Many foreign businesses plan to shift the supply chain and expand production in Vietnam. Discover what makes Vietnam attractive to foreign investors, and learn more about the process of setting up a manufacturing company in Vietnam.

The trend of relocating supply chains to Vietnam

In recent years, Vietnam has emerged among the top FDI recipients in ASEAN. Vietnam has become the optimal choice for many investors in the world. Many large projects in Vietnam from foreign investors such as Samsung or LG with capital of hundreds/millions of dollars, even billions of dollars are proving that Vietnam is a fertile land for large factories in the world. This can be explained through economic-political reasons as follows:

• Young and cheap labor force
• Robust infrastructure
• Cost efficiency
• Strategic location
• Favorable tariffs from FTAs
• Political and social stability
• Fastest-growing region throughout most of 20s
• Diversification and supply-chain shifts are global trend

For the above reasons, now is the perfect time for foreign investors to expand production in Vietnam. Investors wishing to establish a manufacturing company in Vietnam, please refer to the following article for detailed instructions on the process.

Procedures for setting up a manufacturing company

Due to the specificity of the manufacturing industry, the process of establishing a manufacturing company will have a few changes as follows:

1. Find a suitable factory

Location selection is an important issue to keep in mind when setting up a manufacturing company. Unlike the establishment of a normal company, which can choose locations where the offices do not need to be too large, the manufacturing company will have to choose the locations of factories/workshops to suit the scale and operation of the manufacturing industry. There are 3 location options that investors can consider:

– Buy existing factories/workshops

– Rent available factories/workshops

– Rent land in industrial zones and build factories yourself

In particular, it is important to sign a Memorandum of Understanding (MOU) or a Lease Agreement with the landlord and require them to provide all relevant documents and papers on the land and properties attached to the land.

2. Decide on the amount of investment capital

With the particularity of needing to use a lot of capital to serve production activities, the production company can freely choose the amount of investment capital by the actual needs of the business. Besides, according to the law, investors can contribute capital with assets such as machinery, equipment, factories, etc. provided that such assets can be valued in Vietnamese Dong.

Here are some notes when contributing capital with assets:

– Assets must be valued in Vietnamese Dong according to the provisions of the law

– Assets, which are machinery and equipment, must be new and updated with advanced technology

– There must be documents related to the property to prove that the property is legal.

3. Meet the conditions in environmental protection, fire prevention

Due to the operation characteristics of the manufacturing industry, it is likely to affect the environment, cause fire and explosion, so according to the law, when setting up a manufacturing company, investors must pay attention to meeting strict environmental and fire protection conditions. Depending on the manufacturing industry, the law will have its regulations on environmental conditions, fire prevention, and fire fighting applicable to that industry. If the above conditions are not met, the investor’s project may not be approved by the competent authority, or after it has been put into operation, it may be inspected and sanctioned by the competent authorities.

4. Prepare the necessary documents

Investors need to prepare documents related to the project and the company to process the establishment procedures. This list of documents is divided into 2 groups depending on whether the person contributing capital is an individual or an organization:

For foreign documents, investors need to consular legalization for these documents and after that, translate them into Vietnamese and notarize them.

5. Apply for the necessary permits

To ensure the legality of the project to establish a production company, the investor will have to submit documents to apply for the relevant permits and certificates. The types of licenses required to set up a manufacturing company include:

– Please approve the investment policy (if any). Depending on the size, location, and objectives of the project, it is necessary to consider whether the project is subject to the application for approval of the investment policy. In addition, the People’s Committees of different provinces and cities will have their regulations on investment capital levels, thereby stipulating which capital levels need to be approved for investment policies.

– Investment Registration Certificate (IRC). The timeline for the IRC procedure: about 15 days

– Enterprise Registration Certificate (ERC). The timeline for the ERC procedure: about 10 days

6. Apply for incentives and investment support

In some cases, production projects can apply for investment incentives and support but must meet the conditions prescribed by law such as:

– Investment projects in industries or professions with preferential/special investment incentives: for example, high-tech, supporting industry

– Investment projects with an investment capital of VND 6,000 billion or more are eligible for investment incentives when fully meeting the conditions of the law.

Currently, forms of investment incentives and support include:

– Incentives on corporate income tax: CIT exemption for the first 4 years, 50% CIT reduction for the next 9 years

– Preferential import tax: applied to some specific items

– Incentives on exemption and reduction of land rent, land use levy, land use tax

– Incentive for fast depreciation, increasing the amount of deductible expenses when calculating taxable income

– Special investment incentives

Investors need to know whether their project’s target industry is eligible for investment incentives, thereby determining the types of investment incentives that their company is entitled to and carrying out procedures with the tax authorities, customs authorities, and other competent authorities corresponding to each type of incentive.

7. Open a company bank account

After incorporation, companies will have to choose a bank to open a Direct Investment Capital Account (DICA) and a Current Account. Any FDI enterprise must have these two basic types of bank accounts. The DICA will be used for investment-related transactions, while the current account is used for the company’s daily transactions. For details on company bank accounts and accounts opening procedures, please read more at: https://novalawv3.wbc.vn/company-bank-accounts-vietnam/

8. Employee recruitment

Most manufacturing companies will use a fairly large number of employees, so according to the law, the company will need to develop internal working regulations and register them with the competent authority. In addition, the company also needs to establish a labor union, build a welfare regime, and pay social insurance for employees working in the company.

In the case of recruiting foreign workers, the company will have to apply for a work permit for foreigners before they start working. Please refer to Nova Law’s guidance through the following article: https://novalawv3.wbc.vn/vietnam-work-permit/

9. Nova Law’s service on manufacturing company establishment

Above are the issues that investors need to consider when setting up a manufacturing company in Vietnam. Due to the specificity of the manufacturing industry, which contributes greatly to the economy, the legal requirements of the manufacturing project are also more tightly regulated both in terms of procedures and documents. Therefore, if you need assistance in setting up a production company, please do not hesitate to contact a lawyer from Nova Law for specific advice and support.