How to Set Up a Subsidiary Company in Vietnam?

Setting up a subsidiary company in Vietnam involves creating a legally independent entity fully owned by a foreign parent company. Many businesses expand to Vietnam to benefit from its fast-growing economy, cost-effective workforce, strategic Southeast Asian location, and extensive trade agreements.

This blog will cover the key steps to establishing a subsidiary in Vietnam, including legal requirements, registration procedures, tax obligations, compliance needs, and tips for a successful setup.

Key Takeaways

• Legal Registration Requirements: Subsidiaries in Vietnam must complete legal registration, including IRC and ERC certificates.
• Annual Compliance Obligations: Annual compliance in Vietnam includes audited financials, tax filings, social insurance, and labor reporting.
• Local Legal Representation: A local legal representative with a Vietnamese address is mandatory.

What are the Types of Subsidiaries in Vietnam?

Understanding how to establish a subsidiary company in Vietnam involves selecting the appropriate structure, which determines the level of control, legal responsibilities, and the type of activities the entity can undertake. The following are the main types of subsidiaries:

Wholly Foreign-Owned Enterprise (WFOE)

This is a company fully owned (100%) by the foreign parent company. It operates as an independent legal entity in Vietnam, allowing full control over operations, management, and profits. This structure is ideal for investors seeking autonomy without local partners, making it a preferred choice for business incorporation.

Joint Venture (JV)

A JV involves cooperation between a foreign investor and a Vietnamese partner, with shared ownership and responsibilities. This model is often used in sectors where local knowledge, networks, or legal requirements make full foreign ownership difficult or less effective.

Representative Office

While not a revenue-generating entity, a Representative Office allows foreign companies to establish a presence in Vietnam for market research, promotion, and liaison activities. It cannot conduct business or sign contracts on behalf of the parent company, but it’s often a low-risk first step before setting up a full subsidiary.

Step-by-Step Guide to Setting Up a Subsidiary in Vietnam

Opening a subsidiary in Vietnam involves several legal and administrative procedures. Below is a step-by-step guide outlining the key stages to successfully establish and register your subsidiary:

Step 1: Choose the Appropriate Business Structure

Decide whether your subsidiary will be a WFOE or a joint venture. Your choice will depend on the industry, ownership goals, and whether local partnerships are required by law. A WFOE allows complete foreign ownership and full control, and a JV involves partnering with a local entity.

Step 2: Reserve the Company Name

Check availability and register your chosen company name with the Department of Planning and Investment (DPI) to ensure it’s legally recognized and unique. The name must comply with local naming conventions, avoid duplication, and reflect the nature of the business. Once approved, the name reservation is valid for use in your registration documents and legal filings.

Step 3: Obtain the Investment Registration Certificate (IRC)

This certificate is mandatory for foreign-invested enterprises and confirms approval for your capital investment in Vietnam. It must be obtained before company formation. This step establishes your right to invest and outlines the scope, goals, and duration of your project, forming the foundation of your incorporation process in Vietnam.

Step 4: Apply for the Enterprise Registration Certificate (ERC)

After receiving the IRC, apply for the ERC to legally form your subsidiary as a recognized business entity. The ERC includes your company’s business code, official registration details, and tax identification number. This certificate effectively allows your business to begin operations, subject to any required additional permits.

Step 5: Complete Post-Licensing Procedures

Once the ERC is issued, complete several administrative tasks to finalize your setup. This includes engraving the company seal, publishing your business registration in the national portal, registering with the local tax authority, and applying for a digital signature for e-tax filings.

Step 6: Contribute the Registered Charter Capital

The registered charter capital must be fully contributed within 90 days from the date your ERC is issued. This capital should be transferred from the parent company’s bank account into the subsidiary’s capital account in Vietnam.

Step 7: Fulfill Sector-Specific Licensing and Compliance Requirements

Before starting operations, ensure you have obtained any additional licenses required for your business sector (e.g., retail, education, logistics). You must also register employees for social insurance, comply with labor laws, and secure work permits for any foreign staff. Ongoing compliance is essential.

