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While there are several office structures to enter the Vietnamese market, in our experience the representative office (RO) and the foreign-owned enterprise (FOE) are the most popular investment vehicles in Vietnam.

Vietnam provides several options for market entry – below we outline the most common forms of corporate structure options for investors.

Representative Office

A representative office (RO) offers a low-cost entry for companies seeking to gain a better understanding of the Vietnamese market. As such, this option is among the most common for first-time entrants to the Vietnamese market and often precedes a larger presence within the country. Currently, ROs are permitted to engage in the following activities:

[video file='https://content.jwplatform.com/videos/zlDUiMlC-xkRGspnx.mp4' image='https://resource.dezshira.com/resize/900x506/Misc/banners/web_2.jpg' title='All Eyes On Vietnam – Why And How To Enter The Market']

  • Conducting market research;
  • Acting as a liaison office for its parent company;
  • Promoting the activities of its head office through meetings and other activities that leads to business at later stages.

Vietnam’s Ministry of Planning and Investment (MPI) does not currently specify the required capital for ROs. While the MPI does not impose specified capital requirements, companies will be required to show that their capital contributions are sufficient to fund the activities of their operations. As a result, potential investors should prepare to commit a minimum of US$10,000 to fund their operations. ROs can be set up in between six to eight weeks.

Branch Office

A branch office (BO) can conduct business activities in Vietnam with the parent company’s business scope. To set up a BO, a parent company must have conducted business in its home country for at least five years. BOs are limited to certain types of service businesses, such as finance and banking. BOs can hire staff directly, make it easier to do contracts between the parent company and Vietnamese companies, and serve in similar ways to a liaison office.

BOs are permitted to engage in the following activities:

  • Rent offices;
  • Lease or purchase the equipment and facilities required for operations;
  • Recruit local and foreign employees;
  • Remit profits abroad;
  • Purchase and sell goods and commercial activities per licensing;
  • Set up accounting, marketing, and HR departments to represent the parent company.

The BO will need to obtain an establishment license and have a seal with the name of the parent company. The BO will also need to appoint a branch manager who is a Vietnam resident.

Foreign companies may appoint a manager from their countries of origin; however, this employee must get a Vietnam work permit to be hired as a BO manager.

The Ministry of Industry and Trade approves the registration of the BO after the company submits all the documents with the process typically taking 20 working days.

100 Percent Foreign-Owned Enterprise

A 100 percent foreign-owned enterprise (FOE) in Vietnam can operate under the following structure:

  • Joint-stock companies;
  • Limited liability companies.

[tips title="Did You Know"]Limited liability companies (LLC) are the most common form of investment for foreign investors due to their reduced liability and capital requirements.[/tips]

LLCs can be broken down into single-member LLCs, where there will only be one owner, and multiple-member LLCs, where there will be more than one stakeholder. These owners can be private individuals or companies, depending on the requirements of a given investor.

The setup time for a 100 percent FOE ranges between two to four months on average.

Joint Venture

A joint venture (JV) entails the partnership of companies or individuals for a specific business purpose. JVs are not a unique corporate structuring option; partners usually establish an LLC for standard JVs and a joint-stock company (JSC) if there is a desire to list on Vietnam’s stock exchanges.

For investors purchasing stakes in state-owned enterprises equitized on Vietnam’s exchanges, the JSC structure is required. When entering the Vietnamese market, foreign investors can choose to enter into joint ventures as a majority (ownership more than 50 percent) or minority (ownership less than 50 percent) stakeholder.

The capital requirements for JVs are the same as for 100 percent FOEs.

 Unconditional sectors are not subject to specified capital requirements. However, Vietnam’s MPI does apply industry-specific capital requirements in many cases.

[tips title="Important Tip"]The percentage of ownership, and thus the amount of capital contributed, is the more important metric to use when evaluating the capital requirements for JVs in Vietnam.[/tips]

At present, statutory guidelines impose a foreign contribution floor of 30 percent for JVs, as well as a ceiling in specific conditional sectors. The government also mandates minimum contributions for domestic investors on an industry-specific basis. Set ups for JVs take about two to four months.

Public Private Partnership

A Public Private Partnership (PPPs) entails a partnership between a foreign or domestic enterprise and the government for the completion of key infrastructure projects. Vietnamese authorities are aggressively pursuing PPPs for a variety of infrastructure projects as a means of filling gaps left by a reduced role of state-owned enterprise, rising population, and increasing urbanization.

The five types of PPPs are Build-Transfer-Operate (BTO), Build Transfer (BT), Build- Operate- Transfer (BOT), Build-Own-Operate (BOO) and Build, Transfer and Lease (BTL).

FIE Structure Type

Common Purpose

Pros

Cons

Representative Office

  • Non-separate legal entity
  • Market research
  • Liaison with overseas parent company
  • Easy registration procedure
  • Cannot conduct profit making activities
  • Parent company bears liability

Branch Office

  • Non-separate legal entity
  • Commercial activity within parent company’s scope
  • Can remit profits abroad
  • Limited to certain industry sectors
  • Parent company bears liability

Limited Liability Company

  • Separate legal entity
  • Liability limited to capital contribution
  • No restriction on the scope of business
  • Cannot issue shares
  • Maximum of 50 shareholders

Joint-Stock Company

  • Separate legal entity
  • Liability limited to capital contribution
  • No restriction on the scope of business
  • Can issue shares and go public
  • Three or more shareholders required
  • Supervisory board required for most joint stock companies

Joint Venture

  • Partnership of companies or individuals for specific business purpose
  • Unconditional sectors not subject to specific capital requirements
  • Minimum contribution guidelines for domestic investors for industry specific cases
  • Two to four months to set up

Public Private Partnership

  • Entails partnership between foreign or domestic enterprise and government for infrastructure projects
  • Government aggressively pursuing PPPs to develop infrastructure
  • Several PPP models
  • Investors unsure of returns

Mergers and Acquisitions

Mergers and acquisitions (M&As) are an increasingly popular route for foreign investors looking to begin operations in Vietnam. With an M&A, investors can enjoy pre-existing access to consumers, locations, and distribution channels. This local knowledge can prove critical to successful operations within Vietnam’s vibrant but rapidly changing investment environment.

