SPECIAL GUIDE FOR FOREIGN INVESTORS

This article is designed to provide crucial insights to assist LawPlus’s valued clients before venturing into the Vietnamese market. It outlines the most relevant regulations and shares practical experience accumulated through years of legal and business consulting. Our goal is to equip foreign investors with the essential documents and a solid understanding of general conditions under Vietnamese law (Investment Law 2020 and others).

To ensure accuracy, this guide is based on legal regulations as of March 2024. However, since regulations may evolve, we strongly advise seeking personalized advice to suit your unique circumstances before making any investment decisions in Vietnam.

At LawPlus, we are committed to supporting your success in Vietnam’s dynamic market. Whether you’re facing challenges or navigating legal complexities, we stand by your side to overcome hurdles and drive your business growth forward.

I. What Should You Know and Prepare to Establish a Company in Vietnam?

1. Investor Information

Vietnam warmly welcomes investors from all countries and territories, whether organizations or individuals. However, it’s important to note that Vietnam maintains international, mutual, or partial commercial agreements with certain nations or regions. Consequently, the conditions applied to foreign investors may vary depending on these agreements and the relevant business lines, including apparel-related industries. These distinctions are critical to consider when planning your entry into Vietnam’s market.

2. Business Activities

Vietnam’s investment policy classifies industries into five main categories for foreign investors:

• Encouraged Industries: Foreign investors in this category benefit from appealing incentives, particularly preferential tax policies, making these industries highly attractive for investment.
• Open Industries: Investors are free to invest in this group without facing any specific restrictions or conditions.
• Conditionally Allowed Industries: Investments in these industries are permitted only if specific criteria are met. These may include capital requirements, investment forms, operational scopes, investor and partner qualifications, sub-licenses, and more. It is crucial for investors to maintain compliance with these conditions throughout their operations to continue benefiting from their investment.
• Uncommitted Industries: Industries in this category have not yet been opened to foreign investment in Vietnam. Approval requires consultation with relevant government ministries, making the process highly challenging and often unsuccessful.
• Prohibited Industries: Finally, foreign investors are strictly forbidden from registering businesses in industries within this category due to legal prohibitions.

3. Investment Capital

Understanding investment capital is a key step in the special guide for foreign investors. Investment capital typically consists of two main components:

• Charter Capital: This represents the initial amount that the owners or investors agree to contribute when establishing the company.
• Mobilized Capital (if any): In addition to charter capital, companies may raise additional funds through external sources, such as loans or future investments, to support their business operations.

In most cases, the company’s total investment capital is equal to its charter capital.

* Minimum Charter Capital Requirements

The minimum charter capital requirements vary depending on the industry category:

• Groups 1 (Encouraged Industries) and 2 (Open Industries): Generally, there are no minimum charter capital requirements unless specific incentives depend on the level of investment capital. However, it is crucial for foreign investors to submit a realistic and sufficient investment capital plan. Failing to do so might raise concerns with licensing authorities and could lead to the rejection of your application.
• Group 3 (Conditional Business Industries): For industries in this category, the required charter capital, total investment capital, or minimum deposit for registration varies according to the specific regulations of each business sector. Investors must carefully adhere to these requirements to ensure compliance.

4. Business contact information

As part of the special guide for foreign investors, ensuring accurate business contact information is essential. A company must have a fixed head office address for registration purposes and maintain its registered office there throughout its operation. The head office address determines the local authorities the company will work with.

Most foreign investors choose to lease an office in Ho Chi Minh City, as it is Vietnam’s largest commercial and financial hub. For those planning to establish a factory, industrial zones are often the preferred choice due to favorable tax incentive policies and suitable infrastructure.

Additionally, companies must provide a registered phone number, which will be officially recorded in the Enterprise Registration Certificate.

Important Notes:

1. Address Verification: Government agencies have the right to conduct physical verification of the registered address during the tax registration process or at any point during the company’s operations. If it is found that the company is not operating at the registered address, its tax code may be revoked, and fines for non-compliance may be imposed.
2. Official Notifications: All official communications from state agencies will be sent to the company’s registered address.
3. Address Changes: If the head office address changes, the company must follow the necessary procedures to update its registration information in accordance with the regulations.
4. Public Information: The registered address and phone number will be publicly listed on the national business registration and tax system portal. While this ensures transparency, it may result in unsolicited advertising or service offers.

