Company Incorporation in Vietnam: Legal Requirements for European Investors

Table of contents

1. Benefits of EVFTA for European Companies    
2. Company Registration Overview & Requirements
3. Tax Requirements for Foreign Firms in Vietnam
4. Intellectual property (IP) in Vietnam: What should EU businesses know?

 

Vietnam is a thriving market with an annual economic growth of 2.9% in 2020, despite the ongoing pandemic. It happens to be one of the few economies that has shown positive growth despite the prevalence of the Covid-     19 pandemic. Such resilience has attracted investors globally, especially from European countries. In 2020, the country exported goods to the EU (European Union) worth over €34.4 billion. In exchange, the EU exported goods worth €8.8 billion (1). 

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Vietnam’s growing middle class, an abundance of natural resources, and untapped market potential are just some of the catalysts attracting European investors. But the most important development in the relationship between Vietnam and the European bloc is the recent EU–Vietnam Free Trade Agreement (EVFTA) that has significantly strengthened the trade between European nations and Vietnam. 

Numerous changes in Vietnam over the years have enhanced the investment climate for foreign investors. It is thus imperative for European investors to understand all the legal nuances. This article will guide investors through the legal requirements for incorporating a company in Vietnam.

 

Benefits of EVFTA for European Companies    

The EU–Vietnam Free Trade Agreement seeks to eliminate 99% of tariffs on trade goods gradually over the next 10 years. By 2035, this should result in an increase of €15 billion in annual exports from Vietnam to the EU, as well as an increase of €8.3 billion in annual exports from the EU to Vietnam (2). Moreover, for every €1 billion exports, 14,000 new, well-paid jobs are created in the EU. For a full schedule of tariffs to be listed over the next 10 years, please refer to this link.

The agreement intends to provide investors with predictability and legal certainty. There will be a structure in place in the event of litigation. Vietnam has committed to a contemporary investment court system with independent judges, a code of conduct, and simple access for SMEs. Small EU companies will gain stability and trust as a result.

RELATED: The EU–Vietnam Free Trade Agreement (EVFTA) and intellectual property (IP) protection

 

Company Registration Overview & Requirements

European companies will be able to seamlessly operate businesses in Vietnam owing to the new EU–Vietnam Free Trade Agreement. However, setting up a company in Vietnam involves bureaucratic procedures and documentation that a prospective investor must know about. 

Types of Legal Entities Foreign Firms can Form

• Limited Liability Company (LLC)

The most popular legal entity type in Vietnam is the Limited Liability Company (LLC), which is a great choice for small and medium-sized businesses (SMEs). A European investor can benefit from the company's straightforward corporate structure, which only requires one founder.

• Joint-Stock Company (JSC)

Since the JSC’     s organisational structure is complex and needs a minimum of three founders, it is best suited for medium and large enterprises. Furthermore, due to increasingly stringent criteria, the registration procedure is frequently delayed. Therefore, it is recommended to employ the services of a market entry agency to facilitate the process.

• Representative Office (RO)

An RO is ideal for foreigners who wish to learn about the local market and establish a footprint before expanding. An RO is not permitted to engage in income-generating operations or to function in the manner of a regular business. This is the perfect way to simply observe the market as a passive player and conduct market research.

• Branch Office

A branch serves as an extension of its parent company. Owners of branches in Vietnam can conduct all the parent company’s commercial activities and make a profit without incorporating a separate legal entity.

Tax Requirements for Foreign Firms in Vietnam

All taxes are levied on a national scale. The standard rate of corporate income tax (CIT) is 20%. The following are the CIT rates for operating in specific industries: 

• Oil and gas: 32% to 50% CIT (depending on location and project)
• Mineral resources (e.g. silver, gold, gemstones): 40% to 50% (depending on location)

Foreign incomes are subjected to a 20% CIT, and there are no provisions for tax incentives.

Foreign organisations that operate in Vietnam without establishing a legal company are called foreign contractors and are subject to the Foreign Contractor Tax (FCT), which is made up of Value Added Tax (VAT) and CIT components.

Decree 125/2020/ND-CP is a Vietnam Tax Law that defines the number of penalties and fines that can be imposed if specified tax and invoicing criteria are not followed. Consequently, maintaining tax and invoicing compliance is important while doing business in Vietnam. Cekindo can assist European businesses and organisations with all aspects of the Vietnamese tax system as a tax compliance specialist.

