Starting a Business in Vietnam

Starting a Business in Vietnam

Vietnam is an economy known for being a business-friendly country, has a high-quality workforce, an appealing tax regime, efficient and well-maintained transit infrastructure, public safety, and a well-functioning justice system.

Vietnam shifted to a market-oriented economy with the Doi Moi policy in the late 1980s, making it one of the fastest-growing economies in Asia. The introduction of the Doi Moi policy has brought about a steady growth of business owners setting up their companies in Vietnam

Furthermore, foreign direct investment (FDI) now forms the basis of Vietnam's economy as foreign investors consistently find the country a vibrant and attractive destination for business operations. 

The country's investment potential is regularly praised as one of the top opportunities in the region. Being one of the fastest-growing economies globally, Vietnam has become a strategic place for many foreign entrepreneurs to invest and expand their businesses. The economy has made its mark for its relatively cheap but highly qualified population. However, those are not the only reasons for attracting business people worldwide to set up a company in Vietnam.

Business opportunities in Vietnam:

Vietnam is known for its business work culture. Despite the coronavirus outbreak, there has been a boom in certain industries in the economy. Major industries that currently contribute to national growth are food processing, garments, textiles, construction, mining, oil and gas, and services and tourism.\

Below is a table that furnishes the currently booming industries in Vietnam and the industries that have been on a decline.

Booming Industries Declining Industries
  • Food processing
  • Textiles
  • Construction
  • Mining
  • Oil and Gas
  • Services
  • Tourism
  • State-owned enterprises
  • Manufacturing (due to covid)
  • Food processing
  • Textile Apparel and Leather – Footwear
  • Electronics
  • Automotive

Benefits of Starting a Business in Vietnam

Several factors make Vietnam an attractive location for establishing your new business. Vietnam is an economy popularly known for its skilled and educated workforce, making it one of the most preferred countries to start a business. 

Vietnam's key competitive advantages for businesses are as follows:

  • ~Strong economic growth rates
  • ~Young and skilled populations
  • ~Government Support
  • ~New-market advantage
  • ~Free trade agreements
  • ~Low expenses for starting a business
  • ~Infrastructure development

Strong economic growth rates:

With economic reforms such as Doi Moi initiated in 1986, Vietnam has grown substantially even with uncertainty.

Vietnam is now becoming a hub for labor-intensive goods. The economy has long been attracting many foreign direct investments (FDI) with steady growth in its GDP. This has made starting a business in Vietnam more beneficial.

Young and skilled population:

Foreign investors might also benefit from the growth of the Vietnamese population. With the third-largest population in SouthEast Asia, Vietnam has a relatively young population, having an average age of their population under 30.

A vast, well-educated, and relatively cheap workforce has become one of the significant Vietnamese assets. With Vietnam’s literacy rate over 90%, the literacy rate is one of the Southeternet penetration levels.

Due to this, foreign investors as business owners are taking advantage of the country’s increase in openness to new ideas, technological awareness, and a solid entrepreneurial community. Together with that, setting up a company in Vietnam costs investors cheaper labor for local employees who are equally competitive.

Government support:

With the Vietnamese government understanding the economic impact of foreign investments, they have consistently committed to regulations and reforms.

Some government initiatives include the Socio-Economic Development Plan (SEDP), which acknowledges insufficient progress on specific policies and highlights the importance of its adjustments. With this, the government has made solid efforts to make investments in Vietnam more transparent than earning results.

The annual survey provides key data that indicates regular improvement in Vietnam's position in the regions that provide ease of doing business. As per reports provided by World Bank Group, Vietnam is an economy that is now ranked 82nd out of 190 countries, with nine positions upward compared to the previous year.

Relatively newer market:

The Vietnamese economy has experienced a boom in upcoming businesses with several government policies in the past 30 years.

This has made starting a business in Vietnam relatively new and less demanding than in other countries.

Consequently, investors do not face harsh competition while implementing innovative or risky ideas with their businesses.

Free trade agreements:

Vietnam has signed regional free trade agreements with most developed economies such as the US and China.

Moreover, Vietnam has signed regional free trade agreements with most developed economies such as the US and China. The FTA with the European Union, which came into effect in 2018, has supported Vietnam’s eagerness to promote the country’s economic growth.

Low expenses:

Vietnam is a “developing” country with a constant improvement in infrastructure.

