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Vietnam’s thriving economy and favorable investment climate have attracted foreign businesses looking to establish factories. This article provides a concise guide on the essential licenses, permits, and procedures for foreign businesses setting up factories in Vietnam. Understanding these requirements is crucial for compliance, industry standards, and long-term growth in Vietnam’s vibrant market.

1. Overview of Vietnam’s economy and the growing interest of foreign businesses in setting up factories in Vietnam  

Vietnam’s economy has experienced remarkable growth and transformation in recent years, positioning itself as an attractive destination for foreign businesses, particularly in the manufacturing sector. 

Vietnam’s economy is outperforming most other emerging nations of its size and attractiveness with a positive 2.6% GDP growth rate in 2021 and is well-positioned to return to its norm of 6% annual growth rate in 2022. The country’s resilient economy has weathered global uncertainties and demonstrated its stability. In 2023, according to the International Monetary Fund, Vietnam’s GDP is predicted to increase by 5.8% this year, sharing second place in the region with Cambodia and just behind the Philippines. 

set up factory in vietnam

In the midst of these conditions, trends are also fueling additional rises in Vietnam’s inward investment, making the nation a hotspot for businesses from across the globe who are looking to: 

  • Diversify their footprint in Asia 
  • Access entrance to the markets in South Asia and Vietnam 
  • Leverage highly desirable free trade agreements, manufacturing advantages, and market advantages  
  • Competitive Manufacturing Sector: Industries such as electronics, textiles, garments, footwear, and automotive have attracted substantial foreign investment. 
  • Digital Transformation and Innovation: Vietnam is embracing digital transformation, fostering innovation, and developing its technology sector.  

Many companies are looking to Vietnam as a safer or second Asia investment choice for certain manufacturing, product assembly, and other downstream services. Due to recent shocks to the global supply chain and commerce, country-wide border closures and lockdowns, rising labor costs, and other factors, Vietnam is now more competitive than China in several areas. 

As a result, global corporations have opened manufacturing units in Vietnam. In such instances, it is crucial that foreign investors carefully consider their alternatives across a wide range of criteria that are pertinent to their condition as a prospective destination for migration.  

Understanding the licensing criteria is crucial for international enterprises looking to set up factories in Vietnam. The regulatory system in Vietnam is created to guarantee adherence to the law, preserve industry standards, and safeguard the interests of all parties concerned. To effectively start-up activities and prevent possible setbacks, navigating the complexities of licensing regulations is essential. This entails determining the precise licenses and permissions needed for various businesses, comprehending the application processes, and making sure that all applicable rules are followed. 

2. Licenses required in Vietnam for foreign businesses 

A. Steps for setting up a factory in Vietnam

Setting up a factory in Vietnam can be an exciting and lucrative opportunity for investors. However, the process of business registration can be a daunting task, especially for foreign investors. 

The following are the major steps involved in setting up a factory in Vietnam: 

  1. Determine the legal structure of your business: Foreign investors can set up their business in Vietnam as a Limited Liability Company (LLC), Joint-Stock Company (JSC), Partnership with Vietnamese individual/company and Branch office (please be noted that although Vietnamese law allows foreign investors to set up their business as Branch, according to experience of our partner law firm, currently foreign companies cannot establish branches in Vietnam (except for branches of foreign banks). It is important to understand the legal requirements and tax implications of each structure before making a decision.
  2. Chose location for set up factory: The next step is leasing facilities, pre-built factories from licensed infrastructure leasing companies in Vietnam, or renting land in industrial parks, export processing zones or high-tech zones.
  3. Apply for the Investment Registration Certificate (IRC): To set up a factory in Vietnam, investors must register for the approval of investment policy (if any) depending on the nature, scale and location of project. For project that do not require approval of investment policies, then applying for IRC.
  4. Apply for the Enterprise Registration Certificate (ERC) (please be noted that ERC and BRC are the same license): After obtaining the BRC and IRC, investors must apply for the Enterprise Registration Certificate (ERC). The ERC is the official document that allows the business to operate in Vietnam. 
  5. Register for sub-licenses: In case of building a new factory, Investors must apply for construction permit and fire protection. For conditional business lines: FDI companies must apply for relevant sub-licenses if they carry out conditional business activities requiring sub-licenses such as: E-commerce services, Retail services… 

Nowadays, when applying for ERC, the tax office will simultaneously issue TIN (tax identification number) for the company. So that business code is also tax code, and it does not require to register TIN for the factory. 

Soa Expertise Article 23 Infographic

B. Other helpful advice for foreign investors that hopes to set up the factory in Vietnam

In addition to the above steps, there are some other helpful tips for foreign investors looking to set up a factory in Vietnam: 

  • Choose the right location:  

Choosing the right location for a factory in Vietnam is important for foreign investors because it can affect various factors such as land availability, infrastructure, labor costs, tax incentives, environmental regulations, and market access.  

Working with a service provider like SOA offers investors the advantage of their extensive knowledge and expertise in the Vietnamese market. SOA has a deep understanding of industrial parks, access to a comprehensive database of locations, and established relationships with local authorities and stakeholders. This enables them to provide customized solutions, navigate complex regulations, and ensure a smooth process of finding the right location for investors’ factories in Vietnam, saving time and reducing risks. 

  • Understand the labor market:  

Vietnam has a young and dynamic workforce, but language barriers and cultural differences can make recruitment a challenge.  

SOA can assist with HR recruiting and management. With a database of 5000+ CVs and extensive experience in the local job market, SOA is well-equipped to identify and recruit qualified candidates for various positions. Additionally, SOA’s extensive network and co-working space rental options provide investors with access to a ready-made infrastructure and a pool of external professionals, we strive to be a trusted long-term partner for all HR-related needs. 

  • Stay compliant:  

Staying compliant with the laws and regulations in Vietnam is crucial for investors looking to set up factories in the country. Vietnam has specific legal requirements and strict regulations related to foreign investment, business operations, tax obligations, labor laws, environmental protection, and more. Non-compliance can result in penalties, fines, legal issues, and reputational damage. By ensuring compliance, investors can maintain a good standing with the authorities, build trust with local partners and stakeholders, mitigate risks, and create a stable operating environment for their factory. Working with a professional service provider can help investors navigate the complex compliance landscape and ensure adherence to all legal and regulatory obligations. 

3. Final thoughts

Setting up a factory in Vietnam presents a promising opportunity for foreign investors, but it requires careful planning and adherence to the necessary licenses and permits. For foreign businesses planning to set up factories in Vietnam, it is crucial to seek professional assistance to navigate the complex process effectively. In addition, it is recommended for foreign investors to carefully research and understand the local regulations, labor market dynamics, and cultural nuances in Vietnam. By partnering with a trusted service provider like SOA, investors can establish a strong foothold in Vietnam and focus on the growth and success of their factory operations.