Business and Investment in Vietnam Textile Industry

Business and Investment

in Vietnam

Textile Industry

December 2019

 

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List of abbreviations

1. Executive Summary

Business and Investment in Vietnam is not only economically attractive, it can also rely on a modern legal framework. The practical business requires highly qualified management and understanding of legal and practical conditions.
For a foreign investor, all business lines which are not prohibited or restricted are free. However, it must be licensed and implementation at the administrative level is not always easy.

2. Introduction

As the 150th member of the World Trade Organization (“WTO”), Vietnam has become more and more appealing as an investment location. The WTO commitment from 2007 first introduced specific provisions, which made investment in Vietnam more attractive for foreign investors. Now, foreign investors are offered a wide range of opportunities to enter the Vietnamese market. Depending on the field of business, it may be required that the business be operated in the form of a joint venture. But for very many fields of business, the market is open for 100% foreign investments.
In the past decade, the Vietnamese legal system has become more and more streamlined, less bureaucratic and less burdensome for foreign investors. Foreign investors continue to be optimistic about Vietnam’s economic future.

3. Political and Investment Environment

Vietnam is a single-party socialist republic which is governed by the Vietnamese Communist Party in accordance with the Constitution1. Although Vietnam remains a single–party state, an orthodox adherence to ideology has slowly given way to economic development. Further, Vietnam continues to strengthen its relationships with trading partners such as Japan, South Korea, China, ASEAN countries, USA, EU nations and Australia.

In the past two decades, the government has pursued a policy of economic reform the culmination of which was Vietnam’s 2007 accession to the WTO. In order to prepare for this accession, the Vietnamese National Assembly passed several laws. With effect from 1 July 2015, the Law No. 67 on Investment (“LOI”) and the Law No. 68 on Enterprise (“LOE”) became effective.

The GDP in 2018 is 2,563.8 USD2 and the growth of the GDP in 2019 is expected to be 6.8% and in 2020 6.7%.3 In 2016, 5.8% of the population in Vietnam is living below the national poverty line. In Thailand this figure is for 2017 7.9% and for the Philippines for 2015 21.6%.4 The Foreign Direct Investment for 2018 is estimated to be 19.1 billion USD, 9.1% more than that of 2017 according to statistics from the Ministry of Science and Technology (“MPI”).5
The tax rate for Corporate Income Tax is 20%. For details, please refer to our Brochure on Corporate Income Tax.

4. Legal Framework

Vietnam has tried to match the development of its legal infrastructure with its economic growth. The above mentioned LOI and LOE constitute general principles under which all domestic and foreign invested enterprises conduct business in Vietnam. Different governmental Decrees and ministerial Circulars detail and explain how these principles should be applied in practice from licensing procedures to taxation and corporate governance. In addition, there are various industry-specific documents issued by the relevant Ministries that provide additional guidance for investors.

For all foreign investments, the most important question concerns the benefit such investments will bring for the development of Vietnam. This is underlined by various regulations on both licensing and tax benefits.

5. Administration

MPI is the central administrative body that oversees all foreign investment activities in Vietnam. The MPI is responsible for drafting legislation, developing policies, providing guidance and consultation, and coordinating with other relevant authorities. The MPI is also responsible for approving and issuing licenses for certain types of foreign investment projects (usually large and important projects). The MPI is headquartered in Hanoi and has a Southern Representative Office in Ho Chi Minh City.

The local People’s Committees in each city or province directly administer foreign investment activities under their jurisdiction. They also issue licenses for certain smaller projects. In some cities with high levels of foreign investment, the Department of Planning and Investment (“DPI”) under the local People’s Committee also plays a very active role. It is the relevant authority for licensing foreign investments located outside special zones and is the sole authority in charge of the enterprise registration certificate.

To encourage investment in different regions, the Vietnamese government has designated several types of special zones in which investors will receive preferential treatment, such as reduced tax rates and easier import procedures. If a company is located within one of these zones, it will fall under the administration of that zone’s Management Board regardless whether it is licensed by the MPI or by the Management Board itself. Therefore, such company must operate the business in compliance with the respective zone’s rules on import/export, environment, labour, etc., in addition to the general rules of the government and the MPI. The administrative procedures in such a zone are faster and the infrastructure better than those outside of such a zone.

