When starting a business in Vietnam, foreign direct investors (FDI) need to pay special attention to: legal and complianceThe Vietnamese legal system stipulates many obligations to ensure that businesses operate transparently and legally. Understanding the regulations that FDI investors need to know when starting operations in Vietnam will help them avoid legal risks, save time, and reduce costs. This article provides a comprehensive overview of the legal requirements applicable to FDI enterprises during the establishment and commencement of business operations, along with Legal checklist for foreign direct investment (FDI) investors.
We will explore the business registration process, periodic reporting, tax obligations, labor regulations, business licenses, and offer practical tips. legal compliance effectively. Finally, one Legal checklist for FDI Conciseness will help businesses self-assess their compliance with key obligations.
I. Business Establishment Phase
1. Research and Choose the Right Investment Option
- Understanding the legal framework: Familiarize yourself with the 2020 Investment Law and its guiding documents such as Decree 31/2021/ND-CP, Circular 03/2021/TT-BKHĐT, and Circular 25/2023/TT-BKHĐT.
- Determine the investment method:
- Establish a new economic organization (100% foreign-owned or joint venture).
- Contributing capital, purchasing shares, or acquiring equity stakes in Vietnamese businesses.
- Investment in the form of a Business Cooperation Contract (BCC).
- Choose the type of business: Limited Liability Company (single member/two or more members), Joint Stock Company, Partnership Company. (Note: Private enterprises do not have legal personality and the owner is liable with all assets, making them less suitable for FDI).
- Check the business's industry/sector:
- Ensure that the business sector is not on the list of prohibited investment and business activities (e.g., trading). drug...prostitution, debt collection services...).
- For regulated industries, all conditions must be met (registered capital, sub-licenses, professional certificates).
- The industry must be included in Vietnam's WTO commitment schedule.
2. Registration & Licensing Process
- Step 1: Apply for an Investment Registration Certificate (IRC) :
- Declare project information online through the National Information System on Foreign Investment (fdi.gov.vn).
- Submit paper documents to the investment registration authority (Department of Planning and Investment or Industrial Park/Export Processing Zone/High-Tech Park Management Board).
- Required documents:
- Document proposing to implement investment project.
- Proposed investment project (objectives, scale, capital, location, schedule, labor, incentives, impact assessment).
- Documents proving the legal status of the investor (ID card/Citizen ID/Passport; Certificate of establishment/Business registration of the organization).
- Documents proving financial capacity (bank balance confirmation or audited financial statements for the two most recent years).
- Lease agreement for premises/office.
- Note: All foreign documents must be legalized by the consulate, translated into Vietnamese, and notarized/certified.
- Processing time: 15 business days.
- Step 2: Obtain the Enterprise Registration Certificate (ERC) and have a company seal made. :
- Submit your application at the Business Registration Office – Department of Planning and Investment.
- Required documents: Application for business registration, company charter, list of members/shareholders (if any), copies of legal documents of individuals/organizations who are members/shareholders/legal representatives, and a copy of the IRC.
- Processing time: 03-07 business days.
- Proceed with engraving the company seal.
- Post-establishment procedures:
- Register to open a bank account (direct investment capital account).
- Purchase a digital signature.
- Pay the business license fee.
- Initial tax declaration and payment.
- Issuing electronic invoices.
- Display the nameplate at the headquarters.
See more: Important information and regulations regarding company signage.
II. Operational and Regular Compliance Phase
1. Obligations to Report and Monitor Statistics
- Statistical report:
- Report type: Postal services, telecommunications, foreign direct investment, trade, accommodation, food and beverage, tourism, imports, realized investment capital, transportation, warehousing, exports, industrial production, construction, service payments/receipts to/from foreign countries, aquaculture, engineering works, production and business, waste collection/treatment, etc.
- Duration: Monthly (before the 12th of the following month), quarterly (before the 12th of the last month of the following quarter), annual (before March 31st of the following year), special reports (upon request).
