During Bizspective’s talk show “Debunking myths about opening a company in Vietnam”, our experts discussed the 5 most common myths that are questioned by many people.
The first myth in Bizspective’s series “Debunking myths about opening a company in Vietnam” is to answer the question “Do you always need a Vietnamese partner to start a business in Vietnam?”
Many foreigners still mistakenly believe that having a Vietnamese partner is one of the must-haves when you intend to start a business in Vietnam. That is not true. You can definitely open a business with 100% foreign capital and 100% foreign ownership in Vietnam in several business lines. And while doing that, make sure you always comply with local regulations and Vietnamese government laws.
It also depends on which business line, or which type of business you want to register in Vietnam, that you will need to have a co-owner as a Vietnamese or not.
There are business lines where you must invest together with an individual Vietnamese nationality to be eligible to establish a company in Vietnam. And the percentage of charter capital of a foreigner in the company will be specified depending on the type of company.
However, you can absolutely start a business in Vietnam on your own, and fortunately, the most popular businesses among foreign investors nowadays such as cafes, restaurants, software development, management consulting, manufacturing, trading of many products, etc., are allowed to have 100% foreign ownership. There is no legal requirement to have a Vietnamese partner on board in those business lines.
The F&B business line allows investors to start a business in Vietnam with 100% foreign ownership.
There are things you need to know before starting a business in Vietnam, that is there are some business lines called “conditional”, which will need you to comply or apply a certain condition before you are allowed to do business and invest in that field in Vietnam. Those conditions are:
- Applying for additional licences. The type of these additional licences will depend on the type of your business. For example, they will have to apply for a certificate of food safety and hygiene, and/or an alcohol selling registration. Or a fire prevention and fighting certificate if you want to open a hotel or restaurant. The cost for these additional permits varies from $60 to $500 per licence.
- Investing a certain amount of money/capital. This applies to, for example, to real estate trading or travel agents.
- Working together with a Vietnamese partner in the advertisement industry, movie production, travel agency, etc. In general, there are no percentage requirements for the Vietnamese partner in a joint venture; the Vietnamese partner could hold 1% or 99% of the company. Having said that, there are some restricted business lines in Vietnam where in fact there is a cap on the percentage of the company that can be owned by a foreigner. For example in the education sector.
So, now you know that many business lines, including some very popular ones (food and beverage, software development, manufacturing) are in fact open to 100% foreign investment, with no joint venture requirement.
Having a Vietnamese partner makes it easier for foreign investors to start a business in Vietnam.
There are two ways for a foreign investor to start a business in Vietnam. They can set up a new foreign-owned company, or they can buy an existing local company from a Vietnamese owner – which many local company formation agents recommend.
Buying an existing Vietnamese-owned company is very common here and it is 100% legal. With this method, they recommend the client to have a Vietnamese set up a company first, then transfer the capital to the foreign investor.
And when a Vietnamese transfers their company to a foreign investor, there are many things the new owner will need to put into their own hands-on, such as the pros and cons, the laws, and the risks you will face on that matter.
Administrative procedures are cut down
During the company formation process, foreign investors need to provide proof of finance, company address, and proof of other conditions if they are required by law.
Meanwhile, a Vietnamese is only required to apply for an Enterprise Registration Certificate (ERC). However, a foreign investor must apply for Investment Registration Certificate (IRC) and ERC. The foreigner doesn’t need to apply for the IRC but they still must get a business approved by the Department of Planning and Investment.
The foreign investor doesn’t need to apply for the IRC if they buy an existing local company. And they also don’t need to show proof of finance or company address during the capital purchase process. That’s very important. That’s the main reason why some foreign clients chose this method to start their business in Vietnam. However, they still must get a business approved by the Department of Planning and Investment.
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It takes less time for a Vietnamese to register a company
It only takes less than 1 week to set up a Vietnamese-owned company. So if a foreign investor needs to have the company set up quickly for some purposes, they can follow this method.
The foreign client needs to have a Vietnamese nominee that they can trust. Because they need to pay the nominee for the capital purchase and they must pay for the capital purchase through the company capital account. That is a very important note to start a business in Vietnam with this method.
So essentially, there will be a period where the Vietnamese nominee will have access to all the capital and that’s where the risk is. So you must find someone that you can put your trust into.
When the company is transferred to foreign ownership, does the capital level need to be changed?
It’s very easy for a Vietnamese to set up a company and once the company is fully set up, it is legal. So when the Vietnamese owner transfers the capital or sells the business to the foreign investor, they don’t have to drive up the capital level.
There is one thing to keep in mind when buying an existing local company from a Vietnamese owner, the foreign investor must follow the payment process. If they fail to follow this process, they will not be allowed to transfer capital and profit in the future.
Foreign investors must follow the payment process when buying an existing local company from a Vietnamese owner.
So, if you have a Vietnamese company set up first and use a Vietnamese nominee, it will be much faster. Also, the investment capital could be lower. But some of the risks are you have to give the capital to the Vietnamese partner.
Practically speaking, It can be helpful to have a Vietnamese partner on board, especially for some restricted, difficult business lines with potentially some “red tape”. For example, if you are going to start a business in Vietnam as a bar or a school, for instance, it might be easier to have a Vietnamese partner. But it is not required. If you have some simpler business line like consultancy or F&B or retail, IT, software development, then it’s very important to have a good lawyer and a good accountant whether you have a Vietnamese partner or not.
In general, you don’t always need a Vietnamese partner to start a business in Vietnam and it can be fully foreign-owned for most sectors. So MYTH IS BUSTED.