road, but the country makes it simple to register a company and bring your dream venture to fruition.

BBCIncorp has compiled a list including types of company in Vietnam that are available to foreigners.

In recent years, the Vietnam government has published a wide range of policies and guidelines to encourage foreign investors to establish a commercial within the country. As per the current law, there are 3 types of company and 4 other legal entities that foreign investors need to know about.

Limited Liability Company (LLC)

A limited liability company is a legal entity that can be established by one or more owners through capital contributions to the company.

Even though there are 2 forms of LLC in Vietnam: single-member LLC and multi-member LLC, to foreign investors, the category is divided into 2 different sectors: wholly foreign-owned LLC and partly foreign-owned LLC.

Wholly foreign-owned LLC

An LLC in Vietnam can be set up with only one owner (or more) whose nationality could be any.

This type of business has the same legal rights as that of domestic firms where most business activities are not restricted.

Another good news is the Vietnam government allows wholly foreign-owned to operate businesses in most sectors such as trading, manufacturing, information technology, and education. This type of LLC can also get the ball rolling with production operations, and provide services trade with both Vietnam customers and foreign customers.

Pros

The most significant benefits of setting up a Wholly foreign-owned LLC are:

• Direct control

This type of company allows 100% foreign ownership, meaning that you as the owner have complete control over the business. You don’t have to share profits or decision-making power with anyone else, which can be a big advantage when it comes to making strategic decisions about the business.

Complete ownership also gives you more flexibility when it comes to raising capital, as you can do so through foreign investment or loans without having to go through the Vietnamese government.

• Low capital requirement

The minimum charter capital requirements for a wholly foreign-owned LLC are relatively low, so it’s a good option if you don’t have a lot of money to invest.

The specific requirements vary depending on the business sector you’re in, but in general, you’ll need to have at least VND 3 billion (approximately US$130,000) in paid-up capital.

• Simplified registration process

The registration process for a wholly foreign-owned LLC is relatively straightforward. You can complete the entire process within a few weeks, as opposed to the months-long process of setting up a joint stock company.

Cons

Some of the potential drawbacks of setting up a wholly foreign-owned LLC include:

• Restricted business activities

There are also some restrictions on the business activities that a wholly foreign-owned LLC can engage in. For example, you’ll need to obtain approval from the Vietnamese government if you want to set up a company in the banking, insurance, or securities sectors.

You may also have difficulty accessing government contracts and tenders, as these are typically reserved for companies with at least 51% Vietnamese ownership.

• High tax rate

Another downside is that you’ll be subject to Vietnam’s corporate income tax rate of 20%, which is higher than the rates in some other Southeast Asian countries.

However, it’s important to note that Vietnam has several double taxation avoidance agreements (DTAs) in place, which means you may be able to reduce your tax liability if your home country has a DTA with Vietnam.

• Hard to retain employees

Finally, you may find it more difficult to hire and retain employees, as most Vietnamese workers prefer to work for companies that are at least partially owned by locals.

Required documents

A glance at the required documents to register for an LLC according to Law on Enterprises 2020 that have taken effect since 2021:

(1) An application form for business registration

(2) The company’s charter

(3) A list of members

(4) Copies of:

• ID card or other ID papers of members being individuals;
• A decision on Establishment, Certificate of Business registration, or an equivalent document of the organization and the letter of authorization; and
• ID card or other ID papers of the authorized representatives of members being organizations.

If a member is a foreign organization, the following documents are required:

• Copy of the Certificate of Business registration or an equivalent document must be consular legalized
• Certificate of Investment registration of the foreign investors as prescribed by the Law on Investment

Partly foreign-owned LLC

Partly foreign-owned LLC can also be listed as a joint venture company where at least one of the members is a foreign investor.

One big perk of establishing a joint venture in Vietnam is that foreign investors can be beneficial from having a domestic expert or being able to conduct business in certain industries.

Pros

You should take into consideration the following benefit when structuring a Partly foreign-owned LLC in Vietnam

• 100% foreign ownership is not required

As long as the foreign investor contributes at least 30% of the charter capital, they can establish a Partly foreign-owned LLC in Vietnam. This means that you can find a local partner to help with the business procedures and running of the company on a day-to-day basis.

• Qualified for land use rights

A Partly foreign-owned LLC enjoys the same status as a Vietnamese company in terms of land use rights.

This is an important benefit as it allows for long-term land lease and use, which is essential for businesses that require a physical space to operate (e.g., factories, warehouses, etc.).

