I’m from Spain and have been working over the past years here with the purpose of starting a hostel close to Pho Nha Ke Bang natural reserve. What company structure would best suit this business and what steps should I take to start?
Pho Nha Khe Bang is such a beautiful place for a peaceful retreat—nice project. Vietnam’s legal framework contains specific provisions for foreigners conducting business in the country (called “foreign investors”). There are some essential points to keep in mind.
First of all, the first document to look into is the “Schedule of Specific Commitments” agreed upon by Vietnam for its accession to the World Trade Organization (the 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 8 years after its accession to the WTO. This means that since 2015, foreign investment from other WTO members (such as Spain) may be made via a 100%-owned company, while, in some other sectors, it is compulsory to establish a joint venture company with a Vietnamese partner.
It is important to notice, however, that most of the hotel businesses in Vietnam also provide “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 wholly own. However, you need to find a Vietnamese partner if you want to expand your activity to travel services.
It’s Not A Play On Words
Second thing to know: Wheter your project falls within a wholly opened sector (like lodging services) or restricted one (like travel business service), all foreign investors are subject to licensing obligations. As a foreigner conducting business in Vietnam, you will be required to obtain an operating license from the competent authority to implement your investment project. Such license is called the “investment registration certificate” and is issued by the provincial level People’s Committee (except in certain specific zones, such as industrial parks).
Note that the law uses the word “certificate,” which seems less restrictive than “license” because “certificate” sounds friendlier than “license” (to the ears of foreigners who contemplate investing in the country). The “registration certificate” refers to a simple document attesting that you have completed a registration procedure with the authority, while “license” implies that the authority has granted you a specific authorization to conduct a specific activity. The difference might not seem obvious right away, however, “license” usually implies that the authority has discretion to issue or not the license, while “certificate” implies it will automatically issue the certificate. In you case, the Vietnamese authorities retain a relatively large discretionary power to issue or not the said “investment registration certificate” based on the characteristics of each project, despite the friendlier wording use by regulations.
The place to be
In order to request the investment registration certificate, you will need to provide evidence that you have secured premises 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 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 business. You will need to use a building that 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, you 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, etc.
Your business will also have to satisfy a number of conditions provided in regulations applicable to tourism activity. In particular, you will need to obtain a classification of grade of the hotel from 1 star to 5 stars within 3 months from the hotel launching date.
There is an alternative option that you might consider. In practice, most of the major hospitality groups do not directly own the premises of the hotels. 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 and design 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 good experience in this field. If you enter into a management agreement, you will not be the “owner” of the premises, but will have more limited rights as the manager of the hotel or guesthouse.