- Receiving agency: Submit to the General Statistics Office (GSO) via the online system (thongkedoanhnghiep.gso.gov.vn) or in person.
- Investment monitoring report:
- Content: Investment capital disbursed, investment and business performance results, labor information, budget contributions, R&D, environmental treatment, and specialized indicators.
- Duration: Six-month report (before July 10th), annual report (before February 10th of the following year), report before project adjustments, project completion report.
- Receiving agency: Department of Planning and Investment (outside industrial parks/export processing zones/high-tech zones) or Management Board of industrial parks (within industrial parks/export processing zones/high-tech zones).
Note: Late submission or failure to submit reports may result in fines ranging from VND 1.000.000 to VND 30.000.000.
2. Tax Issues
- Corporate Income Tax (CIT):
- Standard tax rate: 20%.
- Tax incentives: 10% for 15 years (high-tech, large-scale projects), 15% (agriculture and fisheries in disadvantaged areas), 17% for 10 years (disadvantaged areas).
- Tax exemptions and reductions: Exempt for 4 years, 50% reduction for the following 9 years; or exempt for 2 years, 50% reduction for the following 4 years.
- Please note that interest expenses exceeding 30% of EBITDA may not be deductible.
- Value Added Tax (VAT):
- Tax rates: 0% (exports), 5% (clean water, medical equipment, agricultural products, fertilizers from July 1, 2025), 10% (general imports).
- The amended Value Added Tax Law will take effect from July 1, 2025.
- The VAT-exempt revenue threshold for household and individual businesses has been raised to VND 200 million per year.
- Personal Income Tax (PIT):
- Individuals residing in Vietnam: Progressive tax rate (5% – 35%) after deducting personal allowances (VND 11 million/month for the individual, VND 4.4 million/month for dependents).
- Non-resident individuals: 20% of total taxable income.
- From January 1st, 2026, only income from business activities exceeding VND 200 million per year will be subject to personal income tax.
- Foreign Contractor Tax (FCT):
- This applies to foreign organizations/individuals that do not operate under Vietnamese law but generate income from providing services/goods in Vietnam.
- The Vietnamese side is usually responsible for filing and submitting the declarations on behalf of the taxpayer.
- Tax rates depend on the type of service (for example: consulting 5% corporate income tax + 5% VAT; interest on loans 5% corporate income tax; royalties 10% corporate income tax).
- Related party transactions (Decree 132/2020/ND-CP):
- Interest expenses exceeding 30% of EBITDA may not be deductible.
- There are cases where declaration and documentation for determining transfer pricing are waived (revenue under VND 50 billion and total value of related-party transactions under VND 30 billion; or transactions with related parties paying corporate income tax in Vietnam, at the same tax rate, without preferential treatment).
3. Labor Issues
- Labor contract:
- There are only two types: indefinite term and fixed term (not exceeding 36 months).
- The agreement is based on the principles of voluntariness, equality, good faith, cooperation, honesty, and compliance with the law.
- Work Permit for Foreigners:
- Procedure:
- Step 1: Request approval for the need to employ foreign workers (submit Form No. 01/PLI). Processing time: 10 working days.
- Step 2: Submit the application for a new work permit (Form No. 11/PLI).
- File: Application form, approval letter, copy of business registration/investment registration certificate, health certificate (within 12 months), criminal record certificate (within 6 months), copy of passport/visa, 4x06 photo, document proving professional qualifications/experience.
- License validity period: Not exceeding 02 years.
- Cases where a license is not required: Investors with capital contributions of VND 3 billion or more, working for less than 30 days at a time and no more than 3 times a year, married to Vietnamese citizens, student interns, etc., are eligible. Some cases are exempt but still require notification to the Department of Labor, War Invalids and Social Affairs.
- Note: Employing foreign workers without a permit can result in fines ranging from 60 million to 150 million VND. Errors in documentation and failure to renew permits in a timely manner are also common mistakes.
