Conditions to set up a foreign-invested company in Viet Nam
Thứ sáu - 21/08/2020 14:51Due to the development of the Vietnamese economy, Viet Nam has become an appealing destination for many multinationals to invest in. There are several ways of doing business in Viet Nam, the most common one is setting up of a new company in the country, whether as a wholly foreign-owned company or as a joint venture with foreign or Vietnamese partners. This article will provide a brief overview of relevant conditions under Vietnamese regulations when establishing a company.
The requirement of investment registration certificate before company registration
Before establishing a company in Viet Nam, an investor must register an ‘investment project’, which is defined as ‘a set of proposals for the expenditure of medium and long-term capital to carry out investment activities in a specific geographical area and for a specified duration’.[1] The investor also needs to go through procedures to establish an enterprise to implement the investment project.
Approval of the investment project is in the form of an Investment Registration Certificate (“IRC”), which will set out the key details of the project, including its objective, duration and investment capital (money and other assets such as gold, value of land use rights,…). Certain types of projects may require an in-principle approval by the National Assembly, the Prime Minister or the relevant local People’s Committee before the IRC is issued (e.g. projects for investment in airports, seaports, petroleum, casinos, cigarettes and golf courses). Once the IRC is issued, the investor must then apply for an Enterprise Registration Certificate (ERC) to establish a new enterprise to conduct the investment project.
When applying for an IRC, foreign investors also need to satisfy many conditions as follows [2]
a) The investor’s charter capital satisfies the requirements prescribed in Law on Investment.
b) The form of investment, operating scope, Vietnamese partners, and other aspects are conformable with the international agreements which are signed by the Socialist Republic of Vietnam.
Prohibited and conditional sectors
There are specific sectors in which investment is prohibited for both foreign and domestic investors (such as projects to do business in drugs, projects detrimental to national security and social ethics). Besides, there areseveral sectors in which the foreign investment is ‘conditional’. A list of these conditional business lines is provided in the Investment Law’s appendix. Approval of investment in conditional sectors requires a detailed analysis of the application for investment approval, beyond that required for investment in nonconditional sectors. This may include consultation with relevant ministries, preparation and presentation of evidence relating to the investor’s expertise and experience in the relevant industry.
The limitation of foreign ownership
The limitation of foreign ownership could be seen through the ratio of charter capital owned by investors when they establish a business organization in Vietnam. Particularly, foreign investors may own an indefinite amount of charter capital invested in business organizations, except for the following cases:
a) The holdings of the foreign investors at listed companies, public companies, securities-trading organizations, and securities investment funds are conformable with regulations of law on securities;
b) The holdings of the foreign investors at state-owned companies that have been equitized or converted are conformable with regulations of law on equitation and conversion of state-owned companies;
c) Regarding holdings of the foreign investors in other cases than those mentioned in Point a and Point b of Clause 3 Article 22 of Law on Investment, relevant regulations and the international agreements to which the Socialist Republic of Vietnam is a signatory shall apply.
Forms of investing in Vietnam through the establishment of a foreign enterprise
The foreign investor can set up a foreign company in Vietnam with these following forms: (i) setting up a 100% foreign-owned enterprise (where all members are foreign investors); or (ii) setting up a foreign-invested joint venture enterprise between foreign investors and at least one domestic investor. The most common type of legal entity in Vietnam is Limited Liability Company (LLC). A foreign-owned LLC is responsible for having at least one legal representative, who can be a foreigner with a condition that he/she is residing in Viet Nam.
[1] Clause 2, Article 3 of the Law on Investment 2014
[2] Clause 1, Article 22 of the Law on Investment 2014
The requirement of investment registration certificate before company registration
Before establishing a company in Viet Nam, an investor must register an ‘investment project’, which is defined as ‘a set of proposals for the expenditure of medium and long-term capital to carry out investment activities in a specific geographical area and for a specified duration’.[1] The investor also needs to go through procedures to establish an enterprise to implement the investment project.
Approval of the investment project is in the form of an Investment Registration Certificate (“IRC”), which will set out the key details of the project, including its objective, duration and investment capital (money and other assets such as gold, value of land use rights,…). Certain types of projects may require an in-principle approval by the National Assembly, the Prime Minister or the relevant local People’s Committee before the IRC is issued (e.g. projects for investment in airports, seaports, petroleum, casinos, cigarettes and golf courses). Once the IRC is issued, the investor must then apply for an Enterprise Registration Certificate (ERC) to establish a new enterprise to conduct the investment project.
When applying for an IRC, foreign investors also need to satisfy many conditions as follows [2]
a) The investor’s charter capital satisfies the requirements prescribed in Law on Investment.
b) The form of investment, operating scope, Vietnamese partners, and other aspects are conformable with the international agreements which are signed by the Socialist Republic of Vietnam.
Prohibited and conditional sectors
There are specific sectors in which investment is prohibited for both foreign and domestic investors (such as projects to do business in drugs, projects detrimental to national security and social ethics). Besides, there areseveral sectors in which the foreign investment is ‘conditional’. A list of these conditional business lines is provided in the Investment Law’s appendix. Approval of investment in conditional sectors requires a detailed analysis of the application for investment approval, beyond that required for investment in nonconditional sectors. This may include consultation with relevant ministries, preparation and presentation of evidence relating to the investor’s expertise and experience in the relevant industry.
The limitation of foreign ownership
The limitation of foreign ownership could be seen through the ratio of charter capital owned by investors when they establish a business organization in Vietnam. Particularly, foreign investors may own an indefinite amount of charter capital invested in business organizations, except for the following cases:
a) The holdings of the foreign investors at listed companies, public companies, securities-trading organizations, and securities investment funds are conformable with regulations of law on securities;
b) The holdings of the foreign investors at state-owned companies that have been equitized or converted are conformable with regulations of law on equitation and conversion of state-owned companies;
c) Regarding holdings of the foreign investors in other cases than those mentioned in Point a and Point b of Clause 3 Article 22 of Law on Investment, relevant regulations and the international agreements to which the Socialist Republic of Vietnam is a signatory shall apply.
Forms of investing in Vietnam through the establishment of a foreign enterprise
The foreign investor can set up a foreign company in Vietnam with these following forms: (i) setting up a 100% foreign-owned enterprise (where all members are foreign investors); or (ii) setting up a foreign-invested joint venture enterprise between foreign investors and at least one domestic investor. The most common type of legal entity in Vietnam is Limited Liability Company (LLC). A foreign-owned LLC is responsible for having at least one legal representative, who can be a foreigner with a condition that he/she is residing in Viet Nam.
[1] Clause 2, Article 3 of the Law on Investment 2014
[2] Clause 1, Article 22 of the Law on Investment 2014
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