How to Set Up a Subsidiary Company in Vietnam

Introduction

Vietnam has rapidly transformed into one of the most attractive destinations for foreign direct investment in Southeast Asia. With a dynamic economy, a young workforce, and increasing integration into global trade networks, the country offers compelling opportunities for international businesses seeking expansion. Establishing a subsidiary company in Vietnam is often the preferred route for foreign investors who want a long-term, revenue-generating presence with full operational control.

However, entering the Vietnamese market requires a clear understanding of the legal framework, regulatory procedures, and compliance obligations set out under key legislation such as the Law on Investment 2020, the Law on Enterprises 2020, and their guiding decrees, including Decree No. 31/2021/ND-CP and Decree No. 01/2021/ND-CP. This article provides a comprehensive and up-to-date guide to help foreign investors navigate the process of setting up a subsidiary in Vietnam effectively.

Why Vietnam is an Ideal Destination for Business Expansion

Vietnam’s appeal lies in a combination of economic stability, strategic location, and progressive government policies aimed at attracting foreign investment. Over the past decade, the country has maintained strong GDP growth, supported by export-oriented manufacturing, a growing middle class, and increasing domestic consumption.

The government has signed multiple free trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU–Vietnam Free Trade Agreement (EVFTA), which significantly enhance market access and reduce tariffs. These agreements create favorable conditions for subsidiaries engaged in manufacturing, trading, and export activities.

In addition, Vietnam offers competitive labor costs compared to neighboring countries, while maintaining a relatively skilled workforce. Infrastructure has also improved significantly, particularly in major economic hubs such as Ho Chi Minh City, Hanoi, and key industrial provinces.

From a legal standpoint, Vietnam has gradually liberalized its investment environment. The Law on Investment 2020 introduced clearer rules on market access for foreign investors, including a “negative list” approach that specifies restricted sectors while allowing full access in most others.

What are the Types of Subsidiaries in Vietnam?

A subsidiary in Vietnam is typically a legal entity established under Vietnamese law, in which a foreign parent company holds ownership. The most common forms include the limited liability company and the joint stock company.

A single-member limited liability company is wholly owned by one foreign investor, while a multi-member limited liability company can have between two and fifty members. These structures are widely used due to their simplicity, limited liability protection, and flexibility in management.

A joint stock company, on the other hand, requires at least three shareholders and allows for the issuance of shares. This structure is more suitable for larger investments or companies planning to raise capital publicly in the future.

In practice, most foreign investors opt for a wholly foreign-owned limited liability company, as it offers full control and straightforward governance.

Key Features of Subsidiary Companies

A subsidiary in Vietnam is considered a separate legal entity from its parent company. This means it can enter into contracts, own assets, hire employees, and conduct business independently. The liability of the parent company is limited to the capital it contributes to the subsidiary.

The subsidiary must comply with Vietnamese laws in all aspects of its operations, including accounting, taxation, labor, and reporting obligations. It is also subject to Vietnamese jurisdiction and must maintain a registered office within the country.

Unlike representative offices, subsidiaries are allowed to generate revenue and engage in commercial activities. This makes them the preferred vehicle for long-term business operations.

Regulatory and Compliance Requirements in Vietnam

Setting up a subsidiary in Vietnam involves compliance with several layers of regulations. The most important legal instruments include the Law on Investment 2020 and the Law on Enterprises 2020, which govern foreign investment and corporate establishment respectively.

Foreign investors must first determine whether their intended business falls within sectors that are open to foreign investment. Certain industries, such as telecommunications, banking, and education, may have specific conditions or ownership limits.

The licensing process generally involves two main approvals: the Investment Registration Certificate (IRC) and the Enterprise Registration Certificate (ERC). The IRC confirms the investor’s project, while the ERC establishes the legal entity.

In addition to these, businesses must comply with tax registration, labor regulations, social insurance obligations, and sector-specific licensing where applicable.

Essential Documents for Registering a Subsidiary in Vietnam

To establish a subsidiary, foreign investors must prepare a comprehensive set of documents. These typically include legal documents of the parent company, such as the certificate of incorporation and audited financial statements, which demonstrate the investor’s legal status and financial capacity.

Investors must also submit a detailed investment project proposal outlining the business activities, capital structure, location, and implementation timeline. Identification documents of legal representatives and proposed company management are also required.

All foreign-issued documents must be notarized, legalized, and translated into Vietnamese in accordance with local regulations.

Steps to Establishing a Subsidiary Company

Step 1: Choose the Appropriate Business Structure

The first step involves selecting the most suitable legal structure based on the investor’s objectives, scale of operations, and long-term plans. For most foreign investors, a wholly foreign-owned limited liability company is the most practical choice due to its simplicity and control.

Step 2: Reserve the Company Name

The proposed company name must be checked and approved by the Business Registration Office to ensure it is unique and complies with naming regulations. The name must not be identical or confusingly similar to existing registered entities.

Step 3: Obtain the Investment Registration Certificate (IRC)

The IRC is required for all foreign-invested projects. The application is submitted to the Department of Planning and Investment in the relevant province. Authorities will assess the project based on factors such as feasibility, compliance with planning, and market access conditions.