- Procedure:
- Mandatory social insurance for foreigners:
- Appropriate for: Must have a work permit/professional certificate and an employment contract of at least one year.
- Contribution rates (effective from January 1, 2022):
- For employees: 8% (pension and death benefit fund) + 1.5% (health insurance) + 1% (unemployment insurance) = 9.5%.
- Employer: 3% (sickness, maternity) + 0.5% (occupational accidents, occupational diseases) + 14% (retirement, death benefits) = 17.5% (Total 20.5% including unemployment insurance).
- Total: 30%.
- Procedures for initial registration for social insurance according to Decision 595/QD-BHXH.
- Please note that errors in declaring social insurance information can cause difficulties when closing your account/receiving benefits.
Trade union organization: Workers have the right to join and form trade unions. Trade unions represent and protect workers' rights, negotiate working conditions, and resolve disputes.
4. Related Operating Costs
- Costs of establishing an FDI enterprise:
- Comprehensive consulting services: VND 15.000.000 – VND 30.000.000 (or USD 800 – USD 2.000) depending on the type and location.
- State fees: Issuance/amendment of IRC (50.000 VND), publication of investment registration content (100.000 VND), business establishment registration (50.000 VND if submitted in paper form, free if online).
- The cost of engraving a round seal is 450.000 – 500.000 VND.
- Recurring legal and administrative compliance costs:
- Accounting and tax services: VND 300.000/month (no invoices generated) to VND 1.600.000/month (16-20 invoices/month), with additional charges for a large number of invoices.
- Auditing services: Vary depending on the industry and company size.
- Legal consulting services: A few hundred to a few thousand USD per month for small and medium-sized businesses.
- Other expenses: Making a sign (approximately 200.000 VND), engraving a title stamp (approximately 200.000 VND), maintaining a bank account (approximately 1.000.000 VND), purchasing a digital signature, and electronic invoices.
- Other operating expenses:
- Labor costs: Regional minimum wage (from July 1, 2024: Region I: 4.960.000 VND/month), actual salary (unskilled workers: 6-9 million VND/month; engineers: 12-25 million VND/month; middle managers: 25-50+ million VND/month). Mandatory insurance costs (paid by the employer): Approximately 21.5% – 22% of the payroll.
- Land/factory rental costs: Industrial park land: 50-250+ USD/m²/lease cycle; ready-built factory: 3.5-7.0 USD/m²/month.
- Utility costs: Electricity (1.600-3.500 VND/kWh), water (10.000-15.000 VND/m³), wastewater treatment (4.000-15.000 VND/m³).
- Logistics costs: Domestic transportation (3-5 million VND/40ft container/50-70km), warehousing (4-7 USD/m²/month).
