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Vietnam Foreign Subsidiary Creation and Alternatives

By November 15, 2017No Comments
Vietnam Foreign Subsidiary

Vietnam’s economic growth record over the last 30 years is remarkable. Thanks to the 1986  economic and political reforms under “Doi Moi”, Vietnam has transitioned from one of the poorest economies in the world to one of the fastest growing, with an expectation of 7% growth in the last quarter of 2017. This has sky-rocketed the number of companies that see Vietnam as a perfect market for their business to expand globally.

To do business in any country, a foreign firm needs to have a local presence. If you want to capitalize on Vietnam’s rapid growth, this country is no different. In this post, we’ll guide you through creating a Vietnam foreign subsidiary and its alternatives.

Legal Entities for a Vietnam Foreign Subsidiary

Vietnam’s Law on Enterprises (LOE) and the Law on Investments (LOI) govern all investment activities in Vietnam since they were passed in 2005 and 2006. They address the ways that foreign companies can establish entities in Vietnam.

Under LOE, there are several entities that a foreign investor can establish, including:

  • Limited Liability Company: A company with one or more members where their liability is limited to the capital which each member contributes to the entity
  • Joint Stock Company/Shareholding company: A company founded with three or more investors who divide their equity into shares
  • Partnership: An entity established by at least two members who share unlimited liability for the actions of the company to the extent of their assets
  • Private Enterprise: An entity owned by a single individual who is liable for all the businesses activity to the extent of his or her assets

If you want to establish a new business entity in Vietnam, you will need to:

  • Register your business name
  • Obtain business registration certificate
  • Obtain a tax registration certificate
  • Make and register a company seal
  • Buy pre-printed VAT invoices
  • Publish the business registration on the National Business Registration Portal
  • Register with the local labor office

These first steps can be complex and very time-consuming, especially in countries where there are cultural, structural, and bureaucratic differences.

Branch Office or Representative Office

Instead of establishing a new legal entity, like an LLC, some industries may establish branch offices or representative offices in Vietnam. As Doing Business in Vietnam states, a branch office is a “dependent unit of a foreign entity and may conduct commercial activities for direct profit-making purposes in line with international treaties to which Vietnam is a signatory.” A branch is a unit of a foreign company that can legally do direct business in Vietnam.

A representative office, on the other hand, is not allowed to do direct commercial activities like execute contracts or sell goods. There are a few activities that can be legally done such as surveys, look for investment opportunities, negotiate on behalf of a home office to buy goods and/or services for the parent company, and other non-commercial actions.

Alternatives to A Branch or Legal Entity

Establishing a new business entity or a branch office takes a great deal of time and money. In addition to that, a new business entity needs to worry about local compliance and labor laws. All of the red tapes can lead to long delays and increased liability that many companies can’t afford.

International PEO (Professional Employer Organization) can help you handle employment in Vietnam. As the Employer of Record, the International PEO manages all human resources, payroll, benefits, and ensures regulatory compliance. When you contract with this service, they manage the process, the risk, and compliance issues while you focus on establishing your business and preparing for success. It also gives you a more affordable option for leaving the market if necessary.

To learn more about International PEO and expanding into Vietnam, get in touch with the Velocity Global team today!