Ever wondered how Southeast Asia’s markets can supercharge your business? With over two decades advising FDI in Asia, I’ve seen that a legally sound setup in Thailand transforms potential roadblocks into competitive advantages. Today let’s talk about Thailand, a market which offers major growth opportunities for foreign entrepreneurs, but whose success hinges on choosing the right company structure from the outset. This is especially true for international entrepreneurs looking for opportunities in Thailand’s dynamic business ecosystem.

 While Thailand actively courts foreign investment, the Foreign Business Act caps foreign equity at 49% in restricted sectors. Misstructuring your company can trigger licensing delays or even suspension of operations—so it’s vital to align your ownership plan with Thai law from Day 1. Understanding the different company structures available and their implications for foreign investors is key. We will explore each of these legal vehicles—including Private Limited, Public Limited, and BOI-Promoted structures—in detail later, but it's crucial to first recognize how they impact ownership, licensing, and employment regulations.

Your choice of legal form dictates: shareholder liability, corporate‑income‑tax treatment (standard 20% vs. BOI exemptions), and your ability to employ foreign staff. Picking the correct structure is therefore fundamental to sustainable growth and regulatory compliance in Thailand. As a strategic consultant, I help investors turn this complexity into a competitive advantage. It’s about building your Thai company on a foundation of legal clarity and long term vision so you can succeed not just in Thailand but across the entire ASEAN region.

Why Thailand Is Hot for Global Entrepreneurs in 2025

Thailand is more than a tropical paradise; it’s a serious investment destination with momentum. The government is actively courting foreign capital so it’s a prime time.

• Strategic Sectors Are Booming: The global push to de-risk supply chains is a game changer for Thailand. As reported by Reuters in February 2025 the country is successfully lobbying for high tech investments particularly in the semiconductor industry as companies look for alternatives to ongoing trade tensions. This is a rising tide that lifts all boats in the advanced manufacturing and tech ecosystems.
• Pro-Investment Government Policies: The Thai government isn’t waiting for investors to show up; it’s rolling out the red carpet. The Board of Investment (BOI) is approving major projects including significant investments in the renewable energy sector as noted by The Nation Thailandin early 2025.
• Why Now is the Time: The timing is critical. Thailand is not just a production hub; it’s becoming a centre for innovation. With a stable economy and a government focused on attracting high value industries the conditions for growth are very favourable. Thailand has opportunities across technology, renewable energy and manufacturing sectors. Small businesses and international entrepreneurs benefit from government incentives and a supportive regulatory environment making it an ideal place to start and expand.

Market Research and Business Planning—The Foundation for Success

Before starting a business in Thailand investing time in market research is essential. Understanding the local market helps foreign investors identify customer needs, spot gaps in the competition and tailor their offerings for maximum impact. Good market research provides valuable insights into consumer behaviour, pricing strategies and emerging trends so your business has a competitive advantage from day one.

A business plan is equally important. This document should outline your company’s objectives, target market, financial forecasts and marketing strategies. Not only does a solid business plan guide your daily operations but it also shows potential investors and partners that your business in Thailand is built on a foundation of careful planning and realistic goals. For foreign investors especially those new to the Thai market a well researched plan is a powerful tool to minimize risk and ensure long term growth.

Thai Culture and Business Etiquette

Success in Thailand’s business environment goes beyond legal compliance—it requires genuine respect for Thai culture and business etiquette. Foreign companies and those with significant foreign ownership will find that understanding local customs is key to building trust and lasting relationships with Thai partners, employees and government officials.

Thai business culture values politeness, humility and respect for hierarchy. Simple gestures such as using polite language and acknowledging seniority can make a big difference in negotiations and daily interactions. The Thai government actively encourages foreign investment but businesses that show cultural sensitivity are more likely to earn goodwill and thrive in the local market. By embracing Thai traditions and etiquette foreign businesses can navigate challenges more smoothly and establish a good reputation in the community.

The Legal Basics Foreigners Need to Know Before Acting

Before you move you need to know the rules. Thailand’s laws are designed to protect local interests but they provide clear pathways for foreign investors who know the landscape.

The Thai Civil and Commercial Code and the commercial code provide the legal framework for company formation and business operations in Thailand, outlining specific requirements for both foreign and domestic entities. The foundation of this framework is the Foreign Business Act (FBA). As per Thailaws.org the FBA generally limits foreign ownership of a Thai company to 49%. It lists three categories of business activities that are either prohibited or restricted for majority foreign-owned companies.

So how do you get majority control? There are three main gates:

1. Board of Investment (BOI) Promotion: This is the most powerful tool for strategic investors in priority sectors like tech, biotech and advanced manufacturing. BOI promotion can give you 100% foreign ownership, tax holidays and the right to own land. 100% foreign ownership may require navigating different laws depending on the company structure and sector.
2. The U.S.-Thailand Treaty of Amity: This special treaty allows American citizens and companies to own 100% of a Thai business, exempting them from most FBA restrictions. As a US citizen you benefit from special provisions for business registration in Thailand.
3. Foreign Business License (FBL): For businesses in restricted categories not covered by the BOI or a treaty you can apply for an FBL. However this is a difficult and lengthy process with no guarantee of success.

To operate in Thailand legally you must comply with all legal requirements including those in the civil and commercial code and ensure proper business registration and permits.

Choosing the Right Entity Type for Flexibility

When starting a business in Thailand you must choose from various company structures each with different implications for control, liability and tax exposure. Choose wisely.

Entity Type	Legal Control	Liability	Best For
Private Limited Company	Foreign ownership capped at 49%	Limited to company assets	Joint ventures, local services, trading
Public Limited Company	Can be listed on the stock exchange, broader ownership	Limited to company assets	Larger businesses seeking to raise capital publicly
BOI-Promoted Company (BOI company)	Up to 100% foreign ownership	Limited to company assets	Manufacturing, tech, export-oriented businesses, eligible for BOI incentives such as tax holidays and easier work permits
Branch Office	Full control by foreign parent	Foreign parent company fully liable	Established MNCs with specific, limited projects
Representative Office	Full control by foreign parent	Foreign parent company fully liable	Market research, quality control (no revenue)
Sole Proprietorship	Owned and operated by one individual	Unlimited personal liability	Small businesses, easy setup

Limited companies in Thailand include private limited companies and public limited companies. Both are separate legal entities offering liability protection to shareholders but public limited companies are for larger or more established businesses looking to raise capital from the public. Private limited companies are more common for smaller ventures and joint ventures.

A sole proprietorship is a simple business structure owned and operated by a single individual. Unlike limited companies a sole proprietorship is not a separate legal entity, meaning the owner is personally liable for all business debts and obligations. Sole proprietorships are easy to set up and operate making them a common choice for small businesses but do not offer liability protection.

Other company structures in Thailand include various forms of partnerships and BOI companies. Partnerships can be general or limited with different rules for liability and management. BOI companies promoted by the Board of Investment offer unique advantages such as tax holidays, 100% foreign ownership and streamlined visa and employment procedures for foreign staff. These incentives make BOI companies more attractive for foreign investors compared to traditional company structures.

For most foreign entrepreneurs the choice comes down to a Thai-majority Private Limited Company or a BOI-promoted entity. Your investment vision—and your sector—will determine the right path.

Company Registration Process. Simplified, Step by Step

The company registration process in Thailand can be done in a few steps:

1. Reserve Your Company Name: A quick online process via the Department of Business Development (DBD).
2. File Memorandum of Association: This document signed by at least three promoters outlines the company’s business objectives. Preparing these documents in the Thai language is essential and understanding Thai can provide significant advantages when navigating legal paperwork and gathering local information.
3. Hold a Statutory Meeting: Promoters formally appoint directors and approve the company’s articles.
4. Register the Company: Submit all documents to the DBD. This can now be done online. It is important to understand requirements specific to Thai businesses including licensing, permits and compliance with local regulations.
5. Post-Registration: Get your Tax ID and register for Value Added Tax (VAT) if your annual turnover is expected to exceed 1.8 million THB. Registered Thai businesses are required to open a separate business account to manage company finances.
6. Common Delays: Using unqualified local agents, under-capitalizing the business, and facing banking hurdles are the most common obstacles. A professional FDI consultant can help you avoid these issues from the start.

BOI Promotion and Incentives. Unlocking Government Support

The Thailand Board of Investment (BOI) is a powerful tool for foreign entrepreneurs looking to set up or expand their business in Southeast Asia. BOI promotion is designed to attract foreign investment in key sectors, offering full foreign ownership and a range of financial incentives. Eligible companies can enjoy tax holidays, reduction or exemption on import duties and deduction on essential operating costs like transportation and utilities.

To qualify for BOI promotion, companies must meet specific criteria and present a viable investment project aligned with Thailand’s economic priorities. Once approved, BOI-promoted companies get streamlined process for work permit for foreign employees, making it easier to bring in international expertise. For foreign entrepreneurs, BOI promotion not only reduces operational barriers but also sets your business up for long term growth in the competitive Southeast Asian market.

