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How To Open An Offshore Company And Set up Operations In Vietnam

how to open an offshore company

How to open an offshore company and set up operations in Vietnam? 

That question jumps into your head after your market exploration trips to Vietnam. But where should you start with? What you should prepare before making the first move in this landscape? 

If these questions keep troubling your head, this article is for you. So, let’s first take a good look at what options are available in the country that you are branching into.

 

Do You Really Need a Business Entity?

Setting up a legal business entity is the most standard practice but it also comes with high initial costs and efforts. The significant amount of maintenance spending for monthly office rent, HR resources, finance accounting, consolidation with Corporate HQ, and tax reporting can be very intimidating.

To avoid the risk of business/financial penalties due to non-compliance, offshore startups often have to engage with local consultants and spend extra bucks to resolve any problems related to laws before setting up an offshore company in Vietnam.

Fortunately, there are some alternatives (to set up a legal business entity) which may meet your requirements at the early stage:

 

Option 1: Local Business Distributor Or Reseller

Objective: To Access Demand.

        • Best fit: For startups that aim to sell their product overseas and increase the customer base but do not want to establish a business entity in the local market yet.

If you are looking to sell your products/services in a local market where you don’t have inside knowledge or experience, a reliable and trusted local distributor or reseller will greatly increase your chance of penetrating the market.

By leveraging relationship networks and sales channels, local ownership advantages, and licenses to operate, startups can avoid market barriers when it comes to expanding products or services overseas.

In fact, you may not need to have your own entity as all the local transactions can be done by your distributor/reseller. Once your company has a firm grasp and foundation in the local market, then you may reconsider setting up a legal entity.

You should examine whether to support business partners, set up a joint venture entity with a partner/reseller, or operate as a wholly-owned subsidiary.

 

Option 2: Outsourcing/Offshoring

Objective: To access supply

        • Best fit: For startups that want to further their tech capabilities or lack a dedicated IT team.

Vietnam is an ideal place for outsourcing employees due to its inexpensive and highly skilled human resources. So if the purpose of entering the market is to tap the local labor force and gain access to talent for operational needs, outsourcing—or offshoring through a trusted service provider—will be your best bet.

This is where using a third-party offshore service comes into play. With their specialization in tech talent recruitment, offshore software development firm is able to recruit employees and grow a team in Vietnam without worrying about establishing a legal presence.

After receiving help and advice from your trusted offshoring partner, it will make more sense to have a legal entity to take on the legal and operational responsibilities of managing your new offshore team.

 

Option 3: Representative Office

Objective: Market expansion

        • Best fit: For startups that want to open an offshore company in a new market with the lowest cost possible.

Representative offices are not allowed to issue invoices, therefore they cannot generate revenue or enter directly into contracts in Vietnam.

However, they are considered as a relatively lower cost option—in setup and operational fees—to access the market and are useful for administering market research, finding investment opportunities, and getting in touch or supporting local business partners.

Note: the parent company must be registered for at least one year before you can proceed with this method.

 

Legal Entities

how do offshore companies work

For foreign investors, there are three types of legal entities:

 

Limited Liability Company (LLC)

According to Investopedia, a limited liability company considers its owners as members rather than shareholders and must have at least two, but no greater than 50 members. 

It is the least risky type of legal entity due to the limited liability, meaning that your personal/HQ corporate assets will not be in danger in cases of financial difficulties. Therefore, we recommend a LLC for those who are planning to set up a small offshore company or medium-sized enterprise.

Currently, there is no set minimum capital requirement for most businesses entering the market (rule of thumb is $10,000). However, there are some “special” industries which outright bars or limit the participation of foreign companies. 

If your business falls into this category, then certain operational licenses will be required to operate which can be extremely difficult. So many companies decide to create joint ventures with Vietnamese shareholders as a way to bypass the law.

In other words, a limited liability company can also be partially foreign-owned, which is normally incorporated by one foreigner and one Vietnamese shareholder. In this case, foreign ownership will range from 49% to 99% and investors should expect higher capital requirements and longer completion times. 

 

Joint-Stock Company (JSC)

A joint-stock company (JSC) or shareholding company is owned by its investors with the revenue divided based on the percent of stock they purchased. This type of entity is geared toward larger businesses so it requires the shareholders number to be at least three with no upper limit. 

In addition to a group of shareholders, there are times when a JSC calls for a Management Board and an Inspection Committee. 

 

Branch

If a company has been registered for at least five years then it will be eligible to set up a branch in Vietnam as an extension of the parent company. Having branches allows you to rent, lease or purchase offices/facilities, recruit foreign and local employees, take part in contracts in Vietnam and earn revenue. 

However, the parent company is also under full liability for the branch’s activities and a Vietnamese legal representative will be required. 

 

Five Step Process For Successful Incorporation

offshore development

Once you have decided on the right type of legal entity for your company, it is time to solve the following question: “How do an offshore company work in Vietnam?” In other words, the next step is to incorporate it. The process can be quite complicated and hard to understand at once so we have summarized it into five steps for your convenience. 

 

Step 1. Pre-incorporation Research & Consulting

        • Explore different types of corporate entities that are possible for your business
        • Understand the your business license requirements 
        • Conduct market research to gain crucial information, including the country statistics, specific market insights and competitor analysis

Step 2. Investment License Application

        • Fill in application incorporation dossier to the relevant authorities
        • Notarization and Legalization of original legal documents
        • A Vietnamese version of original documents (if required)
        • Submit the application to the licensing authority and maintain supervision during the approval process 

Step 3. Post-incorporation – Accounting & Tax Compliance

        • Submit accounting documents to the taxation department for approval 
        • Open corporate bank accounts (if needed)

Step 4. Office setup

        • Finding the appropriate locations for office/co-working space
        • Negotiate with the landlord 
        • Drafts the leasing contract based on agreed terms and conditions
        • Sign up the leasing contract for office/ co-working space

Step 5. Recruitment & HR Management

        • Understand the staffing and recruitment process requirements
        • Build up your offshore team in Vietnam
        • Monitor and manage HR in compliance with Vietnamese workforce regulations 

 

For Singapore-based small and medium enterprise (SME) companies, Enterprise Singapore also provides the Market Readiness Assistance (MRA) grant to offset your business expansion costs.  Eligible SMEs will receive the following support:

Up to 70% of eligible costs, capped at S$100,000 per company per new market from 1 April 2020 to 31 March 2023 that covers:

        • Overseas market promotion (capped at S$20,000)
        • Overseas business development (capped at S$50,000)
        • Overseas market setup (capped at S$30,000)

For non-Singapore companies, please check with your local government’s trade/business support department for related support and requirements.

 

Feel Overwhelmed? Then Let Us Help You!

Learning how to open offshore company in Vietnam is anything but easy! Even big businesses still face great difficulties when expand business to Vietnam due to the lack of networking and market knowledge. But it doesn’t always have to be this way! 

At JDI, we work to help companies to venture into new markets without facing the huge risk exposure. In fact, we understand your problems because we have been through the same situation. It is a constant war where victory can only be achieved through careful strategies with the right people and partners.

If you want to go fast, go alone. If you want to go far, go together. 

Contact us now to receive free detailed consultancy from our expert team on how to make your offshore operations in Vietnam successful.

 

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