When starting a business in Vietnam, foreign direct investors (FDI) need to pay special attention to legal and compliance. The Vietnamese legal system stipulates many obligations to ensure that businesses operate transparently and in accordance with the law. Understanding the FDI regulations that investors need to know when starting operations in Vietnam will help investors avoid legal risks and save time and money. This article provides a comprehensive overview of the legal requirements applicable to FDI enterprises during the establishment and start-up phase, along with Legal Checklist for Foreign Direct Investors FDI. 

We will take a look at business registration procedures, periodic reports, tax obligations, labor regulations, industry licenses and provide practical tips to legal compliance effectively. Finally, one Legal checklist for FDI Concise will help businesses self-review compliance with important obligations.

I. Business Establishment Stage

1. Research & Choose Investment Form

• Learn the legal framework: Understand the Investment Law 2020 and guiding documents such as Decree 31/2021/ND-CP, Circular 03/2021/TT-BKHĐT, Circular 25/2023/TT-BKHĐT.
• Determine the form of investment:
  • Establishment of new economic organizations (100% foreign capital or joint venture).
  • Contribute capital, buy shares, buy capital contributions of Vietnamese enterprises.
  • Investment in the form of business cooperation contract (BCC).
• Select business type: Limited Liability Company (one member/two or more members), Joint Stock Company, Partnership Company. (Note: Private enterprises do not have legal status and the owner is responsible for all assets, less suitable for FDI).
• Check business lines:
  • Make sure the industry is not on the list of prohibited business investments (for example: business drug, prostitution, debt collection services…).
  • For conditional industries, all conditions must be met (legal capital, sub-licenses, industry certificates).
  • The industry must be included in Vietnam's WTO commitments.

2. Registration & Licensing Process

• Step 1: Apply for Investment Registration Certificate (IRC) :
  • ｄｅｃｌａｒｅ project information online on the National Information System on Foreign Investment (fdi.gov.vn).
  • Submit paper documents to the investment registration agency (Department of Planning and Investment or Management Board of Industrial Parks/Export Processing Zones/CNCs).
  • Required documents:
    • Document proposing to implement investment project.
    • Investment project proposal (objectives, scale, capital, location, progress, labor, incentives, impact assessment).
    • Documents proving the legal status of the investor (ID card/CCCD/Personal passport; Certificate of establishment/Business registration of the organization).
    • Documents proving financial capacity (bank balance confirmation or audited financial statements of the last 2 years).
    • Office/location lease agreement.
    • Note: All foreign documents must be consular legalized, translated into Vietnamese and notarized/authenticated.
  • Processing time: 15 working days.
• Step 2: Apply for Enterprise Registration Certificate (ERC) & Seal :
  • Submit application at Business Registration Office - Department of Planning and Investment.
  • Required documents: Application for business registration, Company Charter, List of members/shareholders (if any), copy of legal documents of individual/organization as member/shareholder/legal representative, and copy of IRC.
  • Processing time: 03 – 07 working days.
  • Proceed to engrave legal seal.
• Post-establishment procedures:
  • Register to open a bank account (direct investment capital account).
  • Buy digital signature.
  • Pay the license fee.
  • Initial tax declaration and payment.
  • Issue electronic invoices.
  • Hang nameplate at headquarters.

See more: Important information and regulations about company signs

II. Periodic Operation & Compliance Phase

1. Obligation to Report Statistical Monitoring

• Statistical report:
  • Report Type: Postal and telecommunications activities, foreign direct investment, trade, accommodation, catering, tourism, import, investment capital, transportation, warehousing, export, industrial production, construction, service expenditure/revenue for/from foreign countries, aquaculture, construction, production and business, waste collection/treatment, etc.
  • Duration: Monthly (before the 12th of the following month), quarterly (before the 12th of the last month of the following quarter), annually (before March 31st of the following year), special reports (on request).
  • Receiving agency: General Statistics Office (GSO) via the online system (thongkedoanhnghiep.gso.gov.vn) or submit directly.
• Investment monitoring report:
  • Content: Realized investment capital, business investment results, labor information, budget payment, R&D, environmental treatment, specialized indicators.
  • Duration: 6-month report (before July 10), annual report (before February 7 of the following year), report before project adjustment, project completion report.
  • Receiving agency: Department of Planning and Investment (outside industrial parks/export processing zones/high-tech parks) or Industrial Park Management Board (in industrial parks/export processing zones/high-tech parks).

Note: Late submission or failure to submit a report may result in a fine ranging from VND 1.000.000 to VND 30.000.000.

