As a foreign investor planning to establish an FDI enterprise in Vietnam in the form of a Limited Liability Company, you may have concerns about complex legal procedures—from obtaining the Investment Registration Certificate (IRC) to selecting appropriate business lines and completing post-establishment requirements. In this article, KMC provides a detailed and comprehensive guide to business registration for FDI enterprises, with a particular focus on the conditions for establishing a Limited Liability Company. It offers an in-depth legal analysis tailored specifically for foreign-invested enterprises (FDI), giving you a complete overview to facilitate a fast and compliant company establishment process.
Overview of Limited Liability Companies
A Limited Liability Company (LLC) is a legal entity in which the owner(s) or members are liable for the company’s debts and financial obligations only to the extent of their contributed or committed capital.
LLCs include the following types:
- Single-member Limited Liability Company: Owned by a single individual or organization, with full authority to make decisions regarding all company operations.
- Multiple-member Limited Liability Company (two or more members): Owned by organizations and/or individuals, with a minimum of two and a maximum of 50 members.
A Limited Liability Company is not permitted to issue shares or participate in the stock market, which results in more limited capital mobilization capabilities.
Conditions for Establishing a Limited Liability Company for Foreign Investors
The conditions for establishing a Limited Liability Company are primarily stipulated in the Law on Enterprises 2020 and its guiding regulations, together with the Law on Investment. For FDI investors, the following groups of conditions must be fully satisfied:
Conditions regarding the legal status of investors
Investors must provide complete legal documentation proving their legal capacity:
- For individuals: A valid passport and clear personal identification information
- For organizations: A Certificate of Incorporation/Business Registration in the home country and a valid authorization letter appointing a legal representative in Vietnam
All legal documents of foreign investors must be consular legalized and notarized/translated into Vietnamese (unless exempted under applicable international treaties).
For Japanese investors: Particular attention should be paid to the verification of the company seal (Inkan) and the Certificate of Registered Matters (Tōki Shōmeisho), as these are key documents that must be carefully prepared.
Valid Investment Project
Before registering the establishment of an FDI enterprise, foreign investors must register and obtain approval for an investment project in Vietnam in accordance with Article 22 of the Law on Investment 2020.
The application for an Investment Registration Certificate (IRC) includes the following steps:
Step 1: Preparation of application dossier
The investment application dossier typically includes:
- Request for implementation of the investment project
- Documents evidencing legal status (ID card/Passport for individuals; Certificate of Business Registration for organizations)
- Investment project proposal
- Documents proving financial capacity
- Documents evidencing the right to use the project location (lease agreement, memorandum of understanding, etc.)
Step 2: Online declaration
Investors declare project information on the National Foreign Investment Information System (dichvucong.gov.vn) or the relevant local system.
Step 3: Submission of application dossier
The dossier is submitted to the Department of Planning and Investment (for projects outside industrial zones) or to the Management Board of Industrial Zones/Economic Zones (for projects located within such zones).
Step 4: Appraisal and issuance
The competent authority will assess the feasibility, legality, and compliance with planning before issuing the Investment Registration Certificate.
Market Access Conditions for FDI Enterprises
Pursuant to Article 17 of the Law on Investment 2020 and detailed guidance under Appendix I of Decree No. 31/2021/ND-CP, foreign investors are only permitted to access the Vietnamese market subject to specific conditions. These conditions include:
- Charter capital ownership ratio: In certain sectors, foreign investors are only allowed to hold shares within legally prescribed limits. For example, commercial banks: maximum 30%; television, press, and broadcasting sectors: require domestic partners to hold controlling shares.
- Form of investment: Certain industries only permit investment in the form of joint ventures, Business Cooperation Contracts (BCC), or capital contribution/share acquisition, and do not allow the establishment of wholly foreign-owned enterprises.
- Conditions on domestic partners: In sectors such as logistics, education, and retail distribution, foreign investors are required to cooperate with qualified Vietnamese enterprises that are properly licensed and not subject to restrictions.
- Specialized licensing requirements: In industries such as freight transportation, finance, insurance, healthcare, and education, investors must obtain additional operating licenses or satisfy specific technical and regulatory conditions.
Business Line Conditions
One of the most critical conditions for establishing a Limited Liability Company that FDI enterprises must clearly understand prior to business registration is the selection of business lines. Not all sectors in Vietnam are accessible to foreign investors.
Business sectors in Vietnam are generally classified into three main categories:
- Unrestricted sectors: Foreign investors are allowed to participate under the same conditions as domestic enterprises.
- Conditional sectors: Foreign investors must satisfy additional conditions as prescribed by Vietnamese law.
- Restricted or non-committed sectors: Sectors not yet opened under international commitments or subject to restrictions based on WTO, CPTPP, EVFTA roadmaps, etc.
To select appropriate business lines, investors should:
- Determine whether the intended business activities fall under the list of prohibited investment sectors.
- Verify whether such business lines are subject to conditional market access for foreign investors. If so, compliance with applicable conditions (such as capital requirements, ownership ratio, investment form, sub-licenses, etc.) is mandatory. For example: logistics services, distribution, education, and healthcare.
Charter Capital Requirements
The charter capital of a Limited Liability Company (LLC) is the total value of capital contributions made by its members within a maximum period of 90 days from the date of enterprise establishment. Currently, there is no general requirement on minimum capital, except for certain conditional business lines that are subject to statutory capital requirements and escrow/deposit requirements (for example: real estate, finance, banking, insurance, etc.).
