The first three posts in The Herbers Agency’s ‘Navigating Vietnam: The First Steps Series’ focused on general considerations for any organization exploring doing business in or with Vietnam.
Up next is the important topic of licensing and structure, which must be understood by any international business looking to establish sales and distribution channels in Vietnam – be it as an exporter, or as a new local company.
For Exporters to Vietnam:
If your business is planning to export to Vietnam, it is crucial to be aware of local licensing rules as they relate to approval for import and use of your product in Vietnam.
Typically, exporters from abroad will rely on a local importer in Vietnam to manage all local regulatory and compliance related affairs. Thus, the exporter must ensure that the local importer is capable, qualified and licensed to manage these processes and activities on their behalf.
Licensing:
The Vietnam Standard Industrial Classification (VSIC) defines the business line code and definition for product and service categories of all economic activities in Vietnam. To legally engage in commercial activities, companies operating in Vietnam must first list and gain approval for each business line under their business license (Enterprise Registration Certificate).
Many business lines require sub-licenses and/or conditional approvals before the activity can be legally engaged in. For example, there are over 200 conditional business lines that require special approvals, and it is the responsibility of each corporate entity to ensure compliance.
Additionally, certain products require special permits to be allowed for sale once imported to Vietnam.
When engaging with local importers, distributors or retailers in Vietnam, it is vital to confirm that their licensing is suitable for your desired activity, and to understand the full process of approval for any required permits specific to your product.
Structures:
Building on the topics covered in the second post in this series entitled ‘Considering Your Market Entry Model,’ how you structure your sales and distribution channel depends on whether you will be establishing and operating your own local entity, or developing strategic local partnerships to manage these activities.
If you wish to have local representation beyond a partnership with a local importer or distributor, there are several options to consider:
Setting Up Your Own Entity:
Representative Office:
If your organization wishes to have a local presence, one option to consider is a Representative Office.
International organizations are allowed to establish a Representative Office in Vietnam, which is one of the easiest methods to create a basic local presence, established quickly and with minimal cost and compliance burdens.
The catch, however, is that a Representative Office is not allowed to engage in commercial activities. It is only permitted to promote the activities of its parent company and conduct market research on its behalf. A local representative who is a resident of Vietnam must be appointed, and is personally responsible for any liabilities incurred by the Representative Office.
While a Representative Office provides your business with a local presence, your business will still require licensed partners to manage import, distribution and retail sales functions.
Creating a Local Company:
Alternatively, if your business wishes to engage in commercial activity (such as import, distribution or retail activities) in Vietnam, then establishing a corporate entity is necessary.
Vietnam allows international investors to establish, buy or own 100% of a local company. Numerous options and structures are available, including:
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- Local Limited Liability Companies
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- Foreign-invested Enterprise (FIE) Limited Liability Companies,
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- Joint Ventures and Joint Stock Companies (3 or more shareholders)
Once the Investment Registration Certificate is obtained, your local entity will need to register and obtain the necessary licenses and permits for its desired activities.
Alternative Mechanisms for Local Presence:
There are other methods for an international organization to appoint a qualified local representative to act on their behalf, without setting up a representative office or a company.
These include contracting an Employee on Record from a licensed service provider, or partnering with a local agency to manage and develop your business objectives in Vietnam.
The Bottom Line:
For exporters to Vietnam, due diligence is required when identifying your local import partner. This includes not only strategic alignment and competency, but also understanding their corporate structure, business lines, and sub-licenses. It is also important to develop an understanding of what is required to approve your product for import and sale in Vietnam.
For organizations seeking to establish their own local presence, understanding the different options available – ranging from Representative Offices to Foreign Invested Companies – and the associated limitations, costs, set-up times and responsibilities, is crucial.
While there are many options available, it is always advisable to ensure that your business is well represented on the ground, especially in the early stages of establishing.
The Herbers Agency is here to be your trusted partner in Vietnam every step of the way.
From being in your corner as a trusted advisor, to helping you find the right partners in the market, to being your local market representative, we are ready to help.
Contact us today to begin your Vietnam journey!
