How to Establish a Foreign-Owned Logistic Company in Viet Nam

1. Legal Framework

The legal framework for establishing a foreign-owned logistics company in Viet Nam is comprised of several key documents:

• International Agreements: Viet Nam's commitments under the World Trade Organization (WTO) Schedule of Specific Commitments in Services play a role in outlining the level of foreign investment allowed in specific logistics activities.
• Domestic Laws:
  • The Law on Investment 2020 establishes the foundation for foreign investment in Viet Nam, including the logistics sector.
  • The Commercial Law 2005 provides the legal framework for the formation and operation of businesses in Viet Nam, including foreign-owned companies.
• Government Decrees:
  • Decree No. 31/2021/ND-CP of March 26, 2021, may contain relevant provisions regarding foreign investment in logistics.
  • Decree No. 163/2017/ND-CP of December 30, 2017, is a key regulation outlining the specific logistics services open to foreign investment and any ownership limitations associated with them. This decree is crucial for understanding the permissible level of foreign involvement in your desired logistics activity.

Understanding these documents is essential for determining the feasibility of your investment, the ownership structure you can pursue, and the procedures you need to follow. It's important to consult with legal counsel specializing in Vietnamese business law to ensure compliance with all relevant regulations.

2. Key Logistics Services and Ownership Restrictions

While Viet Nam welcomes foreign investment in its growing logistics sector, ownership limitations exist for specific services. Here's a breakdown of some key logistics services and the foreign ownership restrictions associated with them:

Services with Permitted Foreign Ownership:

• Cargo Handling (except airports): Foreign investors can fully own companies offering cargo handling services, excluding those related to airport operations.
• Container Warehousing: Foreign ownership is permitted for companies involved in container warehousing, regardless of the transport mode (sea, air, land).
• Warehousing (All Modes of Transport): Foreign investors can establish companies offering warehousing services for all modes of transport (sea, air, land).
• Delivery Services: Foreign ownership is allowed for companies providing delivery services, including last-mile delivery.
• Cargo Agency Services: Foreign investors can establish companies offering cargo agency services, which assist with import/export procedures.
• Customs Clearance Services: While direct ownership of customs clearance companies might be restricted for sea transport, foreign investors can still participate through other means. This may involve establishing companies, contributing capital to existing Vietnamese companies, or entering into business cooperation contracts.

Services with Ownership Limitations:

• Sea Cargo Transport (except inland): Foreign ownership is capped at 49%. Additionally, vessels operating under the Vietnamese flag require a two-thirds Vietnamese crew.
• Container Handling (Sea Transport): Foreign ownership is limited to 50%.
• Container Handling (All Other): Similar to sea transport container handling, foreign ownership is capped at 50%.
• Inland Waterway/Rail Transport: Foreign ownership is restricted to 49% for logistics services related to inland waterway and rail transport.
• Road Transport: This category offers more flexibility. Up to 51% foreign ownership is allowed for road transport logistics companies, with the possibility of establishing 100% foreign-owned companies. However, it's important to note that all drivers employed by such companies must be Vietnamese citizens.
• Air Transport: Foreign ownership in air transport logistics is governed by a separate legal framework established by the Law of Aviation. It's advisable to consult with legal counsel to understand the specific regulations for this sector.

Understanding these limitations is crucial for choosing the appropriate investment structure for your logistics company in Viet Nam. Consulting with a legal professional can help you navigate the regulations and ensure your business operates within the permissible foreign ownership levels.

3. Two Main Investment Options

Venturing into Viet Nam's logistics market presents exciting opportunities, but the process requires careful consideration of your investment strategy. Here's a breakdown of the two main options available for foreign investors:

Option 1: Establish a Foreign-Owned Logistics Company (Joint Venture):

• This approach involves setting up a new company with a Vietnamese partner.
• Advantages:
  • Offers greater control over company operations compared to contributing capital to an existing entity.
  • Allows for a tailored business structure aligned with your specific goals.
• Disadvantages:
  • Requires finding a suitable Vietnamese partner who understands the local market and regulations.
  • Negotiation and agreement on ownership structure and profit-sharing can be complex.
• Suitability: This option is well-suited for companies seeking a strong foothold in the Vietnamese market and a high degree of control over their operations. It's particularly relevant for logistics services with no foreign ownership restrictions.

Option 2: Contribute Capital/Purchase Shares in an Existing Vietnamese Logistics Company:

• This option involves investing in an already established Vietnamese logistics company by contributing capital or purchasing existing shares.
• Advantages:
  • Faster and potentially less expensive compared to establishing a new company.
  • Leverages the existing experience and network of the Vietnamese company.
• Disadvantages:
  • Less control over company operations compared to a joint venture.
  • Limited influence on strategic decision-making, depending on the level of investment.
• Suitability: This option is ideal for companies seeking a quicker entry into the Vietnamese market and leveraging the expertise of an established player. It might also be relevant if the desired logistics service has foreign ownership limitations, allowing you to gain a stake in the company within the permissible restriction.

Choosing the Right Option:

The best investment option depends on your specific goals, budget, and risk tolerance. Consider factors like:

• Desired level of control over operations: A joint venture offers more control while contributing capital provides less.
• Timeline for market entry: Establishing a new company takes longer than investing in an existing one.
• Foreign ownership restrictions for your target service: If limitations exist, contributing capital may be the only option.

Consulting with legal and business professionals in Viet Nam can help you assess your options, understand the legalities involved, and choose the investment strategy that best aligns with your long-term goals.

