SB Law would like to share information foreign investor should be aware of when running a company in Vietnam, under Q&A as follows:
1/ What would be the best legal entity?
Among the most common and available investment vehicles to foreign investors including “company limited”, “joint-stock company (shareholding company)”, “business-cooperation contract”, I would recommend you to choose the “company limited” (same as limited liability company in other jurisdictions) when doing investment in Vietnam.
It’s required need at least 3 shareholders to register a JSC, and generally the organizational and management structure of shareholding companies is quite more complicated than LLC. One thing, the assignment of shares is always to be taxed (1% of transfer price), while the assignment of contributed capital may not be taxed if there’s no generated income (e.g. the transfer price is equivalent to the value of contributed capital).
2/ What would be the ideal timeline for such a company set-up?
Procedures for foreign-invested company incorporation include 2 main steps: (1) investment registration, and (2) company registration. Usually it takes 30 – 45 working days from submission of application dossier to complete those procedures.
3/ Is it necessary to be present in Vietnam for the company registration, or can a lawyer manage it on site when the investor will provide all the necessary documents on-line?
For implementation of mentioned-above investment registration, no need physical presence of investors in Vietnam to complete them. We shall handle the procedures on the basis of Power of Attorney from Clients to us. However, the post-licensing procedures such as: company bank account registration shall require the presence of legal representative of the new entity in Vietnam.
4/ Minimum investment capital for this business?
Clients should register a feasible capital depending on the scale of the investment project. Under Vietnamese law , it is noted that the “charter capital (equity)” of the company must be fully contributed within 90 days upon its incorporation, according to Vietnam Law on Enterprise 2014.
5/ What documents the investor need to provide to Lawyer to start with company set-up?
The proposed Checklist of documents will be provided later upon Client’s confirmation on our engagement letter
.
6/ Residency requirement to Legal Representative of Vietnam-based company
Legal representative is required to reside in Vietnam, as a resident. Under the point of view of the Tax Authority, a person can be deemed as “resident” if he lives at least 183 days per year in the country; or if he has a so-called “Temporary Residence Card” in Vietnam. Thus, technically, if the Legal Rep. has “Temporary Residence Card” and “Power of Attorney” for another manager, he does not need to be physically present (living) in Vietnam; however, he’s still must be responsible for any decisions that his proxy made for and on behalf of him.
However, if you’re a “resident in Vietnam”, annually you have to declare and finalize all of your global incomes in Vietnam. For the avoidance of this burden, some enterprises choose this legal workaround: they register 2 Legal Representatives, which one person resides in Vietnam, while the other does not. However, the one living in Vietnam shall be limited to his rights/obligations/duties, e.g. he is not allowed to sign a contract. Actually, everything shall be decided by the non-residing Legal Representative.
In summary, we kindly suggest 02 options for your consideration:
(1) In case of having 01 foreign Legal Representative, Work Permit and Temporary Residence Card must be apply and obtain for this person; OR
(2) Having from 02 Legal Representatives upward, at least one of them is local and reside in Vietnam.
7/ Taxes
Enterprises (generally companies) are subject to the tax rates imposed under the Corporate Income Tax (CIT) Law. The standard Corporate Income Tax (CIT) rate from 2016 is 20% (it was 22% from 2014 to 2015, and 25% prior to 2014). Regarding Advertisement Agency Service, no tax incentives are applicable for such business activities at this moment.
It is not intended to serve as tax advice. Tax law is subject to continual change, at times on a retroactive basis and may result in incremental taxes, interest or penalties. Should the facts provided to us be incorrect or incomplete or should the law or its interpretation change, our information may be inappropriate. You should consult the tax and accounting advisors for further advice.
8/ Employment concerns
Among the issues, here are some of the key labor issues and their impact on doing business in the country:
a/ Minimum salaries
According to MOLISA, minimum salaries in certain working regions will be increased. In working region Type I including Ho Chi Minh City, the minimum salary is increased to the range of VND 4.18 million to VND 4.42 million in 2020. The employers should be aware of, and well prepared for their human resources budget.