These zones are collectively referred to as Production Zones. There are certain kinds of Production Zones:

➢ Export Processing Zones.
These are specialized for producing goods for exportation.
➢ Industrial Zones. They include Export Processing Zones, Auxiliary Industrial Zones and Eco-Industrial Zones.
➢ Economic Zones.
They include many functional zones including industrial zones.
➢ High Tech Parks.
Here, the activities around Hi-Tech are concentrated: production, trading, research, application, cooperation, incubation, human-resource training and Hi-Tech services.

Other more specialised ministries are sometimes also involved in foreign investment. For example, the Ministry of Science and Technology (“MOST”) plays an administrative role in developing the high-tech industry’s foreign investment policies. The MPI often consults one or more of these specialised ministries before approving a business license application.

6. Business Sectors

The LOI divides Vietnam’s economic sectors into 04 categories. Investors are permitted to carry out investment activities in business sectors which are not prohibited. Depending on the socio-economic conditions and requirements for administration, the National Assembly and the Government shall make amendments to each list of business sectors.

The sectors are:
➢ Prohibited Business
➢ Encouraged Business
➢ Conditional Business
➢ Remainder

6.1 Prohibited

From 1 July 2015, prohibited business sectors are directly specified in LOI instead of many different legal documents. This helps investors make decisions on their business lines. The number of prohibited business sectors has been cut down in comparison with the former regulations.

Investment is currently not permitted in the following sectors:

➢ Business in some kinds of drugs6;
➢ Business in some chemicals and some mineral7;
➢ Business in specimens of wild fauna or flora according to the Convention on International Trade in Endangered Species;
➢ Business in specimens of endangered species and rare wild fauna or flora8;
➢ Business in prostitution;
➢ Purchase or sale of humans, tissues or parts of human body;
➢ Activities related to asexual reproduction.

6.2 Encouraged

Foreign investors in these sectors are entitled to numerous incentives:
➢ High-tech activities, industrial products which support high-tech; research and development activities;
➢ Foreign investors in these sectors are entitled to numerous incentives:
➢ High-tech activities, industrial products which support high-tech; research and development activities;
➢ Production of new materials, new energy, clean energy or renewable energy; production of products with an added value of 30% or more, and energy-saving products;
➢ Production of electronics, prioritized mechanical products, agricultural machinery, automobiles, automobile parts; and shipbuilding;
➢ Production of industrial products which support the production of garments and textiles or leather products;
➢ Production of products of information technology, software and digital content;
➢ Breeding, growing and processing agricultural, forestry and aquaculture products; afforestation and protection of forests; salt production; fishing and services which support fishing; creation of plant and animal varieties and production of products of biological technology;
➢ Collection, processing, reprocessing or reuse of refuse;
➢ Investment in development and operation, and management of infrastructure facilities; and development of public transportation in urban areas;
➢ Pre-school education, general education, and vocational education;
➢ Medical consultation and treatment; production of medicines, raw materials for the production of medicines, principal medicines, essential medicines and medicines for the prevention and treatment of social diseases, vaccines, medical biological products, medicines from pharmaceutical materials, oriental medicines; and scientific research in relation to technology of preparing and producing new medicines;
➢ Investment in facilities for training and competition of sports, or physical practice for disabled people or for professional sportsmen; protection and promotion of the value of cultural heritage;
➢ Investment in centers for geriatrics, psychiatry or treatment of patients exposed to Agent Orange, and centers for care of the old, the disabled, orphans or neglected street children;
➢ People’s credit funds and micro-financial institutions.

6.3 Conditional

Conditional business sectors are applied to both domestic investors and foreign investors. However, there are several conditional business sectors which are applied to foreign investors only.
To invest in a conditional investment sector, the investors must satisfy the specific requirements for that sector. These requirements will vary from sector to sector and may include: cooperation with a Vietnamese partner, legal capital amount, specific additional licenses, a specified financial capacity, specific experiences, specific facilities or special permission from the competent authorities, etc.
Conditional business sectors will be stated in laws or decrees. No authorities below Government are permitted to regulate the list of these sectors. According to LOI, there are more than 200 conditional business sectors. It is important for the investor to check the conditional business sector before investing.

6.4 The remainder

Foreign investment in these sectors is generally permitted and subject to the WTO Commitments and the specific law governing the area in question.
In general, the Vietnamese government tries to regulate and direct the inflow of foreign direct investment to specific sectors and regions. Whether an investment project will be granted a license will not only depend on which of the above 04 categories has to be applied on the specific business lines, but also upon Vietnam’s specific economic and social needs at the time the application is made. All foreign investments need to face the question what benefits such investments will bring to Vietnam.