Investors that find it challenging to enter the Vietnamese market may find that the M&A route provides a unique solution to several obstacles.

Investors need to weigh the pros and cons of whether merging or acquiring complements their business strategy. A merger is when two companies join to form one company by transferring assets, rights, obligations, and interests to the merged company and therefore terminating the two separate companies.

Acquisitions require a change in ownership and are typically in the form of existing share purchases or new shares but also involve acquiring assets. For non-public companies, liability mainly stems from the failure to meet with the provisions set out in the agreement.

Investors that are interested in this route should recognize the legal foundation for M&As, and understand the procedures and restrictions associated with acquisitions.

[faq title="M&A Opportunities and Processes in Vietnam" ui="accordion"]

Mergers and Acquisitions (M&A) provides a unique solution to several obstacles for foreign investors wanting to enter the Vietnam market.

With an M&A, investors can enjoy preexisting access to consumers, locations, and distribution channels. Local knowledge can thus prove critical to successful operations in Vietnam’s vibrant but rapidly changing investment environment.

To learn more about M&A opportunities in Vietnam, our International Business Advisory Manager, Dezan Shira & Associates, Ho Chi Minh City, Trent Davies discussed several opportunities in our recent webinar: M&A Opportunities and Processes in Vietnam. The webinar can be viewed here.

We highlight key insights below:

What does the M&A landscape in Vietnam look like?

M&As in Vietnam have been a popular route for investors with several deals taking place in the last few years. The sector is attractive to investors due to obvious advantages. To put this into perspective in 2018, there were at least 266 M&A deals in Vietnam with a value of US$7.5 billion. 56 percent of this was in the form of inbound investment. While there were some large deals such as investment in Vietnam’s Sabeco and Vinhomes, 70 percent of deals were with small to medium-sized businesses. Over time M&A has picked up with M&A value growing by 21 percent between 2008 to 2018.

Recent years have seen a decline in global M&A activity due to macroeconomic uncertainty, geopolitical instability, and the pandemic in 2020 affecting companies further. Nevertheless, the impact of COVID-19 and diversification of supply chains has made Southeast Asia attractive. With Vietnam containing the pandemic well, we are likely to see more M&A activity in 2021.

The Ministry of Planning and Investment (MPI) released statistics on capital contribution and share purchases between January-September 2019 and 2020. This indicator was down by 55.1 percent in 2020 showing how even how M&A activity in Vietnam was affected by the pandemic.

Nevertheless, Euromonitor International ranked Vietnam as the world’s second M&A attractive market with emerging economies likely to make a strong comeback after the pandemic.

What are popular industries in M&A and where do these investors come from?

Most of the M&A activity has come into manufacturing and processing followed by real estate activities, wholesale and retail trade, professional and technical activities, and construction. Leading investors have come from Singapore, Japan, and South Korea

What are some drivers of the increased inbound M&A activity in Vietnam?

There are several reasons for this: one is Vietnam’s demographics – it has one of the fastest-growing middle classes in the region with increasing urbanization. Consumer spending is growing with significant growth in e-commerce. Vietnam has several tax incentives and pro-FDI policies. Its government is stable and has continued to focus on high growth while improving the business climate. One of Vietnam’s biggest strengths is its free trade agreements. With the EVFTA recently signed, Vietnam is likely to further benefit from opening up its economy and growing trade.

Can you share some opportunities in the Vietnamese market?

Apart from Vietnam’s demographics, Vietnam has strong market fundamentals. Due to its control of the pandemic, Vietnam has been able to reopen its economy quicker than others. Thus, investors investing in Vietnam will gain a first-mover advantage compared to others. The pandemic has also resulted in several distressed businesses making it easier to acquire them. Another important opportunity is the relocation of manufacturers and supply chains from China. This is a continuing process and there remains further scope to develop supply chains and supporting industries in Vietnam. The government is also looking to divest state-owned enterprises. This process has been slow but is definitely ongoing.

And on the flip side, what are some challenges and barriers?

At present, border closures are a major obstacle for both buyers and sellers, however, this presents more opportunity for domestic deals. Identifying targets is another area that is quite challenging where clients don’t know where to start. There is also a lack of reliable publicly available information on target companies. Typically the target companies not legally required to disclose this information and therefore it’s important to take your time to do the necessary due diligence during an M&A. We’ve also seen gaps in valuation between the buyer and seller.

What’s the legal framework for M&As in Vietnam?

Vietnam doesn’t have a unified law on M&As, rather M&As are largely governed by the Law on Enterprise and the Law on Investment and to a lesser extent by the Law on Securities and the Law on Competition. The recently amended Law on Enterprises and Law on Investment will be in effect from January 1, 2021. These amended laws provide updates on conditional business lines, investment incentives while removing administrative approval for certain types of investment projects. Investors should study these laws carefully before embarking on an M&A.

Do you have a tried and tested M&A process in Vietnam?

Yes, we do. The key is to have a clear strategy from the beginning to understand the goals that you want to achieve and define core objectives. This will help the investor identify targets. As mentioned earlier, the target screening process can be challenging in Vietnam. The third phase I would like to focus is on due diligence.

This is a comprehensive process and does take time, but will benefit you in the long run. We do see that there is likely to be an uptick in M&A activity particularly in 2021, as a result of the pandemic.

[/faq]

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