The Ultimate Guide for Foreign Business Expansion into Vietnam

For foreigners exploring business opportunities beyond borders, Vietnam offers unmatched stability, incentivization, and ASEAN accessibility – making it an alluring frontier for starting a business in Vietnam as a foreigner. Navigating nuanced regulatory procedures, talent gaps, and infrastructure constraints requires patience and local guidance.

Investment options and legal structures for foreigners

Foreign companies looking to establish a presence in Vietnam have several investment options to consider. The two main avenues are direct investment, where a foreign entity launches a new operation, or indirect investment via mergers and acquisitions of existing local companies. Common forms of direct investment entities in Vietnam include:

• Limited Liability Companies (LLCs): Ideal for small to medium-sized investments, LLCs offer limited liability and flexible management. While foreign ownership is generally capped at 49%, certain sectors may allow up to 100% foreign ownership with approval.
• Joint Stock Companies (JSCs): Suited for larger operations, JSCs allow for greater foreign ownership and public share offerings.
• Partnerships: Partnerships require at least one Vietnamese partner with majority ownership and control.
• Business Cooperation Contracts (BCCs): BCCs offer contractual arrangements for collaboration without establishing a separate legal entity.
• Branches and Representative Offices: Focused on market research, promotion, and supporting the parent company’s operations in Vietnam, these have limited operational scope.

Overall, selecting the appropriate investment vehicle involves balancing legal liability, taxation, operations scale, sector limitations, and expansion ambitions in Vietnam’s market. Consultation with local advisory firms is highly recommended when strategizing entry.

Legal procedures for business setup in Vietnam

Following investment vehicle selection, foreign companies must complete two key legal procedures to incorporate and activate operations.

• The first step is securing an Investment Registration Certificate (IRC) from provincial departments of planning and investment. IRC applications require Standard Forms, proposal summaries, legal documentation, and capital verification letters. Authorized timeframes can range from 15-45 days. Once approved, IRCs allow capital contributions and licensing registration.
• Second, is attaining an Enterprise Registration Certificate (ERC) from provincial business registration divisions. ERC documents detail core business information related to investment objectives, ownership structures, operational scopes, registered capital, tax obligations and legal representative appointments.

ERC approval times are contingent on industry or conditional activities. Sectors subject to conditional requirements may undergo additional assessment to verify legal, technical, and financial capabilities along with economic needs criteria. 

Taxation and financial considerations for foreign-owned businesses

Understanding Vietnam’s tax system is crucial for foreign-owned businesses to optimize their financial health. Here’s a breakdown of the primary taxes you’ll likely encounter:

• Corporate Income Tax (CIT): The standard CIT rate is 20%. However, preferential rates (10%, 15%, or 17%) may be available for businesses operating in specific industries or locations. It’s essential to check if your business qualifies for these incentives.
• Value-Added Tax (VAT): VAT rates are generally 0%, 5%, or 10%, depending on the goods or services provided. The 10% rate is the most common.
• Foreign Contractor Tax (FCT): FCT applies to payments made to foreign contractors without a permanent establishment in Vietnam. Rates vary depending on the nature of the service, typically ranging from 1% to 10%.
• Personal Income Tax (PIT): PIT for residents is calculated on a progressive scale, with rates ranging from 5% to 35%. Foreign employees should consult with tax advisors regarding potential tax equalization policies or double taxation agreements between Vietnam and their home countries.

Operational requirements and compliance

After legalizing corporate entities, foreign businesses in Vietnam face various operational formalities and compliance regulations. Key requirements include establishing a lawful registered office under the legal representative’s (foreign owner or manager) name, engaging local accountants, carving company seals, and opening VND bank accounts.

Upon incorporation, enterprises are required to publicly display their operational certificates and license summaries in Vietnamese. This announcement should be visible both at the physical office and on company websites. This announcement facilitates market monitoring while declaring compliance capabilities.

Moreover, Vietnam’s 2005 Law on Investment and 2020 Law on Enterprises decree several compliance requirements related to environmental standards, data regulations, transparency reporting, board director compositions, and national defense obligations. Keeping updated on new policies and directives ensures ongoing legitimate operations.

Advantages, Challenges, and Cost Estimation

Vietnam provides immense market potential given its 95 million strong population with rapidly expanding middle class and purchasing power. Strong economic momentum (6% growth in 2024) also bolsters investment attractiveness for manufacturing and retail sectors. Infrastructure accords reasonably efficient transportation and connectivity links within Vietnam as well as global supply chains.

However, underdeveloped and inconsistent regulatory frameworks pose market entry and expansion barriers for foreign players. For example, extensive bureaucracy and red tape increases costs/timelines while foreign ownership allowances create partner reliance risks. Developmental challenges like skill gaps may also strain hiring capacities.

Estimating credible investment budgets depends heavily on entity type, headcount scale, sector nuances and geographical establishment factors. On average, LLC setup hovers around VND 300-500 million, the minimum cost for registering a JSC in Vietnam with a professional service provider starts from VND 600 million and operational capital reserves add further costs. 

Expanding into Vietnam offers opportunities and obstacles. Thorough preparation is essential – understand regulations, taxes, hiring, and logistics. Vietnam’s complex rules can seem confusing initially, but learning licensing, policies and compliance unlock potential. Working with local experts makes setting up a company in Vietnam smoother. With care and patience, the possibilities in Vietnam can be great.  Leveraging experts like Talentnet to secure qualified and inject local insights further streamlines establishment.