Question: I am researching the establishment of a business operating in the wholesale and retail sector in Vietnam. I am wondering whether setting up a 100% Vietnamese-owned company and a 100% foreign-owned (FDI) company in the same sector differs in terms of procedures, level of complexity, and time required. Could you, as a lawyer, explain the differences between these two models with respect to legal requirements, incorporation procedures, related permits/licenses, and the practical complexity of implementation?
Answer:
The choice of investment model – whether a 100% Vietnamese-owned company or a 100% Foreign-Direct Investment (FDI) company – directly determines the governing legal framework, the complexity of administrative procedures, and the total time required for the enterprise to officially commence operations. Although both models engage in wholesale and retail business, they are governed by distinct legal regulations, leading to several notable differences as outlined below.
I. Legal Framework and Fundamental Licensing Requirements
For 100% Vietnamese-owned enterprises, the investor is mainly governed by the Law on Enterprises 2020. The establishment is relatively simple: the enterprise only needs to carry out the procedure for Enterprise Registration Certificate (ERC) at the Business Registration Office and can commence operations immediately upon issuance of the ERC. The processing time is usually very quick, only about 03–05 working days. Furthermore, the law sets no requirement for minimum capital for Vietnamese enterprises in this sector.
Conversely, 100% foreign-owned enterprises (FDI) must simultaneously comply with the Law on Investment 2020, the Law on Enterprises 2020, Decree 09/2018/ND-CP, and WTO Commitments on market access for distribution services. Foreign investors must undergo two mandatory steps:
- Application for an Investment Registration Certificate (IRC) – the first and crucial appraisal step under Article 37 of the Law on Investment 2020;
- Application for an Enterprise Registration Certificate (ERC).
The processing time usually takes 30–45 working days, or even longer if the application requires supplementation or further consultation with Ministries/Agencies. Foreign investors must also prove financial capability, execute the transfer of investment capital from abroad to Vietnam, and ensure appropriate resources for project implementation.
II. Core Differences: Appraisal and Screening Process
The most significant difference lies in the appraisal mechanism. While Vietnamese investors only need to register the enterprise, foreign investors must pass through multiple layers of screening.
- Appraisal and Screening upon IRC Issuance
The licensing authority must thoroughly evaluate the investor's legal status, financial capacity, operational experience, and the project's compliance with WTO commitments as well as Decree 09/2018/ND-CP. FDI enterprises are often required to provide audited financial statements and other documents proving their business competence.
- Requirement for Business License
Vietnamese Enterprise: For ordinary retail activities such as selling clothes, the enterprise is not required to obtain a Business License; it only needs to register the business location for each store.
FDI Enterprise: After obtaining the IRC and ERC, the enterprise must still apply for a Business License under Decree 09/2018/ND-CP to be authorized to conduct retail activities. The application involves additional appraisal regarding competitive impact, market demand, and the business plan, leading to a prolonged processing time.
III. Specific Procedures for Opening Retail Outlets for FDI Enterprises
If an FDI enterprise opens a retail store, each location must apply for a Retail Outlet Establishment License.
A particularly important point is the Economic Needs Test (ENT):
1. First Retail Outlet: No ENT is required.
2. Second Retail Outlet and Subsequent Outlets:
- ENT Exemption only if the store has an area under 500 m² is located within a commercial center.
- ENT Requirement if the area is 500 m² or more or if the store is not located within a commercial center. The ENT is a complex procedure that necessitates in-depth appraisal by the Department of Industry and Trade and the Ministry of Industry and Trade.
Some Important Notes when Applying for a Retail Outlet Establishment License:
- The final decision to grant the license rests with the Ministry of Industry and Trade, even though the application is submitted to the Department of Industry and Trade.
- It is advisable to select a commercial center that has already met all legal requirements (Fire Prevention and Fighting Certificate, construction permits, acceptance testing, etc.) to minimize the risk of being required to supplement the application file.
- If the store is established outside the registered head office or branch, the enterprise must register the business location before submitting the application for the Retail Outlet Establishment License.
Conclusion
100% Vietnamese-owned enterprises benefit from a simple, fast establishment process with fewer specialized licenses. In contrast, FDI enterprises must undergo multiple layers of appraisal - from the IRC, ERC, to the Business License and the Retail Outlet Establishment License - and may even be required to conduct the Economic Needs Test (ENT). This is a control policy designed to ensure that the opening of the retail market to foreign investors is carried out cautiously and systematically, following a clear roadmap.
Consultation: Law License Services