See more: Handbook | Guidance on compliance with investment reports and investment supervision reports for foreign investment projects in Vietnam

2. Tax Issues

• Corporate Income Tax (CIT):
  • General tax rate: 20%.
  • Tax incentives: 10% for 15 years (high-tech, large-scale projects), 15% (agriculture, aquaculture in difficult areas), 17% for 10 years (difficult areas).
  • Tax exemption and reduction: 4-year exemption, 50% reduction for the next 9 years; or 2-year exemption, 50% reduction for the next 4 years.
  • Note that interest expenses exceeding 30% of EBITDA may not be deductible.
• Value Added Tax (VAT):
  • Tax rates: 0% (export), 5% (clean water, medical equipment, agricultural products, fertilizers from July 01, 07), 2025% (general).
  • The Law on VAT (amended) takes effect from July 01, 07.
  • The threshold of non-VAT revenue for households and individuals doing business is increased to 200 million VND/year.
• Personal Income Tax (PIT):
  • Resident individuals: Progressive tax rate (5% – 35%) after deducting family allowance (VND 11 million/month for self, VND 4.4 million/month for dependents).
  • Non-resident individuals: 20% of total taxable income.
  • From January 01, 01, business income over 2026 million VND/year must pay personal income tax.
• Foreign Contractor Tax (FCT):
  • Applicable to foreign organizations/individuals not operating under Vietnamese law but having income from providing services/goods in Vietnam.
  • The Vietnamese side is usually responsible for declaring and paying on behalf of the other party.
  • Tax rate depends on the type of service (for example: consulting 5% CIT + 5% VAT; loan interest 5% CIT; copyright 10% CIT).
• Related transactions (Decree 132/2020/ND-CP):
  • Interest expense exceeding 30% of EBITDA may not be deductible.
  • There are cases where declaration and documentation for determining related party transaction prices are exempted (revenue under VND 50 billion and total value of related party transactions under VND 30 billion; or transactions with related parties paying corporate income tax in Vietnam, same tax rate, no incentives).

3. Labor Issues

• Labor contract:
  • There are only 02 types: indefinite term and definite term (not exceeding 36 months).
  • The contract is based on the principles of voluntariness, equality, goodwill, cooperation, honesty and non-violation of the law.
• Work Permit for Foreigners:
  • Procedure:
    • Step 1: Request approval for the need to use foreign labor (submit Form No. 01/PLI). Time limit for returning results: 10 working days.
    • Step 2: Submit application for new work permit (Form No. 11/PLI).
  • File: Application form, approval letter, copy of business registration/investment registration, health certificate (within 12 months), criminal record (within 06 months), copy of passport/visa, 4×6 photo, documents proving professional qualifications/experience.
  • License term: No more than 02 years.
  • Cases of license exemption: Investors with contributed capital of 3 billion VND or more, working less than 30 days/time and no more than 3 times/year, married to Vietnamese citizens, student interns, etc. Some exempt cases still require notification to the Department of Labor, Invalids and Social Affairs.
  • Note: Using foreign workers without a permit can result in a fine of between VND60 million and VND150 million. Errors in documentation and failure to renew in time are also common mistakes.
• Compulsory social insurance (SI) for foreigners:
  • Appropriate for: Have a work permit/practice certificate and a labor contract of at least 01 year.
  • Contribution level (from 01/01/2022):
    • Employees: 8% (pension and death fund) + 1.5% (health insurance) + 1% (unemployment insurance) = 9.5%.
    • Employers: 3% (sickness, maternity) + 0.5% (occupational accident, occupational disease) + 14% (retirement, death) = 17.5% (Total 20.5% including unemployment insurance).
  • Total: 30%.
  • Procedures for registering to participate in social insurance for the first time according to Decision 595/QD-BHXH.
  • Note that errors in declaring social insurance information can cause difficulties when closing the book/receiving benefits.

Trade ｕｎｉｏｎ organization: Workers have the right to join and form trade unions. Trade unions represent and protect workers' rights, negotiate working conditions, and resolve disputes.

