Important Considerations When Establishing a Foreign-Invested Enterprise (FDI) in Vietnam

Currently, establishing a foreign-invested enterprise (FDI) in Vietnam requires investors to be well-prepared in terms of legal compliance, industry regulations, and corporate structure. Vietnam continues to be an attractive destination for foreign investors due to its stable political environment, young workforce, competitive labor costs, and comprehensive free trade agreements (FTAs). However, many FDI enterprises face challenges stemming from a lack of understanding of legal barriers from the outset.

This article provides an in-depth analysis of key legal considerations, potential risks, and practical guidance to help international investors approach the Vietnamese market effectively and legally.

Correctly identifying foreign investor status and ownership structure

According to the 2020 Law on Investment, a foreign investor is defined as an individual holding foreign nationality or an organization established under foreign laws. Proper identification of investor status impacts not only the licensing process but also determines the applicable legal regime for the enterprise.

If a foreign investor owns just 1% or more of a Vietnamese company’s capital, the company is considered foreign-invested and may be subject to specific investment procedures, such as obtaining an Investment Registration Certificate (IRC). When the foreign ownership exceeds 51%, the enterprise is subject to more stringent regulations, similar to those applied to wholly foreign-owned companies.

Some investors may attempt to circumvent the law by having a Vietnamese individual hold shares on their behalf. However, this approach carries significant legal risks, such as lack of recognized ownership, inability to repatriate profits, or complete loss of control in the event of a dispute.

Selecting the right investment sector and understanding conditional sectors

Not all sectors in Vietnam are open to foreign investment. Current laws classify them into three categories: prohibited sectors, conditional sectors, and unrestricted sectors.

Prohibited sectors include activities harmful to national defense, security, or social morality, such as drug trafficking, explosives trading, prostitution, or illegal abortion services. Sectors like e-commerce, logistics, education, advertising, retail distribution, and real estate fall under the category of conditional investment.

Investors must review Vietnam’s international commitments under WTO and FTAs to determine whether their targeted sector has any limitations in terms of capital ratio, investment form, or technical experience. Failing to meet these conditions may result in rejected applications or inability to operate the business due to the lack of necessary licenses.

Choosing an investment method that aligns with strategy and scale

Investors may choose from the following investment forms:

• Establishing a wholly foreign-owned enterprise;
• Contributing capital or acquiring shares in an existing Vietnamese company;
• Entering into a Business Cooperation Contract (BCC);
• Forming a joint venture with a domestic partner.

Each form has its own legal process, requirements, and level of control. For example, acquiring shares in an existing company can save time and leverage existing infrastructure but may lead to management disputes if not clearly agreed upon. On the other hand, establishing a wholly foreign-owned company is often suitable for investors seeking full operational control and long-term orientation.

Legal procedures and timeline for FDI registration

Setting up a foreign-invested enterprise involves two key legal steps:

Obtaining the investment registration certificate (IRC):
The responsible authority is the Department of Planning and Investment or the Industrial Zone Management Board (if located in an industrial zone). The process typically takes 15–20 working days. The application must demonstrate financial capability, legal investment location, and sectoral compliance.

Obtaining the enterprise registration certificate (ERC):
Once the IRC is issued, the investor submits the application to register the company. This takes about 5–7 working days. Afterward, the enterprise proceeds with seal carving, opening a bank account, and initial tax registration.

Improperly prepared applications, lack of consular legalization, or inconsistencies between registered business lines and WTO commitments may significantly delay the process.

Capital contribution regulations
Foreign investors are required to open a Direct Investment Capital Account (DICA) at a commercial bank in Vietnam. All capital contributions, profit remittances, and loan repayments must go through this account.

The capital contribution deadline must strictly follow the commitment stated in the IRC. Failure to contribute capital within 90 days may result in penalties or forced adjustment of the investment license. More critically, if the legal source of capital cannot be demonstrated, the investor may lose the right to transfer profits abroad.

In addition, FDI enterprises must comply with periodic investment reporting and manage related-party transactions to mitigate transfer pricing risks.

Sub-licenses and post-establishment conditions for FDI enterprises

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

• E-commerce platform operation licenses (for e-commerce businesses);
• Logistics service licenses;
• Education and training operation licenses;
• Retail distribution licenses for investors from non-WTO countries;
• Professional or operational certificates (e.g., in accounting, legal consultancy).

Operating without the necessary licenses may lead to business suspension or severe administrative penalties.

Common legal risks

Foreign investment legal advisory services at BKC Law

With a team of experienced lawyers and legal professionals specializing in foreign investment, BKC Law is proud to be a trusted partner accompanying investors throughout their journey in Vietnam.

BKC Law offers comprehensive services including:

• Advising on investment sectors and forms in accordance with international commitments and Vietnamese laws;
• Drafting investment applications, company charters, joint venture agreements, and shareholder agreements;
• Representing clients in applying for IRC, ERC, and sub-licenses;
• Supporting the opening of investment capital accounts, lawful fund transfers, and capital contributions.

For a free legal consultation at BKC Law, please contact us via: 

Phone: 0901 3333 41

Email: info@bkclaw.vn

District 1 Office: 9th Floor, Diamond Plaza, 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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