When to Set Up a Local Company in Vietnam Instead of a Foreign Company

As foreign businesses enter the market, many face a key decision: to set up a 100% foreign-owned company or a locally owned entity? 

This article breaks down the key differences, advantages, and steps for foreign investors to establish a local company in Vietnam.

Deciding Between a Local or Foreign-Owned Company in Vietnam

Key Differences Between Local and Foreign-Owned Companies

In Vietnam, both local and foreign-owned companies follow the same corporate structures, typically as a Limited Liability Company (LLC) or a Joint Stock Company (JSC). However, ownership percentage determines the regulatory framework they must comply with. 

A company is considered foreign-owned if foreign investors hold at least  51% of its shares, subjecting it to additional licensing and restrictions. A locally owned company, on the other hand, limits foreign shares at 49%, generally resulting in a more simplified compliance process. Here’s a side-by-side comparison of each structure:

Criteria	Local Company	Foreign-Owned Company
Ownership Restrictions	Must be at least 51% Vietnamese-owned.	Up to 100% foreign ownership in many sectors; excluding regulated industries under the Law on Investment 2020.
Registration Process	Simplified and faster due to fewer regulatory requirements.	More complex, requiring an Investment Registration Certificate (IRC) and compliance with additional regulations.
Tax Incentives	Eligible for preferential tax treatments and incentives such as reduced corporate income tax rates or exemptions for specific industries (e.g. manufacturing and technology)	Subject to standard corporate tax rates (generally 20%). Eligible for incentives if operating in prioritized sectors or special economic zones.
Market Access	Can operate in regulated sectors such as banks, logistics, land, sea and aviation, legal services, and agriculture.	Limited to sectors open to foreign investment– from trading, e-commerce, IT, and education, to food & beverages, construction, and consultancy.

When to Choose a Local or Foreign Company for Your Business Expansion in Vietnam

Deciding whether to set up a foreign-owned company or a local company in Vietnam depends on your industry and overall operational needs. While a foreign-owned company allows you full control, a local company provides a faster setup, easier compliance, and access to restricted sectors.

1. Streamlined Market Entry & Smoother Compliance– Foreign businesses often face stricter compliance requirements than local companies. As a foreign-owned company, you may encounter these common situations:

• More frequent audits and stricter tax regulations.
• Longer approval processes for licensing and operational permits.
• Potential legal changes that impact foreign investment policies.

By setting up a local company, you get to minimize compliance risks while enjoying simpler tax structures and fewer regulatory hurdles. This is especially useful if you need to:

• Start operations quickly without foreign investment approvals.
• Sign contracts or lease property without restrictions.
• Avoid additional licensing requirements that apply to foreign investors.

2. Navigating Restricted Sectors– While some sectors allow 100% foreign ownership, others limit foreign ownership, which means you may not be able to fully own the business. Certain industries prohibit foreign investment entirely too. Below is a breakdown of these industry classifications: 

Industries that allow 100% foreign ownership	Regulated industries (≤50% foreign ownership)	Restricted industries (no foreign ownership)
– Trading  – E-commerce – ITEducation – Food & beverage – Hospitality – Construction -Consultancy	– Banks – Logistics – Land, sea, and aviation transportation – Credit companies – Advertising services – Legal services – Agriculture – Electronic gaming	– Fishing – Security services – Weapons and explosives manufacturing – Public services (postal, judicial)

3. Managing Profit Repatriation– Foreign-owned companies can legally repatriate profits abroad but they face withholding taxes and compliance requirements to ensure proper reporting. A local company, on the other hand, provides more flexibility in:

• Reinvesting earnings within Vietnam without additional repatriation steps.
• Avoiding delays in domestic financial transactions.
• Optimizing tax strategies for reinvesting profits locally.

If your goal is to send profits abroad efficiently, a foreign-owned company is essentially the better option. However, if you plan to keep profits within Vietnam for expansion, a local company offers financial advantages such as lower tax obligations on retained earnings, easier access to local financing, and reduced currency exchange risks.

How to Set Up a Local Company in Vietnam

Setting up a local company in Vietnam is significantly faster than establishing a foreign-owned business, often taking just days or weeks, rather than months. This is because it doesn’t require an Investment Registration Certificate (IRC) or extensive foreign investment approvals. However, you must still comply with specific local regulations to ensure smooth operations.

Key steps include preparing company documents, registering with the Department of Planning and Investment (DPI), and obtaining the mandatory business licenses. Additionally, you must also register for taxes and adhere to the country’s financial reporting standards to remain compliant.

Emerhub simplifies this entire process, ensuring your company setup aligns with your business objectives and Vietnam’s regulations. Our services include:

• Evaluating the right company structure that best suits your business needs.
• Preparing all necessary documentation, including the Articles of Association.
• Handling business registration with the DPI and other licensing authorities.
• Assistance with tax registration and reporting.
• Ongoing support throughout your operations.

Looking to establish a local company in Vietnam? Fill out the form below and we’ll put you in touch with one of our experts in the country!