4. Related Operating Costs

• Cost of establishing FDI enterprise:
  • Full consulting service: 15.000.000 VND – 30.000.000 VND (or 800 USD – 2.000 USD) depending on form and location.
  • State fees: New issuance/adjustment of IRC (50.000 VND), announcement of investment registration content (100.000 VND), business establishment registration (50.000 VND if submitting documents, free if online).
  • Cost of round stamp engraving: 450.000 - 500.000 VND.
• Periodic administrative and legal compliance costs:
  • Accounting and tax services: 300.000 VND/month (no invoices) to 1.600.000 VND/month (16-20 invoices/month), with surcharges for large number of invoices.
  • Auditing services: Depending on the field and size of the company.
  • Legal consulting services: Several hundred to several thousand USD/month for small and medium enterprises.
  • Other costs: Making a sign (about 200.000 VND), engraving a title stamp (about 200.000 VND), maintaining a bank account (about 1.000.000 VND), buying a digital signature, and electronic invoices.
• Other operating costs:
  • Labor costs: Regional minimum wage (from July 01, 07: Region I: VND 2024/month), actual salary (general worker: VND 4.960.000-6 million/month; engineer: VND 9-12 million/month; middle manager: VND 25-25+ million/month). Compulsory insurance costs (paid by employers): About 50% - 21.5% of the salary fund.
  • Land/factory rental costs: Industrial park land: 50-250+ USD/m²/rental period; ready-built factory: 3.5-7.0 USD/m²/month.
  • Utility costs: Electricity (1.600-3.500 VND/kWh), water (10.000-15.000 VND/m³), wastewater treatment (4.000-15.000 VND/m³).
  • Logistics costs: Domestic transportation (3-5 million VND/40ft container/50-70km), warehouse (4-7 USD/m²/month).

III. Legal Checklist for newly established FDI enterprises

There are many reasons to get vaccinated, here are ten obvious ones, but there are more Legal checklist for FDI – A quick checklist of important tasks and legal obligations that FDI investors need to complete when starting operations in Vietnam. Businesses can use this list to review and ensure that no requirements are missed:

*N/A: Not applicable to businesses that do not operate in that industry or do not need to pay attention to that item.

IV. Tips for FDI Investors to Avoid Legal Errors

To ensure smooth and sustainable business operations in Vietnam, FDI investors need to proactively avoid common legal mistakes.

1. Common mistakes and consequences

FDI enterprises often encounter some notable legal errors, which can lead to serious consequences:

• Errors in business registration:
  • Not researching the business carefully: Some regulated industries (e.g. finance, real estate, education, healthcare) require regulatory capital or sublicenses. Failure to prepare may result in licensing denial or future penalties.  
  • Mistakes when applying business codes: Incorrect application of level 4 economic sector codes or failure to properly convert investment target codes (CPC) to business sector codes (VSIC) may cause problems.  
  • Late investment commitment or wrong account: Late capital contribution of more than 90 days from the date of issuance of the Investment Registration Certificate or capital contribution to a regular payment account instead of a direct investment capital account may result in the bank not allowing capital contribution and the enterprise being fined and having its capital contribution deadline adjusted.  
  • Foreign investors ask Vietnamese individuals to establish enterprises in their names: This is a serious mistake that can lead to major legal risks.  
• Errors in monitoring and statistical reports:
  • Late or non-submission of reports: FDI enterprises must submit periodic reports (monthly, quarterly, annually) to the authorities. Delays or omissions may result in administrative fines ranging from VND 1.000.000 to VND 20.000.000 for statistical reports and from VND 20.000.000 to VND 30.000.000 for investment supervision reports.  
  • Incomplete data entry or incorrect calculation of data: This results in reports that do not accurately reflect the business situation and may be rejected or require additional information.  
• Tax Compliance Failures:
  • Errors in tax declaration: Any errors in determining taxable income, applying the wrong tax rate, or inappropriately allocating tax obligations among localities can lead to serious consequences: being subject to additional collection, penalties, or loss of tax incentives.  
  • Difficulty in keeping up with changes in tax policies and differences in accounting systems: Tax regulations change frequently, forcing FDI enterprises to constantly update and adjust internal processes. Foreign enterprises often encounter difficulties in applying accounting and tax standards according to Vietnamese regulations.  
  • Risks from related party transactions: Failure to comply with the regulations on related party transactions (Decree 132/2020/ND-CP) may result in non-deductibility of interest expenses or tax arrears.  
• Errors in labor management:
  • No work permit or work permit exemption certificate required: Foreign workers working in Vietnam without a valid work permit can result in businesses being fined from VND60 million to VND150 million depending on the number of violators.  
  • Incomplete or invalid documents, not meeting professional requirements: Resulting in application rejection or prolonged processing time.  
  • Recruitment not in the registered profession or assignment to the wrong job position: Businesses that apply for a work permit for one position but then assign the employee to a job that is not consistent with the registered position may violate labor regulations and have their permit revoked.  
  • Failure to renew work permit or visa before expiration: Late filing of renewal applications may result in denial.  

Errors in declaring social insurance information: Incorrect name on social insurance book can cause difficulties when closing payment process or receiving benefits.

