If you are investing in the Vietnam stock market and hoping it gets upgraded in the not-too-distant future to emerging market status, you want to be seeing signs the country is further embracing the free market and being open to foreign investment.
Let’s take a look how open Vietnam is for a foreign businessperson to set up a company in Vietnam. What other signs are there that Vietnam is relatively welcome and getting easier to do business there for foreigners?
FOREIGN DIRECT INVESTMENT IN VIETNAM (FDI)
If conditions were reasonably favourable, on the improve, and relatively simple for foreigners to set up business in Vietnam you would expect to see some healthy numbers in FDI.
According to the chart above that indeed looks to be the case. The pandemic not necessarily slowing things down as much as some may have feared.
EASE OF DOING BUSINESS (EODB) IN VIETNAM
Vietnam is ranked 70 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. There is still much room for improvement for sure, but the trend from 5-10 years ago is encouraging.
This chart below is one where you want the bars to get lower from left to right!
FOREIGN OWNERSHIP LIMITS (FOL) IN VIETNAM
I mainly wanted to focus on the recent trends in this blog post. I therefore will place a link below that is an article from September last year on this topic and illustrates the situation well. Before I do so I wanted to draw attention to the following paragraph
“Most publicly traded Vietnamese companies are still subject to a foreign ownership limitation of 49 percent. In light of new laws that came into effect early 2021, there is a clear path for public companies to take certain steps to increase the foreign ownership to 50% or above or remove foreign ownership restrictions with the consent of the State Securities Commission (SSC).”
Below is the link:
The trend overall in recent years, and that which is predicted in the future, is for Vietnam to become more relaxed in terms of FOLs.
The above 3 factors and recent trends of such factors indicated it is becoming a better environment for a foreigner to start up a company in Vietnam. However when we turn to the actual possibility of an average businessperson starting up potentially a company in Vietnam with modest capital, is that the case? Let’s now examine some of the possibilities and steps involved.
CAN A FOREIGNER START A COMPANY IN VIETNAM?
Firstly it is worth noting there are not obstacles such as needing certain number of Vietnam resident directors / shareholders continually on the ground in Vietnam. Things are fairly open in that respect.
It is beyond the scope of this blog post to go too in depth here, so for now I am just writing in terms of one foreigner looking to start up a small company in Vietnam themselves. Let’s say for example a consulting business or something in general trade of basic goods. Assuming the person is in good standing in terms of basic criminal tests etc and has a modest amount of capital it should not be that difficult.
HOW TO START A 100% FOREIGN OWNED COMPANY IN VIETNAM?
To keep it very brief for this blog post (I may go into more detail another time), one could even set one up from offshore, or do so on the ground in Vietnam. The broad-based basic steps are to:
- Legalize your documents such as IDs etc
- Apply for an Investment Registration Certificate (IRC)
- Establish business type and get the Enterprise Registration Certificate (ERC)
- Get company seal, stamp and register for tax code etc
- Setup the company bank accounts and contribute the company capital as originally stated earlier
The above list I have mentioned before, but it leaves some logical questions still, I shall touch on a few obvious ones below:
WHAT ARE THE COSTS OF STARTING A BUSINESS IN VIETNAM?
The new Vietnam business would likely be approved if it simply shows a realistic amount of capital is committed to get it through the initial start up stage. Note that the capital that you specify in the application must be exactly deposited within a few months of the new company being approved.
In the example of a consultant well in that case it is very “capital light” as it is mainly about your intellectual expertise. There is no hard and fast rule but I would regard $10k USD as easily enough to be approved. Possibly no need to be that high but if one is spending the time on applying one may as well be sure. That sort of money for example could clearly last a year covering small office costs, even a small salary to someone and other miscellaneous costs.
Obviously there are tons of different types of businesses so the onus is on the applicant to be sensible in ensuring they have enough capital to get their business plans up and going in the initial stages.
HOW MUCH DOES IT COST TO START UP A COMPANY IN VIETNAM?
When searching online this can vary greatly! Once again the nature of the business and complexity is the driver here in particular as it is when it comes to regular ongoing costs after setup. This question can be a bit like how long is a piece of string?
For a simple consultancy type business, 100% owned LLC from the foreigner, I would think that nowadays you might want to be prepared to spend circa $US 2K or a bit more for a basic setup. I am trying to keep in mind that inflation is heating up everywhere, and also you don’t want to be doing this sort of stuff with a service provider making unrealistic cheap promises that you don’t trust.
Some service providers will conveniently forget about mentioning ongoing requirements such as filing taxes, audits etc. I would also be prepared to spend this much on an annual basis when taking these things into account.
WHAT SECTORS ARE MORE DIFFICULT TO GET A LICENCE TO OPERATE IN VIETNAM?
In my basic example of a foreigner starting a consulting business, such a “business line” as you state in the application of the IRC is a simple one and likely to be easily approved. Likewise fairly easy is when foreigners setup up Vietnam businesses in basic import/export and distribution of goods. Hospitality businesses might involve some other small steps but not regarded as particularly onerous.
Some business lines that maybe more complicated than above, well some the spring to mind include education, things to do with use of land & development etc, tour operators, sophisticated financial, accounting tax & legal advice services.
For those readers that are curious about how a foreigner opening up a company in Vietnam might open doors in terms of visas, it might be worth looking it a recent blog post of mine below:
DOES VIETNAM HAVE A RETIREMENT VISA? HOW TO STAY LONG TERM IN VIETNAM?
Below I explain how contributing economically in some way to Vietnam is becoming increasingly more important when it relates to Vietnam’s visa policies:
CONCLUSION – VIETNAM POLICY MAKERS STILL LOOKING TO BE MORE BUSINESS FRIENDLY TO FOREIGNERS
Overall I believe Vietnam policy makers are well aware of factors such as confidence in laws, ease of doing business, access of foreign investors to invest in Vietnam companies and / or also set up their own companies in Vietnam. Vietnam is making steady positive progress in such areas. These factors are crucial in the eyes of prospective foreign investors in Vietnam. They are also being monitored, amongst other factors, by indices providers such as FTSE and MSCI in terms of how to rate the Vietnam stock market.
Many of the above factors are reasons why a positive catalyst for the Vietnam stock market might be it being upgraded from frontier to emerging status at some point over the next couple of years. I explored this in blog post earlier this year.
WILL THE VIETNAM STOCK MARKET BE UPGRADED TO EMERGING MARKET STATUS?
Various indicators are suggesting to me that the likes of FTSE and MSCI will likely upgrade to emerging status by the time we get to the year 2024.
Is Vietnam a good investment?
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