Foreigners set up business in Vietnam - Source: Google.com

With a lot of benefits when investing in Vietnam, many foreigners are interested in setting up a business here. To find out all of the aspects foreigners should care about when setting up a business in Vietnam, the following is the guide for them.

Why should foreigners set up a business in Vietnam? 

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• - Strategically Great Location

Vietnam is located near major markets in Asia such as China, Singapore, etc. With a long coastline directly adjacent to the East Sea and close proximity to the world's main shipping routes, Vietnam has become a developed area and creates many favorable conditions for trade and transportation.

• - Political stability

One of the top factors attracting foreign investors to Vietnam is political stability. Compared with other countries in the region, it can be seen that most of the countries have experienced coups or political crises, while Vietnam's politics has always been stable and ensured economic development policies.

• - Emerging economy

According to economic reports of Vietnam, over the past decades, Vietnam has been one of the countries with the fastest economic growth in the world and is forecasted to be one of the largest economies in Asia. Asia in 2050. According to the World Bank summary, Vietnam is one of the most dynamic countries in East Asia and the Pacific. In 2022, Vietnam's economy is estimated to grow by 5.5% GDP compared to In 2021, this number is three times higher than the world average and the second fastest growing in East Asia.

See more: Vietnam's Economic & Real Estate Market Information In 2019

Vietnam has set out more ambitious development visions, aiming to become a high-income country by 2045. Vietnam also aims to develop towards a greener, more inclusive direction, and has been committed to net zero emissions by 2050.

In addition, today, the purchasing power of the middle class is increasing. Coupled with a population of over 90 million people, this means there will be an expected number of customers and users.

• - Skilled workforce

Vietnam is a country with a young population, with more than 85% of the population between the ages of 25 and 59 participating in the labor force. Furthermore, the Vietnamese workforce is regarded for its diligence, high level of education, and simplicity of training. Vietnam also continues to invest heavily in education and training. This is one of the competitive advantages of Vietnam compared to other labor markets in the region.

Moreover, Vietnam is one of the countries with low costs of living so it is quite easy to hire a staff working for the company.

• - Low set-up and operation cost

Vietnam is a country attracting strong foreign capital flows when it is one of the three markets with the lowest average set-up and operating costs in Asia. According to a report by the World Bank, the average total operating cost of a Vietnamese enterprise is from 79,000 to 200,000 USD/month.

• - Trade agreement

Vietnam has signed many bilateral and multilateral free trade agreements with many countries and regions around the world to attract markets and foreign investment capital into Vietnam, such as the US, Korea, Japan, the European Union, etc, and to be continuing to negotiate on many other trade agreements. This will bring many advantages to investors from the above countries and regions when investing in Vietnam.

See more: Why Do Foreigners Invest In Vietnamese Real Estate And You Should Too?

Who can set up a business in Vietnam? 

All organizations and individuals have the right to establish and manage enterprises in Vietnam, individuals with foreign nationality and organizations established under foreign law doing business in Vietnam are called foreign investors. Foreigners can invest in Vietnam in two forms: direct or indirect investment.

- Direct foreign investment: the owner of capital is also the person who directly manages and operates capital use activities. Foreigners must get an enterprise license and follow legal processes in accordance with Vietnamese law in order to make a direct investment in Vietnam.

- Indirect foreign investment: on the other side, it indicates that foreigners purchase shares in Vietnamese enterprises, ownership is separate from the right to use and for investment assets. However, depending on the agreement between foreigners and the Vietnam enterprises, the indirect investment gives them a place in company management.

Currently, there is no legal document that stipulates how long a foreigner can reside in Vietnam before setting up a business. The State of Vietnam recognizes and protects the property rights, investment capital and other interests of foreign investors. In addition, the state treats investors equally; adopt policies to encourage and create favorable conditions for investors to conduct business investment activities, besides, the state respects and implements international treaties related to business investment for investors.

