WHAT ARE THE CONDITIONS FOR OPENING A FACTORY OR A MANUFACTURING BUSINESS IN VIETNAM?
According to Vietnam’s law, foreign investors are permitted to establish a factory or manufacturing business in Vietnam that is 100% foreign-owned, and there are two common types of business entities:
- The Limited Liability Company (LLC) is the most convenient company structure for privately held companies with 1 to 50 shareholders.
- The Joint-Stock Company is suited for unlimited shareholders with the possibility to go IPO as an alternative to LLC above.
Moreover, there are certain requirements/conditions to build a factory or manufacturing business depending on the business line you registered, such as the Cosmetics Factory. These are the additional requirements:
- A product manager must hold a bachelor’s degree in Chemistry, Biology, Pharmaceutical Science, or an equivalent field.
- Separate storage locations for flammable and combustible materials, highly toxic substances, and returned or discharged products.
- The raw materials must meet the manufacturer’s quality standards.
To ensure an efficient and cost-effective registration process, it is imperative to conduct comprehensive research on the business sector and its associated requirements. At DoanKet, we are committed to assisting entrepreneurs in defining the necessary steps and fulfilling the requirements for starting a company. Our team provides free consultation and research services, making the registration process seamless and straightforward.
Nam Dinh Vu Industrial Park
WHAT ARE THE STEPS TO OPEN A FACTORY OR MANUFACTURING BUSINESS IN VIETNAM?
To establish a factory or a manufacturing business in Vietnam there are a few steps as follow:
Step 1: Secure a location
This is the location where you place your factory, and there are 3 options for you to choose from:
- Renting existing facilities: ready-built factories from licensed infrastructure leasing companies or industrial parks/zones in Vietnam. This option is perfect for those who want to quickly establish the manufacturing capacity and aim for a small to medium size factory (below 20,000smq). The rent per square meter in this case is highest among the three options. In exchange, you can engage short-term rent and shorten the time-to-market to the max.
- Renting land in industrial parks and then building your own factory: Investors can lease land with a lease term of 40-50 years and a leased area of over 8 hectares. This approach suits the companies that aim for lower rent but are willing to engage for long-term lease and commitment (20-30 years of lease).
- Renting land directly from the Government and then building your factory: This is for the investors who plan to lease land for 40-50 years or more and have a large leased area. You can go this way if there is not a size/plant in an industrial park/zone that fit you. This approach requires intensive facilitation with the local government to acquire the land and permits to build and run the factory from scratch. It is recommended if the company aims for a very large scale of manufacturing and needs special construction quality for the factory.
Step 2: Apply for the IRC and BRC
When the location is secured, it is the time to establish your business entity.
To establish a factory or manufacturing firm in Vietnam, you will need to obtain two important documents: the Investment Registration Certificate (IRC) and the Business Registration Certificate (BRC). It would take approximately three to four months for the Department of Planning and Investment (DPI) or the Industrial Parks/Zone Management Committee to issue these certificates. However, if you lease the property or build the facilities outside of the Industrial Park on a large scale, the procedure could take even years to complete and the approval process involves multiple Government offices, departments and levels of management.
The dossier to obtain them must meet the following criteria:
- A business address: This is the address of the factory in the form of a leasing contract
- A legal representative: The law of Vietnam mandates that all businesses have at least one legal representative. This individual might be a Vietnamese resident or a foreigner, including you, but must have a permanent address in order to be considered a resident.
- Paid-up capital: The particular amount of capital is not required by the law, but must be deemed “fair” based on what you can prove. In order to cover the costs of workers, machinery, premises, equipment, etc., it is usually necessary to make a sizable investment prior to launching a manufacturing business. The initial investment could be as much as millions of dollars. If the capital is insufficient, you may need to explain to the authorities how manufacturing can be run with so little money.
Factory layout in Industrial Park
Step 3: File The Environmental Impact Assessment Report
After receiving the IRC and BRC in the previous step, the next step is to submit the Environmental Impact Assessment Report to the local People’s Committee for evaluation and approval.