4. Process for Establishing a Foreign-Owned Logistics Company 

4.1. Option 1: Joint Venture

If you've chosen to establish a new foreign-owned logistics company (joint venture) in Viet Nam, here's a breakdown of the key steps involved:

Step 1: Apply for an Investment Registration Certificate (IRC):

• This certificate signifies approval for your investment project from the Vietnamese authorities.
• The application is submitted to the Department of Planning and Investment (DPI) in the province where your company's head office will be located.
• Required documents typically include:
  • A detailed project proposal outlining your business activities.
  • Legal status documents for the foreign investor(s).
  • Financial statements or a financial support commitment letter demonstrating your financial capability.
  • Documents proving legal use of the land for your company's head office (if applicable).
• Processing time for a valid application is approximately 15 days.

Step 2: Establish the Foreign-Capital Logistics Company and Obtain a Business Registration Certificate (BRC):

• Once you receive the IRC, you can proceed with formally establishing your company.
• This involves submitting various documents to the DPI, including:
  • A business registration application form.
  • The company charter outlines the company's structure, operations, and management.
  • A list of founding shareholders (including the Vietnamese partner).
  • The Investment Registration Certificate (IRC) you obtained in Step 1.
• Processing time for the BRC typically takes 3-6 working days upon submitting complete documents.

Step 3 (Road Transport Only): Apply for Automobile Transport License (if applicable):

• If your logistics company involves road transport services, you'll need to obtain a separate license from the Department of Transport.
• Documents required for this license typically include:
  • A business license application form.
  • Your company's Business Registration Certificate (BRC).
  • Certificates of competency for your direct transportation managers.
  • A detailed business plan outlining your road transport operations.

Additional Considerations:

• Following successful company registration, you'll need to announce your business registration information publicly on the National Portal of Business Registration.
• You'll also need to have a company seal engraved and announce a sample of the seal for official purposes.
• Post-establishment considerations include finalizing contracts with employees, vendors, and landlords. Additionally, you'll need to register for tax purposes, establish payroll procedures, and comply with Vietnamese labor and social insurance regulations.

Timeline:

The entire process of establishing a foreign-owned logistics company in Viet Nam can take anywhere from 3 to 4 months, depending on the complexity of your project and the completeness of your documentation.

It's important to remember that this is a general overview, and specific requirements or procedures may vary. Consulting with legal and business professionals in Viet Nam is highly recommended to ensure a smooth and compliant establishment process.

4.2. Option 2: Contributing Capital or Purchasing Shares in an existing Vietnamese logistics company

While establishing a new joint venture offers a high degree of control, option 2 presents a potentially faster and more streamlined approach for foreign investors seeking to enter Viet Nam's logistics market. Here's a breakdown of the key steps involved in contributing capital or purchasing shares in an existing Vietnamese logistics company:

Step 1: Identify a Suitable Vietnamese Logistics Company:

• Conduct thorough research to identify a company that aligns with your business goals and target market segment.
• Evaluate the company's financial health, reputation, and track record.
• Consider factors like the company's existing licenses, permits, and compliance with regulations.

Step 2: Negotiate and Finalize Investment Agreement:

• Negotiate the terms of your investment with the Vietnamese company, including the amount of capital contribution or share purchase price.
• Clearly define the ownership structure, profit-sharing arrangements, and any management roles you will have in the company.
• Ensure the agreement complies with Vietnamese laws and regulations regarding foreign investment in logistics. Engaging legal counsel specializing in Vietnamese business law is crucial at this stage.

Step 3: Register Capital Contribution/Share Purchase with the Department of Planning and Investment (DPI):

• Submit the investment agreement and supporting documents to the DPI in the province where the Vietnamese company is registered.
• Required documents may include:
  • The investment agreement outlines the terms of your investment.
  • Proof of capital contribution (if applicable).
  • Share transfer documents (if applicable).
  • Documents from the Vietnamese company verifying the transaction.

Step 4: Post-Investment Considerations:

• Once the DPI registers your investment, you may need to update the company charter to reflect the new ownership structure.
• Depending on your level of involvement, you might participate in board meetings or contribute to strategic decision-making processes.
• Comply with Vietnamese tax and regulatory requirements for foreign investors.

Timeline:

The process of contributing capital or purchasing shares can be completed within 1-2 months, assuming a smooth negotiation and readily available documentation.

Advantages of Option 2:

• Faster market entry compared to establishing a new company.
• Leverages the existing experience and network of the Vietnamese company.
• Potentially less complex and expensive process.

Considerations:

• Less control over company operations compared to a joint venture.
• Limited influence on strategic decisions depends on the investment level.

In summary:

Investing in an existing Vietnamese logistics company offers a viable option for foreign investors seeking a quicker entry into the market. By conducting thorough due diligence, negotiating a clear agreement, and ensuring compliance with regulations, you can successfully establish your presence in Viet Nam's dynamic logistics sector. Remember, consulting with legal and business professionals throughout the process can ensure a smooth and successful investment.

5. Conclusion

Viet Nam's rising logistics sector presents a compelling opportunity for foreign investors. By understanding the legal framework, ownership limitations, and investment options, you can navigate the process of establishing a foreign-owned logistics company successfully. Whether you choose a joint venture or invest in an existing company, careful planning, adherence to regulations, and guidance from legal and business professionals are crucial for a smooth entry into this dynamic market. With the right strategy and execution, your foreign-owned logistics company can capitalize on Viet Nam's promising logistics landscape and contribute to its continued growth.

If you need further explanation on this subject, please don't hesitate to contact us through email at lienhe@luatminhkhue.vn or phone at: +84986 386 648—lawyer To Thi Phuong Dzung.