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Business Entities and Registration

Send Print Download added: Anna Woińska | 2017-05-08 12:07:33
business basics, business entities and registration, business entities, registering a business, limited liability companies, joint joint-stock companies, partnerships, branches and representative offices, business cooperation contracts, build-operate-transfer, build-transfer, build-transfer-operate

Business Entities and Registration

Business Entities

 

The Law sets out six types of business entities that are permitted to operate in Vietnam, comprising:

  • Limited liability company
  • State owned enterprises
  • Joint-stock company
  • Private enterprise
  • Partnership
  • Group of companies.

 

A foreign entity may establish its presence in Vietnam as a limited-liability company with one or more members, a joint-stock company, a partnership, a branch, a business cooperation contract or a representative office.

 

Foreign investors are also permitted to purchase an interest in existing domestic enterprises, subject to ownership limitations; this varies depending on the relevant industry sector.

 

The main characteristics and management structures of each type of business entities are summarised below:

 

Limited Liability Companies

 

There are two types of limited liability company (i) One member Limited Liability companies, and (ii) Limited Liability companies with two or more members. Neither form can be listed.

 

Limited liability companies are not entitled to issue shares and the total members in a limited liability company cannot exceed fifty.

 

Establishing a limited liability company

Foreign investors wishing to form an LLC in Vietnam, and conducting their first investment in the country, must have an investment project. An investment project is a collection of proposals declaring how the firm plans to spend its medium and long-term capital to carry out its investment activity in a specified area and for a specified duration of time. Documents must also be supplied, attesting: to the legal status of the investors, proposals for investment preferential treatment and a report of the financial capacity of the investor.

 

This investment project will be assessed at the same time as the company's registration; the documents will be combined into a single application (up to 30 June 2015). Following this, an investment certificate will be issued in 15 days from the receipt of sufficient documents. The investment certificate serves concurrently as a business registration certificate (BRC). This process may take longer if the authorities require extra documentation. In some cases, investment certificates are issued automatically providing certain conditions are met. In other cases, investment certificates may not be granted; it is at the discretion of the authorities. From 1 July 2015, Investment Certificate is granted first and separate with the company registration.

 

Following establishment, a number of other formalities must be carried out. These include:

  • Announcing the approval and contents of the investment license in designated Vietnamese newspapers
  • Opening bank accounts
  • Registering with local tax and other relevant authorities

 

Capital requirement

Typically, there are no maximum or minimum capital requirements for a limited liability company. However, in some sectors a company must be able to meet certain capital threshold requirements before they are permitted to start business, e.g. for foreign-owned banks, there is a minimum capital requirement of VND3,000 billion. Limited liability companies can reduce their charter capital in accordance with the new Law on Enterprises (Article No 48/Law on Enterprises 68/2014/QH13).

 

A limited liability company cannot issue shares. In addition to cash, capital contributions can be made in the form of gold, the value of land use rights, intellectual property rights, technology, technical know-how and other assets.

 

Company Charter

There is a requirement for a limited liability company to have a charter, this Charter is required in the application dossier to establish the Company. The company will be governed by the Law on Investment and the Law on Enterprises, while this will determine the rights powers, duties and obligations conferred on the company, the board of directors and its shareholders.

 

A Company charter should include:

  • the company name, head-office, branches and representative offices
  • the list of business activities the firm undertakes
  • the charter capital and any methods of raising or reducing the charter capital
  • name, address, nationality and other basic identification of company owner
  • rights and obligations of the owner
  • management structure
  • legal representative of the company
  • formality for the adoption of decisions
  • dispute resolution methods
  • method for calculating salary, allowance and bonuses of chairman, director or general director
  • principles for the distribution of profit and settlement of losses
  • procedures for dissolution or liquidation.
  • providing the constitution does not contravene legal obligations, the document will be binding between the company and owners.

 

Management structure

The management structure of a limited liability company will depend on whether the company is a single-owner or multiple-owner company.

 

In a single-owner company, the management structure will consist of the legal representatives appointed by the owner and the general director.

 

For a multiple-owner company, the management structure comprises the members' council, the chairman of the members' council and the general director.

 

A director/general director is appointed or hired by members to manage daily business operations of the company. The chairman of the Members’ Council, who is also elected by members, can be concurrently the company’s Director/General Director.