• Easier to register and operate

Compared to a wholly foreign-owned company, it is generally easier to register and operate a Partly foreign-owned LLC in Vietnam. This is because the government is generally more supportive of businesses that have some form of Vietnamese ownership/involvement.

• Potential for lower taxes

Another benefit of a Partly foreign-owned LLC is that it may be eligible for certain tax incentives that are not available to wholly foreign-owned companies. This is an important consideration for businesses that are looking to minimize their tax liability in Vietnam.

Cons

However, there are also some drawbacks to be aware of when setting up a Partly foreign-owned LLC in Vietnam, such as:

• Less control for the foreign investor

As the foreign investor only owns a minority stake in the company, they will have less control over the business than if they were to set up a wholly foreign-owned company.

This can be an important consideration for businesses that are looking to maintain full control over their operations in Vietnam.

• Potential for conflict with the Vietnamese partner

As mentioned above, you need to find a local partner to help with the business procedures and running of the company on a day-to-day basis.

However, this can also be seen as a drawback as there is always the possibility of conflict between foreign and Vietnamese partners due to different business cultures and expectations.

• Compliance with government regulations

As a Partly foreign-owned LLC is still subject to the same government regulations as a Vietnamese company, the business will need to comply with all relevant laws and regulations. This can be seen as a drawback for businesses that are looking for more flexibility and freedom in their operations.

Joint-Stock Company (JSC)

Just like an LLC, JSC can be set up wholly or partly foreign-owned whose nationality could be any. However, the minimum of shareholders is three and the maximum number is not restricted by law.

One major difference to categorized a JSC and an LLC is that JSCs are allowed to issue shares to the public and be on the stock exchanges. With this type of company, shareholders are also allowed to transfer their shares as per the law.

Pros

The advantages of a Joint Stock Company are as follows:

• Large capital

Joint Stock Companies have a large amount of capital and can raise more funds than other business structures, this is because they can sell shares to the public without any restrictions. As a result, it’s easier for a JSC to finance big projects to grow and expand its businesses.

• Flexible ownership

This type of structure allows a flexible ownership structure, which means that shareholders can easily buy and sell their shares without having to go through a complex process.

• Limited liability

The limited liability status of shareholders is one of the key advantages of a Joint Stock Company. The shareholders are only liable for the amount of money they have invested in the company and they will not be held liable for any debts or losses incurred by the company. Hence, they will not lose their personal assets like their home or car.

• Tax benefits

Another advantage of a Joint Stock Company is that it enjoys certain tax benefits. For instance, the corporate income tax rate for a JSC is lower than the personal income tax rate. In addition, a JSC can claim deductions for certain expenses such as research and development (R&D) costs

Cons

Though a joint stock company has many advantages, there are a few disadvantages as well which are as follows:

• Complex structure

The Joint Stock Company structure can be quite complex, which can also lead to higher costs and bureaucratic procedures. Therefore, it’s difficult for business owners to understand and get involved in this type of company, especially startups who don’t have much experience.

• Loss of control

The shareholders of a JSC have less control over the company because they only own a portion of the company and don’t have the power to make important decisions. If you prefer to have a say in company matters, then this type of company may not be the best option for you.

Furthermore, when outsiders invest in the company, they may want to change the way things are run, which can lead to a loss of control for the original shareholders.

• Lack of secrecy

Another disadvantage of a Joint Stock Company is that it’s required to disclose information to the public, including operations, finances, and other sensitive affairs, which can be a problem if you want to keep your business private.

• Complicated to set up

Joint Stock Companies are complicated to set up as compared to other business structures. This is because many legal and regulatory requirements need to be met. In addition, setting up a JSC requires a large amount of capital, which may not be feasible for small businesses or startups.

Partnership

A partnership is a firm that has at least two co-owners (or general partners) that jointly conduct business under one common name. Besides general partners, the firm also has contributing partners. Plus, with this form of a legal entity, it can not issue any kind of shares.

Pros

Here are the advantages of starting a partnership in Vietnam:

• Better decision-making

In a partnership, decisions are made by consensus. This means that all partners have a say in what the company does and how it is run. This can lead to better decision-making because all partners have a stake in the success of the business.

• Access to knowledge, skill, and experience

Partnerships can give your business access to a wider range of knowledge, skill, and experience. This is because each partner brings something different to the table. For example, one partner may have financial expertise while another may have marketing experience.