The region-wage minimum wage is the lowest wage amount which is paid to an employee performing the simplest job in normal working conditions and completing his labor norms and at least 7% higher than the region-based minimum wage paid to skilled orkers. Enterprises are not allowed to eliminate or reduce salary regime when employee works overtime or nighttime or subject to extremely heavy, dangerous, or toxic working conditions, perquisites for holders of hazardous and arduous working positions and other benefits as regulated in the Labor Code. Other allowances, supplemental pay, subsidies or bonuses decided by enterprises shall be paid according to terms and conditions of the signed labor contracts, collective labor agreements or statutes of enterprises.
b/ Work permits for foreign employees
In general, if an expatriate wants to work in Vietnam for three months or longer, he/she must obtain a work permit. Vietnamese employers are required to provide support and submit application documents for the work permit. Currently, the concept of managers who are permitted to work in the country is limited to the narrowly-defined “managerial positions” under the Enterprise Law of Vietnam (EL). The result is only a few people qualify for managerial positions. Employers can expand the definition of ‘managerial position’ in their charter or persuade the MOLISA (the issuing body of work permits) to accept them as experts with one of the following conditions:
– Acknowledgement by the company’s headquarters as an expert.
– Obtainment of a bachelor’s degree or equivalent.
– Having at least three years’ experience in the relevant industry.
c/ Basic Employment Terms
A labor contract must be written in Vietnamese or in both Vietnamese and foreign language that is applicable to the employer and employee. Contracts for temporary jobs lasting less than three months or for domestic helper work do not need to be in writing and can be oral. The Labor Code of Vietnam requires that a labor contract include the following material terms: (i) work to be performed; (ii) working hours and rest hours; (iii) wages; (iv) working place/location; (v) duration of contract; (vi) conditions on occupational safety and hygiene; and (vii) social insurance for the employee. In practice, statutory material terms are for standard labor contracts for simple work only.
Under Vietnam Labor Law, employment contract must be concluded in one of the following types:
– Employment contracts without fixed term in which both Parties do not specify the term and the expiry date of the contract;
– Fixed-term Employment Contracts in which both parties specify the term and the expiry date of the contract within 12 to 36 months;
– Casual employment contracts or regular employment contracts with terms under 12 months.In case the parties in Employment Contract do not specify the expiry date of the Contract, it shall be classified to the Employment Contracts without fixed term.With the reference to Employment Contract without fixed term, Vietnam Law strictly limits rights of Employers to unilaterally terminate employment contract. Meanwhile, Employee can unilaterally terminate an employment contract at any time just by sending a 45 days written notice. We highly recommend the Employers to clearly specify the expiry date of the Contract. However, the expiry date must not exceed 36 months from the signing date of the Contract. Ideally, you specify the expiry date of the Contract not exceeding 12 months from the signing date of the Contract. Then, upon the expiry date, the Company can consider renewing validity of the Contract.
d/ Social Insurance
Social Insurance applies to enterprises, entities, and organizations that employ employees under indefinite-term labor contracts or under definite-term labor contracts with a duration of three months or more. Both employees and employers are required to contribute to the social insurance fund at statutory rates. The social insurance fund pays allowances for sick leave, maternity leave, work-related accidents, occupational disease, and pensions. From 1 January 2018 all employees with a labour contract term of one month or more, including foreign employees, will be required to pay compulsory social insurance. Companies should take into account this type of payment when calculating benefits payable to foreign employees, and when developing their business plan.
9/ Profit repatriation concerns (if any)
Foreign investors are permitted to remit their profits annually at the end of the financial year or upon termination of the investment in Vietnam. Foreign investors are not permitted to remit profits if the invested company has accumulated losses. In order to repatriate profits, a company must ensure that it has completed the declaration of corporate income tax of the relevant financial year and issued audited financial statements.
The company must then report its intention to repatriate its profits to the tax bureau. If, within 7 days, there is no notice from the tax bureau, the profits may be remitted out. Accordingly, after completing their tax obligations to the State of Vietnam, foreign-invested companies are free to transfer profit abroad and shall not be subjected to withholding tax. However, individual investors are still subject to tax. Please kindly be advised by a Tax/Accounting Advisor for further details.
10/ Trademark registration
We also are a full-range law-firm providing services in all legal aspects of Intellectual Property in Vietnam.
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