Foreign Companies Establishing Subsidiaries in Vietnam

Vietnam is becoming an attractive investment destination for foreign investors. One prevalent form of investment is the establishment of a subsidiary with independent legal status in Vietnam. However, unlike the standard business establishment procedures, foreign companies seeking to establish a subsidiary in Vietnam must adhere to specific legal regulations tailored for foreign investors. Hereinafter, Viet An Law would like to provide our clients with relevant information regarding foreign companies establishing subsidiaries in Vietnam.

What are a parent company and a subsidiary?

Unlike branches and representative offices of foreign companies, a parent company and a subsidiary are two separate entities with their legal personalities. However, the parent company holds a specific economic interest in the subsidiary (the parent company’s contributed capital in the subsidiary). Depending on the legal structure of the subsidiary, the parent company exercises its rights and obligations as a member, owner, or shareholder in its relationship with the subsidiary. The parent company has the authority to control the decisions of the subsidiary through various means.

Pursuant to Clause 1, Article 195 of the Law on Enterprises 2020, a company is considered the parent company of another company if it falls under one of the following circumstances:

• Owns more than 50% of the charter capital or the total number of common shares of that company;
• Has the direct or indirect right to decide on the appointment of the majority or all of the members of the board of directors, the director, or the general director of that company;
• Has the right to decide on the amendment and supplementation of the charter of that company.

Conditions for establishing a subsidiary in Vietnam

A foreign company wishing to establish a subsidiary in Vietnam needs to meet the following conditions:

• Conditions regarding the legal entity, business lines, capital, head office, and company name;
• The business lines of the subsidiary must not fall under any of the 25 sectors and trades with limited market access for foreign investors as specified in Appendix I attached to Decree No. 31/2021/ND-CP;
• Meeting the market access conditions according to specialized laws for conditional market access sectors and trades, such as:
• The ratio of charter capital ownership of foreign investors in the economic organization.
• The form of investment;
• The scope of investment activities;
• The capacity of the investor, partners participating in the investment activities.

What types of enterprises can a foreign company establish in Vietnam?

A foreign company is permitted to establish the following types of enterprises:

• Partnership;
• Single-member limited liability company;
• Multi-member limited liability company;
• Joint-stock company.

Procedures for establishing a subsidiary in Vietnam

Foreign companies establishing subsidiaries in Vietnam typically do so through capital contribution to establish an economic organization in Vietnam. To establish a subsidiary in Vietnam, foreign companies need to carry out the following procedures:

• Step 1: Procedures for obtaining an Investment Registration Certificate
• Step 2: Procedures for obtaining an Enterprise Registration Certificate
• Step 3: Procedures for creating the legal entity’s seal and publishing the seal specimen of the company

How is the investment registration certificate application procedure carried out?

When a foreign company establishes a subsidiary in Vietnam, regardless of whether the foreign company holds 1% or up to 100% of the subsidiary’s charter capital in Vietnam, it must undergo the investment registration certificate application procedure.

Competent authority for issuing the investment registration certificate

The authority to issue the investment registration certificate includes:

• The management board of industrial parks, export processing zones, high-tech zones, and economic zones;
• The department of finance of the locality where the investor implements the investment project, or where the company’s head office is located, or is planned to be located.

Dossier for investment registration certificate application

The dossier for applying for an investment registration certificate includes:

• A written request for project implementation;
• An investment project proposal;
• Explanation of financial capacity accompanied by a bank account balance confirmation of the investment capital according to the declared charter capital or the financial statements of the foreign company (showing profit corresponding to the contributed charter capital of the Vietnamese company);
• Explanation of meeting the conditions;
• Establishment decision;
• Land use right certificate, lease agreement;
• A copy of the foreign company’s business registration certificate;
• The foreign company’s charter;
• The investor’s representative’s passport;
• A letter of introduction for the dossier submission

Procedures for obtaining the enterprise registration certificate for a subsidiary

Competent authority

Investors submit the enterprise registration application dossier to the business registration office under the Department of Finance of the locality where the company plans to locate its head office.

Company establishment dossier

The dossier for company registration includes the following documents:

• Application form for registration of the establishment of a subsidiary;
• Draft of the company’s charter;
• List of members (if establishing a partnership or a multi-member limited liability company) or list of founding shareholders (if establishing a joint-stock company);
• Certified copies of the legal personal identification documents of the legal representative, members, or founding shareholders; legal documents of the organization for members/shareholders who are organizations;
• Certified copy of the Investment Registration Certificate;
• Preparation of other documents in case the business registration office requests additional information, such as:
• Minutes of the meeting, decision on the establishment of the subsidiary by the parent company;
• Written confirmation of legal capital from the competent authority or organization for cases where the company engages in business lines that require legal capital according to the law;
• Professional practice certificates of company members and other individuals for companies engaging in business lines that require professional practice certificates according to the law.

Processing time for the dossier

The business registration office shall issue the enterprise registration certificate within 03 working days from the date of receipt of a valid dossier.

Post-establishment procedures for a subsidiary

After obtaining the enterprise registration certificate, a subsidiary in Vietnam must carry out the following tasks:

• Creating the company’s legal entity seal;
• Displaying the company signboard at its head office;
• Opening a bank account and purchasing a digital signature;
• Proceeding with tax declaration.

Important notes for foreign companies establishing subsidiaries in Vietnam

Foreign companies establishing subsidiaries in Vietnam should take note of the following issues:

• The subsidiary is not permitted to invest in purchasing shares or contributing capital to the parent company;
• Subsidiaries of the same parent company are not allowed to simultaneously contribute capital or purchase shares to cross-own each other;
• The parent company has limited liability within the scope of its capital contribution to the subsidiary;
• Regarding the management structure of the subsidiary:
• The director, general director must not be a family member of the managers, controllers of the parent company;
• Independent members of the board of directors of a joint-stock company must not be currently working for the parent company, nor have they worked for the parent company for at least three consecutive years immediately preceding their appointment;
• The subsidiary is required to have at least one legal representative who is a legal resident in Vietnam.
• If the parent company sends personnel from abroad to work at the subsidiary, procedures for visa and work permit application are necessary.

For detailed consultation regarding foreign companies establishing subsidiaries in Vietnam, please contact Viet An Law Firm for the best support!