See more: Top Vietnam Investment Groups For Startup & Foreign Investors, Funds

What kind of entities the foreign can foreigners open in Vietnam?

Vietnam today provides excellent options for foreign ownership of Vietnamese companies. Understanding the types of businesses in Vietnam will help foreign investors choose exactly the right type of business for them. Choosing the wrong type of business will greatly affect the existence and development of the company in the future. Below are the main types of businesses with business licenses in Vietnam.

• 1. Limited Liability Companies (LLCs)

Limited Liability Companies are the most popular form of investment by foreign investors. The debts and obligations of the company will be responsible for the members within the amount of capital they have contributed and committed to contribute to the company. LLCs are accorded the same legal status as domestic firms as well as the same rights and obligations.

LLCs can be divided into 2 types:

- One member limited liability company: only one member is the owner. The company owner can be an individual, organization, with a lean, efficient organizational structure. The owner has the highest decision-making power and there is no minimum capital requirement in Vietnam.

- Limited liability companies with two or more members: enterprises with the number of members not exceeding 50 (can be organizations or individuals).

LLC in Vietnam can be 100% foreign owned business, except for some business lines that require a Vietnamese related party, such as: advertising, telecommunications, travel agency, tour operator, etc.

• 2. Joint Stock Company

A Joint Stock Company (JSC) is established through the purchase of shares in the company. The enterprise's charter capital is split into equal pieces known as shares. The company must have a minimum number of shareholders of 3, no limit on the number of shareholders and no minimum requirement for charter capital of foreign investors.

In several industries, such as advertising, agriculture and forestry, electronic gaming, storage services, tourism, and transportation services, joint ventures are necessary rather than

totally owned firms.

• 3. Partnership

A partnership company is a type of business entity created by at least two people who are also co-owners and members of the partnership. They are the general partners and are fully responsible for all partnership debts. Partners with unlimited responsibility must be persons who will be held financially responsible for the company's debts to the fullest degree permitted by law.

Additionally, a partnership corporation may include limited liability members (people or organizations), who each contribute a smaller portion of the capital but have less rights and limited liability in the business's management.

• 4. Branch offices (BO) 

If a foreign company has been operating overseas for a minimum of five years, commercial law in Vietnam permits it to build branch offices there. A BO must choose a resident representative and submit annual financial reports. To aid with licensing concerns, such as those in the banking, finance, and insurance industries, this sort of organization may be advised. 

• 5. Representative office (RO)

The wonderful thing about representative offices is that they allow investors to build a local presence without being bound by local tax laws. Representative offices cannot, however, engage in commerce or manufacture. Only after the parent firm has been operating in another country for at least a year may a RO be opened.

When is the ideal time to set up a business in Vietnam?

2022 is considered an ideal time to invest in Vietnam. Despite the epidemic in 2021, Vietnam's market fundamentals are robust, and the country's economy is resilient. In the first 11 months of 2021, export turnover totaled US$299.67 billion, up 17.5 percent from the same period in the previous year.

Vietnam serves as a focal point for free trade agreements. Furthermore, the RCEP (The Regional Comprehensive Economic Partnership) is set to go into force in 2022.

Vietnam has become an appealing destination due to its cheap manufacturing prices, which are a result of the trade conflict between the United States and China is well-known for.

With a clear vision for the future, Vietnam has laid the groundwork for a stronger recovery in 2022. With all of the above, it is believed that 2022 is an excellent moment to invest. 

How to set up a business in Vietnam? 

Vietnam can make it simple to launch a business, but only if foreigners know how to do it. There are things investors have to do when investing in Vietnam. 

• 1. Regulation

- Foreign ownership

In the majority of industries, Vietnam permits wholly foreign ownership of a company, Trade, IT, manufacturing, and education are a few of these. Some sectors, however, prohibit foreign ownership, advertising, logistics, and tourism are a few examples of them. Foreign investors in such situations will require a Vietnamese joint venture partner.

