Issue 020625 – Foreign Investor’s commercial presence forms in Vietnam

Dear Valued Clients,

Globalization is an inevitable trend that has led to the development of production and service supply markets across multiple countries and territories. In this context, investors from one country must seek opportunities in others that offer competitive advantages in areas such as labor, raw materials, regulatory frameworks, market access, and consumer demand. To successfully penetrate a new market, investors must carefully assess and select a form of commercial presence that not only complies with international commitments but is also consistent with the host country’s domestic policies and legal framework.The following article provides an overview of the forms of commercial presence available to foreign investors in Vietnam, in accordance with Vietnam’s commitments upon accession to the WTO and in line with the country’s applicable laws on investment, business, and commerce.

1. Definition of commercial presence

According to the provisions of Article I.2(c) of the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO), commercial presence is a mode of supplying services whereby a member establishes a commercial presence in the territory of another member. In basic terms, commercial presence involves an individual or organization providing services who, carrying the nationality of one country, enters another country and then establishes a legal entity or branch in that country to provide the necessary services.

2. Foreign investors’ commercial presence forms in Vietnam

Pursuant to Vietnam’s commitments upon accession to the World Trade Organization (WTO), foreign investors may establish a long-term presence in Vietnam for the purpose of providing services and conducting business through the following three (03) forms:

2.1. Investment in the form of establishing a foreign-invested business entity in Vietnam

Establishing an economic organization with foreign investment is considered the most common and preferred form of commercial presence due to its stability and the ability to directly control business operations in Vietnam.

When choosing this form, investors must determine the type of enterprise that best suits their business model. The most common types are single-member limited liability companies, multi-member limited liability companies, and joint stock companies. These structures share the characteristic of limiting the liability of owners or shareholders to the amount of capital contributed. However, they differ in terms of governance structure, decision-making mechanisms, and capital mobilization capabilities. Limited liability companies typically have a streamlined structure, making them suitable for investors who prefer centralized control, whereas joint stock companies allow for share division and flexible capital raising through share issuance or listing on the stock exchange.

In many sectors, foreign investors may establish enterprises with 100% ownership of charter capital. However, for certain conditional service sectors, Vietnamese law and international commitments still require foreign investors to form joint ventures with Vietnamese individuals or organizations, subject to specific capital contribution ratios. In such cases, foreign investors may invest by contributing capital, purchasing shares, or acquiring equity from Vietnamese partners, provided they meet the criteria regarding ownership ratios, business sectors, and market access conditions.

2.2. Investment in the form of establishing representative offices and branches of foreign traders in Vietnam

As an alternative to establishing or investing in a company incorporated in Vietnam, the Vietnamese Commercial Law permits certain foreign merchants to establish two other forms of commercial presence in Vietnam: branches or representative offices (“RO”).
(i) Investment in the form of establishing RO of foreign traders in Vietnam

Establishing a representative office (RO) in Vietnam is one of the simplest forms of commercial presence available to foreign merchants seeking to enter the Vietnamese market. This form is typically chosen by investors who do not yet intend to engage in direct business operations in Vietnam but wish to establish a legal presence for the purposes of market research, developing a network of local partners, and supporting the commercial activities of their parent company abroad.

Under Vietnamese law, an RO is a dependent unit of a foreign merchant, without independent legal personality, and is not permitted to engage in profit-generating activities in Vietnam. The primary functions of an RO include commercial promotion, market research, assisting the parent company in identifying investment opportunities, overseeing the performance of contracts executed by the parent company in Vietnam, and liaising with partners, clients, and governmental authorities.

As ROs are prohibited from generating revenue through commercial activities, they may not enter into commercial contracts in their own name, conduct or receive payments directly, or purchase or sell goods in Vietnam, nor may they distribute products on behalf of the parent company. Instead, ROs are permitted to lease office space, hire both Vietnamese and foreign staff, open bank accounts to cover operating expenses, and enter into contracts necessary for internal operations—such as lease agreements, procurement of office supplies, and employment contracts.

(ii) Investment in the form of establishing branches of foreign traders in Vietnam

In addition to the establishment of a RO, some foreign investors may consider establishing a branch of a foreign merchant as a form of commercial presence in Vietnam. Under current Vietnamese law, a branch is a dependent unit of a foreign merchant, which is permitted to conduct business activities in Vietnam under its own name, operate its own bank account, and bear liability within the scope authorized by the parent company.

However, it is important to note that the establishment of a branch in Vietnam is currently permitted only in certain specialized service sectors, consistent with Vietnam’s Schedule of Specific Commitments under the WTO and relevant sectoral laws. Specifically, branch establishment is generally limited to sectors such as banking, insurance, legal services, technical consulting, and a few other professional services. These are sectors subject to stringent licensing requirements, high professional standards, and close oversight by specialized regulatory authorities.

2.3. Investment in the form of business cooperation contracts in Vietnam

The Business Cooperation Contract (BCC) is one of the recognized forms of commercial presence under Vietnam’s Schedule of Specific Commitments on Trade in Services upon accession to the WTO. This form of investment has also been codified under the Law on Investment. Accordingly, a BCC is an agreement entered into between at least one foreign investor and one Vietnamese investor to jointly carry out business activities in Vietnam without establishing a new legal entity.

By its nature, a BCC is a contractual arrangement between independent parties, allowing foreign investors to enter the Vietnamese market with flexibility while leveraging the legal, market, human resource, or licensing capabilities of their Vietnamese partners. As the formation of a new legal entity is not required, BCCs may offer cost savings on administrative procedures, operational setup, and management – particularly suitable for short-term, pilot, or fast-track projects involving access to existing resources, land, or infrastructure.

However, since a BCC does not constitute a separate legal entity, each contracting party retains its independent legal status and bears responsibility for its own obligations and liabilities arising from the performance of the contract. This necessitates the establishment of a clear and robust contractual governance mechanism, including explicit agreements on representation, project management, use of seals, profit sharing, and financial obligations.

As usual, we hope you find this Legal Article helpful and look forward to working with you in the upcoming time.

Kind regards,

ENT Law LLC
The full version of this Legal Update can be found here.