All foreign companies at the beginning of the investment process must obtain an Investment Registration Certificate (“IRC”), which relates to the contents and conditions of the foreign investment. After receiving the IRC, the foreign investor must establish an economic organization by applying for an Enterprise Registration Certificate (“ERC”). Where the foreign investment is made under capital share transfer, the IRC is not compulsory but an Approval for such capital share transfer (“M&A Approval”) is. In contrast, domestic companies are only required to obtain an ERC.

Generally, Vietnam’s current licensing and regulatory environment can still be described as difficult. Licensing and other administrative procedures are lengthy and not always predictable concerning the specific requirements. The regulatory framework is insufficient, and its enforcement is not in all cases reliable. Therefore, it is very important for the investor to be as fully informed as possible before initiating an investment project. It is also important to have a trustworthy Vietnamese-speaking person participating in all negotiations.
The investor must be prepared and willing to give as much information on the intended investment as possible.

7. Foreign Direct Investment and Available Entity Forms
7.1. Terminology

The terminology used in the following paragraphs reflects what is used in Vietnamese legislation and every-day business.
Please note that it is customary for a single person to hold multiple titles at the same time.


 

Above, we are not mentioning the positions that we usually use in a partnership company and private company.

In most cases, one person will be General Director cum Legal Representative, and another person will be President (or Chairperson of the Members Council) in the case of LLC, or Chairperson of BoD in the case of JSC cum Legal Representative.

7.2. Legal Representative

The Legal Representative represents the enterprise to exercise ist rights and to perform the obligations arising from transactions of the enterprise.
Limited Liability Companies and Joint Stock Companies are allowed to have more than one Legal Representative. This grants companies the right to decide on its number of Legal Representatives. The number, managerial positions, rights and obligations of Legal Representative(s) shall be specified in the company charter. Although it is not required by law, the company charter should specify and clearly define the rights and obligations of each Legal Representative in case it has more than one Legal Representative, in order to separate the duties and responsibilities of each Legal Representative.

At least one of the Legal Representatives must be a resident of Vietnam.

7.3. Foreign Investor and incorporation in Vietnam

Investment by establishing an economic organization is known as Foreign Direct Investment (“FDI”). There are differences in their respective procedures for establishing an economic organization between domestic investors and foreign investors.
A foreign investor is defined as any individual with a foreign nationality or whose organization was established in accordance with foreign law outside Vietnam if they are conducting business investment activities in Vietnam.

Regarding the requirements for obtaining a decision on an FDI, a company established in Vietnam can also be considered a foreign investor, if;
a) at least 51% of its charter capital is held by a foreign individual or an organization established outside Vietnam;
b) at least 51% of its charter capital is held by an organization established in Vietnam which has at least 51% of its charter capital held by a foreign individual or an organization established outside Vietnam;
c) at least 51% of its charter capital is held by these two combined:
(1) a foreign individual or an organization established outside Vietnam;
(2) an organization established in Vietnam having at least 51% of its charter capital held by a foreign individual or an organization established outside Vietnam.
Regarding other legal requirements, such company is considered a Vietnamese company.
Please note that due to certain voting requirements an investor holding 51% of the charter capital does not fully control the company.
7.4. Forms of Foreign Direct Investments
Before establishing an economic organization, a foreign investor must obtain the Investment Registration Certificate (“IRC”) Currently the following investment models are available for an FDI:

a) Representative Office;
b) Branch Office;
c) Limited Liability Company (“LLC”);
d) Partnerships;
e) Joint Stock Company (Shareholding Companies) (“JSC”).
Co-operatives and unions of co-operatives are also defined as economic organizations. However, only foreign individuals who are at least 18 years old, legally reside in Vietnam and have full civil capacity are allowed to become members of co-operatives. Foreign organizations are not allowed to become members of co-operatives.
A foreign investor can own up to 100% of the charter capital depending on the business lines and models of investment. A thorough examination of the business lines, legal framework, WTO commitments and regulations under Free Trade Agreements are necessary.
An economic organization with foreign owned capital is allowed to carry out a new project without establishing a new economic organization. This means that the new business line can be added to the scope of business of an existing company.
7.5. Limited Liability Company
The most common form of FDI is the Limited Liability Company (“LLC”). Vietnamese law distinguishes between Multi Member Limited Liability Company (“MMLLC”) and Single Member Limited Liability Company (“SMLLC”). An LLC has legal entity status from the date of issuance of the ERC. The MMLLC is the most common form for Joint Ventures (“JV”).9
The SMLLC has one owner. The obligation of the owner is limited to paying up to the licensed charter capital.
Except for some business sectors which require a mandatory legal capital (e.g. banking, real estate, etc.), the charter capital of the company is determined by the owner.