Key Benefits of Establishing a Subsidiary in Vietnam

Setting up a subsidiary company in Vietnam offers key strategic and operational advantages for foreign investors looking to expand into Southeast Asia. With its open investment policies and strong regional trade ties, Vietnam has become a prime destination for international businesses. The following are the main advantages:

• Access to a Rapidly Growing Market: Vietnam has a dynamic and expanding economy, with rising consumer demand and a growing middle class. Establishing a subsidiary allows direct access to one of Southeast Asia’s most promising markets.
• Strategic Location in Southeast Asia: Vietnam’s geographic location offers convenient access to major markets in Asia, especially China, ASEAN countries, and key trade routes.
• Tax Incentives and Preferential Policies: The Vietnamese government offers various tax incentives for foreign-invested enterprises, particularly in high-tech, renewable energy, education, and manufacturing sectors.
• Full Legal Control and Ownership: A WFOE structure allows complete control over business operations, human resources, finances, and strategic decisions.
• Participation in Global Trade Agreements: Vietnam is part of numerous Free Trade Agreements (FTAs), including the EU-Vietnam FTA (EVFTA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and RCEP.
• Competitive Labor Costs and Skilled Workforce: Vietnam offers a young, skilled, and cost-effective labor force, making it attractive for manufacturing, services, and tech-driven industries.
• Strong Legal Framework for Foreign Investment: Vietnam’s legal framework has become more transparent and investor-friendly in recent years. The Law on Enterprises and the Law on Investment provide clear guidelines and protections for subsidiaries.

Essential Documents for Registering a Subsidiary in Vietnam

If you’re researching how to form a subsidiary in Vietnam, preparing the correct documentation is a critical step in the process. Vietnamese authorities require a detailed set of legal and corporate documents to approve foreign-invested enterprises. Below is a list of the essential paperwork you’ll need:

• Application for IRC: Required to gain approval for foreign capital investment in Vietnam.
• Application for ERC: Used to officially register the company as a legal entity with tax and business codes.
• Charter of the Subsidiary Company: A legal document outlining the company’s structure, ownership, management, and operations.
• Valid Passport or ID of Legal Representative(s): For both the foreign investor and the appointed legal representative in Vietnam.
• Legalized Copies of Parent Company Documents: Includes the Certificate of Incorporation, Business License, or similar proof of registration from the parent company’s home country.
• Power of Attorney (if using a service provider): Authorizing a third party (often a local consultant or law firm) to act on your behalf during the setup process.
• Office Lease Agreement: A signed lease contract for your business address in Vietnam, which must be submitted during registration.
• Bank Account Confirmation (if applicable): In some cases, a letter from the bank confirming the opening of a capital account may be required.
• Tax Registration and Digital Signature Application: These are needed for post-registration compliance, including e-invoicing and tax filings.
• Labor Registration and Social Insurance Enrollment: Necessary after establishment, but documentation may be prepared during setup if you plan to hire employees immediately.

Note: If you are not sure about setting up a subsidiary company in Vietnam, it’s advisable to work with a local legal expert to ensure accuracy and full compliance.

Legal Structures Available for Subsidiaries in Vietnam

When considering setting up a subsidiary company in Vietnam, it’s essential to choose the right legal structure. The type of entity you register affects your ownership rights and liability. In Vietnam, foreign investors typically establish subsidiaries under one of the following legal structures:

• Limited Liability Company (LLC): The most common structure for foreign subsidiaries. Allows 100% foreign ownership or joint ventures. Offers limited liability and suits most industries.
• Joint Stock Company (JSC): Suitable for larger businesses. Requires at least three shareholders and allows share issuance. Ideal for companies planning to raise capital or go public.
• Partnership: Rarely used by foreign investors. Includes general and limited partnerships but offers less liability protection and is less scalable.
• Branch Office (Not a subsidiary): An extension of the parent company that can do business in Vietnam. Fully liable under the parent’s name.
• Representative Office (Not a subsidiary): Used for non-commercial activities, like market research. It cannot earn revenue, but it is easy to set up.

