Question: I am looking to establish a whole foreign owned company for the purpose of opening a bicycle assembly factory here in Vietnam.

We want the company to be 50% owned by my USA company and 50% owned by my partners Hongkong company.

Could you advise me on the best way to proceed, timeline and cost.

Answer: SBLAW would like to present you with additional information you should be aware of when running a company in Vietnam, under Q&A as follows:

 
1/ What would be the best legal entity?

Among the most common and available investment vehicles to foreign investor including “company limited”, “joint-stock company (shareholding company)”, “business-cooperation contract”, I would recommend you to choose the “company limited” (same as limited liability company in other jurisdictions) when doing investment in Vietnam.
We needs at least 3 shareholders to register a JSC, and generally the organizational and management structure of shareholding companies is quite complicated than LLC. One thing, the assignment of shares is always to be taxed (1% of transfer price), while the assignment of contributed capital may not be taxed if there’s no generated income (e.g. the transfer price is equivalent to the value of contributed capital).
Please kindly refer to the comparison table attached herewith for details. A brief summary is as follows:
a/ Regarding JSC:
Under the Law on Enterprise 2014, the statutory voting thresholds for a JSC’s general meeting of shareholders (GMS) will be:

– Quorum: 51% of voting shares

– at least 65% of the votes of the total number of voting slips of all attending shareholders for special resolutions
– at least 51% of the votes of the total number of voting slips of all attending shareholders for all other shareholder resolutions

A foreign investor will be able to generally control a JSC with only a 51% stake.

b/ Regarding LLC:
Unlike in a JSC, 51% does not constitute a majority required for decisions in a limited liability company with multiple members (MLLC) under the Law of Enterprise 2014.
Statutory voting thresholds for members’ council resolutions in an MLLC:
– Quorum: attending members hold at least sixty five 65% of the charter capital
– at least 75% of the votes of the total number of voting slips of all attending members for special resolutions
– at least 65% of the votes of the total number of voting slips of all attending members for ordinary resolutions
Note that in single-member limited liabilities companies, the above thresholds don’t matter, because there is only one investor. So long as there is no members’ council, most decisions can be unanimously made by the owner or chairperson.


2/ What would be the ideal timeline for such a company set-up?

Procedures for foreign-invested company incorporation include 2 main steps: (1) investment registration, and (2) company registration. Usually it takes 25-30 working days from submission of application dossier to complete those procedures.
 
3/ Is it necessary to be present in Vietnam for the company registration, or lawyer can manage it on site when the investor will provide all the necessary documents on-line?
For implementation of mentioned-above investment registration, no need physical presence of investors in Vietnam to complete them. SBLAW shall handle the procedures on basis of Power of Attorney from Clients to us. 
However, the post-licensing procedures such as: company bank account registration shall require the presence of legal representative of the new entity in Vietnam.
 

4/ What documents the investor need to provide to SBLAW to start with company set-up?

I attached herewith the proposed Checklist of documents for your reference; however it can be revised later based-on actual Client’s demand.


5/ Residency requirement to Legal Representative of Vietnam-based company
Legal representative is required to residing in Vietnam, as a resident. Under point of view of Tax Authority, a person can be deemed as “resident” if he lives at least 183 days per year in the country; or if he has a so-called “Temporary Residence Card” in Vietnam. Thus, technically, if the Legal Rep. has “Temporary Residence Card” and “Power of Attorney” for another manager, he does not need to be physical presence (living) in Vietnam; however, he’s still must responsible for any decisions that his proxy made for and on behalf of him.
However, if you’re a “resident in Vietnam”, annually you have to declare and finalize all of your global incomes in Vietnam. For avoidance of this burden, some enterprises choose this legal workaround: they register 2 Legal Representatives, which one person residing in Vietnam, while the other does not. However, the one lives in Vietnam shall be limited his rights/obligations/duties, e.g. he is not allowed to sign contract. Actually, everything shall be decided by the non-residing Legal Representative.
 
In summary, we kindly suggest 02 options for your consideration:

(1) In case of having 01 foreign Legal Representative, Work Permit and Temporary Residence Card must be apply and obtain for this person; or


(2) Having from 02 Legal Representatives upward, at least one of them is local and reside in Vietnam.