 

For a company whose total members exceed eleven, a Supervisory Board must be established to supervise the management and direction of the company handled by the Management board and the Director/General Director. The rights and duties of the Supervisory Board are also subject to the company’s charter.

 

Filing requirements

Every company established in Vietnam must comply with the Vietnamese Accounting Standards and System regulated by the Ministry of Finance. Companies are obliged to submit financial statements within 30 days for private enterprises and partnerships and within 90 days for other enterprises from the end of each fiscal year.

 

Joint Joint-Stock Companies

 

A joint stock company is a company whose charter capital is divided into shares held by three or more organisations or individuals. It is a recognised legal entity and the only company under Vietnamese law that can issue shares. Its shareholders are responsible for its debts and liabilities up to the amount of their contributed capital. A JSC can issue securities and list on the Securities Exchange. A joint-stock company may either be 100 per cent foreign owned or domestically owned, or may take the form of a joint venture between foreign and domestic investors.

 

Establishing a joint-stock company

A joint stock company is established by its founding shareholders based upon their subscription for shares in the company. It is required to have at least three shareholders, with no maximum stipulated by law.

 

Following establishment, a number of other formalities must be carried out. These include:

  • Announcing the approval and contents of the investment license in designated Vietnamese newspapers
  • Opening bank accounts
  • Registering with local tax and other relevant authorities

 

Capital stock and shareholders

The founding shareholders of a JSC must subscribe at least 20 per cent of the total shares that the JSC is authorised to offer for sale. Shareholders can be Vietnamese or foreign nationals. A joint-stock company must issue ordinary shares and may issue preference shares and/or issue bonds. Types of preference shares include:

  • Voting preference shares: only held by government-authorised organisations and founding shareholders
  • Dividend preference shares
  • Redeemable preference shares
  • Other types of preference share, subject to the company’s charter.

 

Shareholders are permitted to convert preference shares into ordinary shares, but not permitted to convert ordinary shares into preference shares.

The company’s shares are allowed to be freely transferred among shareholders, except for voting preference shares.

 

Company Charter

There is a requirement for a company to have a constitution. The company will be governed by the Law on Investment and the Law on Enterprises, while this will determine the rights powers, duties and obligations conferred on the company, the board of directors and its shareholders.

 

If there is a constitution drawn up, it will include:

  • the company name, head-office, branches and representative offices
  • the list of business activities the firm undertakes
  • the charter capital and any methods of raising or reducing the charter capital
  • name, address, nationality and other basic identification of company owner
  • rights and obligations of the owner
  • management structure
  • legal representative of the company
  • formality for the adoption of decisions
  • dispute resolution methods
  • method for calculating salary, allowance and bonuses of chairman, director or general director
  • principles for the distribution of profit and settlement of losses
  • procedures for dissolution or liquidation.

 

Providing the constitution does not contravene legal obligations, the document will be binding between the company and owners.

 

Management structure

The management structure of a JSC comprises the general meeting of shareholders, the board of management, the general director and the board of supervisors (where the company has more than 10 individual shareholders).

 

The Board of Management should consist of at least three members but no more than 11. Its members are elected by the General Shareholder Meeting for terms of up to five years. The Board of Management has authority to make decisions, exercise the company's rights and perform the company's obligations on behalf of the company.

 

Filing requirements

Every company established in Vietnam must comply with the Vietnamese Accounting Standards and System regulated by the Ministry of Finance. Companies are obliged to submit financial statements within 90 days of the end of each fiscal year.

 

Annual financial statements of public joint-stock companies must be audited before being submitted to the Shareholders’ Meeting.

 

All shareholders who held shares for at least one year are entitled to review the reports and statements at an appropriate time.

 

Partnerships

 

Partnerships can be established in Vietnam providing there are at least two individuals who are members of the partnership and co-owners of the business. These individuals will be general partners and have unlimited liability for all obligations of the partnership.

 

The company may also have limited liability partners, who can be individuals of organisations, who only contribute a part of the capital and have limited liability and rights up to the value of their contribution.

 

Typically partnerships are not widely used for foreign investment in Vietnam.

