Important Considerations When Establishing a Foreign-Invested Enterprise in Vietnam

Currently, establishing a Foreign-Invested Enterprise (FDI/FIE) in Vietnam requires foreign investors to carefully prepare regarding legal aspects, sectoral regulations, and corporate structure. Vietnam remains an attractive destination for foreign investors thanks to its stable political environment, young population, competitive labor costs, and comprehensive Free Trade Agreements (FTAs). However, many FDI enterprises face difficulties due to an inadequate assessment of legal barriers right from the initial stage of opening a foreign-invested company.

This article provides a detailed analysis of key legal factors and potential risks, offering practical advice to help international investors approach the Vietnamese market efficiently and legally safely.

Accurately Determining Foreign Investor Status and Ownership Structure

According to the Law on Investment 2020, a foreign investor is an individual with a foreign nationality or an organization established under foreign law. Accurately determining the investment status not only affects the licensing process but also dictates the legal mechanism applied to the enterprise.

If a foreign investor owns 1% or more of the charter capital in a Vietnamese enterprise, that enterprise will be examined from the perspective of a foreign-invested enterprise and may have to carry out separate investment procedures, such as applying for an Investment Registration Certificate (IRC). In cases where the capital contribution ratio exceeds 51%, the enterprise will be subject to stricter regulations, equivalent to a 100% foreign-owned enterprise.

The practice of “nominee arrangements” (đứng tên hộ) by Vietnamese individuals to bypass the law still occurs. However, this poses severe legal risks, such as the non-recognition of legal ownership, the inability to remit profits abroad, or the total loss of control in the event of a dispute.

Selecting Lawful and Conditional Investment Business Lines

Not all business lines in Vietnam are open to foreign investors. Current laws categorize them into three groups: prohibited business lines, conditional business lines, and freely invested business lines.

Prohibited business lines include activities that harm national defense, security, and social morality, such as trading in narcotics, firecrackers, prostitution, illegal abortion, etc. Meanwhile, sectors such as e-commerce, logistics, education, advertising, retail distribution, and real estate are conditional business lines.

Investors must cross-reference Vietnam’s international commitments in the WTO and FTAs to determine whether the intended business line has any limitations on capital ownership ratios, investment forms, or requirements for experience and technical capacity. Failure to clearly understand investment conditions can lead to the rejection of the application dossier or the inability to operate after establishment due to a lack of sub-licenses.

Choosing an Investment Form Suitable for Strategy and Scale

Investors can choose one of the following forms:

• Establishing a new 100% foreign-owned economic organization.

• Contributing capital, buying shares, or purchasing capital contributions in an already established Vietnamese enterprise.

• Investing under a Business Cooperation Contract (BCC).

• Establishing a joint venture with a domestic partner.

Each form entails different legal processes, conditions, and levels of control. For example, acquiring shares in an existing enterprise can save time and utilize available infrastructure but is prone to management disputes if not strictly agreed upon. Establishing a new 100% foreign-owned company is often suitable for investors who wish to have total control over operations and have a long-term orientation.

Legal Procedures and Timeline for Investment Formalities

Establishing a foreign-invested enterprise involves two main legal steps:

1. Applying for the Investment Registration Certificate (IRC): The receiving authority is the Department of Planning and Investment (or the Industrial Zone Management Board if investing within an industrial zone). The processing time is approximately 15-20 working days. The dossier must clearly prove financial capacity, a valid investment location, and conformity with sectoral planning.

2. Applying for the Enterprise Registration Certificate (ERC): After obtaining the IRC, the investor submits the enterprise registration dossier. The processing time is about 5-7 working days. Subsequently, the enterprise proceeds to engrave its seal, open bank accounts, and complete initial tax procedures.

Preparing non-compliant dossiers, lacking consularly legalized documents, or having discrepancies between the registered business lines and WTO commitments often causes significant delays.

Legal Regulations on Capital Contribution Procedures

Foreign investors must open a Direct Investment Capital Account (DICA) at a commercial bank in Vietnam. All capital contributions, capital withdrawals, profit remittances, and interest payments must be conducted through this account.

The capital contribution deadline must be strictly adhered to as committed in the IRC. If the charter capital is not fully contributed within 90 days, the regulatory authority has the right to impose penalties and request an adjustment to the investment license. Notably, without proof of lawful capital contribution, investors may lose the right to remit profits to their home country.

Additionally, FDI enterprises must comply with the obligation of periodic investment activity reporting and the management of affiliated transactions to prevent transfer pricing risks.

Sub-licenses and Post-establishment Conditions for FDI Enterprises

Certain sectors require enterprises to obtain conditional business licenses or sub-licenses, such as:

• License to establish an e-commerce trading floor (if engaging in e-commerce).

• License to provide logistics services.

• License for education and training operations.

• Retail distribution license for non-WTO investors.

• Practicing certificates or operating certificates (in sectors like accounting, legal consulting, etc.).

Operating without obtaining all necessary sub-licenses can result in the suspension of business operations or heavy administrative fines.

Common Legal Risks

Foreign Direct Investment (FDI) Consulting Services at BKC Law

With a team of specialized lawyers and legal experts in foreign investment, BKC Law is proud to be a reliable partner accompanying investors throughout their development journey in Vietnam.

BKC Law provides comprehensive package services:

• Advising on the selection of business lines and investment forms in compliance with international commitments and Vietnamese law.

• Drafting investment dossiers, company charters, joint venture contracts, and shareholders’ agreements.

• Representing clients in procedures to obtain the IRC, ERC, and sub-licenses.

• Assisting with opening investment capital accounts, transferring funds, and making lawful capital contributions.

For free legal consultation at BKC Law, please contact our Lawyers via the following information:

• Phone: 0901 3333 41

• Email: info@bkclaw.vn

• District 1 Office: 9th Floor, Diamond Plaza Building, 34 Le Duan, District 1, Ho Chi Minh City

• Binh Tan Office: 41 Ten Lua, Binh Tan District, Ho Chi Minh City

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