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Level of difficulty
The World Bank’s Doing Business in 2010 has ranked Vietnam the 93rd easiest place in the world (183 economies) to do business. Specific rankings in terms of ease include:
- Starting a business (116th).
- Dealing with construction permits (69th).
- Employing workers (103rd).
- Registering property (40th).
- Protecting investors (172nd).
- Paying taxes (140th).
- Trading across borders (67th).
- Enforcing contracts (32nd).
- Closing a business (127th).
Investment options
There are five main classes of foreign investment:
- wholly foreign-owned companies.
- joint ventures.
- business-co-operation contracts (BCCs; used in sectors where participation is restricted (such as oil, gas and telecommunications services).
- build-operate-transfer (BOT) projects.
- foreign investment shareholding company (FISC), also known as a joint stock company.
It is also possible to set up partnerships, branch and representative offices.
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Companies
A Limited Liability Company (or Joint Stock Company) is the most appropriate vehicle for foreign investors who want to set up a legal entity in Vietnam for foreign direct investment.
There is no compulsory requirement for a local director for foreign invested enterprises in Vietnam. One of the chief advantages of full ownership is that the foreign investor has clear managerial control.
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Joint Ventures
The Vietnamese partner has generally been a state enterprise in practice (although it may be a private company), whose contribution to the investment is usually in land-use rights rather than capital.
For both companies and joint ventures, total investment capital is divided into legal capital (equity, sometimes referred to as chartered capital) and loan capital.
Legal capital is like equity and may not be increased without approval from the local licensing authority or Ministry for Planning and Investment (MPI). Loan capital includes shareholders’ loans or third-party finance and is subject to approval by the State Bank of Vietnam (SBV, the central bank). There is no minimum capital investment level. Reductions in capital are not permitted.
The Vietnamese accounting system must be used, unless the Ministry of Finance gives prior approval for another system. Investors must submit various documents, including the memorandum and articles of association, certificate of incorporation, share certificates and bank statements, to verify their legitimacy.
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Branch office
The rules for establishing and operating branches and representative offices (ROs) of foreign companies are clearly defined. To form an RO, the head office company must have operated for at least one year in its home country before requesting a licence.
Licences for ROs and branches are valid for five years (albeit on a renewable basis). Unlike ROs, branches may receive income.
Approvals and restrictions
The Government has been keen to promote ‘green field’ foreign investment over foreign takeovers of existing assets.
In most cases the provincial People’s Committee issues investment licenses. To prepare for an application for a license, investors should send their applications to the province’s Department of Planning and Investment. The following documents are generally needed:
- Application for foreign investment licence. For a joint venture: a charter and contract of the joint venture or if 100 percent foreign owned, a charter of the foreign company.
- Documents on incorporation and financial capability of foreign company (and Vietnamese company in joint venture); notarised copy of business licence; original or notarized Power of Attorney to representative; original or notarised audited financial report for the last two years.
- Feasibility of the investment project.
- Land / house rental contract.
An investment licence should be issued in 20 days as long as the application package is considered to have sufficient information and there’s no request from the licensing authority for amendments and/or supplements. In fact this is tricky. New Zealand Trade and Enterprise (NZTE)’s experience shows that the 20-day deadline is rarely met.
When the foreign investment capital is more than US$10 million and/or the investment falls in a “sensitive area” (for example related to weapons or explosives), the application should be sent to the Ministry of Planning and Investment and/or Prime Minister for consideration.
Foreign ownership of Vietnamese companies is restricted to certain sectors, such as services. Permissible forms for new investments in this sector include business cooperation contracts, where foreign partners contribute capital and managerial control remains in the hands of the local investors.
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