What Are The Steps To Establish A Wholly Foreign-Owned Enterprise (WFOE) In Vietnam?

Vietnam attracts foreign investors as an emerging market with countless opportunities. However, first-time foreign investors seeking to establish a wholly foreign-owned enterprise (WFOE) in Vietnam are frequently confronted with various legal issues and difficulties.

Indirect investment is a form of investment in which the investor does not participate directly in the management of the investment activity but through the purchase of shares, stocks, bonds, other commercial papers or through a securities investment fund, etc. Therefore, those undertaking indirect investments in Vietnam need not apply for an investment certificate (IC) to legalize their operations. 

On the other hand, direct investment is a form of investment whereby the investor may establish a business organization, invest in contractual forms, invest to develop business, contribute capital, purchase shares or carry out a merger and acquisition.  However, not all of the above mentioned forms of direct business investment requires an IC. In fact, according to regulations of Vietnamese law on investment, investors only need to apply for an IC when they have an investment project with certain amount of invested capital.

An investment project is a negotiate plan for the expenditure of medium and long-term capital over a specified period of time, to the end of carrying out a specific investment in a specific location.

Invested capital is money (Vietnam Dong or other freely convertible currencies) and other lawful assets used to implement investment activities, including: shares, stocks, or other commercial papers; bonds; debts and other forms of debt; contractual rights, debt claims, contractual rights with economic value; technology and intellectual property rights; rights of assignment including rights to explore and exploit natural resources; real estate and real-estate-related rights; profits generated from investment activities including profits, shares interest, dividends, royalties and assorted charges; assets and other rights with economic value.

Based on the capital source, investment sector and the amount of invested capital, there are different procedures regulated by law for investors to be granted an IC. Investment capital may originate from Vietnam or overseas.

In order to obtain an IC, it is essential for investors to know when to apply for an investment registration or investment evaluation.

Investment Registration

For investment projects with invested capital of less than 300 billion VND which are undertaken in the list of unconditional investment sectors, domestic and foreign investors are required to complete the investment registration procedures prior to the implementation of the project.

Especially, for domestic investment projects with invested capital of less than 15 billion VND and not being undertaken in a conditional investment sector, no investment registration is required.

The list of conditional investment sectors includes:

· Sectors impacting on national defence and security, social order and safety;

· Banking and finance;

· Sectors impacting on public health;

· Culture, information, the press and publishing;

· Entertainment services;

· Real estate business;

· Surveying, prospecting, exploration and exploitation of natural resources and ecological environment;

· Development of education and training;

· Other sectors in accordance with law.

Additionally, there are conditional investment sectors which particularly apply to foreign investors. Commonly, these sectors are public constructions and national key projects directly affecting the infrastructure, traffic, and eco-social development of the country; comprising:  broadcasting sectors, telecommunications network, mineral exploitation and processing, construction and operation of river ports, seaports, and airports, tobacco production, hospitals, clinics, and other sectors as provided for by international treaties to which Vietnam is a contracting party.

In case where investors wish to receive certification of investment incentives or an IC, they must perform the procedures for investment registration at a provincial State administrative body for investment.

To complete an investment registration for a domestic investment project, the following must be produced or declared:

  1. Legal status of the investor;
  2. objectives, scale and location for implementation of the investment project;
  3. invested capital; project implementation progress;
  4. land use requirements and environmental protection commitments;
  5. Proposal for investment incentives (if any).

Right after receiving the application dossier, competent authorities shall issue a receipt of investment dossier for investors.

To complete an investment registration for a foreign investment project, the following must be produced or declared in addition to the above:

  1. report on financial ability of the investor;
  2. joint venture contract or business co-operation contract and enterprise charter (if any).

The administrative body for investment and the Department of Planning and Investment shall issue an IC within a time-limit of 15 days from the date of receipt of a complete and correct application dossier for investment registration.

Investment Evaluation

Conditional investment sectors, regardless of domestic or foreign invested capital, and regardless of the scale of capital, must all be evaluated to be granted an IC. The same regulation applies to unconditional investment sectors having the amount of invested capital of over 300 billion VND.

With respect to investment projects with invested capital of more than 300 billion VND and not included in the list of conditional investment sectors, investors must prepare a dossier comprising:

  1. Written request for issuance of an IC;
  2. Documents certifying the legal status of the investor;
  3. Report on the financial capability of the investor;
  4. Economic-technical explanatory statement containing the following major details: objectives; scale and location of the investment; investment capital; project execution progress; land use requirements; and technological and environmental solutions;
  5. Business co-operation contract (if any).

With respect to investment projects included in the list of conditional investment sectorsin addition to the above mentioned documents, investors must also include an explanatory statement of ability to meet the conditions to which the investment projects are subject as provided for by law.

After properly completing the dossiers, investors shall submit them to the Department of Planning and Investment, including the original dossier in respect of projects that are granted an IC by provincial People’s Committee. Within 20 working days after the date of receipt of a complete and valid dossier, the provincial Department of Planning and Investment shall make an examination report and submit it to the provincial People’s Committee for decision.  Within 5 working days after the date of receipt of such examination report, the provincial People’s Committee shall consider granting an IC. Where necessary, the evaluation process may take longer but must not exceed 45 days.

In respect of projects carried out by first-time foreign investors in Vietnam, once granted an IC, this certification is also the business registration certification. Moreover, foreign investors should consider the operational duration of an investment project for it is not allowed to exceed 50 years. Where necessary, the Government shall decide on a longer duration for each project, though in no case may it exceed 70 years.

Investment projects undertaken in export-processing zones, industrial parks, high-tech parks and economic zones shall be registered under specialized regulations and laws which can not be specifically listed due to limitation of this article size.

PLF Law Firm