Cost of Registering a Business in Thailand

Knowing the costs involved in company registration is crucial for any foreign investor planning to set up a business in Thailand. The total cost depends on the type of business entity, location and scope of business activities. For a private limited company, the minimum registered capital is typically 2 million THB for foreign owned company, while Thai company may also need to meet this threshold for certain activities.

Registration cost includes government filing fees, legal and consulting services and administrative expenses. On average, foreign investors should budget between 10,000 to 50,000 THB or more depending on the complexity of the company structure and the need for additional licenses. Consulting with a qualified lawyer or business consultant ensures your business complies with Thai laws and all registration documents are properly prepared, helping you avoid costly delays or penalties.

Tax, Accounting and Capital Rules Foreigners Can’t Afford to Ignore

• Taxes: 20% corporate income tax (CIT). 7% VAT. Payroll requires contribution to Social Security Fund. Tax compliance and financial reporting is governed by Thai revenue code. BOI promoted companies may be eligible for tax exemption or reduction, a big incentive for foreign investors.* Minimum Capital: To get a work permit for a foreign employee, your company generally needs at least 2 million THB in registered capital per foreigner.
• Bookkeeping: All companies must keep proper accounting records and have their financial statements audited annually by a Thai auditor.

Work Permits and Visas. Aligning Immigration with Business Objectives

You cannot work in Thailand without a valid work permit. The most common route is the Non-Immigrant “B” (Business) Visa which you convert to a long term visa and work permit after company registration.

Thailand also has SMART Visa for highly skilled professionals, executives and investors in targeted industries. This allows a longer stay of up to 4 years without need of separate work permit. For BOI promoted companies, the visa and work permit process is much simpler and these companies face less restrictions and quota when hiring foreign staff.

A key rule to remember is the Thai-to-foreigner employee ratio: you generally need to hire 4 Thai employees for every 1 foreign work permit holder.

Hiring Staff and Navigating Thai Labor Laws

Hiring employees in Thailand requires a clear understanding of local labor laws and regulations. Companies must comply with rules on working hours, minimum wage, holidays and employee benefits. Employers must make social security contribution which is 10% of each employee’s salary—split 50/50 between employer and employee—plus 2.75% contributed by the government.

When hiring foreign employees, companies must comply with Alien Workers Act and ensure each foreign worker has a valid work permit and the appropriate non-immigrant visa, usually Non-Immigrant B visa. The number of foreign workers is generally capped at 20% of the total workforce and companies must have at least 2 million THB in registered capital per foreign employee. Staying compliant with Thai labor laws not only protects your business from legal issues but also helps create a positive and productive work environment.

Insurance and Risk Management for New Businesses

Protecting your business in Thailand starts with proper insurance and risk management. Most businesses are required to have public liability insurance and additional coverage—such as property, liability and employee insurance—can be tailored to your business needs. Consulting with an insurance advisor helps foreign owned businesses choose the right policies to cover assets and operations.

The Thai government encourages foreign investment and businesses to adopt good risk management practices. By getting comprehensive insurance, foreign owned businesses can mitigate risks, ensure business continuity and build trust with partners and clients. Understanding your insurance options is a key step in setting up a resilient and successful business in Thailand’s competitive market.

Opening a Business Bank Account in Thailand

This is often a surprise for foreign founders. The type of office space your business uses—serviced office space or traditional office space—can affect the ease of opening a business bank account as banks may require proof of physical office address and may view serviced office space differently from traditional office space.

Thai banks are cautious and require extensive Know Your Customer (KYC) documentation. It’s very difficult to open an account if all directors are foreigners and not physically present in Thailand. Having a Thai director or getting BOI approval can make this process much smoother.

Common Legal and Regulatory Pitfalls—and How to Avoid Them

The biggest pitfall is using nominee shareholders. This practice where Thai individuals hold shares on behalf of a foreigner to bypass ownership limits is illegal and actively prosecuted. According to a 2024 Lexology update, authorities are vigilant and penalties can include fines, imprisonment and forced dissolution of the business.

Having a reliable Thai partner is key to navigating local regulations, ensuring compliance and maintaining proper business operations in Thailand.

The only risk-proof strategy is to use legal structures like BOI or treaty exemption. Build a clean compliance footprint from day one.

How Viettonkin Helps Foreigners Start—and Succeed—in Thailand

As an FDI specialist with deep focus on ASEAN, my team and I provide end-to-end support for foreign founders in Thailand. We don’t just register your company; we help you design a corporate structure that aligns with your long term goals for control, scalability and regional expansion. We also guide you in choosing the right business model, whether setting up a company or partnering with an Employer of Record (EOR), to ensure your strategy matches your objectives and resources.

We turn regulatory hurdles into a clear roadmap for success. We also support clients in setting up a regional office to coordinate business activities across Southeast Asia, serving as a hub for managing operations in the Asia-Pacific region.

Conclusion: Simplifying Entry, Empowering Growth

Thailand is a playground for high achievers. It’s big but rewards those who put in the work. Regulatory confidence is not a box to tick; it’s a differentiator.

Win in Thailand starts with a smart setup. Let’s work together to turn obstacles into opportunities—because when it comes to your next big win, there’s only forward.

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Ready to unlock Thailand’s growth? As a consultant who has been guiding investors through Southeast Asia for two decades, I’ve seen many entrepreneurs get excited about the opportunities here. But I’ve also seen where they get stuck: budgeting for their market entry. The official fee is just the tip of the iceberg, and what most online guides miss are the crucial costs that determine your success.

Thailand’s location in Southeast Asia makes it the perfect hub for regional trade and business expansion, giving companies access to fast growing markets.

Understanding the real cost of setting up a company in Thailand isn’t about accounting; it’s about strategy. Budgeting right from the start means you have the capital not just to launch but to scale effectively. Let’s break it down.

Thailand’s economy is driven by tourism, manufacturing and exports, making it an attractive destination for entrepreneurs looking for new business opportunities.

Company Registration

Company registration in Thailand is the first step for any business looking to establish a presence in this vibrant Southeast Asian market. Thailand offers various business structures to suit different needs, private limited companies, partnerships and sole proprietorships. For international companies and foreign entrepreneurs, options like a representative office, branch office or joint venture can be strategic entry points, each with its own benefits and limitations.

Choosing the right structure is crucial as it impacts everything from liability and tax obligations to the ability to hire foreign employees and access certain business licenses. The company registration process in Thailand involves several stages, selecting and reserving a unique company name, preparing the required documents and securing the necessary permits to operate. Understanding these stages and the specific requirements for each type of entity will ensure a smooth and successful business registration, setting your company up for long term growth and compliance.

Key Points

• Don’t Underestimate Your True Costs: DBD filing fees are just a fraction of your outlay. The bulk of your budget will go to specialist legal/advisory services, capital you must fully pay in, and the ongoing costs of accounting, social security and annual audits.
•  Capital = Compliance: Thailand mandates a minimum paid‑up capital of THB 2 million for each foreign work permit under the Work Permit Regulation. This isn’t a paper requirement—it’s a real cash injection your business must make before hiring expatriate staff.
• Pay for Expertise Upfront: Skimping on professional advice risks non‑compliance under the Foreign Business Act or BOI conditions. Budget for reputable legal and corporate‑secretarial services to structure correctly—saving you from later fines, rework or even forced closure.
• Plan for Post‑Incorporation Costs: Once you’re registered, you’ll face mandatory monthly bookkeeping (tax filings and social‑security contributions) plus an annual statutory audit. Build these recurring fees into your Year 1 budget to keep operations smooth and compliant.
• The BOI Route Has Different Economics: While applying for Board of Investment (BOI) promotion involves higher upfront advisory fees, the long term tax holidays and other benefits can result in significant savings. Costs can also vary based on the specific incentives and requirements of your business.

Legal Entity Options and Their Cost Implications

Your choice of legal structure is the foundation of your budget. It determines your capital requirements and operational costs.

• Private Limited Company: The most common type and common type of corporate structure in Thailand. It requires at least two shareholders as of 2023. While the minimum capital is low on paper, the practical minimum is dictated by your need for foreign work permits. This is the most common type of business entity chosen by both local and foreign entrepreneurs.
• BOI-Promoted Company: This corporate structure allows 100% foreign ownership and major tax incentives. The advisory fees to prepare a strong BOI application are higher, but this is an investment in long term savings and control.
• Representative Office: A low cost entry point for market research, it cannot generate revenue. Its costs are primarily related to office setup and staffing.

These corporate entities are governed by Thai law and have different compliance obligations depending on their structure.

Joint ventures are also a common structure for foreign entrepreneurs entering the Thai market. In joint ventures, partners collaborate while maintaining their independence, and their roles, capital contributions and liabilities are defined by the agreement and Thai law.

Registration Process and Requirements

The process of company registration in Thailand is structured and requires attention to detail. It starts with reserving a unique company name through the Department of Business Development (DBD), ensuring your chosen name complies with Thai law and is not already in use. Once the company name is secured, the next step is to prepare and submit the necessary documents, including the Memorandum of Association, Articles of Association and a list of shareholders.