 
6/ Tax and employee concerns (if any)
Enterprises (generally companies) are subject to the tax rates imposed under the CIT Law. The standard Corporate Income Tax (CIT) rate from 2016 is 20% (it was 22% from 2014 to 2015, and 25% prior to 2014).
The brewery and restaurant are sectors which are not encouraged by the Vietnamese Government, therefore, no tax incentives are applicable for those business activities. For other taxes, you may find information in a publication attached herewith which was issued by PwC Vietnam in 2017.
Among the issues, here are some of the key labor issues and their impact on doing business in the country:
 
a/ Minimum salaries
According to the MOLISA, minimum salaries in certain working regions will be increased. In working region Type I including Ho Chi Minh City, the minimum salary is increased to the range of VND3,750,000 to VND3,980,000 in 2018.
The employers should be aware of, and well prepared for, their human resources budget for 2018.
 
b/ Work permits for foreign employees
In general, if an expatriate wants to work in Vietnam for three months or longer, he/she must obtain a work permit. Vietnamese employers are required to provide support and submit application documents for the work permit.
Currently, the concept of managers who are permitted to work in the country is limited to the narrowly-defined “managerial positions” under the Enterprise Law of Vietnam (EL). The result is only a few people qualify for managerial positions. Employers can expand the definition of ‘managerial position’ in their charter or persuade the MOLISA (the issuing body of work permits) to accept them as experts with one of the following conditions:
– Acknowledgment by company’s headquarters as an expert
– Obtainment of a bachelors degree or equivalent
– Having at least three years’ experience in the relevant industry.


c/ Basic Employment Terms 
A labor contract must be written in Vietnamese or in both Vietnamese and the foreign language that is applicable to the employer and employee. Contracts for temporary jobs lasting less than three months or for domestic helper work do not need to be in writing and can be oral.
The Labor Code of Vietnam requires that a labor contract include the following material terms: (i) work to be performed; (ii) working hours and rest hours; (iii) wages; (iv) working place/location; (v) duration of contract; (vi) conditions on occupational safety and hygiene; and (vii) social insurance for the employee. In practice, statutory material terms are for standard labor contracts for simple work only.
Under Vietnam Labor Law, employment contract must be concluded in one of the following types:
– Employment contracts without fixed term in which both Parties do not specify the term and the expiry date of the contract;
– Fixed-term Employment Contracts in which both parties specify the term and the expiry date of the contract within 12 to 36 months;
– Casual employment contracts or regular employment contracts with terms under 12 months.

In case the parties in Employment Contract do not specify the expiry date of the Contract, it shall be classified to the Employment Contracts without fixed term.With the reference to Employment Contract without fixed term, Vietnam Law strictly limits rights of Employer to unilaterally terminate employment contract.

Meanwhile, Employee can unilaterally terminate employment contract at any time just by send a 45 days written notice. We highly recommend employer to clearly specify expiry date of the Contract. However, the expiry date must not exceed 36 months from the signing date of the Contract. Ideally, you specify the expiry date of the Contract not exceeding 12 months from the singing date of the Contract. Then, upon the expiry date, the Company can consider renewing validity of the Contract.


e/ Social Insurance
Social Insurance applies to enterprises, entities, and organizations that employ employees under indefinite-term labor contracts or under definite-term labor contracts with a duration of three months or more. Both employees and employers are required to contribute to the social insurance fund at statutory rates. The social insurance fund pays allowances for sick leave, maternity leave, work-related accidents, occupational disease, and pensions.
From 1 January 2018 all employees with a labour contract term of one month or more, including foreign employees, will be required to pay the compulsory social insurance. Companies should take into account this type of payment when calculating benefits payable to foreign employees, and when developing their business plan for 2018.
 
7/ Profit repatriation concerns (if any)

Foreign investors are permitted to remit their profits annually at the end of the financial year or upon termination of the investment in Vietnam. Foreign investors are not permitted to remit profits if the invested company has accumulated losses. In order to repatriate profits, a company must ensure that it has completed the declaration of corporate income tax of the relevant financial year and issued audited financial statements.

The company must then report its intention to repatriate its profits to the tax bureau. If, within 7 days, there is no notice from the tax bureau, the profits may be remitted out. Accordingly, after completing their tax obligations to the State of Vietnam, foreign-invested companies are free to transfer profit abroad and shall not be subjected to withholding tax. However, individual investors are still subject to tax.

Please kindly be advised by Tax/Accounting Advisor for further details.

8/ Trademark registration
SBLAW is a full-range law-firm provide services in all legal aspects of Intellectual Property in Vietnam. Read more at: http://www.sblaw.vn/practice/vietnam-trademark-registration/

9/ Deal(s) negotiation and other legal assistance
SBLAW is ready to assist our Clients in various type of legal services including but not limited to: negotiation assistance, drafting contract/agreement, applying licenses, advising on legal matters when operating business activities, etc.




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