Starting a business in Vietnam opens up enormous potential for employing skilled individuals. The cost-of-living and local prices in this country are not that high compared to other developed countries. Unlike other developed countries, you will have the best local talents in the field as a business owner. This also applies to a new or existing business expanding in Vietnam.

Infrastructure development:

Modern infrastructure is one of the critical factors for economic growth. The Vietnamese government has indicated constant investments toward infrastructure development in the coming years.

The expansion of regional airports, new urban rail networks, and an international hub airport are part of major infrastructure development programs—moreover, Vietnam profits from its strategic location at the center of the ASEAN. 

Also, the country's long coastline provides the country with direct access to the world's main shipping routes. This becomes another great reason for starting a business in Vietnam that will be profitable for foreign investors.

Eligibility Requirements for Starting a Business in Vietnam:

A few essential reporting requirements when registering a company in Vietnam. These include the following:

  • ~Resident Director – 1
  • ~Application form for registration
  • ~Official copy of Personal Identification papers
  • ~Articles of Association
  • ~Registered Capital
  • ~Physical proof of company physical address
  • ~Investment Registration Certificate

Types of Business Entities in Vietnam:

Every legal structure has its advantages and disadvantages.

Though it is relatively easy to set up a business in Vietnam, companies must evaluate their business objectives and the duration of their presence in the economy when deciding what is best for them.

When a foreign business decides to establish a subsidiary in Vietnam, certain critical areas that include tax concerns, different types of liability, and the scope of activities of each entry option should be carefully examined.

The four main business entities that come into play in Vietnam follows 

Type of Business Entities
Private enterprise In Vietnam, a private enterprise popularly known as single-member LLC has a single owner. A single-member LLC does not offer shares and would require the promoter to have a "charter capital." A charter capital depicts the value of currency or other assets denominated in Vietnamese Dong.

A private enterprise is considered a separate legal entity from the owner by law. The owner's liability for the single-member LLC is limited to the amount contributed as capital.

A single-member LLC cannot issue shares but can issue corporate bonds. The exception to issue shares arises for equitization. This business vehicle is applicable for business sectors that contain no limitations on foreign ownership.

Limited Liability Company: Multiple-member limited liability company (MLLC) For a business venture, participation restrictions are subject to foreign ownership or when there is more than one owner of the Vietnamese company. In such cases, establishing a Multiple-member limited liability company (MLLC) or a Shareholding Company (SC) is an option.

An MLLC cannot have more than 50 members. An MLLC cannot issue shares except for equitization but can issue corporate bonds.

Like the single-member LLC, members have charter capital in the MLLC instead of shares. The debt liability of the contributing members is limited to the amount contributed as capital.

Shareholding company (SC) An SC, also known as a joint-stock company, is a Vietnamese corporation where the charter capital is divided into shares.

Shareholders can be individuals or organizations with a minimum of 3 shareholders and no capping on the maximum number of shareholders. Unlike the previous two vehicles, a shareholder holds liability for all the property obligations of the SC and all liabilities. However, this will be within the amount contributed as capital to the SC.

Shareholders can freely assign their shares with a few exceptions. An SC can be listed on Vietnamese stock exchanges and issue corporate bonds.

Foreign company As per the corporate laws in Vietnam, there are no major differences in how domestically invested companies and companies with FDI are treated.

An FDI company is permitted in the form of an MLLC, single-member LLC, or an SC, similar to a company with only domestic investment.

The common form chosen by foreign investors and foreign companies to establish an entity in Vietnam is single-member LLC. It requires only one member or shareholder to set up, with relatively simple incorporation documentation.

Key considerations for choosing the legal structures in Vietnam:

  • ~Nature of the business 
  • ~Number of owners 
  • ~Investment Capital 
  • ~Risk appetite and liabilities 
  • ~Long term plans for the business

Steps to register your business:

  1. Business owners must apply for an Investment Registration Certificate (IRC). The IRC will recognize the contents relating to the investment project, such as the following: 
  • ~~Investor(s)
  • ~~The name of the project
  • ~~Objectives and scale of the project
  • ~~Investment capital
  • ~~Location and duration of the project
  • ~~Schedule for implementation of the project
  • ~~Explanations on the satisfaction of related legal conditions
  • ~~Investment incentives and restrictions
  1. Business owners must apply for an Enterprise Registration Certificate (ERC). The ERC will require corporate details such as
  • ~~Company name
  • ~~Registered office address
  • ~~Legal representative(s) of the company
  • ~~Charter capital
  • ~~Owner's details

Business owners must ensure that the company's name must not be identical with already registered enterprises as it may cause any confusion. Using names of government bodies or elements that include history, public decency, and culture is prohibited.