The registration fee, calculated based on the registered capital of the company, must be paid at this stage. In addition to the core registration, companies must register for tax purposes and may need to obtain specific licenses or permits depending on their business activities. Navigating these requirements can be complex, especially for foreign entrepreneurs unfamiliar with local regulations.

Engaging a reputable consulting firm or law firm can help ensure all documents are correctly prepared and submitted and your company in Thailand is fully compliant with the latest business development and regulatory standards. This professional support is invaluable in avoiding delays and costly mistakes during the registration process.

Government Fees and Official Filing Costs

These are the direct, non-negotiable fees you’ll pay to the Thai government. While small, they are important to account for. Company registration fees and government fee structures can vary depending on the type of entity you are setting up and the amount of registered capital. As noted by Siam Development, a local business consultancy, Thailand’s Department of Business Development (DBD) has updated its fee structures over time, so it’s essential to work with current information.

A basic breakdown of official fees includes:

Item	Estimated Cost (THB)
Government Registration Fee (based on capital)	5,500+
Memorandum of Association (MOA) Fee	500+
Company Stamp	300 - 500
Notary & Translation Fees (if applicable)	1,000 - 5,000

For Private Limited Companies, the maximum fee for company registration is capped based on the registered capital, so there is an upper limit to the total company registration fees you’ll pay.

Source: Fee estimates based on data from DBD and market analysis.

Licenses and Permits: Hidden and Industry-Specific Costs

Beyond the initial registration fee, businesses in Thailand must be prepared for a range of additional costs related to licenses and permits. For foreign-owned companies, obtaining a foreign business license is often mandatory under the Foreign Business Act and the application process can be time-consuming and costly.

Depending on your industry, you may also need to secure specific business licenses—for example, a food and beverage company will require approval from the Ministry of Public Health, while a manufacturing business may need permits from the Ministry of Industry. These industry-specific licenses can carry significant fees and may require ongoing renewals.

Companies employing foreign employees must also budget for work permits, which typically cost between 10,000 and 30,000 THB per person, as well as the associated costs of tax registration and social security contributions. Ongoing compliance costs such as accounting services and preparation of annual financial statements should also be factored into your business plan. By understanding and planning for these hidden and industry-specific costs, companies can avoid unexpected expenses and ensure their business in Thailand operates smoothly and within the law.

Legal and Advisory Services—What You’ll Actually Pay

This is the most variable—and most critical—part of your setup budget. This is where you invest in a risk-proof strategy. The fees cover expert guidance and legal services through the entire process, from structuring your entity to ensuring full compliance.

• Standard Company Registration: For a non-BOI limited company, professional service fees from a reputable firm typically range from 30,000 to 60,000 THB. This covers legal services, including the preparation and submission of all required documents such as the Memorandum of Association and other legal paperwork outlined in the step-by-step process provided by firms.
• BOI Application Services: Preparing a successful BOI application is a highly strategic task. It requires a detailed business plan that aligns with Thailand’s national development goals. Expect to invest 150,000 to 300,000+ THB for expert BOI advisory services.

Capitalization Rules and Visa-Linked Financial Thresholds

This is a cost that many entrepreneurs misinterpret. While you can technically register a company with very little capital, it won’t be functional if you plan to hire foreigners.

• 2 Million THB Rule: To get one work permit for a foreign employee, your company must have 2 million THB in fully paid-up registered capital. For each additional foreign work permit, you generally need another 2 million THB in capital, up to a maximum of 10 million THB for five foreigners.
• Real Cost of a Foreign-Heavy Team: This capital requirement is a direct cash injection into your company’s Thai bank account. It’s not a fee, but it’s money you must have. You also need to hire four Thai nationals for every one foreign work permit holder, which adds significant recurring payroll costs.

Efficient hiring processes are key to compliance with these requirements and managing the administrative burden of onboarding both Thai nationals and foreign employees.

Nominee Director and Registered Address Costs

• Registered Office: Every company needs a physical address in Thailand. The cost of a registered office depends on the location and size of the office space, with a virtual office for registration purposes typically costing between 15,000 and 25,000 THB per year.
• Nominee Director: As outlined by company formation specialist SF Consulting Group, some foreign-led companies may require a Thai director to facilitate certain administrative tasks, especially bank account opening. A professional nominee director service can cost 30,000 to 60,000 THB annually.

Be aware: this is for legitimate directorship, not for illegal nominee shareholding schemes.

Having a registered address is essential for operating legally in Thailand, as it establishes your business’s official presence and compliance with local regulations.

Ongoing Compliance Costs After Registration

Your budget doesn’t stop once the company certificate is issued. These recurring costs are mandatory.

• Monthly Accounting: 4,000 - 10,000 THB per month, depending on transaction volume.
• Annual Audit: 15,000 - 40,000+ THB, depending on company size and complexity.
• Social Security: Monthly contributions for every employee (both Thai and foreign).
• Corporate Income Tax: All registered companies are taxed on their profits according to Thai law. The standard corporate income tax rate applies, but SMEs meeting specific criteria may qualify for reduced rates.
• Value Added Tax: Companies with annual turnover exceeding the threshold must register for value added tax (VAT) and obtain a VAT Certificate from the Revenue Department.

Startup vs. Export-Oriented Company

Costs can vary across industries in Thailand due to different licensing and compliance requirements. For example, manufacturing, tourism and export-oriented industries may have different regulatory obligations and incentives. When planning your budget, include work permit costs especially if your company plans to hire foreign staff. These costs can include processing fees depending on nationality, visa type and duration of stay.

Cost Item	Scenario A: Tech Startup (2 Foreign Founders)	Scenario B: BOI Manufacturing (1 Foreign GM)
Professional Fees (Registration)	~50,000 THB	~200,000 THB (incl. BOI)
Capital Requirement (for Visas)	4,000,000 THB	2,000,000 THB
Registered Address (Annual)	~20,000 THB	N/A (Owns factory)
First-Year Accounting & Audit	~80,000 THB	~120,000 THB
Total Year 1 Cash Outlay	~4,150,000 THB	~2,320,000 THB

Note: Capital is working cash, not a sunk cost, but must be budgeted. Work permit costs should also be factored in for companies in all industries planning to employ foreign nationals.

How Viettonkin Simplifies and Optimizes Business Registration

We believe in transparent, strategic budgeting. We provide our clients with clear, bundled pricing that covers the entire process, no surprise fees. We understand the trade-offs between capital, legal structures and operational needs and design a setup that is cost-effective and growth-oriented. We have experience working with clients from all over the world, so our solutions work across different markets. For one recent digital venture, our structuring saved them over 30% of their projected setup costs.

Contact us today for professional assistance or a consultation.

Conclusion: Register Smarter, Operate Leaner

Breaking down your Thailand company setup cost into registration, capitalization and ongoing compliance is much more effective than relying on a single, often misleading, lump sum. Your initial investment in a proper, compliant structure will pay off for years to come.

Ready for a realistic budget for your Thailand market entry? Let’s start with a personalized cost estimate session. Your gateway to a sustainable and prosperous future in Southeast Asia begins with a smart financial plan.

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Ever wondered how to get into Thailand’s exciting but regulated market? For foreign investors looking at the Kingdom, the road to setting up a business is filled with unique rules. At the heart of this regulatory framework is the Foreign Business Licence (FBL), the key to unlocking the market. With 20+ years advising FDI clients—including a 2023 rollout for a German logistics firm—we’ve seen how firsthand how a smart approach to licensing can be a game changer. Our recent client, ABC Corp (name changed for privacy), saw their FBL approved in 75 days—30% faster than the average—after we optimized their business-impact narrative.

This isn’t just about paperwork; it’s about positioning your business for success from day one. Thailand has many business opportunities for foreign investors, especially in targeted sectors and regions like the Eastern Economic Corridor (EEC) where incentives and supportive legal framework encourage new ventures and investment.

Key Points

• Foreign Business Licence (FBL) is required for foreign majority owned companies operating in business sectors restricted by Foreign Business Act on foreign participation in Thailand.
• Understanding the three lists of restricted businesses defined by FBA is the first step to determine if you need an FBL, as these lists specify the scope of foreign business ownership allowed in each sector.
• Alternatives like Board of Investment (BOI) promotion or U.S.-Thai Amity Treaty offer 100% foreign ownership without standard FBL but eligibility is specific.
• FBL application requires significant minimum capital investment and detailed business plan showing clear benefits to Thailand.
• Navigating the application process successfully often requires professional guidance to avoid common mistakes like incomplete documentation and to meet post-approval compliance.

Getting Legal in a Restricted Market

Why foreign ownership in Thailand is heavily restricted

Thailand’s economy is designed to be open to foreign investment but with safeguards. The primary tool for this is the Foreign Business Act B.E. 2542 (1999) (FBA), the law governing foreign participation in the country’s economy. The FBA sets out specific restrictions for foreign nationals, foreign companies and foreign owned businesses operating in Thailand.

The FBA’s objective is to protect Thai industries and ensure foreign investment benefits the country. It balances a competitive market with economic sovereignty in sectors vital to the country’s security and cultural heritage.