III. Legal Checklist for Newly Established FDI Enterprises
There are many reasons to get vaccinated, here are ten obvious ones, but there are more Legal checklist for FDI – A quick checklist of important legal tasks and obligations that FDI investors need to complete when starting operations in Vietnam. Businesses can use this list to review and ensure that no requirements are missed:
|
Legal requirements to be followed |
Status |
|
1. Investment Registration Certificate (IRC): An Investment Regulatory Authority (IRC) has been applied for for the FDI project (if required by law) in accordance with the 2020 Investment Law. |
☐ Done / ☐ Not yet |
|
2. Enterprise Registration Certificate (ERC): The business has been registered and received an ERC; the registration information is correct regarding business lines, capital, address, etc. |
☐ Done / ☐ Not yet |
|
3. Publication of business registration details: The establishment notice has been published on the National Business Registration Portal for 30 days. |
☐ Done / ☐ Not yet |
|
4. Engraving stamps and signs: The company seal has been engraved and the company nameplate displayed at the headquarters in accordance with regulations. |
☐ Done / ☐ Not yet |
|
5. Direct investment capital account: An FDI capital account has been opened at the bank to receive foreign capital contributions. |
☐ Done / ☐ Not yet |
|
6. Contribution to charter capital: The capital has been fully contributed within the specified period (90 days from the date of issuance of the ERC).There are records of capital contribution and documents confirming the capital. |
☐ Done / ☐ Not yet |
|
7. Initial tax registration: Tax information has been declared to the tax authorities; the business license fee declaration form has been submitted and the business license fee has been paid. |
☐ Done / ☐ Not yet |
|
8. Setting up accounting and invoicing: The accounting method has been selected, an accountant has been appointed; the use of electronic invoices has been registered with the tax authorities, and the issuance of invoices has been notified. |
☐ Done / ☐ Not yet |
|
9. Investment activity report: Establish a schedule for submitting quarterly and annual reports on project implementation to the Department of Planning and Investment (according to Article 72 of the Investment Law).. |
☐ In progress / ☐ Not yet |
|
10. Investment monitoring and evaluation report: Prepare six-month and annual project monitoring reports (if required) and submit them on time (before July 10th and February 10th).. |
☐ In progress / ☐ Not yet |
|
11. Specialized reports (if any): Submit a report on goods sales and purchases (before January 31st of each year).Other reports as required by sub-licenses (if operating in a specialized field). |
☐ In progress / ☐ *N/A |
|
12. Annual financial report: Prepare audited financial statements after each fiscal year; submit them to the Department of Finance within 90 days.; and simultaneously submit the tax return to the tax authorities. |
☐ In progress / ☐ Not yet |
|
13. Labor registration and insurance: Employees have been registered for social insurance, health insurance, and unemployment insurance; initial labor declaration (if necessary) has been submitted, or employee information has been checked on the public service portal. |
☐ Done / ☐ Not yet |
|
14. Employment contract and internal regulations: Contracts have been signed with all employees; internal labor regulations have been issued and registered (if there are 10 or more employees). |
☐ Done / ☐ Not yet |
|
15. Work permits for foreigners: Have you obtained a work permit or a certificate of exemption from work permit requirements for foreign experts/managers (if applicable)? |
☐ Done / ☐ Not yet / ☐ *N/A |
|
16. Report on the employment situation: Submit the six-month report (before June 5th) and the annual report (before December 5th) on labor to the Department of Labor, War Invalids and Social Affairs.. |
☐ In progress / ☐ Not yet |
|
17. Sub-licenses by sector: We have obtained the necessary business licenses for each industry (e.g., retail business license, food safety license, fire safety license, environmental license, etc.). |
☐ Done / ☐ Not yet / ☐ *N/A |
|
18. Comply with periodic tax payments: Establish a schedule for filing and paying VAT and personal income tax on a monthly/quarterly basis; make quarterly provisional corporate income tax payments; and avoid overdue tax debts. |
☐ In progress / ☐ Not yet |
|
19. Archiving legal records: Keep copies of IRCs, ERCs, licenses, submitted reports, tax returns, tax payment receipts, employment contracts, and foreign worker records neatly organized and readily available for inspection. |
☐ Done / ☐ Not yet |
|
20. Updates on new laws: Assign someone to monitor or receive regular advice on newly issued legal documents related to the business in order to ensure timely compliance. |
☐ Set up / ☐ Not set up |
*N/A: This does not apply to businesses that do not operate in that industry or are not interested in that section.
IV. Tips for FDI Investors to Avoid Legal Mistakes
To ensure smooth and sustainable business operations in Vietnam, FDI investors need to proactively avoid common legal blunders.
1. Common mistakes and their consequences
Foreign direct investment (FDI) businesses often encounter several notable legal missteps, which can lead to serious consequences:
- Errors in business registration:
- Not thoroughly researching the business sector: Some industries (e.g., finance, real estate, education, healthcare) require statutory capital or sub-licenses. Lack of preparation can lead to license refusal or penalties later on.
