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Company Formation in Vietnam
Foreign companies and individuals looking to set up a company in Vietnam can choose among four types of legal entities:
- Limited Liability Company (LLC)
- Joint-Stock Company (JSC)
- Branch Office
- Representative Office
Among these entities, a Limited Liability Company (LLC) and a Joint-Stock Company (JSC) are the most common investment vehicles that foreign individuals choose. LLCs are ideal for small-and-medium enterprises (SMEs) and can be incorporated with only one founder. JSCs, on the other hand, are suitable for medium and large-sized businesses and require a minimum of three founders.
Things You Need to Consider Before Starting the Company Registration Process
Before choosing which type of entity to register, you need to consider the following conditions:
- business restrictions on foreign investment
- minimum capital requirement
- appointment of at least one legal representative
- location of business
Business Restrictions on Foreign Investment
You have to ensure that the business activities you want to engage in as a foreign investor are not included in the Negative List — a list that outlines the economic activities where foreign participation and equity are either prohibited or limited to a specific percentage.
In addition to the Negative List, Vietnam’s Investment Law also provides a list of industries that require the approval of the government for foreign individuals to invest in. Such industries are referred to as conditional industries and include gambling, air and sea transportation, production of cigarettes, telecommunications, journalism, and publication.
Minimum Capital Requirement
Although local laws do not require a minimum capital requirement for most types of legal entities, US$10,000 is the standard capital amount that foreign investors present during business registration.
Appointment of At Least One Legal Representative
Whatever the type of entity, all companies in Vietnam are required to appoint at least one legal representative who shall represent the company in legal proceedings and become the signatory for official documents.
Foreign nationals are allowed to hold this position, but they must obtain a valid work permit and show evidence of 12 months of work experience in a managerial position to qualify. If appointed, they are not required to hold other positions in the company.
Location of Business
You will be required to have a registered address before starting the company registration process. You will also need to carefully choose the city or province where you want to locate your business because not all regions in Vietnam have the same regulations and commercial property costs.
If you want to set up a service-oriented company, you have the option to register a virtual office instead of a physical office.
How to Start a Company in Vietnam
Limited Liability Company (LLC)
The most common legal entity in Vietnam, a Limited Liability Company (LLC) is an ideal choice for small-and-medium enterprises (SMEs). LLCs only require one founder who can be of any nationality. The founder can be an individual or an organization.
In the case of an individual founder, such person shall have full authority on the business operations and will only be liable for the enterprise’s charter capital. In the case of an organization, it shall have no more than 50 members who shall be responsible for the debts and liabilities of the company to the extent of their capital contribution.
An LLC is not allowed to issue public shares and be publicly listed on the Vietnamese Stock Exchange.
Before incorporating an LLC, the founder must fulfill the following:
- Open a capital account with a local bank (required for share capital injection and transfers of future earnings abroad)
- Obtain approval for a Foreign Investment Certificate (FIC) (required by the government to foreigners investing in Vietnam; approval of the FIC requires a minimum investment, commonly set at US$10,000 but can be higher in some industries)
During the incorporation process, the founder must provide the following:
- Registered office address in Vietnam
- Bank certificate of deposit for the amount of share capital (which should be transferred not later than 12 months after incorporation)
Joint-Stock Company (JSC)
A Joint-Stock Company (JSC) is the most common legal entity for medium-and-large sized businesses in Vietnam. It is ideal for those who want to form a business with several partners or plan to finance its business through the issuance of equity. A JSC also requires a minimum of three founders who can be of any nationality.
A JSC is allowed to issue shares and be listed on the Vietnamese Stock Exchange.
Similar to an LLC, its founders are required to appoint one director who must be appointed as the company’s legal representative, can be a foreigner who will be required to travel to Vietnam to obtain a work permit and show evidence of 12 months of experience in a managerial position.
To register a JSC, the founders must provide the following:
- Provision of a bank certificate (showing the availability of funds to be invested in Vietnam)
- Opening of a capital bank account
- Obtain approval for a Foreign Investment Certificate (FIC)
- Submission of annual return and audited financial statements (without which the client will not be able to remit abroad the subsidiary’s earnings)
To be listed on the Stock Exchange, it must have:
- Share capital of over US$475,000
- Over 100 shareholders
- Been profitable for the previous year
- No overdue debt
A Branch Office is an extension of a foreign company that seeks to do business in Vietnam. Under local laws, it can conduct income-generating commercial activities without the need to incorporate a separate legal entity.
It is allowed to engage in regulated industries such as banking, finance, and insurance where acquiring license for a foreign reputable entity is easier than acquiring the same for a subsidiary.
Before setting up a branch in Vietnam, the parent company must prove it is incorporated and registered in a foreign country by providing the following documents:
- Incorporation Certificate
- Certificate of Good Standing or Commercial Register Extract
- Articles of Association
- Latest audited annual report
- Business licenses of the parent company
To register a Branch Office, a foreign company must fulfill the following requirements:
- Appoint a resident representative
- File audited financial statements with the Companies Registrar
- File an annual return with the Industry and Trade Department Office
However, a Branch Office can only be set up by foreign companies doing business abroad for at least 5 years. The foreign parent company will be fully liable for any debts and obligations that the Branch Office might incur.
A Representative Office is an extension of a foreign company seeking to conduct market research and product/service promotion to gain market presence in Vietnam before expanding operations in the country. It is also an ideal option for those who want to test their products/services in Vietnam without being subject to local tax and the standard corporate reporting requirements.
Under local laws, a representative office is not allowed to conduct any business activities that generate income. It is also not allowed to conduct manufacturing operations in Vietnam.
To register a Representative Office, the following requirements must be fulfilled:
- Appoint a resident representative
- Submit annual returns to the Industry and Trade Department Office
Similar to a Branch Office, it can only be set up by foreign companies doing business abroad for at least 5 years. Its debts and liabilities will also be considered liabilities by the foreign parent company.
How Cekindo Can Help
If you are looking for a team to help you set up an LLC, JSC, Branch Office or Representative Office, our consulting firm in Vietnam, Cekindo, will assist you. Cekindo is the leading provider of professional corporate solutions for businesses in Vietnam and Indonesia — delivering a one-stop service for foreign investors looking to establish operations or expand their business presence in the Asia-Pacific region.