Foreign Business License (FBL) as a gateway, not a loophole

Think of the FBL not as a barrier but as a strategic gateway. It’s the official permit that allows a company with majority foreign ownership to legally operate in business activities that are otherwise restricted. Under Section 7 of the Foreign Business Act B.E. 2542 (1999), any company with over 49% foreign shareholding is considered 'foreign' and will likely need an FBL to engage in a restricted business. It’s a formal and transparent process to legitimize your operations and show your commitment to the Thai market.

In a limited company, the proportion of capital shares held by foreign shareholders is a key factor in determining whether a foreign business license application is required under the Foreign Business Act. Foreign entities must obtain a foreign business license before conducting business in these restricted sectors as required by Thai law. It’s a formal and transparent process to legitimize your operations and show your commitment to the Thai market.

Viettonkin’s regional legal and strategic setup expertise

With experience across ASEAN, my team at Viettonkin turns these regulatory hurdles into strategic advantages. We provide the deep legal insight and end-to-end execution to get you legal and commercially sound in Thailand. We’ve helped many companies navigate these waters, turning potential obstacles into runways for growth.

What is Foreign Business License in Thailand?

Legal basis under the Foreign Business Act

The Foreign Business Act (FBA) is the law governing how foreign entities can participate in the Thai market. It defines a “foreigner” broadly to include not just non-Thai individuals but also juristic persons registered outside Thailand and even Thai-registered companies where 50% or more of the capital is held by foreigners. The FBA is the primary source that outlines which business activities are restricted and require an FBL.

What a license allows and restricts

An FBL allows a foreign-majority owned company to legally conduct specific business activities that are otherwise reserved for Thai nationals. Examples of such activities include service business, engineering services, advertising business and hotel management service, all of which may require an FBL depending on the legal framework and the nature of the business.

Having an FBL enhances your company’s credibility and access to one of Southeast Asia’s most dynamic economies. However, the license is specific to the approved activities; expanding into other restricted areas requires a new application or modification. Operating without a required FBL is illegal and can lead to severe penalties.

A company registered as a Thai company where the majority of shares are held by Thai nationals is generally exempt from FBL requirements and not subject to foreign ownership restrictions.

Some service businesses may be exempt from licensing requirements depending on the specific activity and relevant legal conditions.

Clarifying the 3 types of restricted businesses

The FBA categorizes restricted businesses into three lists, each with different levels of restriction. These lists are established under Foreign Business Act restrictions and are further detailed by ministerial regulation which specifies minimum capital and operational requirements for foreign businesses:

• List 1: These businesses are strictly prohibited to foreigners for special reasons, such as newspaper publishing, rice farming, land trading and activities related to national security, including domestic airline business, air transportation and domestic land.
• List 2: This list covers businesses related to national safety, security or those affecting arts, culture, traditions and natural resources. Examples include businesses affecting arts, businesses affecting natural resources, traditional and folk handicraft and production of Thai musical instruments. Foreign participation requires permission from the Minister of Commerce with Cabinet approval and typically demands at least 40% Thai shareholding.
• List 3: These are businesses where Thai nationals are not yet considered ready to compete with foreign firms. This list includes activities like accounting and legal services, advertising, certain construction services and hotel business. Foreign companies can operate in these sectors after obtaining an FBL from the Director-General of the Department of Business Development.

Who Needs an FBL and Who Doesn’t?

FBL vs BOI company vs Amity Treaty eligibility

Not every foreign investor needs to go through the standard FBL application process. There are alternative paths:

• Foreign Business License (FBL): This is the necessary route for companies in restricted sectors that are not eligible for other promotions.
• Board of Investment (BOI) Promotion: The BOI offers significant incentives to businesses in priority sectors, including technology and green industries. A company promoted by the BOI can receive a Foreign Business Certificate (FBC), which allows for 100% foreign ownership and bypasses the need for an FBL.
• U.S.-Thai Amity Treaty: This treaty (under the Thailand United States Treaty) grants American citizens and U.S.-majority-owned companies special privileges, allowing them to hold 100% of a company in most sectors without needing an FBL. They receive an FBC instead, exempting them from certain Thai FBA restrictions that apply to other foreign investors.

When a Thai partner or nominee structure is the wrong fit

Some investors might consider a partnership where a Thai national holds the majority of shares to bypass FBA restrictions. While a legitimate joint venture can be a powerful strategy, using a Thai "nominee" shareholder. Someone who holds shares on behalf of a foreigner without genuine ownership is illegal and strictly prohibited. Authorities actively investigate such structures and the consequences can include criminal prosecution. Relying on nominee arrangements is a high-risk strategy that jeopardizes your entire investment.

Business model + sector = best legal path

The optimal legal structure for your business depends entirely on your specific industry and long-term goals. A manufacturing firm focused on exports might be exempt from FBL requirements, while a tech startup could find the BOI route highly advantageous. A detailed analysis of your business model against the FBA’s lists and available incentives is the critical first step in determining your best path forward.

FBL vs BOI Approval: Which Route Makes Sense?

Speed, risk, control, and strategic incentives

Choosing between an FBL and BOI approval is a strategic decision that hinges on several factors.

Feature	Foreign Business License (FBL)	Board of Investment (BOI) Promotion
Approval Process	Complex, lengthy (often 3-6 months), and approval is discretionary.	Streamlined, with clear criteria for promoted activities.
Risk	Higher uncertainty, as approval is not guaranteed.	Lower risk if your business aligns with a promoted industry.
Control	Allows majority foreign ownership if approved.	Often permits 100% foreign ownership.
Incentives	No additional incentives beyond market access.	Includes tax holidays, exemptions on import duties, and easier work permit processes. BOI-promoted businesses operating in industrial estates may also receive additional benefits from the Industrial Estate Authority of Thailand.

The FBL application process can be uncertain and requires a strong case for the business’s benefit to Thailand. In contrast, if your business aligns with Thailand’s strategic development goals, the BOI path is not only smoother but comes packed with game-changing incentives.

Long-term obligations under each framework

Both FBL and BOI-promoted companies have ongoing compliance duties. FBL holders must adhere to the conditions of their license, which can include specific equity-to-debt ratios and director residency requirements. Annual reporting to the Ministry of Commerce is mandatory. BOI companies must also meet specific conditions tied to their promotion, such as investment amounts, export levels or technology transfer commitments and are subject to periodic audits.

Step-by-Step: How to Apply for an FBL in Thailand

Pre-check: Is your business activity even eligible?

Before diving into paperwork, the first critical step is to determine if your intended business activity falls under List 2 or 3 of the Foreign Business Act. Activities under List 1 are off-limits. Consulting with a legal advisor at this stage can save you significant time and resources by confirming your eligibility and identifying the correct application channel.

Required documents, MOF channels and procedural timeline

The FBL application is submitted to the Department of Business Development (DBD) at the Ministry of Commerce. The Commercial Registration Department also plays a role in overseeing certain approvals for foreign business license applications. The core of your application will be a comprehensive set of documents, including:

• A detailed business plan outlining your operations and financial projections.
• A copy of your company’s certificate of incorporation.
• Passport copies of foreign directors or representatives.
• A declaration confirming that the applicants meet the required qualifications under the FBA.
• A map showing your business location.

The timeline can be lengthy. After submission, the application is reviewed by the Foreign Business Committee, which can take up to 60 days. If approved, the license is typically issued within 15 days. However, the entire process, from preparation to issuance, realistically takes several months.

Strategic Considerations Before Filing

Capital requirements and proving foreign investment viability

A crucial part of the FBL application is to show financial stability. For businesses under List 2 or 3, the minimum capital requirement is generally THB 3 million. This capital must be brought into Thailand to fund the operation. Beyond the minimum figure, your business plan must convincingly prove that your venture is viable and will contribute positively to the Thai economy through job creation, technology transfer or other benefits.

Workforce localization and Thai director participation

The Thai government looks favorably upon applications that include plans for employing Thai nationals. For businesses under List 2, there’s a specific requirement that at least two-fifths of the directors must be Thai nationals. While not always a strict requirement for List 3 businesses, demonstrating a commitment to localizing your workforce and management can strengthen your application.

Legal Fees and Government Charges

MOF filing fees, lawyer/advisor rates, translations

Budgeting for an FBL application goes beyond just the official government fees. You should account for:

• Government Fees: These vary based on the registered capital of your company, ranging from THB 20,000 to THB 250,000 for a List 3 business.
• Professional Advisor Fees: Engaging a law firm or a consulting firm is highly advisable to manage the process. Fees for these services can be a fixed rate, often starting around THB 75,000.
• Translation Costs: All required documents must be submitted in Thai, so budget for professional translation services.

Year-one cost breakdown including setup and compliance

Your initial investment will include company registration fees, FBL application costs and initial capital infusion. Keep in mind that there will be recurring annual costs for compliance, including accounting services for annual filings and potential legal support to ensure you remain in good standing.

Post-Approval Obligations and Renewal Requirements

Annual filings, license renewals and scope updates

Once you have your FBL, the work doesn’t stop. You must comply with ongoing regulations to maintain it. This includes submitting annual financial reports and ensuring your business operations stay within the scope of activities approved in your license. Any significant changes, such as an increase in capital or a change in directors, must be reported to the authorities.