- Mistakes when applying business activity codes: Applying the wrong 4-digit economic sector code or failing to correctly convert the investment target code (CPC) to the business sector code (VSIC) can cause problems.
- Late or incorrect investment contributions: Late capital contributions exceeding 90 days from the date of issuance of the Investment Registration Certificate, or capital contributions made to a regular payment account instead of a direct investment capital account, may result in the bank refusing the capital contribution, and the enterprise may be subject to penalties and adjustments to the capital contribution deadline.
- Foreign investors use Vietnamese individuals to register businesses under their names: This is a serious mistake that could lead to significant legal risks.
- Errors in monitoring and statistical reporting:
- Late submission or failure to submit reports: Foreign direct investment (FDI) enterprises are required to submit periodic reports (monthly, quarterly, annually) to the relevant authorities. Delays or omissions may result in administrative fines ranging from VND 1.000.000 to VND 20.000.000 for statistical reports and from VND 20.000.000 to VND 30.000.000 for investment monitoring reports.
- Incomplete data entry or incorrect calculations: This can lead to reports that do not accurately reflect the business situation, and may be rejected or require further information.
- Errors in tax compliance:
- Errors in tax filing: Any errors in determining taxable income, applying the wrong tax rate, or improperly allocating tax obligations between localities can lead to serious consequences: tax arrears, penalties, or loss of tax incentives.
- Challenges in understanding changes in tax policies and differences in accounting systems: Tax regulations are constantly changing, requiring FDI businesses to continuously update and adjust their internal processes. Foreign businesses often face difficulties in applying accounting and tax standards as stipulated by Vietnam.
- Risks from related-party transactions: Failure to comply with regulations on related-party transactions (Decree 132/2020/ND-CP) may result in interest expenses not being deductible or being subject to tax collection.
- Mistakes in labor management:
- Do not apply for a work permit or a certificate exempting you from a work permit: Foreign workers employed in Vietnam without valid work permits may result in fines ranging from VND 60 million to VND 150 million, depending on the number of violators.
- The application is incomplete or invalid, and does not meet the professional requirements: This can lead to applications being rejected or processing times being extended.
- Recruiting for a job outside of the registered field or assigning employees to the wrong position: Businesses that apply for work permits for a position but then assign employees to perform work that does not match the registered job title may violate labor regulations and have their work permits revoked.
- Do not renew your work permit or visa before it expires: Submitting renewal applications late may result in rejection.
Errors in declaring social insurance information: Incorrect names on social insurance records can cause difficulties when finalizing contribution records or receiving benefits.
2. Tips for avoiding legal errors
To minimize legal risks and ensure compliance, FDI investors should apply the following tips:
- Thoroughly research and regularly update your knowledge of the law:
- Thoroughly understand the Investment Law, the Enterprise Law, the Labor Law, and the latest guiding documents.
- Particular attention should be paid to the list of prohibited and conditionally permitted business sectors, as well as market access conditions for foreign investors.
- Continuously monitor and update on changes in tax policies, reporting regulations, and labor laws.
- Prepare your application thoroughly and accurately:
- Ensure all investment and business registration documents are complete and accurate according to regulations. Minor omissions or errors can slow down the approval process.
- All foreign documents must be legalized by the consulate, translated into Vietnamese, and the translations must be notarized/certified.
- Carefully check the information registered on the National Business Portal to compare it with your license and avoid errors.
- Establish a robust internal management system:
- Establish robust, automatable internal reporting processes to ensure timely and complete reporting.
- Maintain detailed and complete records throughout the year, especially accounting documents, to be ready for inspections.
- Apply appropriate financial reporting standards and conduct regular internal reconciliation and audits to ensure the accuracy of the data.
- Establish clear and transparent internal regulations and build a mechanism for regular dialogue to resolve labor conflicts.
- Take advantage of professional advice:
- Working with experienced law firms, investment consultants, accountants, and tax authorities in Vietnam is key to minimizing risks and saving time.
