How to Set Up a Legal Entity for an Independent Consultant in Vietnam

The Independent Consultant's Guide to Selecting and Setting Up a Legal Entity in Vietnam

Please note that this information is for informational purposes only. Umbrex strongly recommends that you consult with an attorney and tax professional to select the entity type most appropriate for your situation.

Get help setting up an entity in Vietnam

Independent consultants in Vietnam can choose from a variety of business structures, depending on their legal liability preferences, tax obligations, and administrative needs. The most common options include Sole Proprietorship, Limited Liability Company (LLC), and Partnership (General and Limited). Each structure has distinct legal, tax, and administrative implications, which consultants should consider carefully before deciding on the appropriate entity.

Sole Proprietorship (Hộ Kinh Doanh Cá Thể)

Overview: A Sole Proprietorship is the simplest and most common business structure for small businesses and independent consultants in Vietnam. It allows an individual to conduct business under their own name or a registered trade name, without forming a separate legal entity.
Legal Implications: The owner has unlimited personal liability for all business debts and obligations, meaning personal assets can be used to settle business debts.
Tax Implications: Sole proprietors are taxed under the personal income tax system. They must also pay Business License Tax (BLT), which ranges from VND 300,000 to VND 1,000,000 annually depending on revenue. Value-Added Tax (VAT) is also applicable at a rate of 10% if annual turnover exceeds VND 100 million.
Suitability: Suitable for small-scale independent consultants or those starting out, who prefer a simple structure with minimal administrative burden.
Process for Setting Up a Sole Proprietorship:

Register with the local Department of Planning and Investment (DPI): This involves registering the business name and submitting relevant documents.
Obtain a tax code from the General Department of Taxation (GDT): Required for tax filings.
Register for VAT (if applicable): VAT registration is mandatory if turnover exceeds VND 100 million annually.
Open a business bank account: Although not mandatory, separating personal and business finances is advisable.

Considerations for Consultants:

Liability Risk: The unlimited liability structure puts personal assets at risk in case of business debts or legal claims.
Tax Simplicity: Sole proprietors benefit from simplified tax filings, but as revenue grows, tax obligations can become more complex.
Administrative Simplicity: Setting up and running a Sole Proprietorship is relatively straightforward, making it ideal for consultants with minimal administrative needs.

Limited Liability Company (LLC) (Công Ty Trách Nhiệm Hữu Hạn)

Overview: A Limited Liability Company (LLC) is the most common structure for businesses in Vietnam, offering limited liability protection to its owners (members). This structure is popular with consultants looking for personal asset protection and the flexibility to scale their business.
Legal Implications: Members’ liability is limited to their capital contributions, meaning personal assets are protected from business liabilities. LLCs can be single-member (Single-Member LLC) or multi-member (Multi-Member LLC).
Tax Implications: LLCs are subject to corporate income tax (CIT) at a flat rate of 20%. Dividends distributed to members are subject to a 5% withholding tax. VAT registration is required if the annual turnover exceeds VND 100 million.
Suitability: Ideal for consultants seeking liability protection and planning to grow their business or work on larger projects with partners or employees.
Process for Setting Up an LLC:

Register with the Department of Planning and Investment (DPI): File the Articles of Incorporation and other necessary documents.
Obtain a tax code from the GDT: Required for corporate tax filings.
Register for VAT (if applicable): VAT registration is mandatory if turnover exceeds VND 100 million.
Open a corporate bank account: Necessary to manage the company’s finances separately from personal assets.
File annual financial statements: LLCs are required to file tax returns and financial statements annually.

Considerations for Consultants:

Liability Protection: The LLC structure provides strong protection for personal assets, making it ideal for consultants handling large or complex projects.
Corporate Taxation: LLCs are subject to a 20% corporate income tax rate and additional taxes on dividends, which should be considered when distributing profits.
Administrative Complexity: Operating an LLC involves more paperwork and compliance compared to a Sole Proprietorship, but it offers long-term security for business growth.

General Partnership (Công Ty Hợp Danh) and Limited Partnership (Công Ty Hợp Danh Hạn Chế)

Overview: A Partnership allows two or more individuals or entities to share ownership and management of the business. In Vietnam, there are two types of partnerships: General Partnership, where all partners share unlimited liability, and Limited Partnership, where general partners have unlimited liability while limited partners have liability limited to their capital contributions.
Legal Implications: In a General Partnership, all partners are jointly liable for the business’s debts. In a Limited Partnership, general partners face unlimited liability, while limited partners are only liable for the amount they invested.
Tax Implications: Partnerships are treated as pass-through entities. Profits are passed through to the partners and taxed under personal income tax rates. VAT registration is required if the annual turnover exceeds VND 100 million.
Suitability: Suitable for consultants who want to collaborate with others, share responsibilities, and prefer flexible management structures. Limited Partnerships are ideal for consultants seeking limited liability for some partners.
Process for Setting Up a Partnership:

Draft a Partnership Agreement: Clearly outline the roles, responsibilities, and profit-sharing arrangements among the partners.
Register the partnership with the DPI: Partnerships must be legally registered for recognition.
Obtain a tax code from the GDT: Required for tax purposes.
Register for VAT (if applicable): VAT registration is mandatory if turnover exceeds VND 100 million.
Open a business bank account: It is recommended to separate personal and business finances.

Considerations for Consultants:

Liability Exposure: General Partnerships expose all partners to unlimited liability, while Limited Partnerships protect limited partners but not general partners.
Tax Efficiency: Partnerships are taxed at the personal level, providing flexibility in managing tax liabilities.
Clear Agreements: A well-drafted Partnership Agreement is crucial for avoiding disputes and ensuring smooth operations.

Special Considerations for Foreign Consultants in Vietnam

Foreign Ownership Rules:
- Foreign consultants can own Limited Liability Companies (LLCs) in Vietnam, though certain sectors, such as banking, insurance, and real estate, may have restrictions on foreign ownership or require special approvals.
Visa and Work Permit Requirements:
- Foreign consultants must obtain a work permit and a temporary residence card to legally work in Vietnam. Some sectors may also require additional industry-specific permits.
Banking and Currency Considerations:
- Foreign consultants must open a business bank account in Vietnam for local operations. The local currency is the Vietnamese Dong (VND). Foreign exchange controls apply, particularly on the repatriation of profits.
Double Taxation Agreements:
- Vietnam has signed double taxation treaties with many countries, allowing foreign consultants to avoid paying taxes on the same income in both Vietnam and their home country.
Social Security Contributions:
- Foreign and local consultants operating in Vietnam are required to contribute to the social insurance system. Foreigners are generally required to contribute after six months of employment in Vietnam.

Considerations for Independent Consultants in Vietnam

Liability: Consultants must carefully assess their liability exposure. Sole Proprietorships and General Partnerships expose personal assets to business risks, while LLCs and Limited Partnerships offer personal asset protection.
Tax Efficiency: Vietnam’s corporate income tax for LLCs is competitive at 20%, while Sole Proprietorships and partnerships benefit from pass-through taxation at personal income tax rates.
Administrative Complexity: Sole Proprietorships and partnerships are easier to set up and manage, while LLCs involve more documentation and reporting but offer more security for growth-oriented businesses.