Triggering investigations or revocation, what to avoid

Failure to comply with the FBL conditions can lead to serious consequences, including fines or even the revocation of your license. Common triggers for investigation include operating outside your licensed business scope or failing to meet reporting requirements. Maintaining transparent and compliant operations is the best risk-proof strategy.

Best practices for staying compliant under the FBL regime

To stay compliant, maintain meticulous records and establish a clear internal process for monitoring your obligations. Regularly consult with your legal advisor to stay informed about any changes in regulations. Proactive compliance is far less costly than reactive damage control.

Common Mistakes and How to Avoid Them

Application rejections due to poor economic impact proofs

One of the most frequent reasons for rejection is a weak business plan that fails to clearly articulate the economic benefits to Thailand. Your application must be more than a request; it must be a compelling proposal that highlights job creation, technology transfer and positive contributions to local industries.

Delays from incomplete documentation or missing translations

Incomplete or inaccurate applications are a common cause of significant delays. Every document must be meticulously prepared and professionally translated. Double-checking all paperwork against the official requirements before submission is a simple step that can prevent months of frustrating setbacks.

Poor alignment between FBL, immigration and tax office records

Consistency is key. The information you provide for your FBL application must align perfectly with your company’s registration, tax filings and visa and work permit applications for your foreign employees. Discrepancies can raise red flags and lead to complications across multiple government agencies.

How Viettonkin Makes FBL Easy

Deep legal knowledge across ASEAN with end-to-end execution

At Viettonkin, we don’t just advise, we deliver. Our team handles end-to-end execution, from initial eligibility assessment to post-approval compliance, so every step is done with precision.

Real example: securing FBL for a foreign logistics firm without BOI

We recently helped a European logistics company that didn’t qualify for BOI promotion. Its service-based model fell under List 3. We prepared a detailed application that highlighted the company’s introduction of advanced warehousing technology and its commitment to hiring and training a local Thai workforce. By focusing on these benefits, we secured their FBL and they were able to launch their Thai operations with confidence.

Add-on services: nominee structure cleanup, visa integration, compliance

We go beyond the FBL. We help clients clean up nominee structures to ensure full compliance, integrate visa and work permit applications for a smooth setup and provide ongoing compliance services to protect their investment long-term.

Conclusion: Choose the Smart Way to Expand Legally

Reframe: FBL isn’t a barrier. It’s a tool

Ultimately, the Foreign Business License should not be seen as an obstacle. It’s a tool that, when used correctly, provides legitimate, secure and credible access to the Thai market. It’s a sign of your company’s commitment to operating within the country’s legal framework and contributing to its economy.

You might also like: Navigating Company Registration in Myanmar for Investors

Struggling to decide where to expand your operations in Asia? If you’re looking for a market that blends cost efficiency with strategic regional access, Vietnam warrants serious consideration. It’s a dynamic destination, but success requires understanding the nuances beyond the headlines – from evolving legal frameworks to the practicalities of setting up shop.

A crucial aspect of establishing a company's headquarters in Vietnam is securing a location lease contract. This contract serves as essential documentation for the company's headquarters and is particularly important for project implementation in the manufacturing sector.

Key Takeaways for Investors Eyeing Vietnam:

• Vietnam actively refines policies to attract Foreign Direct Investment (FDI), particularly in high-tech and sustainable sectors, but navigating bureaucracy remains key.
• Choosing the right legal structure (WFOE, JV, RO) critically impacts operational scope, control, and profit repatriation feasibility.
• The legal setup involves distinct IRC and ERC stages, plus sector-specific licenses, with potential delays requiring proactive management.
• Attractive tax incentives target specific industries and locations, but rigorous documentation and compliance are vital to secure and retain these benefits.
• Location within specialized zones (IZs, EZs, HTPs) significantly impacts incentives, infrastructure quality, and administrative support.

Why Vietnam Is a Top Destination for FDI Companies

Vietnam’s appeal for FDI stems from a potent mix of sustained economic growth and deepening trade integration. The country isn’t just passively receiving investment; it’s actively courting it through ongoing legal reforms. As noted by Tap Chi Cong Thuong in 2024, Vietnam continues to refine its legal policies specifically to attract foreign investment, signaling a clear governmental commitment. The World Bank’s analyses consistently point to market-oriented reforms as a driver of Vietnam’s notable development. Testament to this is how real GDP per capita shot up from less than US$700 in 1986 to nearly US$4,500 in 2023; or how Vietnam's Ease of Doing Business ranking climbed from 99th in 2013 to 70th out of 190 economies in 2020.

This proactive stance enhances Vietnam’s strategic positioning within global supply chains in Southeast Asia. As companies diversify manufacturing bases, Vietnam’s location, improving infrastructure, and increasingly skilled workforce make it a compelling node in international production networks. The government is particularly keen on attracting high-quality capital, focusing on high-tech industries and, increasingly, sustainable development projects.

Who This Guide Is For

This guide translates these macro trends into actionable insights for:

• Foreign companies mapping out their incorporation strategy in Vietnam.
• High-net-worth individuals and VCs evaluating specific investment deals.
• Expansion-minded SMEs targeting Southeast Asia’s growth potential.
• Foreign individuals looking to invest in Vietnam.

With over twenty years on the ground facilitating FDI across Asia—especially in Vietnam, China, and Malaysia—we at Viettonkin Consulting understand the strategic imperatives. From traditional manufacturing shifts to pioneering sustainable ventures, we’ve guided businesses through the intricacies of market entry and long-term growth.

Read More: How Foreign Investors Can Set Up a Business in Vietnam – Viettonkin

Key Insights Foreign Investors Must Know

Transformative Insight #1: Vietnam offers more than cost savings—it’s a compliance-focused market where deep local understanding and navigating bureaucracy are crucial.

While competitive costs are an initial draw, long-term success depends on mastering the operational environment. Substantial foreign capital plays a pivotal role in driving foreign direct investment (FDI) in Vietnam's rapidly growing economy, making it an attractive destination for investors. In fact, the total registered FDI capital in 2024 reached 38.23 billion USD and disbursed FBI capital reached an all-time high of 25.35 billion USD, a significant increase of 9.4% compared to the previous year (MPI, 2025).

The Reality Behind Vietnam’s Business Freedom

Global rankings may show progress, but the practical experience of ease of doing business involves navigating a complex regulatory landscape. As highlighted in the U.S. Department of State’s 2021 Investment Climate Statement, while Vietnam has made strides, investors can still face challenges related to regulatory transparency and bureaucratic procedures. Sector-specific requirements add another layer; setting up in finance involves different hurdles than in manufacturing or retail. What’s often missed in generic guides is how local interpretations and undocumented requirements can impact timelines – making local expertise in understanding local laws invaluable.

Hidden Costs and Delays Investors Often Miss

Factor potential local licensing delays into your timeline. Beyond explicit fees, infrastructure readiness can vary, potentially impacting logistics, especially outside major industrial zones. Furthermore, Vietnam’s labor laws, covering contracts, social insurance, and termination procedures, are specific and require careful adherence to avoid disputes and unexpected costs – a point often underscored in guidance for foreign firms.

It is also crucial to have a valid lease contract for the company's headquarters and project implementation location, as this is a key requirement for satisfying investment registration requirements.

Business Structures Available for FDI in Vietnam

Transformative Insight #2: Your chosen legal structure dictates operational scope, control, potential partnerships, and ultimately, your ability to scale and repatriate profits effectively.

This isn’t just a legal formality; it’s a cornerstone of your Vietnam strategy. Wholly foreign owned enterprises (WFOE) are a critical factor for successful foreign investment in Vietnam, allowing foreign investors to fully own and manage their business without any local partnerships.

Wholly Foreign-Owned Enterprise (WFOE)

• Legal Definition: A Vietnamese entity with 100% foreign-contributed capital, also known as a foreign invested enterprise. This structure is governed by the legal framework surrounding foreign direct investment (FDI) in Vietnam, detailing the requirements and procedures necessary for establishment, including documentation for investment and business registration, and compliance with local laws and regulations.
• Strategic Fit: Best for maximum operational control, IP protection, and brand consistency. Favored in manufacturing, IT, and many services.
• Limitations: Some sectors remain restricted or require conditional approval for 100% foreign ownership, as outlined in Vietnam’s investment laws and commitments referenced in resources like the U.S. Trade Administration’s 2023 Country Guide.

Joint Venture Company (JV)

• Ownership: Involves partnering with a Vietnamese entity. Minimum local ownership might be mandated in certain regulated fields (e.g., advertising, logistics). Contributing capital is a crucial step for foreign investors when establishing joint ventures, as it outlines the procedures and legal requirements for investment.
• Benefits: Necessary for entry into conditional sectors; local partner can offer market insights and network access.
• Risks: Potential for partnership disputes over strategy or management. Thorough due diligence on the partner is non-negotiable.

Representative Office (RO)

• Purpose: Limited scope – cannot engage in direct profit-making activities. Acts as a liaison for the foreign parent company.
• Suitable For: Market research, liaison, quality control, building initial presence.
• Transitioning: A common stepping stone before committing to a WFOE or JV, requiring a separate registration process.