Note: For most foreign investors who are looking at how to create a subsidiary in Vietnam, an LLC is the preferred choice when forming a subsidiary in Vietnam due to its flexibility, control, and legal safeguards.

Taxation Rules and Incentives for Subsidiaries

Understanding Vietnam’s tax system is essential when planning how to set up a parent company with subsidiaries in Vietnam. The country offers a competitive corporate tax regime along with attractive incentives to encourage foreign investment.

Here’s an overview of the taxation rules and benefits for foreign-invested subsidiaries:

Corporate Income Tax (CIT)

Vietnam applies a standard Corporate Income Tax (CIT) rate of 20% to most business sectors. For certain industries such as oil, gas, and natural resource extraction, higher rates ranging from 25% to 50% may apply. The CIT is calculated based on taxable income in accordance with Vietnamese Accounting Standards (VAS).

Tax Incentives for Foreign-Invested Subsidiaries

To encourage foreign investment, Vietnam offers a range of tax incentives targeted at key sectors such as high-tech, education, healthcare, and infrastructure, as well as investments in economic zones or underdeveloped areas. These incentives include reduced CIT rates, long-term tax holidays, exemptions from import duties on capital goods and materials, and reductions or exemptions on land use and rental fees.

Tax Compliance

All foreign-invested subsidiaries must register for Corporate Income Tax with the General Department of Taxation. They are required to submit annual tax returns within 90 days of the end of the fiscal year and make quarterly tax payments throughout the year. Additionally, all financial statements and tax reports must be prepared in Vietnamese and in full compliance with VAS.

Regulatory and Compliance Requirements in Vietnam

Whether you’re setting up a subsidiary company in Vietnam or exploring how to start a parent company in Vietnam, understanding ongoing compliance is critical. Businesses must meet legal, tax, and reporting obligations to operate smoothly and avoid penalties. The following are the key compliance requirements:

• Tax Filings: Annual Corporate Income Tax (CIT) returns must be submitted within 90 days of the fiscal year-end. Quarterly CIT, VAT, and Personal Income Tax (PIT) filings are also required.
• Accounting Standards: Financial statements must follow VAS and be prepared in Vietnamese. Annual audits are mandatory.
• Labor and Insurance: Companies must register employees for social, health, and unemployment insurance and comply with labor laws. Work permits are required for foreign staff.
• Licensing and Reporting: Any changes to business scope or capital must be updated with the Department of Planning and Investment (DPI). Business license tax must be declared annually.
• Transfer Pricing: Companies with related-party transactions must maintain transfer pricing documentation (local and master files).

Note: Post incorporation, subsidiaries in Vietnam must register for CIT, file annual tax returns within 90 days, make quarterly tax payments, and comply with Vietnamese Accounting Standards (VAS). They must also maintain accurate records and follow local labor laws.

Do You Need a Physical Address for a Subsidiary in Vietnam?

Yes, a physical, commercially zoned address is required when setting up a subsidiary company in Vietnam. This address is used for business registration, tax filings, and official correspondence. Key points to note are:

• A registered office is mandatory for incorporation.
• Virtual offices are not accepted; coworking spaces may be allowed if they provide a private, leaseable area.
• A valid lease agreement must be submitted during registration.
• For industrial activities, the address must be in an approved industrial zone.
• Any change of address must be reported and updated with the authorities.

Operational Setup for a Subsidiary in Vietnam

After registration, the operational setup is the next step for setting up a subsidiary company in Vietnam includes hiring local staff per labor laws, securing work permits for foreign employees, and appointing a resident legal representative. A physical office with a valid lease is required, with industrial zones needed for manufacturing. Businesses must establish payroll, open a bank account, and maintain accounting records under VAS. Reliable infrastructure and sector-specific licenses (if applicable) are also essential.

