So you’ve done your market research and exploration trips to Vietnam and you have decided that you want your fledgling startup to enter the market. But where to start? How to open an offshore company and set up operations in Vietnam? If these questions keep troubling your head, then this article is for you. But before diving in, it’s important to take a good look at what options are available in Vietnam.

Do you really need a business entity?

Setting up a legal business entity is the most standard practice but it also comes with high initial costs and efforts. Moreover, the significant amount of maintenance spending for office rent, HR resources, finance accounting, consolidation with corporate HQ, and tax reporting can be very intimidating, especially for startups with a constrained budget.

To avoid the risk of business/financial penalties due to non-compliance, offshore startups often have to engage with local consultants and spend extra bucks to resolve any problems related to laws. Fortunately, there are some alternatives to set up a legal business entity which may meet your requirements at the early stage.

Option 1: Local business distributor or reseller

Objective: To access demand.
Best fit: For startups that aim to sell their product overseas and increase the customer base but do not want to establish a business entity in the local market yet.

If you are looking to sell your products/services in a local market where you don’t have inside knowledge or experience, a reliable and trusted local distributor or reseller will greatly increase your chance of penetrating the market.

By leveraging relationship networks and sales channels, local ownership advantages, and licenses to operate, startups can avoid market barriers when it comes to expanding products or services overseas.

In fact, you may not need to have your own entity as all the local transactions can be done by your distributor/reseller. Once your company has a firm grasp and foundation in the local market, then you may reconsider setting up a legal entity.

You should examine whether to support business partners, set up a joint venture entity with a partner/reseller, or operate as a wholly-owned subsidiary.

Option 2: Outsourcing/offshoring

Objective: To access supply.
Best fit: For startups that want to further their tech capabilities or lack a dedicated IT team.

Vietnam is an ideal place for outsourcing employees due to its inexpensive and highly skilled human resources. So if the purpose of entering the market is to tap the local labor force and gain access to talent for operational needs, outsourcing—or offshoring through a trusted service provider—will be your best bet.

This is where using a third-party offshore service comes into play. With their specialization in tech talent recruitment, clients are able to recruit employees and grow a team in Vietnam without worrying about establishing a legal presence.

After receiving help and advice from your trusted offshoring partner, it will make more sense to have a legal entity to take on the legal and operational responsibilities of managing your new offshore team.

Option 3: Representative office

Best fit: For startups that want to venture into the new market with the lowest cost possible.

Representative offices are not allowed to issue invoices, therefore they cannot generate revenue or enter directly into contracts in Vietnam.

However, they are considered as a relatively lower cost option—in setup and operational fees—to access the market and are useful for administering market research, finding investment opportunities, and getting in touch or supporting local business partners.

Note: the parent company must be registered for at least one year before you can proceed with this method.

See: 4 factors that make Vietnam Southeast Asia’s next big growth story

What you need to know about legal entities

For companies and startups wanting to venture into Vietnam, there are three types of legal entities:

Option 1: Limited Liability Company (LLC)

According to Investopedia, a limited liability company considers its owners as members rather than shareholders and must have at least two, but no greater than 50 members. It is the least risky type of legal entity due to the limited liability, meaning that your personal/HQ corporate assets will not be in danger in cases of financial difficulties. Therefore, we recommend an LLC for those who are planning to set up a small or medium-sized enterprise.

Currently, there is no set minimum capital requirement for most businesses entering the market (rule of thumb is $10,000). However, there are some “special” industries that outright ban or limit the participation of foreign companies.

If your business falls into this category, then certain operational licenses will be required to operate which can be extremely difficult. So many companies decide to create joint ventures with Vietnamese shareholders as a way to bypass that particular law.

In other words, a limited liability company can also be partially foreign-owned, which is normally incorporated by one foreigner and one Vietnamese shareholder. In this case, foreign ownership will range from 49% to 99% and investors should expect higher capital requirements and longer completion times.

Option 2: Joint-Stock Company (JSC)

A joint-stock company or shareholding company is owned by its investors with the revenue divided based on the percent of stock they purchased. This type of entity is geared toward larger businesses so it requires the shareholder number to be at least three, with no upper limit. In addition to a group of shareholders, there are times when a JSC calls for a management board and an inspection committee.

Option 3: Branch

If a company has been registered for at least five years then it will be eligible to set up a branch in Vietnam as an extension of the parent company. Having branches allows you to rent, lease, or purchase offices/facilities, recruit foreign and local employees, take part in contracts in Vietnam, and earn revenue.

However, the parent company is also under full liability for the branch’s activities and a Vietnamese legal representative will be required.

5-step process for successful incorporation

Once you have decided on the right type of legal entity for your company, it is time to solve the following question: “How do offshore companies work in Vietnam?” In other words, the next step is to incorporate it.

The process can be quite complicated and hard to understand at once—so we have summarized it into five steps below.

Step 1. Pre-incorporation research and consulting

• Explore different types of corporate entities that are possible for your business
• Understand your business license requirements
• Conduct market research to gain crucial information, including consumer and market insights and competitor analysis

Step 2. Investment license application

• Fill in the application incorporation dossier to the relevant authorities
• Notarisation and legalisation of original legal documents
• A Vietnamese version of original documents (if required)
• Submit the application to the licensing authority and maintain supervision during the approval process

Step 3. Post-incorporation: accounting and tax compliance

• Submit accounting documents to the taxation department for approval
• Open corporate bank accounts (if needed)

Step 4. Office setup

• Finding the appropriate locations for office/co-working space
• Negotiate with the landlord
• Drafts the leasing contract based on agreed terms and conditions
• Sign up the leasing contract for office/ co-working space

Step 5. Recruitment and HR management

• Understand the staffing and recruitment process requirements
• Build up your offshore team in Vietnam
• Monitor and manage HR in compliance with Vietnamese workforce regulations

Note: for Singapore-based small and medium enterprise (SME) companies, Enterprise Singapore provides the Market Readiness Assistance (MRA) grant to offset your business expansion costs. Eligible SMEs will receive the following support:

Up to 70% of eligible costs, capped at S$100,000 per company per new market—from April 1, 2020, to March 31, 202—that covers:

• Overseas market promotion (capped at S$20,000)
• Overseas business development (capped at S$50,000)
• Overseas market setup (capped at S$30,000)

For non-Singapore companies, please check with your local government’s trade/business support department for related support and requirements.

Conclusion

Learning how to open an offshore company in Vietnam is anything but easy. Even big businesses still face great difficulties when setting up their offshore operations. Thus, for startups and SMEs, finding the right path to grow and expand successfully is a must.

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Trung Ho is a digital marketing lead at Tech JDI, a venture support services company that helps startups to swiftly access the market and resources in Vietnam.