The board of management overseeing the relevant industrial zone, the provincial Department of Planning and Investment, or parks with the investment project's jurisdiction are responsible for approving the IRCs and ERCs. 

However, larger-scale projects and certain projects require a decision on investment planning approval (DIP) from higher-level government bodies before submitting the IRC and ERC to the local investment authorities.

In addition, businesses must seek foreign investment approval from other government bodies, depending on the scale and the nature of the foreign investment.

Timeline for registration of business:

There is a strict process and timeline for incorporating any company in Vietnam. The entire process of officially registering a business in Vietnam takes roughly 45 working days to get your company registered.

The registration process is done through National Business Registration System (NBRS), a 24/7 online portal. NBRS provides videos that help guide the user through the different documents and steps required to register the company. You can find more information here.

Cost of Incorporating a Company in Vietnam

Foreign investors who plan on setting up a foreign company in Vietnam often bear some costs. These costs usually vary depending upon the type of company and its incorporation. 

The charges would be as follows – 

  • ~Cost of authentication of legal documents and photocopy (i.e., passport, certificate of incorporation): VN$ 100,000 (this varies depending upon the type of company)
  • ~Cost of registration and setting up foreign company in Vietnam: VN$200,000 
  • ~Cost of setting up of foreign company in Vietnam: VN$ 300,000 
  • ~Cost of seal: VN$ 400,000 
  • ~Fees of attorney: varies depending on the experience of the attorney

General Compliance Requirements:

A few key compliance requirements to keep in mind when incorporating a business are:

Accounting:

Vietnamese Accounting Standards (VAS) must be followed by businesses in Vietnam. The VAS follows the standards issued by the International Accounting Standard Board (IASB) and the standards set out in the International Financial Reporting Standards (IFRS).

All numbers relating to the business must be recorded and maintained to reflect the correct amounts.

Corporate Tax Requirements:

Vietnam has a standard corporate tax rate of 25%. However, a few sectors, such as oil, gas, and mining, have a higher tax rate ranging from 30% to 50%. 

Other key taxes include –

Value Added Tax (VAT) 10%

Exemptions and reduced rates are provided for certain categories.

Special Sales Tax (SST) SST rates range from 5% (for electric motor vehicles) to 150% (for motor vehicles for the transport of fewer than nine persons with a cylinder capacity exceeding 6,000 cubic centimeters)
Stamp Duty Applied on the registration of ownership of certain assets, including land, buildings, guns, and vehicles. Stamp duty rates range from 0.5% to 15%
Business License Tax Ranges between VND1 million to VND3 million per year.

Payment of BLT is due on business registration for tax purposes and subsequently on an annual basis.

Foreign Contractor Tax (FCT) FCT is a withholding tax system with wide application in Vietnam.

Applies to individuals deriving income from carrying out business in Vietnam, foreign entities, or engaging in a transaction with a Vietnamese contracting party, whether or not they have any legal entity in Vietnam.

Dividends No tax is imposed on dividends remitted from overseas. When paid to individuals, exceptions arise where a 5% withholding tax is imposed.
Interests Interest paid to non-residents are taxed at 10%
Royalties Royalties paid to non-residents are taxed at 10%

Withholding tax unless the rate is reduced under an applicable tax treaty.

Annual General Meeting:

Companies in Vietnam must hold an Annual General Meeting at the end of the first quarter of each year (i.e., April). Companies also follow the calendar year, and thus, the financial year ends on 31st December.

How Can Multiplier Help?

Now you know what factors influence the cost of forming a company in Vietnam. Please keep in mind that the prices listed above are only industry averages. So, is it worth it to incorporate your company? 

Working with an external service provider can help you establish your firm flawlessly. However, if you wish to expand your business into a country faster, the best way is to work with a global employment solution partner. We understand setting up local entities in multiple countries isn’t a convenient option for many businesses. 

With Multiplier, you can easily hire, onboard, process payroll, establish a business, and comply with local labor laws in just one click. Keeping track of the changing laws for businesses in Vietnam and complying with these laws is relatively complex and would require expertise. Therefore, partnering with us will keep you from the need to worry about establishing a local entity or figure out how to keep abreast with the changing local labor laws. Talk to our experts to know more.

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