Introduction
Establishing a foreign subsidiary in Vietnam allows international companies to operate as legally independent entities under local regulations while maintaining ownership through a parent company abroad. Businesses can engage in a wide range of commercial activities, including manufacturing and service provision, with greater flexibility and compliance with Vietnamese laws. The setup process involves obtaining an investment registration certificate, registering with the Department of Finance, and meeting specific sector-based requirements and capital contribution obligations.
Vietnam’s dynamic economy, supported by an open investment environment and growing infrastructure, presents significant opportunities for foreign businesses. A subsidiary offers a strategic advantage by providing operational autonomy, direct access to the local market, and eligibility for trade benefits under Vietnam’s international agreements. This approach facilitates smooth market entry and strengthens a company’s long-term presence in Southeast Asia.
The Concept of a Foreign Subsidiary in Vietnam
A foreign subsidiary in Vietnam is a locally incorporated entity, either fully or partially owned by a foreign company. It operates independently under Vietnamese law, allowing it to manage contracts, hire staff, and conduct business activities within the country. A subsidiary, unlike a branch or representative office, is a distinct legal entity that provides the parent company with greater operational flexibility and shields it with limited liability. This structure provides foreign businesses with greater control over their operations while adhering to local legal requirements.
5 Powerful Reasons Why Vietnam Is a Prime Destination for Foreign Subsidiaries
1. Economic Growth and Market Accessibility
Vietnam’s rapid economic development and strategic location in Southeast Asia have made it a favored destination for foreign companies. Setting up a subsidiary here grants full market access, allowing operations across all sectors permitted by Vietnamese law, which is an advantage not available to branches or representative offices. This structure enables companies to engage more comprehensively with the local market and take full advantage of Vietnam’s expanding economy.
2. Favorable Tax Environment
Vietnam offers a competitive corporate tax rate along with various incentives aimed at encouraging investment in key industries and regions. These incentives include reduced tax rates, exemptions, and holidays that can significantly enhance profitability. The country’s commitment to fostering a supportive tax environment reinforces its position as an attractive hub for international business expansion.
3. Strong Local Brand Presence
A subsidiary allows foreign companies to establish a localized identity, promoting brand recognition and trust among Vietnamese consumers and partners. Operating as a domestic legal entity helps companies better align with local expectations and market dynamics, improving engagement and fostering long-term customer relationships.
4. Risk Containment Through Legal Separation
The subsidiary structure provides a clear legal separation from the parent company, limiting liability and isolating operational risks. This offers significant protection in case of financial or legal challenges, safeguarding the parent company’s broader assets and reputation while enabling secure entry into a new market.
5. Skilled and Affordable Workforce
Vietnam’s young and educated workforce is a key advantage for foreign investors. With strong competencies in technical and professional fields and competitive labor costs, the local talent pool enables companies to scale efficiently while maintaining high productivity. This access supports innovation and growth in a dynamic regional economy.
5 Essential Regulatory Pillars for a Foreign Subsidiary in Vietnam
1. Securing the Investment Registration Certificate (IRC)
To establish a foreign subsidiary in Vietnam, investors must first secure an Investment Registration Certificate (IRC) from the Department of Finance (DOF). This certificate provides official approval for the investment and outlines the project’s objectives, investment capital, scope, and duration. It serves as the legal foundation for foreign investment activities in the country.
2. Formalizing Legal Status with the Enterprise Registration Certificate (ERC)
Following the IRC, investors must obtain the Enterprise Registration Certificate (ERC), which formalizes the company’s legal status under Vietnamese law. Issued by the DOF, the ERC confirms incorporation details such as the company’s name, address, legal representative, company’s Owner and charter capital, enabling lawful business operations.
3. Understanding Capital Requirements
Vietnam does not enforce a minimum capital requirement for most business sectors, but regulated industries such as banking, real estate, and education often have specific thresholds. For other businesses, the proposed capital should realistically support initial operations. Authorities review this to ensure alignment with the submitted business plan.
4. Navigating Restrictions and Licensing
Certain sectors in Vietnam are restricted or subject to foreign ownership limits. Industries like telecommunications, logistics, and publishing may require additional licensing or face caps on investment. Ensuring your business activities fall within permitted sectors is essential before applying for operational licenses.
5. Fulfilling Tax Obligations
After incorporation, the company is assigned a tax code, which is the same as its enterprise code. This tax code supports the company in complying with corporate income tax, value-added tax (VAT), and other relevant tax responsibilities. Timely tax registration ensures legal operation and avoids potential regulatory issues.
Pointers for Setting Up a Foreign Subsidiary in Vietnam
1. Leverage Local Knowledge
Engaging local legal and business consultants helps navigate Vietnam’s complex regulations, ensuring proper documentation and compliance throughout the subsidiary establishment process.
2. Select an Optimal Location
Choosing a subsidiary location near suppliers, customers, and key infrastructure improves operational efficiency and access to local market opportunities.
3. Understand Local Business Culture
Familiarity with Vietnam’s business customs and relationship-building practices is vital to gaining trust and fostering effective partnerships.
4. Ensure Ongoing Compliance
Keeping up with reporting deadlines and regulatory changes helps avoid penalties and maintains the subsidiary’s legal standing over time.
Maximizing Regional Potential: Perks of Subsidiary Formation in Vietnam and Holding Structures in Singapore
Subsidiary in Vietnam
Setting up a subsidiary in Vietnam provides businesses with access to a dynamic and rapidly growing market characterized by a youthful and skilled labor force. The expanding economy, coupled with rising consumer demand, presents significant opportunities for market penetration and growth. Operational costs, particularly labor expenses, remain competitive compared to many other Asian countries, allowing companies to maintain cost-effective operations.
As a gateway to the ASEAN region, Vietnam’s strategic geographical location enables seamless access to neighboring markets. Furthermore, the country benefits from multiple Free Trade Agreements (FTAs), which help reduce tariffs and enhance export potential. In addition, the Vietnamese government offers attractive tax incentives and support programs aimed at foreign investors, especially in targeted industries and special economic zones, encouraging business expansion and investment.
Holding Company in Singapore
Forming a holding company in Singapore offers substantial tax advantages, including a low corporate tax rate and an extensive network of double taxation treaties that minimize withholding taxes on dividends, interest, and royalties. Singapore’s robust legal framework ensures strong protection for shareholders and investors through transparent and reliable regulatory practices. As a leading international business hub, Singapore provides access to a sophisticated financial sector, comprehensive banking facilities, and a broad range of professional services essential for global operations.
The jurisdiction is known for its streamlined and efficient company registration and ongoing compliance processes, which simplify business administration. Additionally, Singapore serves as a prime location for wealth and asset management, making it ideal for safeguarding international investments and intellectual property rights.
Conclusion: The Strategic Edge with Premia TNC
Vietnam serves as a strategic gateway into Southeast Asia’s rapidly growing market, making it an attractive location for foreign businesses to establish a subsidiary. At Premia TNC Singapore, we guide you through the essential steps, including obtaining the Investment Registration Certificate and Enterprise Registration Certificate, which legally establish your subsidiary in Vietnam.
As your local partner, Premia TNC helps your subsidiary operate independently from the parent company while meeting all Vietnamese accounting, tax, and labor regulations, including annual audits where applicable. With our expert support and thorough understanding of local requirements, you can confidently navigate the setup process and unlock Vietnam’s significant economic potential for your business growth.