Typically, this report is completed after obtaining the IRC; however, certain business lines with the potential to harm the environment, such as the garment company, must complete the report prior to submitting the dossier for the IRC.
Step 4: Apply for the Construction License, the Fire Protection License
If you rent land and have the plan to build facilities by yourself then you need to obtain 2 additional Licenses, The Construction License and The Fire Protection License. On the other hand, if you rent a ready-built facility inside an Industrial Park and the administrators have already obtained these, you do not need to obtain those licenses anymore.
The Construction License permits the construction of one’s own facilities. At the same time, the Fire Protection License will be provided by the Police Department for Fire Prevention and Fighting and Rescue. Moreover, The Fire Protection License must be obtained if you rent a ready-build facility and want to renovate it, your safety protocol at the factory or manufacturing facilities must be strictly adhered to.
Construction supervision support
WHAT ARE THE MAIN THINGS TO CONCERN WHEN OPERATING FACTORY AT VIETNAM?
Residency requirement to Legal Representative of Vietnam-based company
Legal representative is required to residing in Vietnam, as a resident. Under point of view of Tax Authority, a person can be deemed as “resident” if he lives at least 183 days per year in the country; or if he has a so-called “Temporary Residence Card” in Vietnam. Thus, technically, if the Legal Rep. has “Temporary Residence Card” and “Power of Attorney” for another manager, he does not need to be physical presence (living) in Vietnam; however, he’s still must responsible for any decisions that his proxy made for and on behalf of him.
Taxes
Enterprises (generally companies) are subject to the tax rates imposed under the Corporate Income Tax (CIT) Law. The standard Corporate Income Tax (CIT) rate from 2016 is 20% (it was 22% from 2014 to 2015, and 25% prior to 2014).
Employment concerns
Among the issues, here are some of the key labor issues and their impact on doing business in the country:
a. Minimum salaries
According to the MOLISA, minimum salaries in certain working regions will be increased. In working region Type I including Ho Chi Minh City, the minimum salary is increased to the range of VND3,750,000 to VND3,980,000 in 2018. The employers should be aware of, and well prepared for their human resources budget.
b. Work permits for foreign employees
In general, if an expatriate wants to work in Vietnam for three months or longer, he/she must obtain a work permit. Vietnamese employers are required to provide support and submit application documents for the work permit.
c. Basic Employment Terms
A labor contract must be written in Vietnamese or in both Vietnamese and the foreign language that is applicable to the employer and employee. Contracts for temporary jobs lasting less than three months or for domestic helper work do not need to be in writing and can be oral. The Labor Code of Vietnam requires that a labor contract include the following material terms: (i) work to be performed; (ii) working hours and rest hours; (iii) wages; (iv) working place/location; (v) duration of contract; (vi) conditions on occupational safety and hygiene; and (vii) social insurance for the employee. In practice, statutory material terms are for standard labor contracts for simple work only.
d. Social Insurance
Social Insurance applies to enterprises, entities, and organizations that employ employees under indefinite-term labor contracts or under definite-term labor contracts with a duration of three months or more. Both employees and employers are required to contribute to the social insurance fund at statutory rates. The social insurance fund pays allowances for sick leave, maternity leave, work-related accidents, occupational disease, and pensions.
Profit repatriation concerns (if any)
Foreign investors are permitted to remit their profits annually at the end of the financial year or upon termination of the investment in Vietnam. Foreign investors are not permitted to remit profits if the invested company has accumulated losses. In order to repatriate profits, a company must ensure that it has completed the declaration of corporate income tax of the relevant financial year and issued audited financial statements. The company must then report its intention to repatriate its profits to the tax bureau. If, within 7 days, there is no notice from the tax bureau, the profits may be remitted out. Accordingly, after completing their tax obligations to the State of Vietnam, foreign-invested companies are free to transfer profit abroad and shall not be subjected to withholding tax. However, individual investors are still subject to tax.
The factory is ready to operate