2. Tips to avoid legal mistakes

To minimize legal risks and ensure compliance, FDI investors should apply the following tips:

• Thorough research and regular legal updates:
  • Understand Investment Law, Enterprise Law, Labor Law and latest guidance documents.  
  • Special attention is paid to the list of prohibited industries and conditional business lines, as well as market access conditions for foreign investors.  
  • Monitor and stay up to date on changes in tax policies, reporting and labor regulations.  
• Prepare documents carefully and accurately:
  • Ensure all investment registration and business registration documents are complete and accurate as required. Small omissions or errors may delay the approval process. 
  • All foreign documents must be consular legalized, translated into Vietnamese and notarized/certified.  
  • Carefully check the information registered on the National Business Portal to compare with the license to avoid errors.  
• Build a tight internal management system:
  • Establish robust, automatable internal reporting processes to ensure timely and complete reporting.  
  • Keep detailed and complete records throughout the year, especially accounting documents, to be ready for inspections.  
  • Apply appropriate financial reporting standards and conduct periodic internal audits and reconciliations to ensure data accuracy.  
  • Establish clear and transparent internal regulations and build a periodic dialogue mechanism to resolve labor conflicts.  
• Take advantage of professional advice:
  • Working with experienced law firms, investment consulting, accounting and tax firms in Vietnam is the key to minimizing risks and saving time.  
  • Experts can assist in selecting the appropriate business entity, assessing business lines, drafting detailed capital contribution contracts, resolving issues related to related party transactions, and assisting in tax audits. 
  • Professional advice helps businesses avoid common mistakes, ensure compliance with complex regulations and make the most of investment incentives. 
• Training and awareness raising for employees:
  • Train employees on reporting requirements, labor laws, and potential legal risks.  
  • Ensure that employees in charge of legal, accounting and human resources issues are always updated with the latest knowledge.
• Financial risk control:
  • Comply with foreign exchange regulations when transferring investment funds into Vietnam or profits abroad.  
  • Ensure that related-party transactions comply with Decree 132/2020/ND-CP to avoid being subject to interest expense controls or tax arrears.  

Professional advice is key to risk prevention. With a complex and constantly changing legal system, handling all legal issues yourself can lead to unnecessary mistakes. Professional consulting firms not only help businesses understand regulations but also support the development of effective compliance strategies, thereby minimizing risks, optimizing costs and ensuring sustainable business operations in Vietnam.

V. Conclusion and Recommendations

Vietnam continues to be an attractive destination for foreign direct investment with its strong economic growth potential and preferential policies. However, to maximize these opportunities and minimize risks, FDI investors need a market entry strategy built on a deep understanding and strict compliance with the legal framework in Vietnam.

This report provides a comprehensive checklist of key regulatory requirements, including business registration, reporting and monitoring obligations, tax issues, and labor regulations. Each sector has specific, complex, and frequently updated regulations that require ongoing and proactive engagement on the part of investors. The associated operating costs, from initial set-up costs to recurring compliance and other operating costs, also need to be carefully budgeted and managed.

Key points to note include:

• The dynamism of law: Vietnam’s legal system, especially the Investment Law 2020 and its guiding documents, is in the process of continuous improvement. This requires investors to regularly update information to ensure compliance.
• Two-door process and document preparation: Having to go through two licensing steps (IRC before ERC) with detailed documentation requirements, especially foreign documents needing to be consularized and translated, emphasizes the importance of meticulous preparation from the start.
• Diversity reporting: The number and frequency of investment monitoring and statistical reports is significant, with strict deadlines and clear penalties. This creates a constant compliance challenge.
• Tax Complexity: The tax system with various types of taxes, tax rates and incentives, along with specific regulations such as Foreign Contractor Tax and related party transactions, requires professional management to avoid risks and optimize benefits.
• Labor Compliance: Regulations on labor contracts, work permits for foreigners, and mandatory social insurance are areas that can easily go wrong if not closely managed.

Recommendations for FDI investors:

1. Conduct Legal Due Diligence: Before making any investment decision, conduct thorough due diligence on the industry, market access conditions, and relevant regulations. This helps determine the most appropriate investment structure and type of business.
2. Collaborate with local consultants: Given the complexity and constant changes in Vietnamese law, it is essential to seek assistance from reputable law firms, accountants, and investment consultants in Vietnam. These professionals can provide in-depth advice, assist with preparing documents, manage reporting obligations, and represent businesses in legal matters.
3. Building a strong internal compliance system: Establish clear, automatable internal processes for data collection, reporting, and records management. This helps ensure accurate and timely reporting, minimizing the risk of penalties.
4. Training and capacity building for staff: Invest in training employees on the laws and regulations relevant to your business, especially tax and labor issues. This helps raise compliance awareness and reduce internal errors.
5. Actively update legal information: Regularly monitor announcements, amendments and supplements to relevant legal documents from competent state agencies. This can be done through legal newsletters, seminars or update services from consulting companies.

By proactively approaching and closely managing the legal aspects and related costs, FDI investors can build a solid foundation for success and sustainable development in the potential Vietnamese market.