Starting a Business in Vietnam is a process that requires you to combine your specific business needs with local legal requirements to launch smoothly. In this guide, Nova Law will be covering the basic steps that you need to take in order to start a business in Vietnam as a foreigner or a foreign company (“Foreign Investor”).

Can foreign investors start a business in Vietnam?

Absolutely can, Vietnam allows and encourages foreign investors to do business in Vietnam. The Vietnamese government actively welcomes foreign investment through its policies by: remaining the country’s political and economic stability; creating favorable conditions and incentives for foreign investors; improving the business environment to align with OECD standards.

Recently, UNCTAD ranked Vietnam as top 20 most attractive investment destinations in the world. Vietnam currently is the home of many MNCs such as Nike, Samsung, LG, and Foxconn, as well as other foreign SMEs.

Knowing business entity types in Vietnam

Once you decide on having a physical presence in Vietnam, a primary consideration is the type of business entity to form. These are 3 popular business entity options in Vietnam for foreign investors to choose from:

1. Representative office

A Vietnam Representative Office is a dependent unit of a foreign company, established under the law of Vietnam, to research the Vietnamese market, to perform other business-promoting activities, and is not allowed to carry out any direct profit-making activities.

A Rep Office is a good temporary option for a foreign company to have an initial idea of the Vietnamese market before committing to a long–term investment, or strengthen business connections with local partners within a small budget. It also avoids the complexity of registering a company in Vietnam and complying with ongoing filing requirements.

Learn more: How to establish a Representative office in Vietnam

2. Branch

A Vietnam Branch is a dependent unit of a foreign company, established under the law of Vietnam, and permitted to carry out profit-making business activities in only a few sectors (bank, insurance, law firm, etc.) One of the conditions to establish a branch in Vietnam is that the foreign company has been operating for at least 5 years.

In practice, establishing a branch in Vietnam is not a common choice for foreign investors.

3. Company

A Vietnam Company is an independent legal entity established under the law of Vietnam, and has a full legal capacity of conducting business. It may take the form of either single-member limited liability, multi-member limited liability, or joint-stock company (Learn more: Types of company in Vietnam). Establishing a company in Vietnam is the most effective way to reach and take advantage of the Vietnamese market.

A foreign investor has some options below to have a Vietnam Company:

– Establishing a 100% foreign-owned company: Vietnam allows 100% foreign ownership in most business sectors. With this option, the foreign investor will have full control and power over the company.

– Establishing a joint venture company with Vietnamese partners: In a few business sectors (advertising, gaming, agriculture and forestry, etc.), Vietnam requires foreign investors to joint venture with Vietnamese partners.

– Establishing a nominee company owned by a local person: This is a shortcut for foreign investors that want a quick, easy, and cheap option to have a company in Vietnam. However, this option requires a big trust between parties and is also extremely risky in terms of legality for both the foreign investor and the local nominee.

– Acquiring an existing Vietnamese company: Foreign investors can utilize commercial advantages of the Vietnamese company. Foreign investors are highly recommended to conduct due diligence on the target company before deciding to buy it.

A Vietnam company must comply with ongoing filing requirements and pay taxes (if any)

Learn more: How to open a company in Vietnam for foreign investors

Among all, Company and Representative Office are the most popular chosen business entity types, because of the flexibility and the ease of operations they provide.

An overview of taxation in Vietnam

1. Taxes for representative offices

Vietnam representative offices are not subject to paying taxes, because it doesn’t allow to earn profit. A representative office only needs to declare the Personal Income Tax and cover compulsory insurance of its employees.

2. Taxes for companies

Most companies will be affected by the following taxes, which are imposed at the national level:

• Value-Added Tax (VAT): current standard rate is 8%
• Corporate Income Tax (CIT): current standard rate is 20%
• Personal Income Tax (PIT) on Vietnamese and foreign employees: for residents, progressive tax rates from 5 to 35%
• Insurances contributions: employer (21,5%), employee (10,5%)
• Import duties, export duties: upon occurring

3. Taxes for foreign contractors

Foreign entities and foreign individuals undertaking business or earning income sourced from Vietnam on the basis of business contracts or agreements are subject to Foreign Contract Withholding Tax (FCWT) in Vietnam.

4. Tax incentives

Vietnam offers various tax incentives for foreign investors based on business sectors (software production, high technology, supporting industry, etc.), and locations (certain qualifying economic and high-tech zones, and especially difficult socioeconomic areas, etc.). Tax incentive schemes are CIT exemption and/or CIT reduction.

How to start a business in Vietnam

These are the 6 steps involved in starting a business in Vietnam as a Foreign Investor:

• Step 1. Choose a right business entity
• Step 2. Rent a business location
• Step 3. Prepare required documentation
• Step 4. Register your business
• Step 5. Open business bank accounts
• Step 6. Complete post-registration requirements

Let’s take a closer look at each step:

Step 1. Choose a right business structure

Consult with your Vietnamese lawyer and tax advisor in order to select the correct entity form for your specific business needs, as well as related legal obligations and tax issues.

Step 2. Rent a business location

In Vietnam, having a physical business location (such as an office, a shop, or a factory) is a compulsory requirement for the business registration procedure. Before registering your business, you need to find a suitable business location, then sign a leasing contract or MOU with a lessor and obtain the premises’ legal documents.

So weigh your options to determine which major city in Vietnam is most suitable for your particular business, spend time for a site visit before renting, and think clearly about your long-term business goals.

Step 3. Prepare required documentation

Each type of business entity requires a different kind of application document. Per your lawyer’s instruction, you then begin to compile all necessary documentation needed to establish your business in Vietnam.

Please note that official documents issued by a foreign country require certifications of its Ministry of Foreign Affairs, then consular legalization by the Embassy of Vietnam. This process might take time.

Step 4. Register your business

Registering a foreign business with Vietnamese competent authorities is a must in order to be officially established here. In practice, the business registration process in Vietnam might be complex and lengthy. But don’t worry, the law firm will handle all legal entity setup works on your behalf.

Step 5. Open business bank accounts

Businesses in Vietnam need to open business bank accounts in order to pay taxes, pay salaries, receive business payments, conduct other cashless transactions, etc. Again, different types of business entities will be required to open different types of bank accounts.

In practice, each bank in Vietnam has a different level of service quality, service fees, and customer service. Make sure that you do research or have a good recommendation on choosing the right bank for your business.

Learn more: Company bank accounts for FDI companies

Step 6. Complete post registration requirements

Post-registration requirements are different depending on your type of business entity. It may take the form of: tax registration, insurance registration, filing tax reports, invoicing, applying for additional licenses or permits (if any), and trademark registration (optional).

A team consisting of Vietnamese lawyers, accountants, tax advisors, and bankers would be very helpful for your business along the way to avoid common legal compliance mistakes, avoid penalties, provide bookkeeping best practices, and plan the best deductions.

Now all is set, your business in Vietnam can be ready to start operating!

Conclusion

Starting a Business in Vietnam should be not difficult with the right help from the beginning. It is highly advisable to work with a professional law firm that has a great deal of experience in this field, such as Nova Law Vietnam, to help your business in Vietnam launch smoothly.

Contact Nova Law today for more information. We are glad to be of service.