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Vietnam is a popular destination for foreign investments. The very competitive labour cost and the growing consumption are the two biggest reasons for a large number of foreign investments in Vietnam.
Although there are many forms of companies in Vietnam, if you want to start 100 % Foreign Invested Enterprise in Vietnam, you only can choose Limited Liability Company (LLC) or Joint Stock Company (JSC).
BASIC COMPARISON OF LEGAL ENTITIES IN VIETNAM
| Limited Liability Company (LLC) | Joint Stock Company (JSC) | |
| Number of owners | 1-50 | 3+ |
| Initial capital | Required for some (e.g. real-estate), for the rest “sufficient capital” is needed | Required for some (e.g. real-estate), for the rest “sufficient capital” is neededVND 10B if listed |
| Time | 1-3 months | 1-3 months |
| Corporate governance |
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In terms of establishment, LLC and JSC are very similar. Although the registration process takes approximately the same time and costs, if you decide to establish an LLC, you might find the process slightly easier.
The main advantage of an LLC is that it allows registration with only 1 or 2 shareholders and has a simpler corporate structure. A General meeting (members council) and Director are sufficient positions for LLCs with less than two shareholders. If there are more than two owners (members), the company needs to appoint a chairman of the Members Council, and if the number of owners exceeds 10, the Inspection committee must be initiated.
A JSC, on the other side, requires at least three shareholders and their maximum number is not further stipulated. If the capital is over 10 billion VND, a JSC can be publicly listed at Hanoi Stock Exchange (HNX) or Ho Chi Minh City Stock exchange (HOSE).
FURTHER DIFFERENCES BETWEEN LLCS AND JSCS
| LLC | JSC | |
| Liability | Limited to the charter capital | Limited by the investment to the company |
| Adding/changing capital and shareholders | Can be changed by changing charter capital and revising members’ contribution to the charter capital. All shareholders have to agree with any change. | Can issue both common and preferential shares. Shares can be sold and traded on the stock exchange.During the first 3 years, other founding shareholders need to approve shares transfers. |
| Dividend tax for overseas shareholder | 0% withholding tax for corporate shareholders5% for individuals | 0% withholding tax for corporate shareholders5% for individuals |
| Capital gains tax | Should be taxed as income tax.20% for corporates and tax residents in Vietnam. For non-residents, the tax is 0.1% of the total selling price. | Should be taxed as income tax.20% for corporates and tax residents in Vietnam. For non-residents, the tax is 0.1% of the total selling price. |
The change of the ownership and tax implications are the same or similar for LLC and JSC. Both types of entities can raise capital and change ownership. The transfer of shareholders is, however, more difficult in the case of an LLC due to required permission from other shareholders. A JSC also can issue both common and preferential shares and also trade shares publicly.
For any of the two kinds mentioned above, taxation depends on the type, nationality and status of the investor. In general, a foreign company will have a better term on repatriation of profit (dividends), which will not be taxed, while the foreign individual without tax residency in Vietnam will be required to pay lower tax in Vietnam on the capital sale. It will only be 0.1% of the total sale proceeds.
LLC OR JSC?
As a conclusion, both company types are suitable options for foreign investors expanding to Vietnam. As a rule of thumb, we recommend incorporating an LLC for smaller companies with fewer owners, and a JSC for bigger companies with more owners or for companies that plan to go public.
Are you interested in a more in-depth comparison? Talk to us now, and we will help you decide whether an LLC or JSC fits your business strategy in Vietnam better.
Contact us for more information:
Business Support Team
Email: buz@foserco.com
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