The Legal Setup Process from A to Z

The path to operational readiness involves several distinct phases.

• Investment Registration Certificate (IRC): Foreign investors must obtain an Investment Registration Certificate (IRC) from the Department of Planning and Investment. This requires having a well-defined investment project that complies with the Investment Law 2020, including meeting market access standards and other legal requirements.

Pre-Approval & Licensing

1. Investment Registration Certificate (IRC): Approves the investment project. Requires detailing scope, investment capital, location, and objectives, along with demonstrating financial capacity.
2. Enterprise Registration Certificate (ERC): Establishes the company legally after the IRC is issued. Confirms name, address, legal representative, etc.
3. Sector-Specific Licenses: Many industries (finance, education, retail, health) require additional “sub-licenses” from relevant ministries. This stage can sometimes be complex and time-consuming. Management boards of industrial zones can sometimes assist in streamlining these processes for companies located within their zones.

Post-License Operational Setup

1. Tax Code & Bank Account: Immediate steps post-ERC issuance include registering for a tax identification number and opening necessary corporate bank accounts (capital and current). Additionally, foreign investors holding over 51% of the capital in a Vietnamese business must open a direct investment capital account to facilitate the transfer of investment capital.
2. Labor Declarations: Formal registration of the company and its employees with labor and social insurance authorities.
3. Capital Contribution: Injecting the registered charter capital into the capital account within the mandated timeframe (usually 90 days post-ERC).

Ongoing Compliance Needs

Establishment is just the beginning. Continuous compliance includes:

Investment Adjustments: Changes to the project’s core details often necessitate amending the IRC and/or ERC.

Annual Audits & Tax Filings: Mandatory audited financials and regular submission of CIT, VAT, and PIT returns.

Understanding value added tax regulations is crucial for FDI enterprises to ensure proper compliance and successful operation within Vietnam.

Foreign Loan Registration: Medium and long-term loans from foreign entities typically require registration with the State Bank of Vietnam.

Taxation, Incentives, and Profit Repatriation

Transformative Insight #3: Vietnam leverages tax incentives strategically to attract desired investment, but accessing and maintaining these benefits requires meticulous compliance and documentation.

The 2008 Corporate Income Tax Law (Articles 15–17) stipulates:

• Tax exemption for 2–4 years for projects in disadvantaged areas (Zone C)
• Tax exemption for 4–9 years + 50% reduction for the next 5 years for high-tech projects, environmental protection projects

Corporate Tax Essentials

• Rates: Standard Corporate Income Tax (CIT) is generally 20%. However, preferential rates (10%, 15%, 17%) and tax holidays (exemptions + 50% reductions) are key tools.
• Incentives: Often linked to specific sectors (e.g., high-tech, R&D, supporting industries, environmental protection), locations (disadvantaged areas, IZs/EZs/HTPs), or project scale. The U.S. Trade Administration’s 2023 guide notes these targeted incentives. Various sectors within Vietnam's economy have recently attracted significant FDI, emphasizing the diversity of investment opportunities available for foreign investors.
• Eligibility: Strict criteria apply, and maintaining the necessary conditions throughout the incentive period is crucial to avoid clawbacks.

Import/Export Duties and VAT

• Exemptions: Import duty exemptions for goods creating fixed assets are common. Materials imported for export production often benefit from exemptions or refunds. The management of foreign investment capital under the Investment Law is crucial for defining various types of enterprises and their eligibility for these exemptions.
• Special Zones: EPZs and similar zones have distinct customs/tax regimes.
• VAT: Standard rate 10%. Exports are typically 0%-rated, allowing for VAT refunds, though the process requires careful documentation.

Repatriating Profits Legally

Moving profits home requires following specific procedures.

• Conditions: Generally possible annually after fulfilling tax obligations and having audited financials. Accumulated losses must be cleared first. International investors play a crucial role in Vietnam's FDI landscape, benefiting from the country's favorable policies and strategies.
• Currency Control: Remittances are subject to foreign exchange controls and must be processed via authorized banks with supporting documents.
• DTAs: Vietnam’s extensive network of Double Taxation Avoidance agreements helps mitigate being taxed in both jurisdictions - where 80 of such agreements were signed with notably Singapore, Japan, Korea, Switzerland and UK.

Choosing the Right Location in Vietnam

Where you establish your presence significantly impacts costs, incentives, and operational efficiency. Vietnam's strategic location offers a key advantage for foreign investors looking to establish a presence in Asia.

Industrial Zones (IZs), Economic Zones (EZs), and High-Tech Parks (HTPs)

• Infrastructure & Services: These zones typically offer superior infrastructure readiness and often feature streamlined administrative support, sometimes described as a “one-stop shop” for handling procedures, as detailed by LuatVietnam in 2024.
• Incentives: Often provide the most attractive tax and land rental incentives, with specific benefits varying by zone type and location.
• Sustainability Focus: There’s a growing emphasis on developing Eco-Industrial Parks (EIPs), integrating principles of resource efficiency and environmental protection, sometimes supported by initiatives like green finance mechanisms explored in recent academic work (e.g., Nguyen et al., 2024). Additionally, there is significant potential for investment in renewable energy within these zones, particularly in solar, wind, and hydropower projects.

Major Cities for FDI

• Hanoi vs HCMC: The capital vs the southern commercial engine. Ho Chi Minh City is a key location for business setup, especially for foreign-invested (FDI) companies. Choice depends on target market, industry focus, and need for proximity to government vs. commercial partners.
• Tier-2 Cities: Da Nang (IT, tourism), Binh Duong & Dong Nai (manufacturing), Hai Phong (logistics, manufacturing) offer competitive advantages.
• Labor: Assess availability of required skilled labor pools.

Sector-Specific Hotspots

• Manufacturing: Bac Ninh, Hai Phong, Binh Duong, Dong Nai remain dominant in the manufacturing sector.
• Tech/IT: HCMC, Da Nang, Hanoi are key clusters, often concentrated in HTPs.
• Logistics: Areas near major ports and transport corridors like Long An, Dong Nai, Hai Phong.

Risk Management and Common Pitfalls

Proactive risk mitigation is essential for sustainable operations.

Proper business registration is crucial to avoid legal issues and ensure compliance with local regulations.

Cultural and Communication Barriers

• Negotiation: Understand the preference for indirect communication and consensus-building.
• Local Expertise: Employing experienced local managers or advisors is crucial for navigating cultural nuances. Additionally, understanding the Vietnamese business landscape is essential for successful operations, as it involves comprehending local laws and government incentives that shape the business environment.

Contract Enforcement and Dispute Resolution

• Contract Clarity: Avoid ambiguity, especially in JV agreements. Define obligations and dispute mechanisms clearly, and ensure compliance with specific regulations related to capital contributions, market access, and the nationality of investors as outlined in the Investment Law and the Enterprise Law.
• Arbitration: While Vietnamese courts are an option, arbitration is often preferred by foreign investors for commercial disputes. Vietnam is a signatory to the New York Convention, making foreign arbitral awards generally enforceable, a point highlighted by legal analysis platforms like Lexology. The Vietnam International Arbitration Centre (VIAC) is a common forum.

Currency, HR, and Regulatory Risks

• FX Management: Manage currency fluctuation risks impacting costs and repatriation value.
• Labor Compliance: Strict adherence to Vietnam’s labor code and labor regulations is essential to prevent disputes. The U.S. Trade Administration’s 2023 report touches upon ongoing labor issues relevant to investors.
• Bureaucracy & Transparency: Despite reforms, navigating bureaucracy and ensuring consistent application of regulations remain areas requiring attention, as sometimes noted in assessments like the State Department’s 2021 report.

Make Your Vietnam Entry a Strategic Win

Vietnam offers significant rewards for investors who approach the market with diligence and strategic foresight. Success hinges on meticulous planning around structure, location, compliance, and proactive risk management. Understanding both the stated policies and the practical realities is key. Compliance with the 2020 Investment Law is crucial for establishing foreign direct investment (FDI) companies and ensuring successful market entry.

Ready to transform the challenges of entering Vietnam into strategic advantages? Partnering with seasoned local experts can provide the critical insights needed to navigate the landscape effectively. At Viettonkin Consulting, we specialize in providing that strategic insight. Let’s partner for a sustainable and prosperous future in Vietnam. Invest in tomorrow’s breakthrough, today.

Read More: FDI Consulting Services: Driving Strategic Growth

With this in mind, it will be opportune, before starting any business, to gain a clear view of the various types of available business entities in Indonesia. The form of legal entity a business owner chooses has not only long-term implications on the legal status of his or her business but also on taxation, liability exposure, and operational flexibility. Each of the business entity types in Indonesia has its special characteristics, advantages, and disadvantages; hence, some structures will be better fitted for certain industries or business objectives.

Your well-informed choice of the correct legal entity will strongly enhance your company's compliance with local legislation and reach its full potential for sustainable development. The paper below represents a profound review of the main business entities under Indonesian law, outlining their legal definition, main characteristics, and essential differences between them. Be it your maiden business or, as an accomplished executive, the urge to extend the reach of operations; each of these types will give you better positioning to make decisions that chart your course toward a robust and thriving venture. By the end of this review, you should have a better view regarding what kind of business entity will suit your organization's goals and long-term aspirations.

