Establishment of a joint venture company in Vietnam

The concept of a joint venture company is specified in the Law on Foreign Investment in Vietnam as follows: A joint venture enterprise is an enterprise established in Vietnam by two or more parties on the basis of a joint venture contract or agreement signed between the Government of the Socialist Republic of Vietnam and a foreign Government or an enterprise by an enterprise have foreign invested capital in cooperation with Vietnamese enterprises or by joint venture enterprises cooperating with foreign investors on the basis of joint venture contracts.

Although recently in  the Law on Investment 2020 this concept is no longer available, in practice investors still regularly use the term joint venture company to refer to companies with contributed capital of both Vietnamese and foreign investors. Accordingly, the currently existing joint venture company may refer to:

• The company was established from the beginning with the participation of foreign investors and Vietnamese investors.
• Vietnamese companies are established first, then more investors buy contributed capital, receive share transfers from Vietnamese investors.

When choosing the time to participate in capital contribution of foreign investors so that the enterprise becomes a joint venture company, there are a number of issues noted about procedures and specific advantages and disadvantages. In this article, Viet An Law Firm will analyze specifically related to the establishment of a joint venture company so that customers have the most specific perspective.

The joint venture company was established from the beginning with the participation of foreign investors and Vietnamese investors in Vietnam

Step 1: Procedures to issue an Investment Registration Certificate when establishing a foreign capital company include:

• The company has from 1% to 100% capital contributed by foreign investors immediately upon establishment;
• Foreign capital companies (companies that have been granted Investment Registration Certificates in Vietnam) continue to establish more economic organizations; investment in capital contribution, purchase of shares, capital contribution of economic organizations; investment under BCC contracts in one of the following cases must carry out procedures for issuance of Investment Registration Certificates: New establishment or capital contribution from 1% to 100% of the company’s charter capital;

Step 2: Procedures for establishing a company to issue an Enterprise Registration Certificate after the investor has issued the Investment Registration Certificate.

Step 3: Issuance of Business License, License for setting up retail establishment

For companies doing business in the field of retailing goods to consumers or setting up retail establishments of goods, it is necessary to apply for additional business licenses or licenses for setting up retail establishments;

A joint venture company is established in the way that a company with Vietnamese capital is established first, then investors buy contributed capital, receive share transfers from Vietnamese investors

Case 1: In case a foreign investor contributes capital, buys contributed capital, buys shares of less than 50% in an enterprise in Vietnam, invests in business lines without conditions

Investors make capital contribution / capital transfer, declare income tax from transfer (if any).

Enterprises only need to carry out procedures for changing the Business Registration Certificate (previously called procedures for changing business registration).

Documents to prepare

• Notice of change of business registration contents;
• Decision on the change of company;
• Minutes of meetings on the change of company;
• The transfer contract and documents certifying the completion of the transfer are certified by the legal representative of the company;
• List of capital contributors or List of shareholders who are foreigners;
• Notarized copy of the investor’s passport / business registration certificate.

Where to apply

Enterprises submit documents at the Business Registration Office

Within 03 working days after receiving a valid dossier,  the Business Registration Agency shall issue a new Business Registration Certificate

Case 2: In case a foreign investor contributes capital, buys contributed capital, buys shares for business investment in conditional industries or in case a foreign investor contributes capital, buys shares or buys capital contributed by a Vietnamese company, resulting in the foreign investor holding more than 50% of the charter capital.

Step 1: Register for capital contribution, purchase of contributed capital, purchase shares in Vietnamese enterprises at the Investment Registration Office

Preparatory documents

• A document of registration for capital contribution, share purchase or capital contribution includes the following contents: information on economic organizations to which foreign investors plan to contribute capital, purchase shares or contributed capital; the percentage of ownership of charter capital of foreign investors after capital contribution, share purchase or capital contribution to economic organizations;
• Copy of identity card, identity card or passport for individual investors; a copy of the Certificate of Incorporation or other equivalent document confirming the legal status of an institutional investor.