A MMLLC has two or more owners. The obligation of the owners is limited to paying up to the licensed charter capital. Most joint venture companies choose this format. The number of members must not exceed 50. If the company wishes to have more than 50 members then it must be converted into a Joint Stock Company.

7.5.1. Limited Liability Company
7.5.1.1. Structure

The structure of an LLC has some flexibility regarding these issues:
➢ Legal Representative(s)
➢ (General) Director
➢ President or Chairperson of the Members’ Council, and Members’ Council
➢ Inspector(s).
Legal Representative
➢ The Legal Representative represents the enterprise to exercise its rights and to perform the obligations arising out of transactions of the enterprise. The decisions and actions of the Legal Representative are binding for the LLC. The Legal Representative has the authority to decide on all transactions.
➢ An LLC can have more than one Legal Representative. The number, managerial positions, rights and obligations of Legal Representative(s) shall be specified in the company charter. Although it is not required by law, the company charter should specify and clearly define the rights and obligations of each Legal Representative in case it has more than one legal representative, in order to separate the duties and responsibilities of each legal representative.
➢ At least one of the legal representatives must be a resident of Vietnam. If the only Legal Representative exits Vietnam, he/she must authorize another person to act on his/her behalf; however, the authorized person must be a resident of Vietnam. If the appointed Legal Representative is not a resident of Vietnam, a new Legal Representative must be appointed.
➢ The Legal Representative may at the same time be appointed to hold other positions in the company (see below).

(General) Director

The (General) Director of an LLC is the person who manages the day-to-day business of the company11. The position of the (General) Director can be concurrently held by the President, Chairperson of the MC or a Member of the MC. The (General) Director may also concurrently be the Legal Representative of the company. In such a situation the (General) Director (as the Legal Representative) has signing authority for the transactions of the company.
Normally, the LLC will have a General Director cum Legal Rep. It may have other Directors in addition.
President or Members’ Council
The Members’ Council (“MC”) is the highest decision-making body. If a member is an organization, they must appoint an authorized representative to act on their behalf within the Members’ Council. The Members’ Council must hold a general meeting at least once a year.
The Members’ Council has the authority to determine the strategy and development of the company, to increase or reduce the capital, to elect, remove or dismiss persons in managerial positions, to distribute profits and to re-organize or dissolve the company.
The Owner being an organization may appoint one or several persons as authorized representatives to act on their behalf at the LLC. These authorized representatives will exercise the Owner’s absolute authority over the company.
An authorized representative must be an individual who is authorized in writing to exercise its rights in the company by an organization-member. An authorized representative must have full civil capacity, must not be prohibited from the establishment and management of enterprises and must have professional qualifications and experience in business management or in the main lines of business of the Company12. Normally this requirement is not controlled by authorities. The appointment of an authorized representative must be notified to the LLC.

In case the Owner appoints only one authorized representative, this authorized representative shall be the President of the LLC. The President may also act as the Legal Representative of the company.
If the Owner appoints more than one authorized representative, all authorized representatives shall be members of the MC13. The MC may have 03 to 07 members with a 5-year maximum term. When appointing more than one authorized representative, the Owner must determine the capital contribution which each authorized representative shall represent. Without that decision, each authorized representative shall represent an equal proportionof capital contribution. The Owner shall appoint the Chairperson of the MC or the members of MC shall elect the Chairperson on the principle of simple majority. The Chairperson’s term of appointment must not exceed five years; he may, however, be re-appointed. The Chairperson’s authority includes the power to execute contracts on behalf of the company (e.g. labor contract with the (General) Director and external transactions which are beyond the scope of the (General) Director’s authority. The Chairperson can concurrently act as (General) Director or be appointed as a Legal Representative.
The President or the MC shall implement rights and obligations of the Owner and the LLC on behalf of the Owner. The President or the MC shall also appoint or employ the (General) Director of the LLC.
The MC’s authority is exercised in the form of resolutions and the President’s authority is exercised in the form of decisions.

