Options for setting up a factory in Vietnam

Dear Hadrien and Marijn,
My name is Julia and I am a fashion designer from Spain. I often travel to Vietnam to get inspiration for my new creations and recently realized that I want to take my visits to another level. I am now thinking of opening a small factory in Ho Chi Minh City to produce clothes and accessories for the European market. You can ask me anything about Lady Gaga’s wardrobe and I can talk for hours about the fashion trends for this summer but, unfortunately, I know very little about local laws and the procedures to realize an investment project like this. Could you please advise me on my options?

Thank you for sharing your idea with us, Julia. The textile and garment industry is still one of the key sectors of Vietnam’s economy. Partly because of the country’s highly skilled, yet relatively cheap labor force, and a favorable investment climate, the sector seems to be ever-growing, contributing greatly to Vietnam’s annual export figures.
The opportunities for you as a foreign investor depend to a large extent on the scale of your project. It is true that the Vietnamese government offers favorable conditions to Vietnamese and foreign investors alike, but we know from practice that implementing a small-scale manufacturing project may not be that straightforward for a foreign investor.
One of the first things that you should think of is securing the location for your factory. Generally speaking, the Vietnamese authorities prefer manufacturing activities to take place outside of the cities and inside so-called “industrial zones,” for example in Dong Nai or Binh Duong. The problem with the facilities over there is that they are probably (much) too big for the project that you have in mind.
Once you find the location, it is important to make sure that the land use purpose of that location is in accordance with your investment plans. For example, you are not allowed to operate a factory from a location that is zoned for residential purposes. In theory, the land use purpose can be changed, but in practice this is often a burdensome endeavor not worth undertaking.
Besides ensuring that your project location has the correct land use purpose, you will need to comply with the applicable rules on fire safety and environment. If all of this is putting you off, you may want to think about the option of renting an existing factory, or a part thereof, that meets all your requirements. This can make life a little easier for you.
Secondly, as a first-time foreign investor in Vietnam, you will normally need to apply for an “investment registration certificate.” During the application process for this certificate, the Vietnamese authorities will consider whether or not your intended project is feasible. Among other things, they will look at the project location as discussed above, but they will also scrutinize whether the capital that you are willing to commit is sufficient to cover your project. Foreign investors are usually required to commit quite a substantial amount of charter capital, so we would recommend you to carefully consider how much capital you will need in order to cover matters such as rental, machinery and labor costs. Investment certificates are often issued on a case-by- case basis, so it is important to have a solid investment project that will convince the authorities in charge.
Since the Vietnamese authorities tend to be more interested in large-scale projects, foreign investors with a relatively small- scale project often choose to work together with a trustworthy Vietnamese business partner. Of course, the same rules regarding the project location, fire safety and environment apply, but in practice it is often easier for Vietnamese citizens to establish a company and to implement an investment project.
A final alternative for you to consider is to work with a Vietnamese manufacturer through a “processing contract.” For this option, which is frequently used in the textile and garment sector, you can get in touch with a Vietnamese manufacturer, enter into an agreement detailing everything you have in mind, and export your final products to Europe. Working with a processing contract, you may achieve the same results without the need to establish your own company in Vietnam.
Buena suerte y feliz verano!
Every month, Hadrien and Marijn answer legal questions from Oi readers. If you have any legal question you want answered, send them to [email protected]

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