Must-knows before starting a hotel business.

Dear Antoine and Caroline, I’m looking for information on how to register a hotel license in Vietnam. I am an EU and Australian national.

The Vietnamese economy is booming and I understand that you are enthusiastic about setting up a business here. However, unlike many Western countries, such as European Union countries, Vietnam’s legal framework contains many requirements for foreign investors therefore it is best to know a bit about these requirements before making any decisions.

As far as foreign investors are concerned, the first legal instrument to check is the “Schedule of Specific Commitments” agreed upon by Vietnam for its accession to the World Trade Organisation (WTO) in 2007. This Schedule of Commitments is the list of economic sectors in which Vietnam has pledged to allow foreign investment coming from other WTO members, subject to certain restrictions that Vietnam has reserved the right to impose (most of these restrictions were temporary and expired in 2015).

Regarding “lodging services” (i.e. accommodation services), Vietnam has pledged to open, without restriction, this economic sector eight years after its accession to the WTO. This means that since 2015, foreign investment from other WTO members (such as Australia and European Union countries) may be made via a 100%-owned entity (as compared to the obligation, in other sectors, to establish a joint-venture company with a Vietnamese partner).

If we go a little bit further, most of the hotel businesses in Vietnam also provide a “travel business service,” which is defined as organizing tour programs for tourists in Vietnam. Under the Schedule of Specific Commitments, Vietnam has agreed to open this sector but foreign investors must set up a joint-venture company with a local company, with no limitation on the foreign participation (i.e. you may have 99.9% and your Vietnamese partner 0.01%).

This means that you can operate a hotel in Vietnam by setting up a company that you will entirely own, however, if you want to expand your activity to travel services, then you need to find a Vietnamese partner.

Now, let’s have a look at the Vietnamese regulations. As for all foreign investors (and this is not in contradiction with the Schedule of Specific Commitments), you will be required to obtain an investment registration certificate from the provincial level People’s Committee; this certificate is a kind of license of business operation and is also a pre-condition for you to establish a company in Vietnam.

In the application file to request such certificate, you will need to provide evidence that you have secured an existing building or a land parcel which fits your project. This could be the most difficult part of your project. Due to regulations, not all buildings in Vietnam may be used as a hotel. For example, a building that is the home of a Vietnamese family (let’s say, a beautiful villa in Saigon with a flower garden), cannot be sold to a foreign individual or a foreign company, or to a foreign-invested company, in order to be converted into a hotel. You will need to acquire a building from a Vietnamese corporate entity which is permitted for use as a hotel as provided, in particular, in the applicable master planning, construction permit and certificate of land use rights.

Before launching the hotel into operation, your Vietnamese company will need to obtain a number of certificates and permissions: the Certificate of satisfaction of security and order conditions, the written approval from the police of satisfaction of fire prevention and fighting conditions, and the Certificate of satisfaction of food hygiene and safety conditions (if the hotel provides meals and catering services).

Furthermore, your Vietnamese company will need to obtain a classification of grade of the hotel, from 1 star to 5 stars, within three months from the hotel’s launching date. The classification will notably be based on the status of construction work, facilities and equipment, quality of service, hotel expertise and language qualification of the hotel managers and staff, etc.

If you want to expand your activity to travel services, as described above, you will have to meet a number of additional conditions, such as having a license for travel services, having lodged a deposit of VND250 million at the competent authority and having managerial personnel with at least four years of experience in this sector.

There is an alternative option that you might consider. In practice, most of the major hospitality groups do not directly own the premises where the hotels are located. They only act as “managers” for the benefits of the owner of the premises. Following this practice, and as a small scale business, you could find the premises or site of your dreams; then sign a management contract with the owner, according to which you help the owner to improve the premises in order to convert it into a hotel or guesthouse. The management agreement should provide you with the right to manage the hotel or guesthouse without interference from the owner, including managing the fitting-out of the premises, recruiting employees, drafting the internal rules, setting prices, etc.

In all cases it is highly advisable to meet a legal counsel or someone who has experience in this field. If you enter into a management agreement, you will not be the “owner” of the premise, but will have more limited rights as the manager of the hotel or guesthouse.

Every month, Antoine and Caroline answer legal questions from readers. If you have any legal question you want answered, send them to legal@oivietnam.com

BIO: A member of the Paris Bar, Antoine Logeay has been practicing law first in France, mainly in litigation and arbitration, then in Vietnam for three years as an associate of Audier & Partners based at its Hanoi office. Also a member of the Paris Bar, Caroline de Bellescize has been practicing mainly business law and real-estate law for three years in a French law firm and is currently an associate at the HCMC office of Audier & Partners. Audier & Partners is an international law firm with presence in Vietnam, Myanmar and Mongolia, providing advice to foreign investors on a broad range of legal issues.