Legal advices for establishment of Foreign Invested Company in Vietnam

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This is reference to your email from which, we understand that your foreign company  (hereinafter referred to as “Client”) is now seeking legal advices for establishment of Foreign Invested Company in Vietnam.

1. Your request.

Thus, we are pleased to present herewith our Legal Service Proposal for your kind reference

Based on our initial discussion, we understand that Client wishes setup a new entity in Vietnam near the Hai Phong/Hanoi area.

This entity will hire up to 15 employees at startup, with expansion potential. The new entity is likely be a subsidiary of Client, and the company will earn service fees from same.

Such new entity will be just a cost center and it will not book sales & purchase locally. We further understand that, during operation, the new entity shall engage with purchasing some equipment from suppliers and provide to factories.

Such equipment may be purchased domestically or imported. The new entity will own the equipment, provide to factory free of charge (NOT a lease arrangement), but will collect upon completion of usage. The financing of the equipment will be from Client.

2.Discussion

Under Vietnam Law, a foreign company/investor can initiate its business activities in Vietnam Market with either of setting up (i) a representative office (hereinafter referred to as “R.O”) or (ii) setting up a foreign invested company (hereinafter referred to as “FIC”).

R.O can be considered as a kind of cost centre functioning as liaison office, undertaking market research, promoting trade and investment opportunity for whom the R.O represents, but not including service sectors in which the establishment of a RO is regulated by specific legal regulations. Disadvantage of R.O is that it is not allowed to engage with any activities for profit making purpose. Then, it shall not support for you if you wish to have it purchasing some equipment from domestic or foreign suppliers and providing to factories in Vietnam for free of charge.

On the other words, with R.O, Client shall be required to directly engage with activities of purchasing equipment from suppliers and providing it to factories.

With the option of FIC, it is designed as a full functioned business unit in Vietnam. Then, a FIC is entitled to purchase equipment from supplier and provide it to factories. Before going further with this option, we highly recommend you to consider following matters:

– Establishment of a FIC in Vietnam shall require an Investment Registration Certificate from the licensing authority. For this purpose, Client shall have to prepare an investment proposal for its business activities in medium or long term with detailed description of proposed investment capital, domain of investment, expected profit and estimated cost.

We can help you prepare such investment proposal based on your input information. Please note that, business activities of the FIC must adhere with the investment proposal, especially those relating to investment capital, domain of investment.

Any change regarding to proposed investment capital and domain of investment must be subjected to approval from the competent authority. Since your proposed new entity in Vietnam shall function as a cost centre, you should have a full estimate of proposed cost for purchasing necessary equipment from suppliers to provide factories in Vietnam.

This shall be the main basis for accounting investment capital for FIC.

Please also note that, Client shall be required to contribute proposed investment capital to FIC within 03 months from obtainment of Investment Registration Certificate. Otherwise, the FIC is required to reduce equity.

If Client initiates investment capital contribution after above said 03 months, FIC shall be forced to close before expiry of its operation term.

– We understand that in this case, Client shall finance FIC’s operation including cost for management, human resource, leasing office etc… FIC shall neither earn nor pay any amount of money from/for factories.

Under Vietnam Law, revenue of a company must adhere with its registered business activities (a Company is not allowed to carry out any activities for profit making purpose without prior registration with competent authorities).

Revenue of a Company may be subjected to corporate income tax if there is profit after deducting reasonable expense.

In line of this, we are of opinion that your FIC should register with business activities of business management consultation service and market research service. Then, the FIC can invoice parent company in Hongkong in order to receive finance support for its daily business operation.

However, please note that with above the registered business activities, cost for purchasing equipments for providing factories at no cost shall not be considered as acceptable expense for accounting profit of the company as such expense is not direct input of revenue from business management consultation service and market research service.

Furthermore, as parent company is only customer of the FIC, transactions between Client and FIC shall be subject to requirement for annual anti-price transfer report. The tax authority may re-impose service price invoiced by FIC to the parent company accounting market price if they have basis to doubt that price offer by FIC to the parent company is not reliable.

3. Conclusion

In light of above analysis, we are of opinion that in this case, the option of FIC shall be the best choice for you in this case as FIC can provide you room to expand the business activities in future without significant obstacle through amendment of its Investment Registration Certificate and Enterprise Registration. Meanwhile, with R.O option, for such purpose, you have no choice other than closing R.O and setting up FIC in Vietnam.

For setting up FIC in Vietnam, Client shall have to undergo following steps:

Step 1: Obtaining Investment Registration Certificate:

This step can be completed within 20 working days from submission of required application to the competent authority (for a smooth forward case).

Step 2: After obtainment of Investment Registration Certificate, Client shall be required to obtain the Certificate of Business Registration. The Law requires that within 05 working days from submission of application dossier, the competent authority shall have to issue the Certificate of Enterprise Registration for forming the FIC.

4. PROFESSIONAL FEE

The Price for performing the SB Law services as mentioned in item above will be as follows:

– For obtaining Investment Registration Certificate: 7,862USD (Seven thousand eight hundred and sixty two US Dollar);

– For obtaining Enterprise Registration Certificate: 350USD (Three hundred and fifty US Dollar);

– Our cost is exclusive of 10% VAT.

– Our cost is inclusive of governmental fee, actual cost for traveling from/to Hanoi and other northern provinces having common border with Hanoi.

– Please note that our service fee is quoted on the basis of full package service fee. In case Client would like to engage us with a separate service package, we reserve our right to re-quote our service fee.