Key Takeaways:

• A business owner's selection of legal entity affects not only the future legal status of his or her business but also all matters regarding taxation, liability exposure, and operational flexibility.
• A properly informed decision on the right legal form will significantly boost compliance by your company with local legislation and reach its full potential for sustainable development.
• Business entities can take various forms from corporations to cooperatives and partnerships under various legal frameworks in Indonesia.
• Business entities in Indonesia take various forms from corporations to cooperatives and partnerships, recognized under various legal frameworks.

Business Entity Definition

It is a legally created organization, established under the statutory laws with the purpose of engaging in business activities. Business entities in Indonesia are of various types and natures, in the likes of corporations, cooperatives, and partnerships, which fall under different legal regimes.

According to Muhammad Idris, a writer with money.kompas.com, the financial and business news network of Kompas.com, one of Indonesia's largest online news platforms, the establishment and operation of every business entity will have to rely on various relevant laws such as Law No. 3 of 1982 about Mandatory Company Registration and Law No. 8 of 1997 on Company Documents (Muhammad Idris, 2024). These can own assets, incur liabilities, and enter into business transactions on their own independent of the owners, because they have a legal life and identity apart from their owners. The first thing that sets business organizations apart is their mission to pursue specific objectives, such as profit, service provision, and value creation for other stakeholders. Secondly, business organizations also entail legal liabilities from acts and debts amassed by these organizations, thus affording owners opportunities and responsibilities.

Categories of Business Entities in Indonesia

There are various kinds of business entities. Following are the details of each entity, as mentioned by the book 'How to Set Up a Business in Indonesia', written by M. Virginia Webbert, who wrote the book with the sole purpose of providing a guide to setting up new business ventures in Indonesia. The relevant booklet (M. Virginia Webbert, 1973) says:

Limited Liability Company (Perseroan Terbatas - PT)

A PT is a legal entity where capital is divided into shares, and shareholders are liable only up to their shareholdings. Being an independent legal entity, it is distinct from the shareholders and runs its own business.

Also Read: Comprehensive Guide to Obtaining Business Licenses in Indonesia for Startups

Cooperatives

Cooperatives are organizations owned by their members and are designed to realize the members' common needs either economic, social or cultural. Cooperatives are not oriented by profit criteria but are based on principles like free membership, democratic decision-making process and distribution of profits according to established rules.

Limited Partnership (Commanditaire Vennootschap - CV)

There are two kinds of partners in a CV: general partners with unlimited liability, who manage the business, and limited partners whose liability is limited to the extent of investment and who usually stay out of management.

Partnership (Firma)

A Firma is a type of organization that is owned by two or more owners who are personally liable for the firm's liabilities. It finds extensive applications in professional fields such as law, accounting, and consulting, where a number of partners are involved with regard to management and liability.

Ownership Classification of Business Entities

Business entities in Indonesia, based on ownership, are divided into four categories. Quoting from Bambang Niko Pasla, a seasoned writer in the business area, herein is described in detail each of the legal entities (Bambang Niko Pasla, 2023).

State-Owned Enterprise (Badan Usaha Milik Negara or BUMN)

BUMNs are companies where the government holds a larger or even entire portion of the share. They operate in highly vital areas related to energy, telecommunications, and transportation to serve the public interest and state revenue.

Regionally-Owned Enterprises (Badan Usaha Milik Daerah or BUMD)

BUMDs are locally government-owned and invest in very important fields for regional development. Their purpose is to increase regional economic growth and raise the welfare of the community.

Private Enterprises Badan Usaha Milik Swasta - BUMS

BUMS are privately-owned companies, either individually or corporately owned, for generating profits. They are also an important part of Indonesia's economy and can be found in various sectors.

Mixed Enterprises

The mixed enterprises are jointly owned by both the government and private sector entities. They pool resources from the public and private sectors to effectively deliver services while contributing to economic development.

Other Entities in Indonesia

Apart from the usual business organization structures such as Pte. Ltd and PT, Indonesia has a broad category of business entities that best suit different operational requirements and ownership preferences.

Pte. Ltd (Private Limited Company)

A Pte. Ltd is the equivalent of Indonesia's PT, or Perseroan Terbatas; it is the most common structure for a business entity in Singapore. Within a private limited company, shareholder liability is restricted to their sum of investments held in the company, and personal assets are shielded against corporate debts. Transfer of shares within a Pte. Ltd company has restrictions, as seen in public offerings.

The number of shareholders would not, generally, exceed 50. Pte Ltd companies can also be established by foreigners, even though there has to be at least one locally nominated director. Tax incentives in Singapore also make the country appealing for business incorporation, especially with the tax exemption on the first USD 100,000 of taxable income for the initial three years.

Limited Company (Ltd. or Co. Ltd)

A Subsidiary Company: Ltd or Co. Ltd is a type of corporation that operates based on the powers of the holding company, or the main parent firm through particular agreements that limit the rights of the subsidiary compared to the mother company. These may involve such agreements as not allowing the subsidiary firms from creating new business units on their own.

Corporation (Corp.)

A Corporation is a legally separate organization that provides separation between the business's assets and liabilities from the owners themselves. Large Corporations operate several companies under a single group and may either be 'for-profit' or 'non-profit'. The ownership of shares is restricted and not liquid or freely tradable in the open market. The Corporations are subject to special legislation and also need to be duly registered with the national or state government. It has some main characteristics: limited liability, centralized control, and formal board of directors.

Incorporation (Inc.)

An Incorporated company is a legal entity separate from its owners, like a corporation, but with transferable ownership and shares that can be freely traded. Inc. companies shield personal assets from owners and provide easier access to funds by selling their stocks. Examples include Apple Inc. Legal requirements for incorporation include detailed corporate charters and governance structures.

Multinational Corporation (MNC)

A multinational corporation is a large company that operates on an international market level. It may have headquarters based in one country, but the branches or subsidiaries will be expanded into other countries, which may be developed or developing.

An MNC does not confine itself to a single nation but extends facilities and assets in a number of nations. Such companies are controlled by a world headquarters that coordinates the operations of the firms in respective countries; usually, the local subsidiaries adhere to the policies that are set up by the mother company. MNCs are major players in international business as it is central to cross-border transactions. International trade, such as exporting, may be the first step of an MNC into international business. Multinational corporations are major players in promoting global trade and economic integration, therefore.

Advantages of Forming a Limited Liability Company

The book entitled 'Praktik Bisnis Indonesia', written by Rusdi Hidayat, Nurhadi, and Sonja Andarini-lecturers from Universitas Pembangunan Nasional Veteran Jawa Timur who contribute to the academic discourse in business practices-provides that the main benefits of establishing an LLC are the following (Rusdi Hidayat, Nurhadi, & Sonja Andarini, n.d).

Setting up an LLC comes with several advantages that promote operational flexibility and financial stability. First, there is limited liability, which shields the shareholders because their financial risk in the company is limited to the amount of money each has invested. As opposed to partnerships, they do not have personal debts of the company, thus making businesses undertake even ambitious and high-risk opportunities. This protection also allows the trading of the company's shares.

Since LLC offers the opportunity for perpetual existence, continuity provides smooth capital stability and allows for an investment that caters to even long-term projects beyond the so-called "natural life" of its shareholders, officers, or directors.

Moreover, the company ensures better management and division of labor, hence utilizing the available capital efficiently, thus expanding. A clear separation of ownership and management responsibilities promotes the ability of owners and managers to perform their jobs and optimize the efficiency and expansion of the company.

Advantages of Forming a Partnership

Following are the advantages of a partnership firm:

Larger Capital Base

One of the key advantages of a partnership firm is that it can raise larger capital from its counterparts, in the case of sole proprietorships. This is because in the case of partnership, there is more than one owner providing the necessary funds to the business.

The wider capital base therefore enables business expansion, asset acquisition, and increased operational capacity. It is also able to facility scale-up operations to a point where the firm would be able to handle larger projects, access new markets, or build production capacity.

Increased Access to Credit

A partnership firm enjoys better credibility with financial institutions because of its broader and more solid financial base. The fact that a number of partners have invested in the business inspires confidence in lenders and creditors that the firm is capable of repaying loans availed of by it.

The access to more substantial financial support allows the business to take in credit on better terms, such as at lower interest rates and for higher loan amounts. The combined assets and resources of the partners serve as collateral, making access to working capital or funds for new ventures easier.

Improved Management and Decision Making

This no doubt considerably increases the firm's managerial powers. Each of the partners can bring specialized skills, knowledge, and experience to their job and thus permit a more effective division of duties. Decision-making in a partnership concern is always collective, and the firm can consider a greater diversity of viewpoints.

The involvement of all partners in the decision-making process lends a great deal of caution and foresight to arriving at decisions, thus minimizing the occurrence of poor judgment or mistakes. It also puts accountability in place as the partners are collectively responsible for the success or failure of the firm.