Written in collaboration with Cekindo.vn

 

Intellectual property (IP) in Vietnam: What should EU businesses know?

Recently Vietnam signed a number of strategic agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the EU–Vietnam Free Trade Agreement (EVFTA), the Regional Comprehensive Economic Partnership (RCEP), etc. These agreements have played an important role, not only in boosting the economic growth and investment flow, but also in improving the IP landscape of Vietnam. As per their commitments in these agreements, Vietnam’s government and relevant agencies are currently working on numerous changes to leverage the existing intellectual property (IP) protection and enforcement system to bring it closely in line with international standards, such as amending the IP law,  updating the Decree on E-commerce (to include stricter provisions related to IP infringement online), improving the online registration system and strengthening the effectiveness of enforcement measures (customs checks, investigations, the imposition of sanctions, etc.). This, in return, will enhance Vietnam’s competitiveness by creating a favorable environment for EU companies to safely access and operate in Vietnam’s markets.

Are you a European company doing business in Vietnam? Check out Free IP Advice Services of IP SME Helpdesk.

However, IP protection remains challenging in Vietnam. Businesses intending to safely enter the market there should be aware of this.

Vietnam shares a northern border with China, which is considered the largest manufacturer of counterfeits in the world. As a result, this opens the way for a huge number of counterfeits from China to be shipped to and sold in the Vietnamese market. In the meantime, the large number of fake products locally produced/packaged is also a special concern.

Vietnamese consumers are becoming more familiar with online shopping. The Covid-19 pandemic especially has driven more people to use e-commerce sites (Shopee, Lazada or Tiki) and social media channels (Facebook, Zalo, TikTok, Whatapps) to make purchases. However, currently due to the lack of specific regulations for effectively governing digitalised trading environments, counterfeiters and criminals have easily stepped in to fuel the online market with a huge number of fake products violating IP rights. It is also worth noting that if the IP owner does not have a valid IP registration in Vietnam, requesting the authorities to take action against these infringing activities is very difficult.

RELATED: Check out Guide on how to remove counterfeit goods from e-commerce sites.

In Vietnam, the IP registration system follows the ‘first to file’ principle, which gives priority to those who first file an application to register their IP. This, unfortunately, opens the door for bad-faith registration practices. Most bad-faith registration cases are related to trade marks; for example, third parties such as a trade mark squatter or local company can quickly file an application for a foreign trade mark before the owner becomes the legal owner in Vietnam. By successfully registering such a trade mark of the foreign owners, they can mislead the clients and take advantage of successful business linked to the trade mark or even offer it to the foreign trade mark owner for buyback at a very high price. Thus, it is usually recommended that EU businesses should register their IP as soon as they plan to expand to Vietnam.

To register your IP in Vietnam, foreign companies are required to file the application through a local agent if they don’t have their office in Vietnam. Vietnam’s IP office has a system to receive applications filed online, but it only applies to companies that have registered to use digital signatures. Further registration information can be found at the official website https://www.ipvietnam.gov.vn/.

Alternatively, EU companies may consider utilising the following international routes for facilitating obtaining IP protection in Vietnam:

•  Patent Cooperation Treaty (PCT) helps applicants seeking patent protection internationally for their inventions. By filing one international application, applicants can simultaneously seek protection in 153 contracting countries (listed here). For more information on how the PCT system works, please refer to our PCT guide here.

 

•   The International Trade mark System – Madrid System is a convenient and cost-effective solution for registering and managing trade marks worldwide. Under the Madrid system, you can file just one single application in one language through your home office, and pay one clear set of fees to seek trade mark protection in up to 124 countries. To learn more about the Madrid system, check out our guide here.  

 

•  The Hague System for the International Registration of Industrial Designs provides a practical business solution for registering up to 100 designs in 75 contracting parties covering 92 countries, through the filing of one single international application.

Are you a European company seeking registration of your trade mark, patent or design in Vietnam? Check out our Country factsheets including Vietnam.

Where to get IP help?

The South-East Asia IP SME Helpdesk is an EU initiative that provides free, practical IP advice to European SMEs in relation to 10 South-East Asian countries. EU companies can send questions to questionsoutheastasia-iprhelpdesk [dot] eu (question[at]southeastasia-iprhelpdesk[dot]eu) and will receive replies within 3 working days.

 

Written by Xuan Nguyen, SEA IP SME Helpdesk