 

Branches and Representative Offices

 

In accordance with Commercial Law, foreign investors can set up a resident Representative.

 

Office or a Branch in Vietnam; however, ownership may be restricted in certain sectors. The following regulations are in place regarding Representative Offices and Branches:

  • all foreign businesses, which have been in operation for more than a year will be allowed to open representative offices in Vietnam;
  • foreign businesses shall only be entitled to set up a branch in Vietnam with the condition that the business has been in operation for at least five years;
  • licenses for representative offices and branches will be valid for five years but may be extended or re-issued upon expiry;
  • branches shall be entitled to do business in accordance with the branch licenses;
  • representative offices and branch employees shall be subject to the relevant tax obligations, in accordance with the laws of Vietnam;
  • branches shall have to follow the accounting regime, as required by the laws of Vietnam.
  • branches are required to report annually to the Ministry of Trade, once a year, on the operational and financial position of the business;
  • representative offices are required to submit annual reports to the provincial Trade Department office.

 

Business Cooperation Contracts (BCC’S)

 

A business cooperation contract is a contractual relationship signed between multiple parties, generally a foreign investor and a local company. This does not form a legal entity but permits the partners to engage in business activities on the basis of mutual allocation of responsibilities and the sharing of profits and losses. This form of business has traditionally been used in industries where LLCs and JSCs are restricted. This form of business is a means of private financing without transferring management control to a foreign partner.

 

Build-Operate-Transfer (BOT), Build-Transfer (BT), Build-Transfer-Operate (BTO) Contracts

 

Foreign investors may sign BOT, BT, and BTO contracts with state bodies to implement infrastructure construction projects in Vietnam. These are typically used for transportation, electricity production, water supply, drainage and waste treatment projects. The rights and obligations of the parties are set out and regulated by the signed contract. The difference between BOT, BT and BOT contracts is the point in time that the project is transferred to the government.

 

Source: Doing Business in Vietnam 2015, Grant Thornton

 

Registering a business

 

1

Check the proposed company name; obtain a business registration certificate as well as a tax registration certificate from the local business registration office under the Department of Planning and Investment

 

Agency: Business Registration Office, Department of Planning & Investment

 

The applicant has to submit documents in accordance with Government Decree 78/2015/NĐ-CP on enterprise registration dated 14 September 2015. When the application file for enterprise registration fully satisfies the conditions for issuance of an enterprise registration certificate, information about that file shall be transferred to the database of the Department General of Taxation (Ministry of Finance). The Department General of Taxation is responsible, within two working days from the date of receipt of information from the national database of information, to create an enterprise code number and to transfer it to that national database in order for the provincial business registration office to issue it to the enterprise. Each enterprise is issued one unique enterprise code number. This code number is both the business registration code number and the tax code number of that enterprise. 

5 days

VND 200,000 (official fees)

2

Make a company seal

 

Agency: Sealmaker

 

The company obtains a company seal from a seal maker.

2-4 days

VND 165,000 - VND 370,000 for bronze seal

3

Registration of the seal-sample with the Business Registration Office

 

Agency: Business Registration Office

 

According to Decree No. 78/2015/ND-CP: Article 44, every enterprise is entitled to decide the form, quantity, and contents of its seal.

 

A seal must specify:

a) The enterprise’s name;

b) The enterprise’s ID number.

 

Entrepreneurs must send the seal-sample to the Business Registration Office, thereafter the Business Registration Office will send a receipt to the enterprise and publish the seal-sample on the National Business Registration Portal.The enterprise may start using the seal upon receipt of the Publication Notice.

5 days

no charge

4

Open a bank account

 

Agency: Bank

 

Each bank requires a different minimum deposit to open an account. For instance, whereas Vietcombank requires the fixed amount of VND 1 million for an account in VND and USD 300 for one in USD, Asian Commercial Bank requires VND 1 million for a VND account and US 100 for a USD account. To open the account, the bank requires a bank-issued application form, the company seal, the company’s business registration certificate, and the resolution of the management board on the authorized signatures.

