What you need to know about setting up a company in Vietnam
For those who have arrived at the decision of setting up a company in Vietnam after identifying the great potential it has for business growth, this article will serve as an easyto-understand guide about company incorporation in Vietnam. So follow the guidelines and get on with the process of establishing your company in Vietnam. The types of business entities that can be formed in Vietnam under Vietnam’s enterprise law are:
- Limited Liability Company
- Joint Stock Company
- Representative Office
- Branch Office
- Business corporation contract
- Public Private partnerships such as BOT, BIT etc.
All of the above entities can be formed by an individual or a registered corporation hence the kind of entity you need to have for yourself in Vietnam is a matter of your objectives with which you wish to open a company. The registration records, however, show that in Vietnam most of the companies are Limited Liability Companies (LLC). The main reason for this is because LLC’s are easy to incorporate and simple to operate.
The next step is to know the requirements to form a company in the backdrop of the business entity that you have decided to form. The following are the pre-requisites for the company registration in Vietnam.
1) Shareholders – A minimum of 1 is required for a limited liability com shareholder/ investor is needed for almost 95% of the business lines.
In Vietnam, an equity holder can also act as the director of the company. It is also permissible to appoint a director who is not an equity holder. This person can either be a local resident or a foreigner. In legal parlance, this person is also often referred to as the legal representative of the company. If the legal representative is not a capital contributing member and a foreigner then he/ she will additionally need a work visa and work permit to legally work in Vietnam.
As per the existing law, once a company has been incorporated, the legal representative of the company is required to remain in country to manage the affairs of the company. This becomes a problem in a one member LLC where the equity holder is the legal representative of the Vietnam entity as well as the director of another entity that is located overseas and subsequently remains out of Vietnam. In these cases, an alternate legal representative must be appointed. One easy solution is to appoint a management company to oversee the affairs of the Vietnam entity. To do this the entity needs to provide a time bound power of attorney and company seal to the management company. In turn the management company, after consultation, will appoint an independent director/ legal representative. The benefit of this arrangement is that the onus of sponsoring a work permit now lies squarely with the management company who may or may not choose to appoint a foreign director.
It is worthwhile to note that in Vietnam, the seal of a company is an integral part of any business transaction as the seal and authorized signature are required for any document to be considered an official correspondence.
2) Legal address – A local Vietnam address is necessary to register a company. This address becomes the registered address of the company post incorporation. To use an address for office registration, a notarized copy of the lease agreement and the land use rights certificate of the property must be submitted. The latter is to ascertain that the lessor executing the lease agreement is indeed the owner of the property. The other reason for having this is to determine if in fact the property can be used for commercial purposes. The land use right certificate will have this information listed and it is common for a landlord to provide a copy of this to the lessee at the time of signing a lease agreement.
An apartment address cannot be used to register a company since it is only meant for residential purposes. A townhouse address, however, may be used to register a company if the land use right certificate permits residential and commercial use.
When using a serviced office or a co-working space, in addition to having a lease agreement, the serviced office or the co-working company also needs to provide a copy of their business licensees as well as a notarized copy of their lease agreement with the building owners which should expressly permit them to sublease the premises to a third party.
3) Paid-up Capital – Similar to Singapore there is no set minimum paid up capital in Vietnam. The government, however, assesses each project capital vis-a-vis the intended business lines before issuing a business registration certificate. For this reason it is not possible to setup a USD1 company in Vietnam.
The rule of thumb is that the paid-up capital should be sufficient to carry out the intended business. For most businesses a paid-up capital of around USD10,000 is considered sufficient. The breakdown of the USD9,600 is as follows:
- Office rent – USD400/month
- 1 X staff – USD300/month
- Misc costs – USD100/month
From this simple calculation, you will notice that the monthly operational costs are around USD800. This translates to USD9,600 per year, hence the paid-up capital of around USD9,600.
Unlike Singapore, there is no need to appoint a company secretary in Vietnam. A company is, however, required to appoint a chief accountant. The role of this chief accountant is to sign off on all the bank documents, such as withdrawal slips, payment orders etc., as well as company documents such as payment vouchers, VAT invoices, etc. In practice, the director of the company can also sign off as the chief accountant though under a pseudo name. This is common/acceptable practice for small companies that have opened a company bank account immediately after incorporation and have not yet appointed a chief accountant. In the long term, however, the accountant who handles all the bookkeeping and tax reporting typically assumes the role of the chief accountant. In some companies where there are only 1 or 2 staff and a part-time accountant, the practice of signing under a pseudo name is typically continued.
There are 7 forms that need to be filled out in order to register a company. These forms have to be filled out in Vietnamese, which means that any foreign investor will need the assistance of a consultant, like Mahan, to handle the paperwork and guide them through the process. To give you an idea of the application pack, the following forms typically need to be filled out. This may increase depending on the business lines being registered.
The standard forms are as follows:
1) Form I.1 : Written request for the implementation of investment procedure (Article 33,34,35,37 of Investment law)
2) Form I.3, Proposal of investment project, (Applies to projects not subject to investment policy decision -Clause 2, Article 37 of the Investment Law)
3) Explanatory statement, financial capacity and experience of investor’s experience.
4) Appendix I-2, Proposal for business registration one member limited liability company
5) Company Charter
6) Notification regarding the use of the enterprise’s seal sample
7) Authorization letter
8) Appointment of legal representative
With this paperwork completed, now you are ready to go through the process of company incorporation, which is essentially a four-step procedure:
- Applying for an Investment registration certificate (IRC)
- Applying for a Business registration certificate (BRC)
- Registering the company seal
- Making a public announcement
In a nutshell, an investment registration certificate is an approval from the government of Vietnam to carry out investment activities in the stipulated business lines. It contains details of the investor, the approved business lines, location of the investment project, approved investment capital and other guidelines for the execution of the project.
The business registration certificate, on the other hand, provides information of the entity namely the business registration number, the shareholders, office address, phone number, email address etc. of the company.
The most important piece of information in the business registration certificate is the business registration number, which is at the top of the certificate under the title and in Vietnamese is referred to as the Ma So Thue or MST. This is also the tax registration number of the company and is to be quoted in all transactions.
Unlike Singapore, there is no need to get prior approval for a company name. The way this works in Vietnam is at the time of registration you are required to provide 3 names in the order of your preference. If this 1st name is taken, you will be allotted your 2nd choice. If the 2nd name is taken you will be allotted the 3rd choice.
Once the documents are submitted to the government, there is a processing time of 20 working days after which the investment registration certificate is issued. Post this, the application for a business registration certificate is submitted. The business registration certificate is issued in 5 working days. Company seal preparation and registration takes 1 working day. Public announcement and registration on the national registration portal takes 1 working day. All in all, after 30 days a company gets incorporated and is ready to start operations.
You can now go ahead and open a bank account, register your tax code, etc. Your company is also liable to pay the annual business license tax, which should be filed within 10 days after registration. This is an annual tax collected by the government from all businesses operating in Vietnam. The amount is fixed based on the investment capital. Typically this ranges from USD100-USD200 per year. Depending on the type of your business, you can also apply for any sub-licenses if required.
After this, your company will be fully compliant and as such free to proceed with carrying out your business activity and expanding your business footprint as a Vietnam registered company.
Mahan (www.mahan-vn.com) provides a complete suite of services that span all aspects of company setup and on-going company administration. No matter what stage of growth or development your company is at, they guide clients of all sizes on market entry, establishing the right relationships and provide your business with a strategic advantage in the market in which it operates.