The foundations you lay for your business – namely, the type of legal entity you choose for entering the market – will determine the success of your future business. In this guide, we will give you a thorough overview of legal entities in Vietnam, and help you decide whether you should set up a company for doing business in Vietnam or would it be more cost-effective to bypass the process and concentrate on a faster market entry via outsourcing.
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Why set up a legal entity in Vietnam?
Investors set up legal entities in Vietnam for the same reason as anywhere else in the world: legal entities provide a barrier between personal wealth and business assets.
For example, in case you find your business in financial troubles, or any other problem occurs, having a legal entity will protect your personal assets and property from creditors.
Types of legal entities in Vietnam available to foreign investors
#1 Limited liability company (LLC)
In Vietnam, a limited liability company does not have shares or shareholders, and company owners are not shareholders but members. Ownership depends on the capital contributed, or as agreed between members.
In most cases, the founder will determine how many members to include in the incorporation process. The upper limit is 50 members. The minimum can be one person, for a one-person company. Note that joint-ventures in Vietnam require a minimum of two members.
As the name implies, member liability is limited. If a member’s contribution, for example, is USD 10,000 and they have made it in full, they have legally fulfilled their duty. Should the company get into financial difficulties, the member’s other assets and funds will remain safe.
Minimum capital requirement in Vietnam
Although there is no minimum capital requirement in Vietnam, the capital you contribute must reflect your planned expenses.
From our experience, the most common minimum capital amount for setting up an LLC in Vietnam is US$ 10,000, and you can register a service sector company with even as little capital as US$ 3,000.
Therefore, if you’re planning to establish a small or a medium-sized enterprise (SME) in Vietnam, the most suitable option would be to set it up as an LLC.
To learn more about the requirements and the exact process of setting up a limited liability company, read our guide to company registration in Vietnam or get started with your company registration in Vietnam here.
#2 Joint-stock company (JSC), also known as a shareholding company
A joint-stock company in Vietnam is similar to an LLC, but for larger businesses. The minimum number of shareholders increases to 3 for JSCs, and the corporate structure is slightly more complicated.
A JSC also needs a Management Board and an Inspection Committee that will supervise the Management Board and the General Director. The latter isn’t always required if:
- the company has less than 11 shareholders where no shareholder holds more than 50% of the shares
- at least 20 % of the Management Board Members are independent members who form an independent auditing committee
Note that by default, you are not required to list shares on a public stock exchange. The requirement applies when your capital exceeds USD 475,000.
Alternatives to setting up a legal entity in Vietnam
A branch serves as an extension to its parent company. The parent company must have already been registered for at least five years to establish a branch office in Vietnam.
Branches can engage in commercial activities and earn revenue in Vietnam. However, the actions must align with those of the parent company and the parent company bears full liability for the branch’s activities, including its debts and obligations.
With a branch in Vietnam you can:
- rent offices, and lease or purchase equipment and facilities needed for its operation
- recruit Vietnamese and foreign employees
- enter into contracts in Vietnam following the parent company’s activity
- open Vietnamese and foreign currency accounts in Vietnamese banks
- remit profits
- purchase and sell goods or conduct other commercial operations consistent with the branch license
Other requirements include one Vietnamese resident as a legal representative.
Representative offices are similar to branch offices; however, the main difference is that a representative office cannot earn any revenue in Vietnam.
A representative office gives you a legal presence in Vietnam without setting up a company and is ideal for:
- conducting market research
- finding investment opportunities
- outreaching business partners in Vietnam
- promoting the parent company
- supervising agreement signings with Vietnamese partners
The funds can only come for the parent company, under whose license the representative office must also be registered. You can register a representative office in Vietnam for a maximum duration of five years.
Like with branches, the liability of a representative office’s parent company is unlimited. However, the parent company only needs to be registered for more than one year to set up a representative office.
Ready to register a branch or a representative office in Vietnam? Contact our consultants via [email protected] to get started.
Market presence in Vietnam via outsourcing
There are times when the most effective way to enter the Vietnamese market isn’t by setting up a business here, but rather by outsourcing your needs.
For hiring employees in Vietnam – use employer of record service (EOR)
The employer of record (EOR) service is the most cost-efficient way of employing people in Vietnam. An EOR allows you to recruit people in Vietnam without needing a legal presence in the country.
Furthermore, it enables you to expand to the market without worrying about the ever-changing employment laws and requirements in Vietnam.
The EOR service, or also known as staff augmentation, is particularly useful for lean market penetration. You get to perform market research, sell your products, or locate suppliers and distributors while not making any significant investments.
For importing products to Vietnam – use importer of record service (IOR)
Vietnam regulates imports and exports strictly. It can take between three to six months to set up a trading company in Vietnam and acquire all the necessary import licenses.
For this reason, many companies opt for an importer of record service (IOR), which allows them to:
- start importing immediately
- avoid setting up a legal entity
- avoid tax liabilities as the consignee pays the taxes
- ensure import is compliant with the law
- clear customs smoothly and without delays
Via our IOR service, you will be able to import goods to Vietnam in a timely fashion through one of our own companies or an existing trusted and reliable import partner in Vietnam.
Outsource manufacturing to local companies in Vietnam
A growing number of manufacturers are moving from China to Vietnam, on account of Vietnam’s skilled labor force, favorable trade agreements, and competitive wages.
While Emerhub can help you set up a manufacturing company in Vietnam, it is more cost-efficient at times to outsource manufacturing from local companies.
Finding contacts, leads, and B2B prospects in Vietnam comes with its own set of challenges and cultural traits which can be hard to navigate. However, creating business opportunities is something a local company can do for you without your Vietnamese legal entity.
Emerhub can be your eyes on the ground and assist you in finding partners and building business relationships as well as conducting business meetings in Vietnam.
For more information about your options for reaching the Vietnamese market without registering a legal entity, contact our consultants via [email protected] or use the form below.
How to choose the right type of legal entity in Vietnam?
Vietnam’s business-friendly policies and economic growth are significant benefits for foreign investors, entrepreneurs, and executives aiming to find a base in the Southeast Asian market.
However, company formation in Vietnam isn’t wholly straightforward. Like in any emerging market, you will need to select the right market entry strategy before acquiring a series of certificates, registrations, and licenses.
In some cases, it could even be a mistake to set up a company, when outsourcing would be a much smarter business decision.
Whether you need to register a foreign business in Vietnam, outsource your business processes, or undertake mergers and acquisitions in Vietnam, Emerhub’s wide range of services will support you in entering and thriving in Vietnam.
For more information on legal entities in Vietnam, don’t hesitate to contact us through the form below.