Investors exploring opportunities in the Vietnamese market have several business entity options to choose from this guide provides an overview of the SIX main types of businesses available for those looking to establish a presence in Vietnam: Representative Office, Limited Liability Company (100% Foreign-Owned Enterprise), Branch Office, Joint Venture, Public Private Partnership, and Joint-Stock Company.
- REPRESENTATIVE OFFICE (RO):
- Representative Offices offer a cost-effective entry point for newcomers to the Vietnamese market.
- ROs are ideal for companies seeking to understand the local market with a limited initial investment.
- Permitted activities include market research, acting as a liaison for the parent company, and promoting head office activities.
- No statutory registered capital is required.
- ROs can be established within 7 working days.
Example: Tech Company Exploration: A tech company from the United States sets up a representative office in Ho Chi Minh City to conduct market research and explore opportunities in the Vietnamese tech industry.
- LIMITED LIABILITY COMPANY (LLC) – 100% FOREIGN-OWNED ENTERPRISE:
- LLCs provide limited legal liability and can be wholly owned by foreign investors.
- Registered capital requirements vary depending on the business nature but can be relatively low in some cases.
- Ownership can be single-member or multiple-member LLCs, with owners being individuals or companies.
- The setup process involves obtaining an Investment Registration Certificate (15 days) and an Enterprise Registration Certificate (3 working days).
Examples: Finance, Banking, Insurance and Fin-tech; Language Centers, Real estate companies…
- Coffee Chain Franchise: A foreign coffee chain franchise establishes an LLC to open and operate coffee shops in multiple cities across Vietnam, with full ownership of the business.
- BRANCH OFFICE (BO):
- Branch Offices are suitable for specific service businesses such as finance and banking.
- Permitted activities include renting offices, hiring staff, remitting profits abroad, and more.
- A branch manager must be appointed, who must be a Vietnam resident.
- BOs can be set up within 7 working days.
- In order to operate in Vietnam, a Branch Office must adhere to specific requirements:
- Acquiring an establishment license.
- Possessing a seal bearing the name of the parent company.
- Appointing a branch manager who is a resident of Vietnam.
Branch Offices are authorised to undertake a range of activities in Vietnam, which include:
- Renting offices for operational purposes.
- Leasing or procuring the necessary equipment and facilities.
- Recruiting both local and foreign employees.
- Facilitating the remittance of profits to the parent company abroad.
- Engaging in the purchase and sale of goods and other commercial activities in accordance with licensing requirements.
- Establishing dedicated departments for accounting, marketing, and human resources to represent the interests of the parent company.
Examples: International Bank Branch: An international bank opens a branch office in Hanoi to provide banking and financial services to customers in Vietnam. Branch offices are common for financial institutions.
- JOINT VENTURE (JV):
- Joint Ventures involve partnerships between foreign and local entities for specific business purposes.
- Foreign ownership typically requires a minimum contribution of 30%, but this can vary by industry.
- Capital requirements for JVs are similar to 100% Foreign-Owned Enterprises.
- Establishing a JV may take 3 to 6 months, including partner selection and negotiations.
To enter the market in these specific business fields, foreign investors are mandated to establish a joint venture in collaboration with a local partner:
- Advertising services
- Agriculture, hunting, and forestry-related services
- Telecommunication services
- Travel agencies; Tour operator services; Entertainment services
- Electronic gaming businesses
- Container handling; Customs clearance services; Auxiliary transport services
- Internal waterways transport, rail, and road transport services
Examples: Automobile Manufacturing JV: A foreign automobile manufacturer forms a joint venture with a local Vietnamese company to produce and distribute vehicles in Vietnam. The foreign partner holds 51% ownership, and the local partner holds 49%.
- PUBLIC PRIVATE PARTNERSHIP (PPP):
- PPPs involve partnerships between enterprises and the government for infrastructure projects.
- PPPs are gaining prominence in Vietnam as a solution for infrastructure development.
The various types of Public Private Partnerships (PPPs) include:
- Build – Transfer – Operate (BTO)
- Build – Lease – Transfer (BT)
- Build – Operate – Transfer (BOT)
- Operate – Manage (O&M)
- Build – Own – Operate (BOO)
- Build – Transfer – Lease (BTL)
- Mixed type
Examples: Highway Construction PPP: A consortium of foreign and domestic construction companies partners with the Vietnamese government to develop a new highway under a Build-Operate-Transfer (BOT) PPP model. The consortium invests in the construction, operates the highway, and eventually transfers it back to the government.
- JOINT-STOCK COMPANY (JSC)
in Vietnam is a business owned by shareholders who hold shares of stock. Shareholders’ liability is limited to their share value. JSCs can be public or private, have a board of directors, and follow regulatory compliance. They are well-suited for raising capital and growth, including the possibility of conducting an IPO.
Example: Company TT Electronics JSC
- Ownership: TT Electronics JSC is owned by several shareholders who hold shares of the company. Shareholders may include both individuals and other companies.
- Capital Requirements: The initial capital requirement for TT Electronics JSC, as specified by Vietnamese law, was VND 10 billion (Vietnamese Dong), with each share having a face value of VND 10,000. This means there were 1 million shares initially issued.
- Public vs. Private: Initially, TT Electronics JSC operated as a private JSC with a limited number of shareholders, mostly consisting of the company’s founders and early investors.
- Management: The company has a board of directors comprising experienced professionals from the electronics industry. They oversee the company’s strategic decisions.
- Shares and Transfer ability: Shareholders in TT Electronics JSC have the option to buy or sell their shares in the company, subject to any restrictions outlined in the company’s bylaws. This flexibility allows for changes in ownership over time.
- Reporting and Compliance: TT Electronics JSC complies with all legal and financial regulations in Vietnam. It submits regular financial reports to the relevant authorities and adheres to corporate governance standards.
- Fundraising and Growth: When TT Electronics JSC decided to go public, it conducted an Initial Public Offering (IPO) and listed its shares on the Ho Chi Minh City Stock Exchange. This allowed the company to raise additional funds from the public markets, which it used for expanding its product line and market presence.
Source refer: Vietnam Briefing