Implementation procedure

• Foreign investors submit dossiers at the Business Registration Office
• Within 15 working days after receiving a valid dossier, the Business Registration Agency shall issue a Notice of satisfaction of conditions for capital contribution, share purchase, capital contribution and Vietnamese enterprises.

Step 2: Foreign investors make capital contribution, purchase shares, contributed capital and Vietnamese enterprises.

• In case the foreign investor contributes more than 50% capital, the Vietnamese company shall open a direct investment capital account. Investors make capital contributions, transfer capital through direct investment capital accounts.
• Capital transfer members and shareholders shall declare tax when transferring according to the law on personal income tax, corporate income tax (if any)

Step 3: Change the Business Registration Certificate to supplement foreigners in the business registration dossier submitted at the Business Registration Office – Department of Planning and Investment

Differences related to the time of foreign investor’s capital contribution to the joint venture company in Vietnam

Procedures for issuance of Investment Registration Certificates

Unlike foreign investors who contribute capital to establish a company, with Vietnamese investors from the beginning, whether contributing 1% or 99.99% of capital in the company must apply for an Investment Registration Certificate. In contrast, foreign investors who contribute capital or buy shares in Vietnamese companies that already have an Enterprise Registration Certificate (even in case of buying up to 100% of the contributed capital of the company) are not required to carry out procedures for issuance of an Investment Registration Certificate (except for the case of the company doing business in the field of education and training,  if a foreign investor buys from 1% of the contributed capital, it is also necessary to carry out procedures for issuance of an Investment Registration Certificate). Therefore, if a foreign investor establishes a joint venture company, he should choose the form of buying contributed capital and shares, which will save the procedure for issuance of an Investment Registration Certificate. In particular, when the company does not have an Investment Registration Certificate in the business process, if there is a change, the company will save procedures for adjusting Investment Registration Certificates, reduce unnecessary costs, procedures and time for enterprises.

Proof of financial capacity when establishing a company, contributing capital, buying shares

If a foreign investor contributes capital to establish a company with a Vietnamese investor at the beginning, foreign investors must submit documents proving financial capacity such as; Passbook, Confirmation of bank account balance equivalent to contributed capital in Vietnam, when foreign investors contribute capital or buy shares in Vietnamese companies, they do not need to present documents proving financial capacity.

Regarding the implementation of capital contribution to the investment capital account

The common feature of foreign investors contributing capital and investing in Vietnam is that they must make capital contributions through investment capital accounts in Vietnam.

Some questions related to establishing a joint venture company in Vietnam

Does the joint venture company have an investment registration certificate?

In case a new joint venture company is established at the beginning, an investment registration certificate will be obtained. In case a foreign investor registers to contribute capital to a Vietnamese enterprise, there is no investment registration certificate.

How long does a joint venture last?

In case a joint venture company is newly established at the beginning, the term of the joint venture company is shown on the investment registration certificate. In case a foreign investor registers to contribute capital to a Vietnamese enterprise, the time limit specified in the registered company’s charter, usually in this case the company registers indefinitely.

What percertage of foreign capital is a company understood as a joint venture?

The law does not provide for joint venture companies, however, in case there are foreign investors contributing capital with Vietnamese investors, regardless of the percentage, it is still understood as a joint venture company.

Is it possible to establish a joint venture company from the beginning or must it be through the form of capital contribution, purchase of contributed capital or shares?

A joint venture company can be established immediately from the investment of a 100% foreign capital company or through the form of capital contribution to an enterprise already established in Vietnam.

 Viet An Law Firm advises on establishing joint venture companies in provinces and cities throughout the country. However, in each province when the requirements for lakes when foreign investors buy contributed capital and shares in Vietnam are different. Therefore, foreign investors wishing to establish a company, buy contributed capital, shares in Vietnamese companies, please contact Viet An Law Firm for detailed advice and support.