5. Business name

When establishing a company in Vietnam, choosing an appropriate name is an important part of the process. A company’s name can include:

1. Vietnamese Name (mandatory).
2. Foreign Name (optional).
3. Abbreviation (optional).

Vietnamese Name

The Vietnamese name must comply with all naming regulations, ensuring uniqueness and avoiding duplication with existing business names. The structure of the name includes two elements in the following order:

• Type of Business (e.g., Limited Liability Company).
• Proper Name (e.g., the business’s unique identifier).

Example: Công ty TNHH ABC

Foreign Name (Optional)

If the enterprise chooses to register a foreign name, it must be a direct translation of the Vietnamese name. The foreign name can only be translated into one of the Latin script languages. Additionally, while translating, the proper name may remain unchanged or be adapted to the corresponding meaning in the foreign language.

Example: ABC Company Limited

Abbreviation (Optional)

For enterprises wishing to register an abbreviated name, it must derive from either the Vietnamese name or the foreign name.

Example: ABC Ltd.

Important Notes:

• The selected business name must comply with naming laws to avoid conflicts and ensure approval during the registration process.
• Avoid duplicating existing business names to prevent rejection of your application.

6. Types of legal entity

When selecting the type of business entity in Vietnam, foreign investors generally opt for one of the following three popular options:

i. Limited Liability Company (LLC) Owned by One Organization or Individual

• In this structure, the owner is personally liable for the company’s debts and financial obligations using all of their assets.
• This type is ideal for investors seeking complete control over business operations.

ii. Limited Liability Company (LLC) with Two or More Members

• This structure requires at least two members and allows up to 50 members who contribute capital to the company.
• Each member is liable only for the amount they have contributed to the company’s charter capital.
• It is well-suited for investors looking to collaborate and conduct business jointly.

iii. Joint Stock Company (JSC)

• A JSC must have a minimum of three shareholders, with no upper limit.
• The charter capital is divided into equal shares, and shareholders are liable only for the shares they own.
• This type is particularly suitable for investors looking to raise capital from multiple sources.

Key Considerations:

• Most foreign investors prefer LLCs due to their flexible membership structure and limited liability for capital contributions.
• However, a JSC may be a better choice for businesses planning Mergers and Acquisitions (M&A) or Initial Public Offerings (IPO) in the future.

7. Obtain all required licenses for the Company

For direct investment in Vietnam, the basic steps to implement an investment project can be .listed in the following order:

I mportant note:

• The order of the above steps is mandatory. Therefore, the following step will inherit the results of the previous step without being expanded upon or registered differently.
• All signatures and information must be consistent between the documents. After the application has been .submitted to the competent authorities, it will be handled by themselves according to regulations without any party having the right to intervene.
• Business information after registration in step 3 will be .published according to regulations, so other parties can access this information.

II. What Newly Established Companies Need to Do After Receiving the ERC

1. Opening Bank Accounts

Once a company receives the Enterprise Registration Certificate (ERC), it must establish the following bank accounts under its name:

• Foreign Direct Investment (FDI) Bank Account:
• Operational Bank Account(s):

Important Notes:

1. Companies are required to notify the tax authority of their bank account details within 30 days from the date the account is opened.
2. Maintaining compliance in banking procedures is crucial to ensure smooth operations and avoid penalties.

2. Making the red stamp of the Company

According to Vietnamese law, companies must have a legal stamp. Therefore, after obtaining an ERC, the company needs to make a stamp (possibly more than one).

The stamp must have full content and follow the prescribed format. The stamp will be .kept at the headquarters and used for stamping the signatures of the company’s legal representatives, true copies of documents of the company, multi-page documents, etc.

Ex: Red stamp of LawPlus

In addition to the company’s stamp, it is common practice to create a stamp that includes the name and title of the legal representative(s). This stamp can then be .used to apply to legal documents signed by the legal representative(s) below the signatures.

3. Registering for taxes

Right after obtaining the ERC, the Company has to register for taxation information, including:

• Register an accounting system with the tax authority;
• Register an online account to submit tax reports and pay taxes, insurance, and other duties of the Company;
• Buy a token – electronic signature – used to submit tax reports online;
• Buy e-Invoices;
• Register e-invoice with the tax system.

Besides, newly established companies must submit an initial tax declaration within 30 days from the date of receiving the Certificate of Enterprise Registration.

