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FAQ - Establishing a Company in Vietnam
Latest Update: December 17, 2021
This is relevant for: Foreign companies setting up subsidiaries in Vietnam
We are receiving a lot of enquiries regarding the foundations of subsidiaries in Vietnam. These mostly revolve around setting up entities to support sales functions. But there are also companies looking to set up manufacturing or IT outsourcing operations. Some are furthermore planning to establish sourcing offices. Here are some of the frequently asked questions (FAQs) that we receive:
🤔 Which legal form can be applied to our entity?
LLC: Most investors choose to establish a Limited Liability Company (LLC) which would be the equivalent to the "GmbH" in Germany. This form of legal entity can serve most business purposes in Vietnam. Approximately 80 to 90% of German investments in Vietnam are formed as LLCs. Most of the following FAQ replies will deal with this kind of entity.
RO: The Representative Office (RO) is really just that: An "office" that "represents". It is not a legal entity but a "dependent branch of a company abroad". There are some investors who favor the RO over the LLC because it is easier to establish and to administrate. However, while the RO may cause costs and employ staff it may not create income. Hence, it is not suitable for most sales-oriented activities and overall has limited use cases.
JSC: Establishing Joint Stock Companies (JSCs) is quite rare for international investors. If used it is mostly applied to enterprises with multiple - potentially changing - shareholders.
🤔 Can a corporate entity be held in 100% foreign ownership?
Yes. It is possible to establish wholly-owned foreign enterprises for most purposes, especially in manufacturing or sales. Local joint-venture partners are rarely necessary by law.
🤔 Do we have to decide on the domicile of the company before registration?
Yes. The authorities want to see the credentials of a proper, individual private office. They will demand at least some kind of MoU regarding closure of a rental contract for registration purposes. However, we have seen companies registering with addresses in co-working spaces or even at the offices of their (local) lawyers. Info on finding offices can be found here.
🤔 Do we have to define a business purpose (Unternehmensgegenstand) like in Germany?
In Germany, the business purpose defines the "focus" of the activities of a company. Its term can be relatively unspecific. Vietnam does not know these business purposes. For licensing and tax purposes, it uses so-called "business lines". These are rather specific and define relatively clearly what a company is allowed to do. If a certain activity is not covered by the business lines of an enterprise it may not be undertaken by it. Hence, it is extremely important to discuss planned business activities with a lawyer and apply for the necessary business lines.
🤔 Do we have to travel to Vietnam for the company establishment?
No. Your lawyer can carry out all necessary procedures. Hence, remote company establishment is possible.
🤔 Is there any minimum capital contribution required?
In Germany, the minimum capital contribution required for an LLC is EUR 25,000. Vietnam does not know such a standard value. The capital contribution for a company is flexible. It is based on the scope of business of the to-be-established enterprise. Small consulting companies start at roughly USD 5,000 while for bigger manufacturing companies charter capital may reach millions. Your lawyer should be able to give you an estimation of what will be required by the authorities. In any case, most investors do not fret over charter capital because it does not have to be deposited anywhere. Rather, it just has to appear on the company account once and may then be utilized for general expenditures, e.g. payroll, machinery investments or rental expenses.
🤔 Are there any specific considerations regarding company management?
The daily business of a company will likely be managed by a general director cum legal representative (RO: Chief Representative). For ease of wording, we'll just call this position "GD". At least for the start of the company it may be advisable to assign a (foreign) representative of the mother company as GD. This person should introduce worldwide company policies and procedures; especially regarding compliance (which can be a MAJOR issue in Vietnam). It is important to understand that the GD must reside in Vietnam for more than 183 days per year and may not leave the country for more than 30 days at a time. An alternative to a resident GD can be to designate a so-called "Nominee Director" or "Proxy". Many law firms offer this service but it can be quite costly with about USD 800 to 1,000/month. Because of the requirement for a resident GD it seems economically unfeasible to establish shell/letterbox companies in Vietnam.
🤔 How long does company establishment take?
From the start of discussions with a lawyer until finalization of the establishment three to six months should be calculated. Vietnamese authorities are usually quite swift but internal procedures at mother companies as well as obtaining necessary documents abroad may take some time.
🤔 Which law firm should I work with?
We recommend working with "international" law firms. These can be companies run by Vietnamese or by foreigners. What we mean with "international" is that they should understand the investor from abroad. Furthermore, they should have a "consultative" approach to working with their client. This is opposed to firms drowning their clients in legal texts and superfluous information. Some firms offer RO/LLC establishment for very reasonable prices as low as EUR 2k. At aforementioned international legal companies incorporating an RO should cost EUR 3k to 5k and an LLC EUR 5k to 7k. However, pricing may vary depending on company structures. For German companies working with a German law firm seems opportune. A list of German lawyers in Vietnam can be found here.
Please consider this information without liability for any data with respect to content, completeness or up-to-datedness. For legally valid information you should turn to a lawyer.
Further information can be obtained from the following sources:
Allens/Linklaters: Legal Guide to Investment in Vietnam - Status 2017
Roedl & Partner: Investitionsführer Vietnam (German only) - Status 2022
Dr. Matthias Dühn: Rechtsfehler bei der Firmengründung (German only)
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