- Experts can assist in selecting the appropriate business entity type, assessing business lines, drafting detailed capital contribution agreements, resolving issues related to related-party transactions, and supporting tax audits.
- Professional consulting helps businesses avoid common mistakes, ensure compliance with complex regulations, and maximize investment incentives.
- Training and raising awareness for employees:
- Train employees on reporting requirements, labor laws and regulations, and potential legal risks.
- Ensure that staff responsible for legal, accounting, and human resources matters are always up-to-date with the latest knowledge.
- Financial risk control:
- Comply with foreign exchange regulations when transferring investment funds into Vietnam or profits abroad.
- Ensure that related-party transactions comply with Decree 132/2020/ND-CP to avoid being subject to interest expense restrictions or tax arrears.
Professional consulting is key to risk prevention. With a complex and constantly changing legal system, handling all legal matters independently can lead to avoidable mistakes. Professional consulting firms not only help businesses understand regulations but also support the development of effective compliance strategies, thereby minimizing risks, optimizing costs, and ensuring sustainable business operations in Vietnam.
V. Conclusion and Recommendations
Vietnam continues to be an attractive destination for foreign direct investment (FDI) with its strong economic growth potential and favorable policies. However, to maximize these opportunities and minimize risks, FDI investors need a market entry strategy built on a foundation of in-depth understanding and strict adherence to Vietnam's legal framework.
This report provides a comprehensive checklist of key legal requirements, including business registration, supervisory and statistical reporting obligations, tax issues, and labor regulations. Each area has specific, complex, and frequently updated regulations, requiring proactive and continuous engagement from investors. Related operating costs, from initial setup costs to recurring compliance and other operating expenses, also need to be carefully projected and managed.
Key points to pay particular attention to include:
- The dynamism of the law: The Vietnamese legal system, particularly the 2020 Investment Law and its guiding documents, is undergoing continuous improvement. This requires investors to regularly update their information to ensure compliance.
- Two-stop process and document preparation: The need to go through two licensing steps (IRC before ERC) with detailed documentation requirements, especially for foreign documents needing consular legalization and translation, underscores the importance of meticulous preparation from the outset.
- Diverse reports: The number and frequency of investment monitoring and statistical reports are substantial, with strict deadlines and clear penalties. This creates a constant compliance challenge.
- Tax complexities: The tax system, with its various types of taxes, tax rates, and incentives, along with specific regulations such as Foreign Contractor Tax and related-party transactions, requires professional management to avoid risks and optimize benefits.
- Labor compliance: Regulations concerning labor contracts, work permits for foreigners, and mandatory social insurance are areas where errors can easily occur if not strictly managed.
Recommendations for FDI investors:
- Conduct in-depth legal due diligence: Before making any investment decisions, conduct thorough due diligence on the industry, market access conditions, and relevant legal regulations. This helps determine the most suitable investment structure and business type.
- Collaborate with local consultants: Given the complexity and constant changes in Vietnamese law, seeking support from reputable law firms, accounting firms, and investment consultants in Vietnam is essential. These professionals can provide in-depth advice, assist with documentation, manage reporting obligations, and represent businesses in legal matters.
- Build a strong internal compliance system: Establish clear, automatable internal processes for data collection, reporting, and record management. This helps ensure the accuracy and timeliness of reports, minimizing the risk of penalties.
- Training and capacity building for the workforce: Invest in training employees on legal regulations relevant to the company's field of operation, especially tax and labor issues. This helps improve compliance awareness and minimize internal errors.
- Actively update your knowledge of the law: Regularly monitor announcements, amendments, and additions to relevant legal documents from competent state agencies. This can be done through legal newsletters, specialized seminars, or update services from consulting firms.
By proactively addressing and carefully managing the relevant legal aspects and costs, FDI investors can build a solid foundation for success and sustainable development in the promising Vietnamese market.