Is it possible to open my own foreign owned business in Vietnam? or should I partner with a local? Is 100% foreign investment allowed for my business? What are the advantages of having a Vietnamese partner on board? These are some of the questions that we receive very regularly. Perhaps a good idea to write an article about it!
THE MYTH: FOREIGNERS MUST INVEST WITH A VIETNAMESE PARTNER
As the heading already suggests, it is a myth that foreigners are always required to invest with a Vietnamese partner. When Vietnam acceded to the World Trade Organization in 2006. It committed to open many of its service sectors to 100% foreign investment.
Only for a few sectors (such as advertising, motion pictures, telecommunication, tour operators and travel agencies), a joint-venture is actually required. Myth busted! However, of course there are still good reasons to invest together with a Vietnamese partner depending on your business plans and model.
SIMPLIFIED BUSINESS SET UP PROCEDURES
When a foreigner (either an individual or a company) is involved in the setting up of a new business in Vietnam (foreign owned business), two certificates are needed. First of all: the investment registration certificate (IRC), which involves scrutiny by the Vietnamese authorities of your investment plans. And secondly: the enterprise registration certificate (ERC), whereby you will set up your legal entity.
On the other hand: when a company is only set up by a Vietnamese (individual or company), then only one certificate is needed: the ERC. For more details about investment procedures, we kindly invite you to have a look at our article about how to set up a cafe or restaurant in Vietnam. So based on the above, it is not correct to say that you can skip the IRC when you invest together with a Vietnamese partner.
Only when your Vietnamese partner would set up the company as a 100% Vietnamese company. Then you could you skip this step.
THE NOMINEE STRUCTURE WITH A VIETNAMESE PARTNER
Needless to say, it is risky to have someone (the “nominee”) set up a company on your behalf. You may be able to circumvent the IRC procedure. But in practice it will be your Vietnamese partner’s name appearing on the official company documents.
Not only is the nominee structure not encouraged by the Vietnamese authorities. It also puts you (an unregistered foreign investor) in a somewhat vulnerable position. Unfortunately, there are too many examples of where this structure has resulted in disappointment. Our advice is therefore to only consider using a Vietnamese nominee if you Really Trust that person. And if you cover your risks with sufficient contractual documentation. Otherwise a 100% foreign owned business in Vietnam would be recommended.
BUYING THE COMPANY BACK AFTER ESTABLISHMENT
So in the case a local has set up a Vietnamese business, and If you want to “normalize” your business structure and take back control, it is recommendable that you buy back all (or at least a part of) the company after establishment.
This is an administrative procedure that involves a capital transfer agreement. And also an amendment of the enterprise registration certificate (ERC), and the opening of an investment capital account.
Furthermore, if after the acquisition the foreign partner will own 51% of the charter capital or more. Or if a foreign partner buys any percentage of a Vietnamese company that is operating in a conditional business sector (for example advertising or education). Then additionally you will need the approval from the Vietnamese investment authorities.
This involves a few extra steps, such as preparing a notification file, and making an official company decision with meeting minutes. Completing these procedures will obviously undo some of your time and money savings. In many cases this procedure ended up costing as much as and sometimes more than opening a fully foreign owned business at the first step.
OTHER REASONS SOME PEOPLE MAY INVEST WITH A VIETNAMESE BUSINESS PARTNER
Another reason why foreign investors sometimes choose to invest together with a Vietnamese partner is that there are normally no strict rules for Vietnamese investors about the minimum charter capital.
Having your Vietnamese partner set up your company may seem more attractive. However you would not have ownership therefore not have a TRC / Business visa.
An obvious advantage of working with a Vietnamese partner is the valuable local knowledge. And also his or her saviness and network that he or she will bring to your partnership. And instead of re-inventing the wheel, why not hop on board of an existing business venture?
It is also good to know that some businesses may be subject to complaints during operations. This is especially the case for bars, clubs, and F&B outlets with live music or entertainment, which may cause disturbance to the area (loud music, etcetera).
In such cases, it may be beneficial to have a Vietnamese partner on site to deal with the local authorities. Indeed, dealing with the Vietnamese authorities in their own language and completing administrative and legal procedures for your business. These are supposedly also more efficiently done by your Vietnamese partner.
In the case you are partnering with a Vietnamese partner, Make sure you have a clear and transparent shareholders agreement outlining every shareholders responsibilities and benefits. You should also list out different scenarios so that in the future if things go well ‘or don’t’, everyone involved knows the action plan and each others responsibilities.
Here is an example of a shareholders agreement but remember it is best if you sit down and list it out clearly by yourself, Then if needed handover to a lawyer to create an official shareholders agreement.
As we have explained, investing together with a Vietnamese partner is only legally required in some cases. Nonetheless, should you do it or not?
Well, if your main goal is to circumvent investment procedures: then please keep in mind that this only applies to the situation where your Vietnamese partner will set up a 100% Vietnamese company.
On the downside, there are certain risks involved with using a local nominee. Contractual documentation can cover some of those risks, but it is still often recommended to buy back at least a part of the company after establishment.
Having a Vietnamese partner and/or legal representative with a smaller ownership percentage (even 1% is possible) can already help your operations.
And if you (also) want to benefit from your Vietnamese partner’s language and cultural skills, local knowledge, business saviness and network, then it is certainly something to consider!
In most cases we advise our clients to open a fully foreign owned business in Vietnam and in some cases like when the business lines require a foreigner to have a Vietnamese partner (as listed above) or bars, night clubs or F&B outlets that might be subject to neighbours complaints that we would encourage to have a Vietnamese partner.
At Bizlen, we work every day with people who want to set up their business in Vietnam. We can advise you about the possibilities and restrictions of your specific business plans. We can guide you through each step of the process to realizing them. And together with our trusted legal team, we can advise and support you with all your business and legal proceedings.
Among other things, we do company set – ups, business licensing, contract drafting and reviewing, and legal research. Our Bizlen team can also help you to find commercial spaces, offices and residential properties in Da Nang and in Hoi An. On top of that, we provide translation, legal services, visa services, and we explore investment opportunities in real estate.
Send us an e-mail with your plans and inquiries, or give us a call to make a free appointment at our office!
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