4. Accounting, Tax Declaration, and Reporting

Ensuring timely and accurate tax declarations is a fundamental step for every newly established company in Vietnam. The company must fully comply with legal requirements to avoid penalties or operational issues.

What are the Key Duties of Accountants?

Accountants play an essential role in managing a company’s financial operations. Their main responsibilities include:

• Invoice Management: Issuing invoices and verifying the validity of incoming invoices.
• Ledger Updates: Checking and recording output and input costs in ledgers.
• Cost and Revenue Accounting: Properly accounting for costs and revenue in compliance with standards.
• Corporate Income Tax (CIT): Declaring and paying CIT on a monthly or quarterly basis.
• Value-Added Tax (VAT): Calculating, declaring, and paying VAT on a monthly or quarterly basis.
• Personal Income Tax (PIT): Declaring, calculating, and paying PIT on a monthly or quarterly basis.
• License Tax: Preparing initial or additional license tax declarations (if applicable) and paying annual license taxes.
• Comprehensive Documentation: Preparing and maintaining accounting documents, records, and books, including general ledgers, detailed ledgers, inventory ledgers, expense allocation ledgers, fixed asset depreciation ledgers, and others.
• Annual Tax Settlement: Preparing tax settlements for CIT and PIT, and completing financial statements.
• Auditing for FDI Enterprises: Financial statements for Foreign Direct Investment (FDI) enterprises must be audited annually. Accountants should engage reputable audit firms, prepare audit-related documents, and work closely with auditors until the audit is completed and the report is issued.
• Reporting to Authorities: Submitting required reports to competent authorities regarding FDI company activities.

Why is Accounting Crucial for New Companies?

Even if a company has minimal operations, no revenue, or limited transactions, it must still appoint an accountant to handle accounting tasks. Ensuring compliance with Vietnamese accounting regulations is vital to avoid fines or having its tax code revoked.

For small businesses, startups, or companies with inexperienced accounting teams, outsourcing accounting services can be the most effective solution to save time and reduce costs.

5. Payroll, Social Insurance and PIT

When a company begins employing staff, it must strictly comply with Vietnamese regulations concerning labor, social insurance, and taxes. The following are the primary tasks involved:

• Salary Structures: Develop salary scales and charts in alignment with the company’s policies.
• Allocations: Allocate costs for salaries, bonuses, and employee benefits under the legal framework.
• Wage Calculations: Calculate monthly, piecework, or hourly wages.
• Social Insurance: Calculate and declare social insurance contributions for employees.
• Workforce Registration: Register changes in workforce size, including increases or decreases.
• Dependent Deductions: Declare and register deductions for employee dependents.
• Finalization of Social Insurance: Prepare and finalize social insurance documents for the required period.
• Employee Tax Numbers: Declare and register employee Personal Income Tax (PIT) numbers and social insurance codes.
• Labor Reporting: Prepare and submit required labor reports.
• HR Policy Guidance: Offer consultation on necessary human resources policies.

Important Notes:

1. Foreign employees must secure a Work Permit, Work Visa, or Temporary Residence Card before commencing employment in Vietnam.
2. Compliance with payroll and tax obligations is crucial to avoid fines or complications with authorities.

6. Hang the Company Signboard

One of the initial tasks for newly established companies is to install a proper company signboard at their headquarters.

A company signboard must include:

• The company’s name.
• The head office address.
• A phone number.
• Any additional information required by law.

By adhering to this requirement, companies ensure compliance with Vietnamese regulations and avoid potential penalties.

7. Complete the conditions on licenses, certificates, and capital

Newly established companies need to complete the conditions on licenses, certificates, and capital according to legal regulations.

For example: – Restaurant businesses, food hygiene, safety, and alcohol and tobacco: sales licenses – Tour businesses: a travel business license – Retail businesses: a business license – Operate a foreign language center: a license to establish one.

Thank you very much for spending time reading this document. LawPlus is very happy to discuss with you if you have any questions. Please contact us via the following information:

• Hotline (Vietnamese): 0965 052 039  I  0961 286 660 (WhatsApp, Viber, Zalo)
• Hotline (English): 0966 008 030  I  0965 052 039 (WhatsApp, Viber, Zalo)
• Phone: +84 2862 779 399 I  +84 2862 706 858
• Website: www.lawplus.vn
• Address: 86 Xuan Thuy street, Thao Dien ward, Thu Duc city, Ho Chi Minh City, Vietnam