To set up an entity in Vietnam, client is advised to comprehensively understand about the formality and function of entity that going to be formed according to Vietnam Law.
Basically, entity can be set up under 3 forms: (i) 100% foreign owned Company, (ii) Branch of Company and (iii) Representative Office of Company.
Please see below the business nature of each entity for further information:
1. Setting up company in Vietnam.
Under Vietnam Law on Investment, foreign investors can run a company in Vietnam for profit making purposes by either (i) newly setting up foreign-invested companies (“FIC”) in order to invest and develop a specific project in Vietnam (Except for setting up an FIC to engage in specific services; which is not required to have a specific investment project) and (ii) buy out equity interest/ stakes in existing purely domestic companies.
FICs are defined by the Law on Investment to include (i) wholly foreign-owned companies (“WFOCs”), in which the relevant foreign investor holds 100% equity capital of the company; and (ii) joint venture companies (“JVCs”), in which the relevant foreign investor enters into a joint venture agreement with one of more local partners in order to set jointly set up and run the JVC.
In order to run the business in Vietnam, the business lines of foreign investors need to satisfy legal requirements and also need to be permitted according to the law.
However, some business lines are considered as conditional investment sectors, such as banking, insurance, securities, medicine, education.
2. Setting up Branch in Vietnam
Basically, a Branch of foreign invested company has the same nature of a foreign invested company.
In addition, to be established a Branch in Vietnam, it is required by law that its parent of company in abroad needs to have been operating at least for 5 years.
3. Setting up Representative Office in Vietnam
Representative Office is a Commercial Presence of company for non – profit purpose only.
Vietnam-based representative office of a foreign investor means a dependent unit of the foreign investor, which is established under the provisions of Vietnamese law to conduct market survey and a number of commercial promotion activities permitted by Vietnamese law.
It means that Representative office does not directly conduct profit-generating activities; therefore Representative office cannot directly enter into contracts in order to purchase and sale of goods.
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