Start a business in Vietnam – What should FDI enterprises prepare?

According to the Investment Report 2021 of the United Nations Conference on Trade and Development (UNCTAD), Vietnam ranked 19th when attracting 16 billion USD from FDIs in 2020, up 5 places from 2019 and surpassing Japan (20th place with 10 billion USD). Due to the region’s dynamic economy, large labor resource, and state-sponsored incentives for international enterprises, Vietnam is steadily rising to the top of Southeast Asia’s marketplaces receiving the most foreign investment.

From the aforementioned advantages, it can be seen that starting a business project in a new nation is a fantastic opportunity for FDI (Foreign Direct Investment) enterprises. On the other hand, this is also a significant difficulty because it requires careful investment planning for every aspect of business. Thus, what should FDI enterprises focus on and get ready for when “launching” the Vietnamese market?

How can a foreign company start a business in Vietnam?

When entering a brand-new market, challenges and hurdles are unavoidable. Businesses must thus comprehend the following notes in order to adequately prepare before choosing to invest in Vietnam.

Business registration for FDI enterprises

FDI enterprises can start a business in Vietnam as a foreigner, through direct or indirect foreign investments.

Direct foreign investment means you work together with a Vietnamese partner in a 100% foreign-owned company or a joint venture company. To obtain a direct investment in Vietnam, businesses will need an enterprise license and go through legal procedures according to local law.

Indirect foreign investment, on the other hand, means business purchase shares of companies in Vietnam. The indirect investment grants business a position in company management, depending on the agreement between you and the Vietnam company.

The suitable business structure in Vietnam for FDI enterprises

In the stage of entering a new market, choosing the appropriate company structure is just as crucial as taking into account the business form. In fact, FDI enterprises can decide on business structures based on two types of direct and indirect investment, including: 

– Establishing enterprises with 100% foreign investor capital; 

– Investment to contribute capital, buy shares, and acquire capital contributions from other enterprises;

– Opening a Vietnamese branch of a foreign corporation;

– Invest via the BCC contract (Business Cooperation Contract).

Notes when doing business in Vietnam

Enterprises must also take into account the kinds of products and services that are prohibited from operating in Vietnam as well as those that require special permission to do so.  As a result, businesses can prepare well for their business plans in Vietnam.

Businesses are prohibited from conducting business in relation to the following items, as stated in Article 6 of the Law Of Investment (2020) (LOI), which prohibits foreigners from engaging in a number of business activities in Vietnam: 

– Narcotic substances (specified in Appendix 1, LOI); 

– Toxic chemicals, precursors, and minerals (specified in Appendix 2, LOI);

– Natural specimens of endangered, precious, and rare species of wild fauna and flora (specified in Appendix I, CITES and Appendix 3, LOI); 

– Prostitution, human trafficking or cloning businesses involving people;

– Products related to firecrackers; 

– Debt recovery

A new “conditioned business investment” has just been added to the Investment Law 2021, whereas categories like commercial arbitration or logistics have been eliminated. Business won’t be constrained from engaging in “conditional business investment” operations, but in order to gain access to the Vietnamese market, business will need to fulfill a number of requirements.

In summary, these ‘conditional business investments’ include:

– Accounting and auditing services

– Tax agent service

– Customs related business: Customs agency services, Duty-free business, bonded warehouses or container freight stations

– Securities related business activities

– Insurance/Reinsurance/Insurance brokerage/Insurance agent/Insurance ancillary services

– Appraisal service

– Other financial enterprises: Lottery business, Debt collection service, Credit rating service, Video games with prizes for foreigners, Casino business

The business has completed its market investigation in Vietnam after evaluating and comprehending the aforementioned notes. Next, businesses must follow the steps below in order to formally create, develop, or invest in a company in Vietnam.

Steps to establish a company with foreign direct investment in Vietnam

Step 1: Find a legal place or rent an office to set up your head office

The registration process appears to be the simplest step in the establishment of an FDI enterprise, but companies should be aware that not all sites, including homes, offices, and buildings, are eligible for  business address’s registration. To avoid risks related to business licensing, enterprises need to carefully analyze this problem.

Step 2: Prepare the necessary information and paperwork to register your business and obtain an investment license

Besides the preparation of the fundamental documents, some foreign documents also need to be translated and legalized. Therefore, in order to prepare effectively from the start, businesses need to comprehend the list as well as the legal requirements of each type of paperwork.

Obtaining a business license in connection with the creation of a subsidiary or foreign invested firm may take many months. An enterprise may need to prepare one or more of the following licenses, depending on the type of business: Business license, investment registration certificate, and business registration certificate.

Step 3: Build a team

The foundation and deciding element for the business’s success are human resources. When starting to create their own human resources team, enterprises should concentrate on hiring, training, and developing human resources.

Step 4: Manage recurring compliance processes in accordance with regional laws

Based on the internal management system and internal audit process, businesses must regulate the execution of compliance procedures. These procedures include filing tax returns, registering employment agreements, processing payroll, requiring social insurance, complying with laws regarding overseas workers, etc.

To assure the accuracy of this phase from the start as well as reduce risks and incur needless expenditures, businesses might choose to utilize human resource management services. 

A group of comprehensive human resource management solutions for your business – terra

Developed with the aim of supporting the HR community and businesses around the world, terra provides a group of terra human resource management solutions, supporting FDI businesses to the maximum when conducting market expansion in Vietnam. .

– terra HR System – Comprehensive human resource management system: If businesses are afraid of making mistakes in step 3 or step 4, you can employ terra HR System because all the inadequacies in human resources will be thoroughly resolved. terra HR System will help and accompany FDI firms from the “first stages” to engage in the Vietnamese market, with features such as timekeeping, wage calculation, personnel data management, leave and overtime, social insurance, recruitment, labor contract, training, and so on.

– terra Payroll – Payroll outsourcing service: Similar to terra HR System, terra Payroll is a payroll solution that FDI enterprises may use for calculations, salary payments, social insurance, and other related tasks. It can be argued that terra Payroll is the best option for FDI businesses since it combines technology with HR system software at a very affordable price. All of the differences and difficulties related to law, culture, labor, … will be solved by terra team including experienced staff in the field of consulting – tax – local accountant support settlement.

– terra Academy – Training and sharing knowledge projects: When launching a business in a completely new country like Vietnam, terra Academy can become a channel to deliver important information as well as update advances in policies, legislation, and human resources.

terra hopes to become a partner to bring effective human resource management solutions to businesses, helping businesses quickly adapt and develop well  business in Vietnam.