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Why invest into a business in Vietnam?
While obtaining a long-term visa (investor visa) in Vietnam is a significant benefit, other compelling reasons exist to consider investing in an established business in Vietnam. Vietnam boasts a booming economy, a young and skilled workforce, and a strategic location within Southeast Asia, making it an attractive investment destination. Of course, thorough due diligence is crucial. However, you’ll find a variety of attractive businesses seeking capital for expansion or selling a portion of their equity for personal reasons.
Advantages of a Silent or Partial Investment:
- Instant Partnership: Acquire ownership in a company with a proven track record, established customer base, and existing infrastructure.
- Reduced Risk and Involvement: Contribute capital without the burden of daily operations. Existing management and team will be handling the daily work.
- Benefit from Growth: Enjoy potential returns based on the business’s performance.
- Silent or active investment: Each opportunity is different, and depending on the business/investment/partnership you can choose whether or not to be a silent investor or get involved in the business.
Capitalize on Vietnam’s Growth:
Combined with Vietnam’s booming economy, rapid GDP growth, reasonable labor costs and strategic location, a silent or partial investment lets you participate in the country’s success story.
Vietnam Visas.
General Visa challenges in Vietnam for Expats.
Obtaining a long-term visa in Vietnam can be a hurdle. Many people rely on tourist visas, which means frequent and expensive border runs. Work permits are another option, but they involve a complex and expensive salary and tax setup.
An investor visa, secured through a legitimate business investment, offers a more straightforward solution. It grants you a long-term visa, ensures legal compliance, and opens the door to potentially a fruitful business venture in a developing economy like Vietnam’s.
What is an investor’s visa?
An investor visa, also known as a DT visa, is designed for foreign individuals who set up or invest capital in a Vietnamese company. The visa is usually a 1 year visa and easily extendable without leaving the country once it expires.
What are the requirements to obtain an Investors visa?
Investment Proof:
To demonstrate your investment in Vietnam, as mandated by the Law on Investment, you’ll need to provide documents from the company you have invested in such as:
- Investment Registration Certificate
- Business Registration Certificate
- Documents certifying your investment status issued by relevant Vietnamese authorities
Work Permit Exemption:
It’s important to note that foreign investors with a DT visa are typically exempt from obtaining a separate work permit under Vietnamese law. Please note that the authorities are often changing the rules and requirements regarding visas and work permits. Therefore it will be best to get updated advice from a visa agent when needed.
How to invest into a business in Vietnam?
Find and identify a business you are interested in.
There are ways to find listings online, you can find some listings on this facebook page, and also have a look at our business for sale listings, we have over 50+ business listings all around Vietnam.
Conduct thorough due diligence.
Here are a few key steps to take before diving into a business investment in Vietnam. For a more comprehensive guide, check out our in-depth article linked here.
Due Diligence:
Business Valuation:
- Determine the fair market value of the business.
- Here is an article on how to value a small business.
Licenses & Certificates:
- Verify Investment Registration Certificate (IRC) and Enterprise Registration Certificate (ERC) ownership and investment amount.
- Check for any necessary sub-licenses (e.g., food safety for restaurants).
Lease Agreement:
- Review the “pink book” (land ownership certificate).
- Verify lease duration, renewal rights, and termination clauses.
Finance:
- Review financial statements (considering limitations for cash-based businesses).
- Verify tax reporting and compliance with relevant authorities.
- Understand current accounting practices and software used.
- Check company bank account balance against financial reports.
- Beyond financial statements, assessing the financial well-being of the company’s leadership team can be insightful. While salary transparency may not be commonplace, investigate if the shareholders are taking a reasonable compensation level. This indicates a balance between personal needs and reinvestment in the business for long-term growth. Unusually high salaries, or conversely, a lack of compensation altogether, could raise concerns about the management’s commitment or the company’s financial health.
- For an extra step to cross check the financial reports, you can create a basic financial forecast based on data collected from the owner. For example asking how many customers per day, and what is the average spend per customer, then calculating the profit margins and deducting the costs.
Shareholders:
Understanding the business owners and core teams commitments will be vital. Knowing wether they have other commitments (other businesses, plans, jobs) will help you understand how serious they are in growing their business so you can make sure to get an ROI in your investment and so the business can continue to grow.
Understanding the details of acquiring the business.
These steps explore acquiring equity in a Limited Liability Company (LLC), Vietnam’s most common business structure.
Key factors affecting the process:
- Current Foreign Ownership:
- Over 50%: Update existing investment certificates. If the ownership is already over 50% foreign owned the process will be much easier as the company will already have the IRC certification.
- Less than 50% (potential majority after purchase): Requires approval. The company will need to get approval from the Department of planning and investment (DPI), they will review the proposal and they have discretion to approve the new ownership structure or not.
- Purchase Agreement: Always required for acquiring LLC charter capital.
Creating a solid shareholders agreement.
When buying equity in an existing Vietnamese company as a silent investor, focusing on clear communication and protections within your shareholders agreement is key. Here are some important elements to consider:
Investment Details:
- Purchase Price and Payment Terms: Clearly define the price you’ll pay for the equity stake and the payment schedule (e.g., lump sum, installments). Include details on payment methods.
- Ownership Structure: Specify the exact percentage of ownership you’ll acquire and its corresponding voting rights (if any). Clarify if your ownership comes with any board representation or observer rights for information access.
- Exit Strategy: Outline potential scenarios for exiting your investment in the future. This might include selling your shares back to the company or other shareholders, or a pre-defined strategy for selling your stake if the company is acquired by a third party.
Silent Investor Protections:
- Management Responsibilities: Clearly state that you’re a silent investor (if that is the case) and have no role in day-to-day operations. Define who makes management decisions and how you’ll be kept informed about the company’s performance (e.g., regular reports, etc)
- Confidentiality: Potentially include a non-disclosure clause restricting the company from sharing confidential information about your investment with unauthorized parties.
- Profit Sharing and Distributions: Detail how profits will be shared and when you’ll receive your share of distributions. You can define a fixed percentage or tie distributions to specific performance metrics.
- Dispute Resolution: Establish a clear process for resolving any disagreements that may arise between you and the company or other shareholders.
Additional Considerations:
- Non-Compete Clause (Optional): Depending on the industry, you might consider a non-compete clause restricting the business owner or shareholders from opening a similar business for a set period.
- Tax Implications: Consult with tax advisors to understand the tax implications of your investment and ensure the agreement reflects any relevant tax obligations.
Remember:
- Have the agreement reviewed by a lawyer specializing in Vietnamese business law to ensure it complies with local regulations and protects your interests as a silent investor.
- Clear and detailed communication throughout the negotiation process is crucial to avoid misunderstandings and ensure everyone is on the same page.
Summary.
Currently obtaining a long term visa can be tricky and also costly, however Investing in an existing business in Vietnam can offer you a long term visa and still give you an opportunity to receive a passive income and an ROI on your investment.
An investor visa (DT visa) will allow you to stay long term in Vietnam without the difficulty of visa runs, work permits and other expensive and complicated strategies.
Consulting with experienced legal and financial professionals is crucial throughout the process. With careful planning and an understanding of the market, your investment in Vietnam can be a gateway to exciting opportunities.
And remember: whether you’re looking to buy or list your business, our team is here to guide you through the process. Feel free to reach out to us via email, Zalo, or WhatsApp to discuss your specific needs. Bizspective remains your valuable resource throughout the journey, offering a platform for connection, informative content, and guidance towards additional support services.