How to Open a Business Bank Account for a Subsidiary in Vietnam?

Opening a bank account is essential when setting up a subsidiary company in Vietnam. It allows for capital contributions, daily transactions, and tax compliance. Here are the key steps:

1. Select a bank: Choose a reputable local or international bank operating in Vietnam (e.g., Vietcombank, BIDV, HSBC).
2. Prepare required documents: Gather documents such as the ERC, IRC, company charter, legal representative’s ID/passport, and power of attorney (if needed).
3. Visit the bank: The legal representative (or authorized person) must open the account in person.
4. Submit documents and open the account: Provide all required paperwork to the bank officer.
5. Transfer charter capital: Deposit the registered capital from the parent company to the capital account.
6. Register with tax authorities: Notify the tax office of the account details as part of compliance.

Is an Operating Agreement Necessary for a Subsidiary in Vietnam?

Yes, a company charter, Vietnam’s equivalent of an operating agreement, is required when establishing a subsidiary, especially for an LLC. It outlines key elements such as ownership structure, management responsibilities, capital contributions, profit distribution, and internal governance procedures. While it may not be formally called an operating agreement, the charter is essential for legal registration and effective company management.

Opening a Branch vs. a Subsidiary: What’s the Difference?

When expanding into Vietnam, foreign companies can choose between establishing a subsidiary or opening a branch office. Both structures allow a business presence, but they differ significantly in terms of legal status. Here is a concise comparison table outlining the key differences between the two:

How Commenda Can Help You Expand in Vietnam

Expanding into Vietnam requires navigating complex legal, tax, and operational processes. Commenda offers end-to-end support to make your market entry smooth, compliant, and strategic.

With deep local expertise, Commenda assists with every step of incorporation, from choosing the right business structure to securing investment licenses and completing company registration. We help ensure your subsidiary or parent company is properly established under Vietnamese law.

Our team also provides ongoing compliance, payroll, and legal support to keep your operations running seamlessly. Book a demo today to see how Commenda can simplify your expansion into Vietnam.

FAQs

Q. How much does it cost to set up a subsidiary in Vietnam?

The cost typically ranges from USD 410.00, depending on the industry, business scope, legal service provider, and whether additional licenses are needed. This includes incorporation fees, translation, notarization, licensing, and government charges.

Q. How long does it take to register a subsidiary in Vietnam?

The full incorporation process usually takes 2-4 months. This includes obtaining the IRC, ERC, and completing post-licensing procedures like tax registration and bank account setup.

Q. Can a foreigner fully own a subsidiary in Vietnam?

Yes, foreigners can fully own a subsidiary in most sectors. These are known as WFOEs. However, some sectors (like education, logistics, or advertising) may require joint ventures or have foreign ownership limits.

Q. What are the common challenges when opening a subsidiary in Vietnam?

Common challenges include navigating bureaucracy, meeting document legalization requirements, language barriers, delays in government approvals, and understanding local labor and tax compliance laws. Having local legal support helps avoid costly mistakes.

Q. Do subsidiaries in Vietnam need a local director or representative?

Yes, subsidiaries must appoint a legal representative who resides in Vietnam. This person does not have to be a Vietnamese national, but they must have a local residential address and be legally responsible for the company’s activities.

Q. What are the annual compliance requirements for subsidiaries in Vietnam?

Subsidiaries must file audited financial statements, corporate income tax and VAT returns, statistical reports, and social insurance and labor filings annually.

Q. Can a subsidiary hire employees directly in Vietnam?

Yes, a subsidiary can hire employees directly. It must comply with Vietnamese labor laws, which include signing labor contracts, registering employees for social insurance, ensuring proper payroll management, and adhering to workplace regulations.

Q. What happens if a subsidiary fails to meet compliance rules in Vietnam?

Failure to comply can lead to penalties such as fines, late payment interest, administrative sanctions, suspension or revocation of the business license, and potential legal actions, all of which can disrupt business operations and damage reputation.