The statutory processing time is typically 15 working days, although it may take longer in practice depending on the complexity of the project.

Step 4: Apply for the Enterprise Registration Certificate (ERC)

Once the IRC is issued, the investor can proceed to apply for the ERC. This certificate officially establishes the subsidiary as a legal entity. The application includes the company charter, list of members or shareholders, and details of the legal representative.

The ERC is usually issued within 3 to 5 working days if all documents are in order.

Step 5: Complete Post-Licensing Procedures

After obtaining the ERC, the company must complete several post-licensing steps. These include making a company seal, opening a bank account, registering for tax, and publishing the company’s registration details on the National Business Registration Portal.

The company must also register for electronic tax filing and obtain digital signatures.

Step 6: Contribute the Registered Charter Capital

Investors are required to contribute the registered charter capital within 90 days from the date of issuance of the ERC, unless a shorter timeline is specified in the IRC. The capital must be transferred through a direct investment capital account opened at a licensed bank in Vietnam.

Failure to comply with this requirement may result in administrative penalties or adjustments to the registered capital.

Step 7: Fulfill Sector-Specific Licensing and Compliance Requirements

Depending on the nature of the business, additional licenses or permits may be required before operations can commence. For example, companies in the food and beverage sector must obtain food safety certificates, while those in education or healthcare must meet specific regulatory conditions.

Financial Requirements and Capital Contribution

Vietnam does not impose a universal minimum capital requirement for most industries. However, authorities will assess whether the proposed capital is adequate for the scale and nature of the project.

Certain sectors, such as real estate or financial services, may have statutory minimum capital requirements. Investors should also consider operational costs, including office rental, staffing, and initial expenses, when determining the capital level.

Capital contribution must be properly documented and reported, as it directly affects the company’s legal compliance and ability to remit profits abroad.

Taxation Rules and Incentives for Subsidiaries

Corporate Income Tax (CIT)

The standard corporate income tax rate in Vietnam is 20 percent. This applies to most business activities, although higher rates may apply to certain sectors such as oil and gas.

Taxable income is calculated based on revenue minus deductible expenses, in accordance with the Law on Corporate Income Tax and its guiding regulations.

Tax Incentives for Foreign-Invested Subsidiaries

Vietnam offers a range of tax incentives to attract foreign investment, particularly in high-tech industries, manufacturing, renewable energy, and projects located in industrial zones or economically disadvantaged areas.

Incentives may include reduced tax rates, tax holidays, and exemptions or reductions for a specified period. For example, certain projects may benefit from a 10 percent CIT rate for up to 15 years, along with a four-year tax exemption and a nine-year reduction.

Eligibility for these incentives depends on the nature and location of the investment project.

Tax Compliance

Subsidiaries must comply with strict tax reporting and payment obligations. This includes quarterly provisional CIT payments, annual tax finalization, value-added tax (VAT) declarations, and personal income tax (PIT) withholding for employees.

Companies are also required to maintain accounting records in accordance with Vietnamese Accounting Standards and may be subject to annual audits.

Common Challenges and Solutions for Foreign Investors in Vietnam

Foreign investors often face challenges related to regulatory complexity, language barriers, and differences in business culture. The licensing process can be time-consuming, particularly for projects requiring multiple approvals.

To mitigate these challenges, it is advisable to work with experienced local legal and consulting firms that understand the regulatory landscape and can facilitate communication with authorities.

Another common issue is compliance with changing regulations. Vietnam’s legal framework is evolving, and companies must stay updated on new laws and policies to avoid risks.

Recruitment and retention of qualified staff can also be challenging in certain industries. Investors should develop competitive compensation packages and invest in employee training to build a strong workforce.

FAQs

Are foreign investors allowed to own 100% of a subsidiary in Vietnam?

Yes, foreign investors are allowed to fully own a subsidiary in most sectors under Vietnam’s current investment laws. However, certain industries may have foreign ownership restrictions or require joint ventures with local partners. These conditions are outlined in Vietnam’s commitments to the World Trade Organization and other international agreements.

What is the difference between a subsidiary and a representative office?

A subsidiary is a fully licensed legal entity that can conduct business activities and generate revenue in Vietnam. In contrast, a representative office is limited to non-commercial activities such as market research and liaison functions. It cannot issue invoices or enter into commercial contracts.

Can a subsidiary be converted into another business form?

Yes, Vietnamese law allows companies to convert between different types of business structures, such as from a limited liability company to a joint stock company. This process must follow the procedures set out in the Law on Enterprises 2020 and requires approval from the relevant authorities.

Conclusion

Setting up a subsidiary company in Vietnam offers significant opportunities for foreign investors seeking to expand into one of Asia’s fastest-growing markets. While the process involves multiple steps and regulatory requirements, careful planning and professional support can ensure a smooth and successful establishment.

By understanding the legal framework, preparing the necessary documentation, and complying with ongoing obligations, investors can build a strong foundation for long-term growth in Vietnam.