Legal Guide to Establishing an FDI IT Company in Vietnam

establishing FDI IT Company in Vietnam

Vietnam, a rapidly growing economy in Southeast Asia, has become a hotspot for foreign direct investment (FDI), especially in the IT sector. The country’s robust digital infrastructure, low labor costs, and burgeoning tech talent pool make it an attractive destination for global investors. However, setting up an FDI IT company in Vietnam requires a clear understanding of the legal framework, regulatory requirements, and local business environment.

In this comprehensive guide, we will walk you through the steps, legal considerations, and key aspects of establishing an IT company in Vietnam as a foreign investor.

1. Why Choose Vietnam for FDI in IT?

Before diving into the legalities of setting up a business in Vietnam, it’s important to understand why the country is an attractive destination for foreign investors, especially in the IT sector. 

  • Growing Tech Talent: Vietnam is producing a significant number of IT graduates each year, and the government has invested heavily in improving education and technical skills. 
  • Competitive Labor Costs: Compared to other tech hubs like India or China, Vietnam offers lower labor costs, making it an ideal location for IT outsourcing and software development. 
  • Government Support: The Vietnamese government is highly supportive of foreign investment, offering tax incentives, favorable trade policies, and a clear legal framework for business operations. 
  • Strategic Location: Located in the heart of Southeast Asia, Vietnam serves as a strategic gateway for accessing both regional and international markets. 

2. Legal Structure for FDI in Vietnam’s IT Sector

When setting up a foreign-invested (FDI) company in Vietnam’s IT sector, you have several options for structuring your business. The legal structure you choose will impact your liabilities, tax obligations, and the level of control you can exercise.

Here are the main types of business entities available for foreign investors in Vietnam:

Wholly Foreign-Owned Enterprise (WFOE)

 A WFOE is the most common structure for foreign investors in Vietnam. As the name suggests, a WFOE is fully owned by the foreign investor, with no local Vietnamese partner required. This gives you complete control over your company’s operations, profits, and decision-making. 

Joint Venture (JV)

A joint venture involves a partnership between a foreign investor and a local Vietnamese entity. For an IT company, a JV can be advantageous if you want to leverage local knowledge, distribution networks, or regulatory expertise. 

Representative Office

While not a full-fledged business entity, a representative office allows foreign investors to establish a presence in Vietnam for marketing and liaison purposes. However, a representative office cannot engage in profit-generating activities or conduct direct sales. It’s primarily useful for market research, networking, and managing relationships. 

3. Key Legal Considerations for Setting Up an FDI IT Company

Foreign Investment Laws

Vietnam has a clear legal framework for foreign investment. The Law on Investment 2020 and the Enterprise Law 2020 regulate the operations of FDI companies in the country. These laws provide a range of incentives and guidelines to make it easier for foreign companies to establish themselves.

The Law on Investment outlines the following requirements for establishing a foreign-owned company:

  • Foreign investors must register their investment with the Department of Planning and Investment (DPI) at the local level.
  • For IT-related businesses, the activities should align with Vietnam’s development priorities as outlined in government policies. This includes software development, IT outsourcing, cybersecurity, and digital transformation.
  • The minimum capital requirement will vary depending on the type of business and the local regulations, but generally, there’s no set minimum unless specified by the licensing authority for certain industries.

Business Licenses and Approvals

Establishing an FDI company in Vietnam requires obtaining several licenses and approvals:

  • Investment Registration Certificate (IRC): This is the first step in the process. The IRC grants the legal right to conduct business in Vietnam and outlines the scope of business activities.
  • Enterprise Registration Certificate (ERC): After receiving the IRC, foreign investors must apply for the ERC. This certificate registers the company as a legal entity in Vietnam.
  • Tax Registration: Once the company is registered, it must apply for tax identification, which includes VAT and corporate tax registration.

In the case of an IT company, obtaining a license for technology business or software development may be required, depending on the specific nature of your business.

Sector-Specific Approvals

The Vietnamese government has specific laws and regulations for different sectors, and the IT sector is no exception. Depending on your business activities, you may need additional licenses or certifications:

  • Cybersecurity Law: If your IT business deals with sensitive data, cybersecurity, or personal data protection, you must comply with Vietnam’s Cybersecurity Law, which mandates the storage of data within the country and limits cross-border data flow.
  • Software and Digital Content: Companies involved in software development, digital content creation, or online platforms must comply with specific regulations on digital content, including registration with the Ministry of Information and Communications (MIC).