Inspectors

Inspectors are also known as “controllers” or “supervisors” under the LOE. The Owner may appoint them for a term of up to 5 years. The number of inspectors shall be decided by the Owner14. An Inspector’s most important duty is to control and supervise the activities of the Members’ Council, the (General) Director, and the President and to report to the Owner. Inspectors are neither authorized representatives in the Members’ Council, nor can they serve as a Director, or President of the company. The Inspectors are comparable to a supervisory board in other jurisdictions.

7.5.1.1.1.1. Single member who is a natural person

Apart from some slight differences which are discussed below, the authority of the managing positions in the SMLLC is the same as when the single member is an organization.
The structure of an SMLLC in which the owner is a natural person shall include a President and a (General) Director15. The Owner must be the President of the company. The President may also act as the (General) Director. The President or (General) Director shall act as the Legal Representative of the company.

7.5.1.1.1.2. Multi Member Limited Liability Company
The structure of an MMLLC is not different from an SMLLC except for some specific provisions:
Members
Each member has the authority to discuss and express his opinion on matters within the authority of the Members’ Council. The voting rights of each member are in proportion to their capital contribution. There are no preferential voting rights of any kind. If some members wish to have preferential votes or other preferences, then the company must be converted into a Joint Stock Company. Members will execute their rights in the MC by appointing Members of the MC who will act within the MC.
Inspectors
The Board of Inspectors is compulsory for an MMLLC with more than 10 members. If there are up to 10 members, the Board of Inspectors may be established if the members so wish.

7.6. Company Seal

The company seal must be applied on every relevant document that is signed on behalf of the company with a legal impact. The application of the seal is at least as important as the signature of the legal representative.
The company has the right to decide on the form, number and content of the seal. This regulation recognizes companies’ demand for more freedom concerning the company seal. It is especially more convenient to have more than one seal.
It is important to set up a clear system of usage and control of the seal or the seals.

7.7. Charter

A company established in Vietnam must have a Charter. Along with the law, the Charter of a company shall give regulations on key issues of a company16 which are not regulated by law directly, such as:
➢ Name and address of the company;
➢ Business lines;
➢ Charter capital, total number of shares (in case of a JSC);
➢ Owner(s), rights and obligations of members;
➢ Structure;
➢ Legal Representative;
➢ Rules for distribution of after-tax profit and dealing with losses in business;
➢ Circumstances for dissolution, procedures for dissolution and procedures for liquidation of the assets of the company;
➢ Procedures for amendments of or additions to the charter of the company.

7.8. Capital

Charter Capital is the total value of assets contributed or undertaken to be contributed by members or the total aggregate par value of shares sold or registered for subscription.
For an LLC and a JSC, the Charter Capital must be fully paid within 90 days from the issuance day of ERC from a bank account of the investor to the special capital account at the bank of the LLC or JSC.
For an LLC, the law does not state a general required minimum Charter Capital. But the Charter Capital must be in a reasonable relationship to the intended business. The licensing authority will check this as one of the important issues of the application for the IRC.
If the project is to be financed including loans with duration exceeding one year (long-term loans), they must also be licensed. The Charter Capital plus this amount of long-term loans is called Investment Capital.
For achieving the license for certain business lines, specific requirements for a minimum Charter Capital or Investment Capital are to be met.
The Charter Capital must be paid by the investor fully within 90 days from issuance of the ERC. No obligation exists to receive or provide loans even when they are licensed.

