Starting a business in Vietnam can be a promising venture due to the country’s growing economy, strategic location, and favorable investment policies. Vietnam allows and encourages foreign investors to do business in Vietnam. 

Once you decide on having a physical presence in Vietnam, a primary consideration is the type of legal entity to form. These are 3 popular legal entity options in Vietnam for foreign investors to choose from, which are: representative office, branch, and company.

Representative office of a foreign trader

A Vietnam Representative Office is a dependent unit of a foreign company, established under the law of Vietnam, to research the Vietnamese market, to perform other business-promoting activities, and is not allowed to carry out any direct profit-making activities.

A Representative Office is a good temporary option for a foreign company to have an initial idea of the Vietnamese market before committing to a long–term investment, or strengthen business connections with local partners within a small budget. It is easy to set up and also avoids the complexity of registering a company in Vietnam and complying with ongoing filing requirements.

Vietnam representative offices are not subject to paying taxes, because it doesn’t allow to earn profit. A representative office only needs to declare the Personal Income Tax and cover compulsory insurance of its employees.

Learn more: How to establish a Representative office in Vietnam

Branch of a foreign trader

A Vietnam Branch is a dependent unit of a foreign company, established under the law of Vietnam, and permitted to carry out profit-making business activities in only a few sectors (bank, insurance, law firm, etc.) One of the conditions to establish a branch in Vietnam is that the foreign company has been operating for at least 5 years.

In practice, establishing a branch in Vietnam is not a common choice for foreign investors.

Local Company

A Vietnam Company is an independent legal entity established under the law of Vietnam, and has a full legal capacity of conducting business. It may take the form of either single-member limited liability, multi-member limited liability, or joint-stock company (Learn more: Types of company in Vietnam). Establishing a company in Vietnam is the most effective way to reach and take advantage of the Vietnamese market.

A foreign investor has some options below to have a Vietnam Company:

• Establishing a 100% foreign-owned company: Vietnam allows 100% foreign ownership in most business sectors. With this option, the foreign investor will have full control and power over the company.
• Establishing a joint venture company with Vietnamese partners: In a few business sectors (advertising, gaming, agriculture and forestry, etc.), Vietnam requires foreign investors to joint venture with Vietnamese partners.
• Establishing a nominee company owned by a local person: This is a shortcut for foreign investors that want a quick, easy, and cheap option to have a company in Vietnam. However, this option requires a big trust between parties and is also extremely risky in terms of legality for both the foreign investor and the local nominee.
•  Acquiring an existing Vietnamese company: Foreign investors can utilize commercial advantages of the Vietnamese company. Foreign investors are highly recommended to conduct due diligence on the target company before deciding to buy it.

In addition, a Vietnam company must comply with ongoing filing requirements and pay taxes (if having profits)

Most companies will be affected by the following taxes, which are imposed at the national level:

• Value-Added Tax (VAT) rate: 8% to 10%
• Corporate Income Tax (CIT): The current standard rate ranges from 15% to 20%, with a 3-year CIT exemption currently available for newly established companies.
• Personal Income Tax (PIT) on Vietnamese and foreign employees: for residents, progressive tax rates from 5 to 35%
• Insurances contributions: employer (21,5%), employee (10,5%)
• Import duties, export duties: upon occurring

Learn more: How to open a company in Vietnam for foreign investors

Among all, Company and Representative Office are the most popular chosen business entity types, because of the flexibility and the ease of operations they provide.

Key Entity Comparison

Conclusion

Starting a Business in Vietnam should be not difficult with the right help from the beginning. It is highly advisable to work with a professional law firm that has a great deal of experience in this field, such as Nova Law Vietnam, to help your business in Vietnam launch smoothly.

Contact Nova Law today for more information. We are glad to be of service.