Intellectual Property Protection

Intellectual property (IP) protection is crucial for IT companies.  The Vietnam IP laws have made significant progress towards international standards. If your IT business involves developing software or other digital products, securing patents, trademarks, or copyrights is essential to protect your intellectual property. Foreign investors should register their IP with the Vietnam Intellectual Property Office (VIPO).

4. Key Steps to Establish an FDI IT Company in Vietnam

The process of establishing an FDI IT company in Vietnam can be broken down into several key steps. While the process is relatively straightforward, it’s essential to understand the requirements to avoid delays or compliance issues. 

Step 1: Define Your Business Structure and Investment

Before beginning the registration process, define the business structure (WFOE or JV), scope of activities, and the total investment amount. It’s important to know whether your IT business will focus on software development, IT outsourcing, cybersecurity services, or another niche. 

Step 2: Apply for an Investment Registration Certificate (IRC)

Submit the required documents to the Department of Planning and Investment (DPI) in the relevant province or city. The documents generally include:

  • The investment project proposal.
  • A business plan detailing your operations in Vietnam.
  • A copy of your passport if you’re investing as an individual or business registration.

The DPI will review your application, and if everything is in order, they will issue the IRC within a few weeks.

Step 3: Apply for Enterprise Registration Certificate (ERC)

Once you receive the IRC, you can proceed to apply for the Enterprise Registration Certificate (ERC). This process requires submitting additional information, such as:

  • Proof of the physical address of your company.
  • Company’s internal governance structure, including the directors and shareholders.

 

The ERC is typically issued within a few weeks if all documents are complete.

Step 4: Tax Registration and Other Licenses

After the ERC is granted, you must register for tax purposes with the local tax office. This includes obtaining a tax identification number (TIN), registering for VAT (if applicable), and paying the necessary fees.

Additionally, if your business falls under any sector-specific regulations (such as cybersecurity or digital content), apply for the relevant licenses from the Ministry of Information and Communications or other relevant authorities.

Step 5: Hire Employees and Set Up Operations

 Once your company is legally registered, you can hire employees and begin your operations. Vietnam offers a highly skilled IT workforce, and foreign businesses in the IT sector can benefit from favorable labor laws, such as tax incentives for high-tech workers. 

5. Tax and Compliance Considerations

Corporate Income Tax (CIT)

The Vietnamese distribution market is poised for continued evolution, driven by factors such as urbanization, technological advancements, and shifting consumer expectations. Foreign-invested companies must remain agile and responsive to these changes. Regular market research, proactive adaptation to emerging trends, and a commitment to innovation will be key drivers of long-term success.

Moreover, companies should anticipate potential regulatory adjustments as the Vietnamese government continues to refine its policies to balance economic growth with national priorities. Staying informed about policy changes and maintaining open communication with regulatory authorities will ensure that companies remain compliant and well-positioned in the market.

Vietnam imposes a corporate income tax (CIT) rate of 20% for most businesses, including IT companies. However, certain sectors, including high-tech enterprises, may qualify for tax incentives. Tax incentives can include a lower CIT rate, tax exemptions, or reductions, depending on the scale and type of business.

Value Added Tax (VAT)

The standard VAT rate in Vietnam is 10%. However, businesses engaged in certain activities, such as software development, may qualify for VAT exemptions or preferential VAT rates.

Other Taxes and Levies

  • Personal Income Tax (PIT): Foreign employees working in Vietnam must pay personal income tax, which is progressive based on salary levels. 
  • Social Insurance Contributions: Both employers and employees are required to contribute to social insurance, which includes pensions, healthcare, and unemployment insurance. 

Conclusion

Setting up an FDI IT company in Vietnam offers immense opportunities for foreign investors. With a supportive government, a growing talent pool, and competitive labor costs, Vietnam is emerging as one of the top destinations for IT outsourcing and technology-related investments.

However, the process of setting up an FDI company requires careful navigation of the legal and regulatory landscape. By understanding the legal structures, registration processes, and tax considerations, foreign investors can ensure a smooth and successful entry into Vietnam’s thriving IT sector. Whether you choose a wholly owned enterprise, a joint venture, or another form of business structure, the key to success lies in proper planning and adherence to Vietnam’s legal framework.

This guide should provide you with a clear understanding of the process and considerations for establishing an FDI IT company in Vietnam. Make sure to consult with a local legal or business advisor to ensure full compliance with local laws and to optimize your business strategy.

[Unauthorized copying and redistribution prohibited] ⓒ2024 Premia TNC. All rights reserved.
This content is protected by copyright law. Copying, redistribution, and secondary processing without prior approval are prohibited, and violations may result in legal liability.