7.9. Representative Office

The Commercial Law provides a framework for the establishment, operation and management of Representative Offices (“Rep. Office”) of foreign entities in Vietnam for trading operations. Concerning special business lines such as banking, education, finance, legal services, tourism, etc. the establishment of a Rep. Office of foreign entities is regulated by special laws.
A Rep. Office is a simple and therefore very attractive investment format for foreign companies who wish to establish a presence in Vietnam for activities of promoting and marketing their business as the very first steps in Vietnam’s market. In general, any foreign entity which has been established and operating for 01 year in their home country is permitted to set up a Rep. Office in Vietnam. However, special conditions must be met. Especially they must be well established.
The purpose of a Rep. Office is to facilitate the commercial enhancement of its parent company. This includes monitoring and activating the performance of contracts which the parent company has signed. A Rep. Office is a dependent unit of the parent company. It is not a separate legal entity and is not entitled to generating profits in Vietnam or to entering contracts in its own name. The only exception to this is when the head of a Rep. Office is legally authorized by the foreign parent company to execute contracts or transactions on its behalf.
Rep. Offices have the right to conduct activities to support their internal operations (e.g. rent offices, lease or purchase equipment and facilities, recruit employees, etc.). Further, a Rep. Office has its own seal and opens bank accounts at licensed banks in Vietnam for operational purposes.
The establishment process for a Rep Office is usually quite straight forward. However, an establishment license will be denied in the following circumstances:
➢ The parent company trades in goods and/or services which are prohibited under Vietnamese law;
➢ The license of a former Rep. Office of the parent company was withdrawn within the last 2 years;
➢ It would harm national defense, social order and security or Vietnamese social values;
➢ It would harm human health or the environment; and
➢ The application was invalid and subsequently not supplemented or amended upon the authority’s request.➢ The license of a former Rep. Office of the parent company was withdrawn within the last 2 years;
➢ It would harm national defense, social order and security or Vietnamese social values;
➢ It would harm human health or the environment; and
➢ The application was invalid and subsequently not supplemented or amended upon the authority’s request.
The Rep. Office must begin to operate and submit an operation notice together with other required documents to the competent authority within 45 days from the licensing date. The Rep. Office must report upon its activities every 06 months to the license issuing body.
The Chief of a Rep. Office shall not concurrently act as the Head of a Branch or as the Legal Representative of the parent company or any company which is incorporated in Vietnam.
Several Rep. Offices of foreign companies in Vietnam are engaged in business which is not meant to be operated by a Rep. Office. This is not in line with Vietnamese laws and causes some concerns about the taxation of the business involving the Rep. Office which the foreign company operates.

7.10. Branch

In general, any foreign entity which has been established and operating for 05 years in their home country is permitted to set up a branch in Vietnam. A Branch is a registered office of a foreign entity and is a way of investment for banks, law firms and tourism companies. Branches have the right to generate profits. Further, in some specific sectors, foreign entities are entitled to establish a Branch, however, they need to satisfy some conditions e.g. in the securities or distribution sectors.
Branches must comply with a reporting regime and other administrative procedures in accordance with the law.
A Branch is permitted to directly enter contracts with clients and to generate profits.
Branch offices are not subject to a branch tax. Instead, the branch must pay Corporate Income Tax at 20% of the profit of the Branch.
The Rep. Office must begin to operate and submit an operation notice together with other required documents to the competent authority within 45 days from the licensing date. The Rep. Office must report upon its activities every 06 months to the license issuing body.
The Chief of a Rep. Office shall not concurrently act as the Head of a Branch or as the Legal Representative of the parent company or any company which is incorporated in Vietnam.
Several Rep. Offices of foreign companies in Vietnam are engaged in business which is not meant to be operated by a Rep. Office. This is not in line with Vietnamese laws and causes some concerns about the taxation of the business involving the Rep. Office which the foreign company operates.

7.10. Branch

In general, any foreign entity which has been established and operating for 05 years in their home country is permitted to set up a branch in Vietnam. A Branch is a registered office of a foreign entity and is a way of investment for banks, law firms and tourism companies. Branches have the right to generate profits. Further, in some specific sectors, foreign entities are entitled to establish a Branch, however, they need to satisfy some conditions e.g. in the securities or distribution sectors.
Branches must comply with a reporting regime and other administrative procedures in accordance with the law.
A Branch is permitted to directly enter contracts with clients and to generate profits.
Branch offices are not subject to a branch tax. Instead, the branch must pay Corporate Income Tax at 20% of the profit of the Branch.

7.11. Partnership

A partnership is a company which has at least two members who are the co-owners and who jointly conduct business under one common name (unlimited liability part-ners). Unlimited liability partners (also known as “ordinary partners”) must be individuals and will be liable for the entire obligations of the partnership.
A partnership may also have limited liability partners (also known as “capital contribution partners”) who are liable only for the debts of the partnership to the extent of the capital they have committed to contributing.
A partnership enjoys legal entity status from the date the ERC is issued. Partnerships cannot issue any type of securities.