• Shared risk and liability

In a partnership, the risks and liabilities are shared between the partners. This can be an advantage because it means that each partner is only responsible for a portion of the business.

Cons

Here are the disadvantages of starting a partnership in Vietnam:

• Disagreements between partners

Since partners have an equal say in how the business is run, disagreements between partners are common. These disagreements can lead to arguments and even legal action.

• Uncertainty about the future

In a partnership, each partner has the right to withdraw from the business at any time, which potentially leads to uncertainty and instability within the company.

• Limited growth potential

As partnerships are typically small businesses, they often have limited growth potential because each partner usually has a limited amount of capital to invest in the business. As a result, partnerships are often less profitable than larger businesses.

Required documents

Here is a list of needed documents mentioned in the Law of Enterprises 2020 to register for a partnership in Vietnam:

• An application form for business registration
• The company’s charter
• A list of partners
• Copies of the ID card or other ID papers of the partners.
• A copy of the Certificate of Investment registration of the foreign investors as prescribed by the Law on Investment

Other legal entities for foreign investors

As per Vietnam’s current law, there are only 3 types of company that are available to foreign investors. However, there also exist other legal entities that foreigners can invest in.

Branch

According to Decree No. 07/2016/NĐ-CP, foreign companies that have been operating for 05 years or more are eligible to establish branches in Vietnam. Required documents according to the same Decree mentioned above to establish a branch in Vietnam include:

(1) An application form issued by the Ministry of Industry and Trade and signed by a competent representative of the foreign trader

(2) Copies of the Certificate of Business Registration or equivalent

(3) A letter of appointment from the head of the brand

(4) Copies of:

• Audited financial statements or certificates of the fulfillment of tax liabilities/financial obligations of the previous financial year or equivalent as proof of existence and operation of the foreign trader issued or certified by competent authorities where the foreign company is established
• Branch charter
• Passport of the head of the branch

(5) Documents on the branch’s expected location: a memorandum of understanding (MOU) or leasing agreements or equivalent as proofs of the right to use a location as the branch

All copies shall be translated into Vietnamese and certified true following Vietnam’s Laws. As with the Certificate of Business Registration or equivalent shall be certified or legalized by overseas diplomatic missions or Consulates of Vietnam under Vietnam’s Laws.

Representative Office (RO)

A representative office can be established by foreign companies that have been operating for more than 1 year.

A RO can help you to establish a local presence in Vietnam without being subject to local tax regulations and there is also a little reporting requirement to handle. Still, one of the downsides of a RO is that it’s not permitted to trade or conduct manufacturing operations.

To establish a RO, you need to prepare documents that are similar to that of the branch office.

Business Cooperation Contract (BCC)

As per the 2014 Investment Law, a BCC is a cooperation contract between foreign investors with at least one Vietnamese partner to conduct a specific business activity.

With this form of a legal entity, foreign investors will avoid time-consuming and costly procedures for establishing a new legal entity.

In general, as mentioned in Law on Investment 2020, a BCC should contain:

• Names, addresses, authorized representatives of parties to the contract; business address or project address
• Objectives and scope of business
• Contributions by parties to the contract and distribution of profits
• Schedule and duration of the contract
• Rights and obligations of parties to the contract
• Adjustment, transfer, termination of contracts
• Responsibilities for breaches of contract; method of dispute settlement

In terms of using assets derived from the business cooperation and other issues that do not contravene Vietnam’s Law, parties may reach an agreement during the execution of the BCC.

Public and Private Partnership Contract (PPP)

As per the Law on Investment 2017, PPP is a contract between the government authorities and project companies for investment projects to build, improve, upgrade, expand, manage, and operate infrastructure works; or to provide public services. The fields, conditions, and procedures for all projects under PPP contracts will be specified by the Vietnam Government.

However, according to the Law on Investment 2020, there are significant changes when it comes to PPP. The investment fields are narrowed down to 5 categories:

• Transportations;
• Electrical Grid;
• Power Plant (except hydroelectric power plant and other cases according to Law on Electricity);
• Irrigation, Clean water supply, Waste, and Wastewater treatment; and
• Health Care and Education; Information Technology Infrastructure.

Conclusion

The Vietnam Government has gone out of its way to welcome as many foreign investments to the country as possible, introducing many types of company as well as supportive policies. With the variety of choices, which type of legal entity you should choose is entirely up to your needs and business.

If you have any concerns or questions regarding doing business in Vietnam, don’t hesitate to drop us a message via service@bbcincorp.com, our team of expert consultants will be in touch the soonest.