Legal advice concerning setting up of company in Hanoi,Vietnam, by a foreigner and local partner

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Legal-and-Regulatory1

Investor: I would like your advice on starting a joint venture (with a local partner) LLC in VN that imports foreign health products for local distribution and also export to other ASEAN countries. I will be the major shareholder.

Can you briefly walk me through the legal processes and weigh in on its feasibilty?

Concerns:

– Timeline for incorporation

– Necessary licences

– Investment capital requirements

– Ways to safeguard my rights

Lawyer: It is our understanding that Client and its Vietnamese Partner intend to set up a joint venture company in Hanoi for trading health products.

a) According to the Item 1, Article No. 4 of Decree No.23/2007/ND-CP dated 12 February 2007 of the Government providing regulation for implementation of commercial law regarding purchase and sale of goods and activities directly related to the purchase and sale of goods by enterprises with foreign owned capital in Vietnam (Hereinafter referred to as “Decree No.23/2007/ND-CP”), foreign investors who

satisfy following conditions shall be entitled to license for activities of trading in Vietnam:

– It is an investor belonging to a country or territory participating in an international treaty of which the Socialist Republic of Vietnam is a member and in such treaty Vietnam has undertaken to open the market on activities of purchase and sale of goods and activities directly related to purchase and sale of goods;

– The form of investment is consistent with the schedule/s undertaken in international treaties of which the Socialist Republic of Vietnam is a member and is consistent with the law of Vietnam;

– The goods and services in which business is conducted are consistent with Vietnam’s undertaking to open the market and are consistent with the law of Vietnam;

– The scope of operation is consistent with Vietnam’s undertaking to open the market and is consistent with the law of Vietnam;

– It has approval from the State body authorized in Vietnam.

Under Vietnam WTO’s Commitments, from the year of 2009, foreign investor is entitled to join goods import and trading activities in Vietnam. Singapore is a member of WTO.

Thus, Client and its Vietnamese Partner are entitled to setup a foreign invested trading company (hereinafter referred to as “FIC”) in Vietnam. FIC can be either of Joint Venture Company collectively owned by Client and its Vietnamese Partner or Wholly Foreign Owned Company.

b) From your question, we understand that you are planning to import and trade health products in Vietnam. We noted that health product may be classified to consumption goods.

According to our practical experience in previous case, we note that, if you plan to carry out whole sale and retailed sale of consumption goods in Vietnam, you may be required to setup whole sale and retailed sale outlets.

In some cases, the competent authority in Vietnam may accept an explanation that the enterprise shall carry out whole sale activities of consumption goods at the head office of the company and therefore it does not need to setup a retailed sale outlet.

However, this argument shall be only accepted if the FIC provides good evidence that there is sufficient space for carrying out the whole sale activities. We also noted that there is no standard conditions of sufficient space for carrying out the whole sale activities, the acceptance shall by very much depended on the sole direction of the licensing authorities.

Thus, if the proposed head office of the FIC to be established in Vietnam is not wide, Client should consider to contacting several warehouse service suppliers in order to prove that you have enough spaces to store products before delivery to customers. In some cases, in-principle contract between Client and such suppliers may be required by licensing authorities for reference.

c) Another important thing is the charter capital of the trading company in Vietnam.

With the respect to purchase and sale of goods and activities directly related to the purchase and sale of goods, Vietnam Law does not impose any minimum rate of charter capital. Thus, Client shall be self responsible for its estimate of sufficientcharter capital to be injected into FIC for running its business project.

According to our practical experience, with your plan of trading above mentioned products, we are of opinion that Client should consider a rate of charter capital from 150,000USD upward.

d) The establishment of the FIC requires an Investment Certificate from the licensing authority.

Depending upon the location of the FIC, the licensing authority may be the Provincial People’s Committee (for companies located outside industrial or export processing zones) or the provincial Industrial and Export Processing Zones Management Authority (for companies located in industrial or export processing zones).

We would like to clarify that the procedure for establishment of a FIC in Vietnam generally takes a rather long time in comparison with other countries in the region.

Our practical experiences show that although the total time for establishment of a FIC as stipulated under Vietnam Investment Law 2005 is only 20 – 45 days, the actual process may take a longer time due to that the competent authority must consult other relevant offices to evaluate the application dossier.

 e) The roadmap for the incorporation of the FIC for trading activities can be described in following steps as follows:

-Preparing the application dossier: We shall collect necessary information and documents from you. Upon receipt of necessary information and documents from you, we shall translate documents from English into Vietnamese and prepare the application dossier under the standard forms. The initial drafted application dossier shall be sent to you for your comments. Then, after updating the application dossier based on your comments, we shall obtain the preliminary comments from the competent authority and send the finalized application dossiers for you to sign and seal.

We anticipate that this phase shall be completed within 05-07 working days.

-Submission of application dossier: Within 02 working days from receipt of duly signed and sealed application dossier, we shall submit the application dossier to the competent authority. It shall take about 45 workings days from submission of application dossier to the competent authority for the provincial licensing authority to grant the Investment Certificate. In some case the process can be longer as it takes time to consult relevant Ministries such as Ministry of Industry and Trade, Ministry of Planning and Investment, Ministry of Health; Ministry of Finance.

-Post licensing: Within 13 working days we shall complete the post licensing proceduressuch as publishing the FIC in News Paper, obtaining seal and tax code registration.

-Product Registration: After completion of establishment of FIC, Client shall be required to register health products with competent authority. Time duration for registration of Health Products can be lasted within 02 months from submission of application dossier to competent authority.