7.12. Joint Stock Company

A Joint Stock Company (“JSC”) is an enterprise in which:
➢ The charter capital is divided into equal portions called shares;
➢ Shareholders may be organizations or individuals; the minimum number of shareholders is 03 and there are no restrictions on the maximum number;
➢ Shareholders are liable for contributing the capital as they have committed to contributing; and
➢ Shareholders may freely assign their shares to other persons or organizations.
A JSC has legal entity status from the date the ERC is issued. A JSC may issue all types of securities to raise funds and it is the only corporate format under Vietnamese law which has the right to issue shares or other securities to the public.
An LLC may be converted into a JSC and vice versa.
The General Shareholder’s Meeting is the highest decision-making body of a JSC. The day to day business is carried out by the Board of Directors. The members of the Board are appointed by the investors, usually in proportion to their respective capital contributions.

8. Investment Incentives

Investment incentives shall be applied in many forms: tax incentives including exemption from and reduction of CIT; exemption from import duty for fixed assets, raw materials, supplies and components for implementation of an investment project;
land incentives including exemption from and reduction of land rent, land use fees and land use tax.
Investments in the fields of business, which are encouraged shall enjoy investment incentives.
In addition, investment projects which are implemented in following areas shall also enjoy incentives:

➢ Areas with difficult socio-economic conditions; and areas with especially difficult socio-economic conditions;
➢ Industrial zones, export processing zones, high-tech zones and economic zones.
Beside the investment incentives based on business sectors and location of investment projects, investors shall enjoy investment incentives in following cases:
➢ Projects carried out in rural areas that employ at least 500 employees;
➢ Hi-tech enterprises, scientific and technology enterprises or organizations;
➢ Projects with at least a VND 6,000 billion investment capital 17disbursed within 3 years from issuing date of IRC.

The investment incentives shall be recorded in the IRC18.

9. Procedures for establishing an economic organization requested by a foreign investor
9.1. Request for a Decision on Investment Policies

For most normal cases of FDI, this decision is not required.
Depending on the scale, business sector and the impact of an FDI project, the authority to decide on acceptance of an investment project shall be the National Assembly, the Prime Minister of the Government or Provincial people’s committees. The application for this must be filed in any case to the local DPI or the local Authority of Industrial/Economic Zones.
Except for some large-scale and great-impact projects which shall be accepted by National Assembly and the Prime Minister, Provincial people’s committees shall decide on these projects:

– Projects allocated or leased out on land without auction, tendering or transfer;
– Projects which a requirement for conversion of land use purpose;
– Projects using restricted technology.

For other projects, the investor can apply for an IRC without a Decision on Investment Policy.

9.2. Application for issuance of IRC

An IRC is always compulsory for a foreign investor. For the projects requiring a Decision on Investment Policies, the investment registration agency shall issue the IRC within 5 (five) working days from the date of the Decision on Investment Policy.
With respect to projects not requiring a Decision on Investment Policy, the IRC shall be issued within 15 (fifteen) days from the date of application if accepted.
The practical timelines are considerably longer.

9.3. Application for issuance of ERC

After the IRC is issued, the foreign investor shall apply for the ERC. With issuance of the ERC, the company comes legally to existence.

10. Other Forms of Investment

10.1. Public Private Partnership Contract (PPP contract)

The PPP Contract is a kind of contract signed by the competent State agency and investors or project enterprises to implement an investment project for constructing, renovating, upgrading, expanding, managing and operating infrastructure facilities or providing public services.

10.2. Business Co-operation Contract (BCC)

In case investors do not have the intention of establishing an economic organization to do investment, a BCC can be signed among investors to implement the investment project. Issuance of an IRC is required if the BCC contract has a foreign investor as a party.
The BCC is a popular business model in the oil, telecommunications and advertising sectors. It does not create a separate legal entity. Instead, it creates a contractual relationship with a specific investment project undertaken in Vietnam. Due to the fact that the BCC consists of a contract only, the participating foreign and Vietnamese parties remain independent legal and tax subjects.

11. Textile industry

Textile industry is the one of these sectors are entitled to numerous incentives. The specific definitions of the business lines in Vietnam applicable for the case of this case are:

 

No special conditions for investment in the textile industry exist. In case of production, the Capital structure must be in a reasonable relationship to the full investment.
In case of selling products in Vietnam, for each product, the technical conformity19 on content of formaldehyde and certain aromatic amines derived from azo colorants in textile products must be declared.

12. Disclaimer

All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.
No one should act upon such information without appropriate professional advice after a thorough examination of the facts of the particular situation. Liability claims regarding damage caused by the use or disuse of any information provided, including any kind of information which is incomplete or incorrect, will therefore be rejected, if not generated deliberately or grossly negligent.


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