Before investing in Vietnam, besides market, infrastructure and labor factors, Japanese investors should pay attention to the following legal issues:
1. Types of enterprise
In Vietnam, there are five types of enterprise including joint stock company, one-member limited liability company, multi-member limited liability company, partnerships, and sole proprietorships. The following are the most prevalent forms of businesses chosen by Japanese investors:
Joint stock company | One-member limited liability company | Multi-member limited liability company | |
Legal entity | Yes[1] | Yes[2] | Yes[3] |
Number of members | At least 03 founding shareholders, no maximum limitation[4] | Only one owner being an individual or an organization[5] | From 02 to 50 members[6] |
Limitation of shareholder/member’s liability | Shareholders are liable for debts and other asset obligations of the company only within their capital amounts contributed to the company[7] | The company owner is liable for all debts and other property obligations of the company within the charter capital of the company[8] | Members shall be held responsible for debts and other property obligations of the enterprise within their capital amounts contributed to the company[9] |
Ability to raise capital | Highly capable of raising capital; allowed to issue shares to the public, bonds and other securities and can expand the number of shareholders[10] | Limited ability of raising capital; not allowed to issue shares to the public[11] | Limited ability of raising capital; Do not have the right to issue shares to the public[12] |
2. Charter capital
According to Law on Enterprise 2020, charter capital means the total value of assets which the shareholders, the members or the owner of a company have contributed or committed to contribute upon establishment of the company[13]. In other words, the charter capital is the capital contributed by the investor to the company. Investors typically have 90 days from the date of the Enterprise Registration Certificate to contribute the entirety of the registered charter capital. The foreign investors must create a direct investment capital account or an indirect investment capital account at a Vietnam-licensed bank before contributing any capital (in VND or foreign currencies).
3. Taxes and duties
When establishing a business in Vietnam, Japanese investors should consider and pay attention to the implementation of tax obligations, including:
- Licensing fee[14];
- Corporate income tax[15];
- Value-added tax[16];
- Personal income tax for employees working at the company[17];
- Export and import duties[18];
- Excise tax[19] (for enterprises producing and importing goods and trading in services subject to excise tax)
- Tax obligations of foreign contractors[20];
- Environment protection tax[21] (charging to goods and products causing adverse impacts on the environment when in use)
4. Conditional business lines
When planning to invest in Vietnam, Japanese investors should check beforehand if the target business line is conditional according to Vietnamese law. Business conditions are mainly reflected in two aspects including (i) market access conditions applicable to the Investors[22] và (ii) conditions applicable to the Investors in actual operation of their business.
For market access conditions, Japanese investors must fulfill all conditions prescribed for that industry before conducting investment activities in Vietnam. Market access conditions usually include[23]:
- Shareholding percentage held by foreign investors;
- Form of investment;
- Scope of investment activities;
For business conditions, in case the Japanese investor does conditional business, the Investor must fully satisfy and maintain those conditions throughout the investment term in Vietnam. Conditions for conducting business activities are usually applied through several forms below[24]:
- Operating license;
- Certificate of eligibility;
- Practicing certificate;
- Written certification or approval.
5. Inbound transfer of investment capital to Vietnam, outbound transfer of profits to foreign country
a) Inbound transfer of investment capital to Vietnam
Investment capital contribution of Japanese investors must be made through an investment capital account opened at a licensed bank in Vietnam[25]. Investment capital account includes direct investment capital account and indirect investment capital account.
Corresponding to the currency selected to make investment capital contribution, Japanese investors are only allowed to open 01 direct investment capital account in such foreign currency to make investment capital contribution, revenue and expenditure transactions; transferring capital, profits and lawful revenue abroad.
For indirect investment capital accounts, Japanese investors are only allowed to open 01 indirect investment capital account in Vietnam Dong (VND) at a licensed bank to conduct revenue and expenditure transactions related to foreign indirect investment in Vietnam.
The procedures for opening an investment capital account are carried out according to the procedures at the bank selected by the Investor to open the account.
b) Outbound transfer of profits to foreign country
Japanese investors can remit profits abroad every year after the end of the fiscal year or remit all profits abroad after the end of investment activities in Vietnam.
A prerequisite for Japanese investors to be able to remit profits abroad is to fulfill all financial obligations to the Vietnamese government in accordance with the law, including: submitting audited financial statements; corporate income tax finalization declaration for tax administration agencies; fulfill all obligations under the provisions of the Law on Tax Administration[26]. After fulfilling the above-mentioned financial obligations, Japanese investors are allowed to transfer the lawful profits distributed or obtained from investment activities in Vietnam to foreign countries. Japanese investors can transfer profits abroad in cash or in tangible assets. The transfer of profit in cash is conducted through the investment capital account that the Investor opened when transferring the capital contribution to Vietnam. In case the profits to be remitted abroad are in tangible assets, it is necessary to ensure that these goods / items are not banned from export.
[1] Law on Enterprise 2020, Article 111.2
[2] Law on Enterprise 2020, Article 74.2
[3] Law on Enterprise 2020, Article 46.2
[4] Law on Enterprise 2020, Article 111.1.(b)
[5] Law on Enterprise 2020, Article 74.1
[6] Law on Enterprise 2020, Article 46.1
[7] Law on Enterprise 2020, Article 111.1.(c)
[8] Law on Enterprise 2020, Article 74.1
[9] Law on Enterprise 2020, Article 46.1
[10] Clause 3 Article 111 Vietnamese Law on Enterprise 2020
[11] Law on Enterprise 2020, Article 111.4
[12] Law on Enterprise 2020, Article 46.3 and Article 46.4
[13] Clause 34 Article 4 Vietnamese Law on Enterprise 2020
[14] Clause 1 Article 2 and Article 4 Decree No. 139/2016/NĐ-CP on licensing fees amended and supplemented by Decree No. 22/2020/ND-CP
[15] Law on Enterprise Income Tax 2008, amended and supplemented in 2013 and 2014
[16] Law on Value-added Tax 2008, amended and supplemented in 2013 and 2016
[17] Law on Personal Income Tax 2007, amended and supplemented in 2012
[18] Law on on export and import duties 2016
[19] Law on Excise Tax 2008, amended and supplemented in 2014, 2016 and 2022
[20] Circular No. 103/2014/TT-BTC on Guiding the performance of tax obligations of foreign organizations and individuals doing business in Vietnam or earning income in Vietnam
[21] Law on Environment Protection Tax 2010
[22] Clause 3 Article 9 Vietnamese Law on Investment 2020
[23] Law on Investment 2020, Article 9.3
[24] Law on Investment 2020, Article 7.6
[25] Ordinance on foreign Exchange 2005, Articles 11 and 12 (amended in 2013)
[26] Circular No. 186/2010/TT-BTC regulating the remittance abroad of profits earned by foreign organizations and individuals from their direct investment in Vietnam under the Investment Law, Article 4