In recent years, Vietnam has become one of the most attractive destinations for foreign direct investment (FDI) in Southeast Asia, offering foreign investors a wide range of opportunities to undertake investment projects. These investment opportunities include
1. Investment in the form of establishing a company
2. Execution of an investment project
3. Investment in the form of a business cooperation contract
4. Investment in the form of capital contribution or purchase of shares or capital
Specific provisions apply to foreign direct investment in Vietnam, both before, during and after the commencement of business activities in Vietnam. It is crucial to understand, that compliance with the laws and regulations as well as effective communication with the local authorities are a decisive factor for the success of the investment. But how are the market access conditions for foreign investors in Vietnam? Access to the Vietnamese market is mainly regulated by the Law on Investment and the Law on Enterprise of 2020. These laws provide the framework for FDI, including the requirements for setting up businesses and obtaining licences. In addition, they also stipulate the specific sectors (conditional sectors) and business activities (conditional business activities) in which investments may be made.
Both the Investment Law and the Enterprise Law require that investment projects must apply for an Investment Registration Certificate (IRC) and an Enterprise Registration Certificate (ERC) from the local competent authorities. In this context, investors must submit a detailed investment application that provides information about the project, the financing and the planned business activities. This can be very time-consuming and involves the submission of a large number of documents, so early planning is advisable.
The IRC forms the basis for business activities of foreign investors and may also be a prerequisite for applying for further licences It contains information on the most important details of the investment project, including the investment objective, the duration, the investment capital (equity and debt) and the names of the investors. The issuance of the IRC takes an average of 15 days from the date of receipt of the complete application documents by the competent investment authority. The application is submitted to the local Department of Investment and Planning (DIP).
In the next step, the investor needs to register the legal entity/project company that will carry out the investment at the business registrar of the DPI and obtain an ERC. Once the ERC is issued, the project company is officially established with a legal entity status and can commence its commercial operations under its own name pursuant to Vietnamese law.
A total of four company forms are eligible for registration:
1. Sole proprietorship
A sole proprietorship is one that consists of a single person who is liable for the entire business with his or her total assets. It may not issue securities, contribute capital or acquire shares in partnerships, limited liability companies or public limited companies when it is founded. At the same time, the owner of the sole proprietorship may not himself be the owner of a family business or a general partner/personally liable partner in a partnership.
2. Partnership
A partnership is an enterprise in which there are at least two partners that are joint owners of the company and do business under the same name (“general partner”). There can be capital contributing partners in addition to the general partners. A general partner shall be an individual whose liability for the company’s obligations is equal to all of his/her assets. A capital contributing partner can be an organization or an individual whose liability for the company’s debts is equal to the promised capital contribution. A partnership must nost issue any kinds of securities.
3. Multi-member limited liability company (LLC) and Joint Stock Company (JSC)
A multi-member limited liability company is an enterprise owned by 2-5 organizations or individuals (“members”). The member’s liability for the company’s debts and other liabilities shall be equal to the amount of charter capital contributed to the company by the member. The company must not issue shares except for upon conversion into a joint stock company. However, it may issue bonds.
A joint stock company is an enterprise in which the charter capital is divided into units of equal value called shares. Shareholders can be organizations and individuals. The minimum number of shareholders is three, while there is no limit on the maximum number of shareholders. A shareholder’s liability for the company’s debt and other liabilities is equal to the amount of capital contributed to the company by the shareholder. Shareholders may transfer their shares to other persons in accordance with the Law on Enterprise.
4. Single-member limited liability company
A single-member limited liability company is an enterprise owned by a single organization or individual (“owner”). The owner’s liability for the company’s debts and other liabilities shall be equal to the company’s charter capital. The company may only issue shares for the purpose of converting into a joint stock company. Bonds can generally be issued.
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Please do not hesitate to contact Dr. Oliver Massmann at omassmann@duanemorris.com if you have any questions. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.