1 day

no charge

5

Buy pre-printed VAT invoices from the Municipal Taxation Department or obtain and print self-printed VAT invoices

 

Agency: Municipal Taxation Department

 

All companies shall use their shelf-printed VAT invoices from 1 January 2011 according to Decree No. 51/2010/ND-CP ("Decree 51") dated May 14, 2010 and its guidelines (if any), therefore, the Company must contact with the publisher to order the print of its VAT Invoice Books for its demand and must implement the legal procedure on registration and circulation of shelf-printed VAT Invoices with the Municipal Taxation Department.

 

To register for self-printing of invoices, company founders must submit an application on a standard form, along with (a) a sample self-printed invoice, including all statutory details; (b) a map showing the location of the company’s office or copy of the lease contract if the premises are leased, certified by the ward commune people’s committee; (c) the general director’s identification card; (d) a copy of the business registration certificate; and (e) and the tax registration certificate and copy.

 

According to Ministry of Finance Circular 64/2013/TT-BTC (May 15, 2013) which amending Ministry of Finance Circular 153/2010/TT-BTC (28 September 2010), a company can self-print the VAT invoices if it has incurred a total tax penalty amount of less than 50 million Vietnamese dong within 365 consecutive days before the first self-print.

 

The company shall prepare an announcement of self- issuance of invoice and send it to the relevant tax authority of where the company has its head office, within 10 business days from the date of signing the announcement and 5 business days at the latest before the date on which the invoice is in use, and the announcement must immediately be listed at all establishments using such invoice to sell goods and services during the entire period of such use (Article 11 of Decree 51 and Article 9.4 of Circular 153/2010/TT-BTC guiding the implementation of Decree 51).
In total, it may take about 10 days to get the printed VAT invoices and register them with the Municipal Taxation Department.

10 days, simultaneous with previous procedure

about VND 200,000 per book

* 6

Publish the registration contents on the National Business Registration Portal (NBRP)

 

Agency: National Business Registration Portal (NBRP)

 

According to Article 33, Law on Enterprises 2014 No. 68/2014/QH13, the enterprise must make an announcement on the National Business Registration Portal and pay the fee within 30 days after establishment registration. The announcement must include information on the Certificate of Business registration and information of business lines and a list of founding shareholders and any shareholders who are foreign investors.

 

The fee to publish the registration contents on the National Business Registration Portal is VND 300,000 according to Circular No.106/2013/TT-BTC of the Ministry of Finance dated on 9 August 2013.

5 days, simultaneous with previous procedure

VND 300,000

* 7

Pay business license tax

 

Agency: Tax office or commercial bank

 

The business license tax is paid to the tax authority where the enterprise registers its tax reports or through designated commercial banks. Such business license tax is paid annually and in the first month of a year (with regards to enterprises are operating) and in the month when the newly established enterprise obtains the tax registration certificate and tax code. The new company established during the first 6 months of the year shall pay the entire annual business license tax, if established during the last 6 months, then pay 50% of annual license tax.

1 day, simultaneous with previous procedure

VND 1,000,000 (business license tax)

* 8

Register with the local labor office to declare use of labor (Municipal Department for Labor, Invalids and Social Affairs).

 

Agency: Municipal Department for Labor

 

Within 30 days of starting operations, the employer must register all employees and their qualifications with the Labor Office (in conformity with set forms). The relationship between the employer and its employees are regulated by the Labor Code and set forth in labor contracts.

1 day, simultaneous with previous procedure

no charge

* 9

Register employees with the Social Insurance Fund for the payment of health insurance and social insurance.

 

Agency: Social Insurance Fund

 

The company must register with the Social Insurance Fund all employees who have contracts for 3 months or longer. The employer must complete a form provided by the Hanoi Social Insurance and include the following information: the employee name and date of birth, salary (as stated in the labor contract), the social insurance book serial number (for employees already issued with those books), a certified copy of the company's business registration certificate, and a copy of each labor contract.

 

The Social Insurance Office must, within 30 days from the date of receipt of the application file, issue an insurance registration book for each new employee that was not issued such book by the previous employer. The employer is responsible for paying social and health insurance contributions for each employee. Since the health insurance merged with the social insurance funds, payment is made (monthly or quarterly) directly to the Social Insurance Fund. Health insurance certificates are issued during the first month of the year.

1 day, simultaneous with previous procedure

no charge

* Takes place simultaneously with previous procedure.

 

Source: doingbusiness.org