Vietnam is one of the fastest growing economies in the
world and third-largest market in South Asia. After the country achieved
independence from France, the government committed to move from purely agrarian
economy to global economic integration. Young population, stable political
system, low inflation, fast-growing middle class, trade openness, strong manufacturing
sector, and increasing FDI inflows are some of the factors which make Vietnam
an attractive destination for international businesses looking for market
expansion. From being one of the poorest countries in the world to now ranking
38th globally with GDP of USD340 billion, the country’s
transformation is astonishing.
Foreign investors now want to set up their companies
in Vietnam and the country is projected to replace China in its leading
position among strong Asian economies. Half of the Vietnamese inhabitants are
below the age of 30 years. The third largest population in Southeast Asia is
relatively young and well-educated, which has become one of the major assets
for Vietnam. Along with literacy rates over 90%, the country has the highest Internet
penetration levels and foreign investors are taking advantage of the cheap
workforce and technological awareness. Besides, a solid entrepreneur community
and country’s openness to new idea are some of the factors that encourages enterprises
to invest in Vietnam. The country’s free trade agreements (FTAs) and highly
regulated business environment make starting a business in Vietnam simple and
easy.
Thriving middle-income economy has witnessed GDP per
capita increase threefold over the last two decades to almost USD3000. While
other developed and developing nations were struggling during the pandemic to
keep their economy, Vietnam increased its GDP by 2.9% in 2020 and 6.6% through
2021. The country has become a leading economic force among the Association of
Southeast Asia Nations (ASEAN) with Japan, China, and South Korea.
Owing to its strategic location in the heart of
Southeast Asia and proximity to some of the world’s busiest shipping lanes,
Vietnam has set an ideal stage for Foreign Direct Investment. Rapid economic
growth, favourable policies to boost the investment climate are expected to
bring more international investments. However, the investors and businesses
planning to penetrate in Vietnam market must conduct a thorough market research
so that they can make better decisions. Market research involves gathering,
analysing, and interpreting data that can assist in strategizing and gauging
demands of the intended market, devise business strategies, and gain insights
into the country’s constantly shifting market.
Establishing a company requires a moderate or high
amounts of investment capital and can take up to several months to complete all
steps in the process. Although Vietnam permits 100% foreign ownership of a
business for most sectors, it is important to consider different aspects of the
target entity types, differences in structure, legal liability, statutory
compliance requirements, time required to establish it, and what type of
activities it can engage in. Here are the various types of entities that a
business can choose from while making entry into Vietnam.
Limited Liability Company (LLC)
Limited Liability Company (LLC), or Wholly
Foreign-Owned Enterprise can be set up in 3 to 4 months in Vietnam. LLC is
best suited for small and medium-sized firms as the company’s simple
organizational structure requires one founder, which might be advantageous to
individual investors. However, a representative office can be established in
half that time. The companies need to apply for the required Investment
Registration Certificate (IRC) to the Department of Planning and Investment
(DPI), which can take up to 15 working days. If the intended operation of the sector
does not come under the World Trade Organization agreements, obtaining licenses
will prolong registration. Some sectors might even require a ‘Pre-Investment
Approval’ before setting up their enterprise. Subsequently, the organization
may pursue for securing a physical business address, Enterprise Registration
Certificate, and Post Licensing procedures.
Foreign LLCs are required to open a capital account
with a local bank, required for share capital injection and transfers of future
earnings abroad. The company is required to obtain approval for a foreign
investment certificate (FIC), required by the Vietnam government to invest in
Vietnam. The approval requires a minimum investment of USD10,000 but it might
be higher for some industries. The Vietnamese LLC are required to provide
authorities with a registered address in Vietnam, a bank certificate of deposit
for the amount of share capital, which will be needed to be transferred 12
months after incorporation is complete. LLCs can both trade with Vietnamese and
foreign customers, have local manufacturing operations or render services.
All foreign-owned LLCs must provide authorities with
an annual return, audited financial statements, and submit annual audited
financial statements.
Partly Foreign-Owned LLC
Establishing a joint venture is a popular method by
foreign companies to enter the Vietnamese market. The partly foreign owned LLC or
joint venture company involves a foreigner (client) and one Vietnamese
shareholder. The joint venture helps to utilize the expertise of all
participating parties and a know-how of the local regulations regarding the
foreign ownership. The procedure of setting up a joint venture shares
similarities with that of a foreign-owned enterprises in Vietnam. The main aim
of setting up a JV is to benefit all parties while minimizing risks or
potential conflict of interest during the decision-making process.
Companies need to identify if the target industry is
prohibited in general. Foreign investors cannot operate in catching or
exploiting seafood, notary services, labour export, direct waste collection
from households, import and dismantle used vessels, and manufacturing and
trading of military weapons, equipment, and devices in Vietnam. Although
Vietnam has no general minimum capital requirement for joint ventures, some
industries are regulated such as :
- Consumer finance company: 500 billion VND (22 million USD)
- Financial lease company: 150 billion VND (6.5 million USD)
- Real estate: 20 billion VND (870 000 USD)
- Audit services: 6 billion VND (260 000 USD)
- Air transportation (cargo and passenger): 100 billion VND to 1000 billion VND (4.3 million USD to 44 million USD), depending on the nature of the business and the number of aircraft
- Insurance (life and non-life): 200 billion VND to 1000 billion VND (8.7 USD to 44 USD), depending on the nature of the business
Foreign investors need to obtain the Investment
Registration Certificate (IRC) and the issuance of the Business Registration
Certificate (BRC) when establishing a JV in Vietnam. The average processing
time is around 10 to 15 working days for IRC and 5 to10 working days for BRC.
Challenges
The Vietnam government continues to have foreign
ownership limits (FOLs) in industries that are considered important in regard
to the national security. Some US investors also face challenges such as
confusing tax regulations and retroactive changes to laws including tax rates,
tax policies, and preferential treatment of state-owned enterprises.
Favourable Policies for FDI in Vietnam
Witnessing the high rate of economic growth over the
past two decades, the government is keen on increasing Vietnam’s attractiveness
to foreign investments. The Politburo issued Resolution 55 that intends to
prioritise fast and sustainable energy development and foster favourable
conditions for all economic sectors is expected to attract USD50 billion in new
foreign investments by 2030. The government has also revised laws on investment
and enterprise in addition to passing the Public Private Partnership Law, which
is further anticipated to encourage high-quality investments and promote the
adoption of advanced technologies and environmental protection mechanisms. The
new revised Investment Law states that the government must treat foreign and
domestic investors equally as earlier the foreign investors faced many
challenges to get ordinary government approvals. In January 2020, the Vietnam
government removed FOLs on companies in the eWallet sector and reformed
electronic payment procedures for foreign firm, which has provided more
regulatory certainty and instilled greater confidence among investors.
The Ministry of Planning and Investment (MPI) is the
national agency in Vietnam, charged with promoting and facilitating foreign
investments. Foreign investors can gather information and understand
regulations and policies from the MPI and local investment promotion offices. Vietnam
also conducts semi-annual Vietnam Business Forum for facilitating meetings
between foreign investors and Vietnamese government officials.
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