Due to its thriving economy, Vietnam has quickly become one of the most sought-after markets for investors. Vietnam recognizes several different types of business structures, including;
- limited liability companies
- local limited liability companies
- public limited companies
- joint ventures
- representative offices
- branch offices.
However, complex regulations and bureaucratic challenges may stand as formidable obstacles for some investors. The experts from New Horizons Global Partners can meet with you and discuss your business and its objectives to determine the best way to open a company in Vietnam.
There are several important factors to consider when deciding which type of business structure to establish. These factors may dictate that you choose one structure over another or may provide more advantages than other options.
When meeting with our local experts, ask about the following important factors;
Are Foreign Investments Restricted in Vietnam?
Some industries are restricted to foreign investment.
If this is the case, you may be barred from establishing a company in Vietnam until these restrictions are lifted. Some industries may allow you to enter them if you establish a joint venture with a Vietnamese shareholder.
Joint ventures are usually necessary for businesses in the following industries:
- Transportation services
- Agriculture and forestry
- Electronic gaming
- Storage services
In these industries, foreign ownership is limited from 49% to 99%.
Requirements for Paid Up Capital
A significant factor that affects many businesses hoping to expand to Vietnam is the requirement of some types of business structures to open a capital account with a local bank and deposit a minimum investment.
For a wholly foreign-owned limited liability company, this minimum amount is typically USD $10,000, but it can be higher in certain sectors. For Vietnam free zone companies, the minimum investment may be USD $200,000 or even more.
Businesses that are just starting out or who want to test the market may not want to tie up significant amounts in foreign countries and may prefer a different business structure.
Joint ventures must make a bank certificate of deposit for the amount of share capital, which must be transferred within one year from incorporating the business.
Type of Business Activity
The type of business activity that the business plans to conduct in Vietnam also significantly impacts the decision of which business structure to select.
If the only type of activity that will be completed in Vietnam is market research or promoting the parent company’s business, a representative office may be the preferred solution since it is simpler and can be opened in a short period of time. To open a representative office, you must have conducted business abroad for at least one year.
However, representative offices are restricted from performing any profit-generating or production-related activities in Vietnam, so if the company wishes to conduct these activities, it will need to select a different business structure.
Limited liability companies often provide greater freedom in business activities. They can trade with local and foreign customers, render services and conduct local manufacturing.
Protection from Liability
Many business owners wish to protect the liability associated with running the business. Different business structures affect whether the investor is protected from liability.
For example, a branch office imposes unlimited liability on its founders, so it would not be suitable for most purposes. However, a limited liability company limits the liability of each shareholder to their investment in the company. Shareholders are not personally liable for the debts or obligations of the business.
Tax Structure and Benefits
The way the company is taxed may affect which type of business structure you select. For example, partnerships are not taxed at a corporate rate. Each partner is taxed on their individual income at the appropriate rate. In contrast, other business structures are taxed at a different rate.
Free zone companies may provide additional tax benefits to investors and may be worth exploring for this reason. However, the company must be registered within an industrial park or a special economize zone, so these factors must also be weighed.
Certain business structures require that there be a minimum number of shareholders. A limited liability company needs only have one shareholder whereas a Vietnam public limited company needs at least three shareholders.
This requirement may change which entity type you choose or may cause you to restructure your business to use the preferred entity type for your Vietnam company.
Some business structures require the existence of a local shareholder or a local representative of your company. For example, a nominee Vietnam company requires a local nominee who is appointed as the sole shareholder. This type of Vietnam company is an attractive option for many businesses because it reduces capital requirements.
A Vietnam public limited company can be established with three shareholders of any nationality. However, if a director is a foreigner and the company’s legal representative, he or she will have to travel to Vietnam and obtain a work permit.
A joint venture requires the appointment of a resident legal representative, which should not be difficult since you already have a local partner in Vietnam to establish this type of company.
Limited liability companies and Vietnam public limited companies are required to submit annual returns and audited financial statements. Branch offices must submit audited financial statements with the Companies Registrar and annual returns with the Industry and Trade Department office.
Representative offices have lower reporting requirements, so this is one advantage to consider when selecting which type of entity to use for your Vietnam company.
Access to a Foreign Investment Certificate
To establish a limited liability company in Vietnam, you must first be able to obtain approval for a foreign investment certificate. This is required by the Vietnam government before a foreigner can invest in the country.
In order to obtain approval, you must be able to make a minimum investment, which is $10,000 in many industries but higher in others. If you do not believe that you will be able to meet this requirement, you may need to consider a different type of entity for your Vietnam company.
Joint ventures also require a foreign investment certificate, so talk to your local business partner about the viability of obtaining this certificate.
Likewise, Vietnam public limited companies require the approval of a foreign investment certificate.
Registered Address Requirement
Most types of business will require a registered address. However, you may be able to use New Horizons as your registered address to fulfill this requirement.
How New Horizons Can Help
Our local experts can discuss these factors and help you determine which are most important when setting up your Vietnam company.
Our company registration services in Vietnam allow you to establish a separate legal entity in record time, all while being guided through the process with an expert who is knowledgeable about the local processes and requirements in Vietnam.
If local presence is necessary to complete your setup, we can ensure that your time is valued and you are able to complete all necessary steps to incorporate your business as quickly as possible.
Additionally, we can provide you with nominee director services or help you obtain a work permit in Vietnam so that you can be present to oversee the establishment of your new entity.
Our recruitment services allow you to quickly identify the most qualified candidates for your open positions to help you seamlessly transition into a new market and our PEO services delegate the administrative requirements of managing your staff to a trusted local partner.
Contact us today to learn more about our comprehensive business services in Vietnam.