However, investors should note that:
- Charter capital must be appropriate to the scale and business lines of the enterprise, and it serves as the basis for calculating the annual business license tax.
- For FDI projects, investment capital (the total amount of capital required to implement the project) and charter capital (the capital contributed by the company’s owners) are two different concepts. Charter capital must not be lower than the statutory capital (if applicable) and must be fully contributed within 90 days from the date of issuance of the Enterprise Registration Certificate.
For example: The real estate business line requires a minimum statutory capital of VND 20 billion; domestic travel services require a security deposit of VND 100 million.
Company Name Requirements
The name of a Limited Liability Company (LLC) must include the “type of enterprise and the distinctive name”, for example: ABC Limited Liability Company.
The company name must be in Vietnamese. It may include a foreign-language name and an abbreviated name. The name must not be identical or cause confusion with previously registered enterprises. For FDI companies, the name often reflects foreign elements and must be carefully checked against the National Enterprise Registration Database.
Company Head Office Requirements
The company’s head office must be located within the territory of Vietnam, with a clearly defined address including house number, street name (if any), ward/commune, district, and province/city. The registered head office must not be located in apartments, condominiums, or mixed-use buildings that are designated solely for residential purposes.
Dossier and Procedural Requirements (Two-step process for FDI)
Unlike domestic enterprises, foreign direct investment (FDI) investors establishing an LLC are generally required to follow a two-step procedure:
- Application for Investment Registration Certificate (IRC): This is the procedure for project approval, reflecting the competent authority’s acceptance of the project’s investment policy, location, scale, technology, etc. The dossier is relatively complex and includes financial statements, explanatory documents on investor capacity, and investment plans.
- Application for Enterprise Registration Certificate (ERC): Only after obtaining the IRC can the investor proceed with the procedures for establishment and registration of the LLC.
The company establishment dossier includes: the enterprise registration application form, the company charter, the list of members, certified copies of legal documents of individual/institutional investors (consular legalization required), the Investment Registration Certificate, and other relevant documents.
Special Considerations for FDI Enterprises, Particularly Japanese Enterprises
For FDI enterprises, especially Japanese-invested companies, in addition to fully understanding the conditions for establishing a Limited Liability Company (LLC), you should also pay special attention to the following factors:
- Foreign ownership ratio: It is necessary to carefully review the commitments under Free Trade Agreements (FTAs) to which Vietnam is a party, such as CPTPP, EVFTA, and VJEPA, as these agreements may allow higher foreign ownership ratios in certain business sectors compared to general regulations.
- Capital contribution form: In addition to cash contributions (which must be made through a bank account), capital may also be contributed in the form of other assets. The valuation of non-cash capital contributions must comply with foreign exchange regulations and involve complex valuation procedures.
- Corporate governance: The company charter should be properly structured, clearly defining the authority of the Members’ Council, Company Chairman, Director/General Director, etc., in order to prevent future disputes, particularly in joint venture structures.
- Business culture and legal practices: Differences in management style, contract negotiation approaches, and dispute resolution methods between Vietnam and Japan can present challenges. A consulting partner with deep understanding of both business cultures is extremely valuable.
Common Mistakes in Company Establishment and Preventive Measures
Based on practical experience, we identify the following common mistakes in meeting the conditions for establishing a Limited Liability Company (LLC) made by FDI investors:
- Improper preparation of foreign legal documents: Failure to complete consular legalization procedures and uncertified translations.
- Unclear determination of business lines: This leads to incomplete or incorrect registration of business codes, causing difficulties in subsequent operations.
- Lack of a clear capital contribution plan: This may result in non-compliance with the statutory capital contribution deadline, administrative penalties, and potentially revocation of the Enterprise Registration Certificate.
- Improper selection of registered head office address: Using a “virtual” address or an address that is unable to receive legal notices from state authorities.
- Self-handling of procedures to save costs: This often leads to errors, prolonged processing time, and in some cases, significantly higher losses compared to the cost of engaging professional advisory services.
KMC – Full-package Company Establishment Consulting for Foreign Investors
Regulations on capital, legal requirements, ownership structure, business lines, and other factors often create significant challenges for foreign investors when establishing a Limited Liability Company (LLC) in Vietnam. To simplify the incorporation process, please contact KMC – a consulting expert accompanying FDI enterprises and foreign investors in establishing companies in Vietnam.
KMC provides comprehensive support for the establishment process of an LLC for foreign investors, including:
- Consulting on business establishment conditions: legal entity requirements, charter capital, business lines, etc.
- Drafting, translating, notarizing, and submitting enterprise registration dossiers.
- Providing in-depth legal advisory services on labor, taxation, and contracts.
- Supporting post-establishment procedures: company seal engraving, bank account opening, digital signature registration, initial tax declaration, etc.
We have successfully assisted many Japanese corporations in establishing multi-member LLCs with clear governance structures, optimizing benefits and risk control.
Therefore, if you require a clear and customized roadmap for your specific investment project, please contact KMC. Our team of experts, well-versed in both Vietnamese law and the needs of international enterprises, will help you ensure full compliance with LLC establishment requirements, complete the incorporation process efficiently, and minimize legal risks.
For quick consultation from our experts, please call our hotline: 081 489 4789.