- Capital requirement

For the majority of business categories, there are no minimum capital requirements in Vietnam. However, it must be sufficient to cover expenses until the company is able to support itself. The capital contribution will be evaluated by the Department of Planning and Investment to assess if it is appropriate for the company. Certain company sectors have little capital needs. These consist of: language schools, technical colleges, real estate firms, banking, insurance, and financial and fintech institutions.

• 2. Tax

No matter what types of businesses foreigners operate in Vietnam, they must pay taxes. Value Added Tax (VAT), Corporate Income Tax (CIT), Personal Income Tax (PIT), and Foreign Contractor Tax are the four major taxes that you should be aware of.

Tax for running a business in Vietnam - Source: bbicincorp.com

• 3. Procedure

The documents and procedures carried out at this step must be notarized, consular legalized and translated into Vietnamese by the competent authority.

- Investment registration certificate

The application for an Investment Registration Certificate is the first stage in creating a business in Vietnam (IRC). This establishes the foreign company's permission to invest in Vietnam and is necessary for all ventures looking to form new companies there (regardless of the level of foreign ownership). The Department of Planning and Investment must examine and assess this application.

The IRC is typically issued at least 15 days after the documents are received.

- Enterprise registration certificate application

All ventures aiming to establish new organizations within Vietnam must have an Enterprise Registration Certificate (ERC). The Provincial Department of Planning and Investment administers the ERC.

The entity becomes legally constituted after this phase is finished. The ERC is typically issued at least 3 days after the documents are received.

- Licensing procedures

Following the application of the IRC and ERC, more actions must be completed before beginning commercial activities. This includes the following:

+ Seal Registration and Notification;

+ Bank account opening;

+ Annual business license tax payment;

+ Public announcement of company establishment.

+ Etc.

Which are the problems of owning a company in Vietnam?

• 1. Language and culture barrier

When international investors decide to invest in Vietnam, one of the most apparent hurdles is overcoming the language barrier. To begin, Vietnamese is the official language of the country. All formal transactions at state agencies are handled in Vietnamese, with just a few standard foreign language translations. Second, while English is now a foreign language that is quite widely spoken in Vietnam, it is mostly utilized in big cities, and most people do not use or practice it at work on a regular basis.

In addition, when doing business in Vietnam, outsiders must overcome cultural as well as linguistic difficulties. The social relationship developed between corporate partners is fundamental to Vietnamese business culture. Furthermore, while doing business in Vietnam, certain firms generally expand via connections rather than through their expertise, aptitude, and technology.

To find out the business culture in Vietnam, visit here: Understanding Vietnam Business Culture 

• 2. Law

Companies with 100% foreign capital have stricter regulations than citizens, such as: more in-depth accounting policies, more frequent declarations and audits from the Vietnamese government tax department.

• 3. Tax

The tax system is another barrier to conducting business in Vietnam. Although reform of Vietnam's complex tax system is ongoing, there are still ten business tax payments due each year.

The Vietnamese government plans to streamline all tax computation and disclosure procedures as part of the reform in order to establish a favorable business climate. However, there is still a significant amount of paperwork and taxing procedures to follow. In general, corporate tax appears to be somewhat difficult and perplexing in Vietnam.

To find out the Vietnamese Tax Law for foreigner, see more: New Tax policy for owning property in Vietnam

• 4. Prolonged registration procedure

Depending on the type of business, the procedure might take anywhere from one to four months.

Although doing business in Vietnam faces a few challenges, the benefits of investing in Vietnam are immense and it is undeniable that Vietnam is an attractive location for business development as mentioned above. According to international forecasts, once the global economy improves, FDI flows will return to dynamic economies. Given the favorable outlook for both the global and regional economies, it is certain that Vietnam will continue to thrive in this field.

See more: Things that no one tells you when you want to buy real estate in Vietnam

A Guide to Set Up A Business in Vietnam