Rational and Informed Decision-Making

In addition to collective decision-making, there are added advantages when more rational approaches toward business management result in the form of partnership firms. In partner firms, business decisions are usually based on detailed analyses and discussions, weighting options, since there is more than one partner.

Such divergence in opinion, experiences, and perceptions of each partner facilitates well-rounded and logical decisions that cover different aspects of the business. This kind of decision-making offers advantages in terms of minimalized risks and optimized long-term business success.

Simple Formation Procedure

Setting up a partnership firm is relatively easy and not as cumbersome as that for corporations. In many countries, the legal formalities required in setting up a partnership are at a minimum. Partners can prepare a deed of partnership which may specify the terms of association, rights, and obligations of each partner, how profits will be shared and rules of withdrawal or death of a partner.

The moderately simple regulatory scheme allows business to get up and running faster and at less expense than some of the more complicated forms of business, such as a corporation or LLC. The ongoing regulatory requirements for partnerships are also relatively minimal, which means more time can be devoted to the operation rather than administration of the business.

Business Entities versus Companies

A business entity is a generic term representing various forms, such as companies, cooperatives, and partnerships. A company, on the other hand, is a particular form of a business entity, and most often, it is incorporated to earn profit. Companies are usually made with organizational and management setups. Whereas all companies are business entities, every business entity does not aim to operate at a profit. For instance, the objectives of cooperatives or non-profit organizations may be social rather than aiming at economic surplus.

Smoothen Your Business Entry into Indonesia with Viettonkin

Indonesia is one of the largest economies in Southeast Asia and a huge potential for investors all over the world. Understanding the different types of business entities in Indonesia will be important in attempting to enter the market or expand operations, particularly for foreign investors.

Be it a PT, a CV, or a foreign investment company, each of these structures has legal and operational requirements. It would be quite complicated to understand, but Viettonkin Consulting is here to assist you through every step in finding the right business entity that provides success for a lifetime in Indonesia.

Want to know more of the services Viettonkin Consulting can offer your business? Follow this link to understand better.

Read More: Understanding Indonesia's Requirements for Trading Licenses

In Indonesia, business licenses play a crucial role in pursuing legal compliance and performing smooth business operations. More than being the legal right to conduct business, a license can protect companies from potential regulation risks. Receiving the proper license can be straightforward or less complex, depending on the industry involved and the size of the operation.

In this article, we look at the different kinds of business licenses available in Indonesia, covering some legal processes, regulation, and requirements pertinent to each.

Key Takeaways:

• More than being the legal right to conduct business, a license can protect companies from potential regulation risks.
• Receiving the proper license can be straightforward or less complex, depending on the industry involved and the size of the operation.
• In accordance with Article 1, Point 20 of Law No. 28 of 2014 concerning Copyright, license is defined as the written permit given by the Copyright Holder or Related Rights Owner to another Party with the purpose of exercising the economic rights over the work created or the related products produced under certain conditions.

Definition of Business License According to Indonesian Law

The term "license" carries various meanings under Indonesian legal frameworks, depending on the kind of intellectual property or business activities that it is regulating. These definitions are outlined in a number of key legislative texts.

In accordance with Article 1, Point 20 of Law No. 28 of 2014 concerning Copyright, license is defined as the written permit given by the Copyright Holder or Related Rights Owner to another Party with the purpose of exercising the economic rights over the work created or the related products produced under certain conditions.

Article 1, Point 11 of Law No. 13 of 2016 on Patents (UU Paten), which defines license as an authorization given by the Patent Holder, either exclusive or non-exclusive, through a written agreement to the licensee for the use of a protected patent within a certain period and under specific terms.

According to Law No. 20 of 2016 on Trademarks and Geographical Indications, licensing is defined as permission to use a registered trademark given by the registered owner of a trademark to another party through a written agreement according to statutory regulations.

Article 1, Point 5 of Law No. 30 of 2000 on Trade Secrets defines a license as the permit granted by the holder of Trade Secret Rights to another party through an agreement in writing to enjoy the economic benefits derived from a protected trade secret for a certain period and under specific conditions without transferring ownership rights.

Key Types of Business Licenses in Indonesia

Business licenses in Indonesia fall into various categories, all of which generally serve to regulate and ensure that the operation of companies falls within the legal framework. While some licenses apply to all businesses, some apply to certain industries, making sure the sector regulations are complied with.

Below are a few of the key licenses that you may need to obtain for your business, depending on the nature of your business.

Primary Business Licenses

Main business licenses represent basic licensure that shall be obtained for the conduction of businesses in different industries. Business licenses are necessary and, generally, come under three categories, depending on the industry the respective business operates within:

General Business License (Nomor Induk Berusaha or NIB)

General Business License, or Indonesian acronym NIB, stands for Nomor Induk Berusaha and is an important legal obligation for almost all businesses in Indonesia. It is a single business identifier that empowers a corporation to perform business activities such as trading, consultancy services, and other business enterprises. The NIB is a multipurpose license that enables the business to satisfy all kinds of regulatory needs, including tax registration and compliance with the workforce.

Industrial Business License

The IUI or Izin Usaha Industri, Industrial Business License, shall be required of all those entities engaged in manufacturing and production. Firms engaged in processing, assembly, and fabrication should obtain this license to ensure compliance with minimum safety, quality, and environmental standards. This is a must for businesses to prove that they are complying with government regulations concerning industrial practices.

License of the Business in Construction (Sertifikat Badan Usaha or SBU)

Businesses involved in the construction industry have to obtain a SBU. The license regulates companies operating their activities in infrastructure, building construction, and any other relevant areas. The SBU enforces the agencies of construction to follow standardized regulations competently enough for safety measures to enable them to maintain quality standards when executing the projects.

Secondary Licenses of Business

Secondary or non-primary licenses refer to the field-related permits that various business industries must have, which relate to public services or whose products are controlled. Such licenses are meant to verify safety, hygiene, as well as other standards relevant to the particular industry to which a business belongs.

Restaurant License

A Restaurant License is one of the important licenses restaurants have to deal with in the food and beverage industry. For such a license, the standards of food safety and hygiene to maintain the quality of service to the end consumers must be adhered to. The license is important to ensure customer health and allow prevailing health requirements.

Hotel License

An accommodation provider needs a Hotel License, which may be Hotels, Resorts, and other similar establishments. The license covers some of the most important requirements concerning the offered hospitality service: cleanliness, safety, and security rules. It is the official way of assuring that the business meets government-imposed standards for the conduct of a safe and comfortable experience for guests.

Transportation License

A Transportation License is required for companies engaged in the transport sector. This is a very crucial license for transport business service providers, as it regulates issues to do with safety in respect of the vehicle itself, maintenance standards that have to be observed, and adherence to transportation laws. It also greatly helps in trusted services by increasing the credibility of services rendered to the public.

Also read: Navigating Indonesia’s Trading License Requirements

Licensing Categories Based on Requirements

In Indonesia, business licenses are based on the commitment that has to be fulfilled for a particular group. Mainly, there exist two groups:

Business Licenses without Obligation Fulfilment

These are issued instantly by the OSS system without further obligations. Typical examples include consulting firms.

Business Licenses with Technical Requirements

These require additional technical documents to be submitted prior to issuance. The sectors that usually fall under this category include hotels and importers of medical devices.

Business License with Fee Requirements

Besides the technical requirements, this license requires the payment of certain fees.

Business License that Requires Both Technical and Fee Requirements

Licenses that require the submission of technical documentation and the payment of relevant fees. Examples for these sectors are the construction and financial services sector.

How to Get Business License in Indonesia

Starting a business in Indonesia will require just a few critical steps that will make your company legally registered and licensed. A breakdown in this regard is provided below:

Registration of Company

Your first step should be to register the company with the Ministry of Law and Human Rights through the submission of the Articles of Association, providing a structural overview of your company, stating its purpose of setup, and stating who the key members are. When this has been approved, it deems your company to be a legally recognized entity.

NIB Application

Next, you apply for your NIB after registering with MOLHR, also known as your Business Identification Number. You do this through the OSS, an integrated system providing access through the web to the permit processes for business and investment. The NIB will be your single identity number, while at the same time it legalizes your business.

Specific License Application

Whichever the case may be, depending on the type of your business, you will have to apply for further licenses concerning the particular industry you operate within. For instance, if you are into trading or manufacturing, you will also have to get all the required permits for trading and manufacturing, respectively. The OSS system will direct you concerning what licenses apply to your business category.

Submission of Documents

In the process, you are expected to provide a number of documents in support of your application. These commonly include:

• Your company's Articles of Association
• Proof of domicile for the business, most of which is usually the office leasing or registration documents
• Identification documents for the directors and shareholders of the company

Inspection and Approval

After all documents are submitted, the OSS system will review your application. If there is nothing wrong, they might ask for complementary information. Once the conditions are met and the review process has been completed, your business license will be issued, and you can legally operate your business in Indonesia.

Business License Registration in Indonesia with Viettonkin

Such would be the conclusion, and it would also be observed that business licensing, as a process in Indonesia, may sound complicated, but once the right steps are followed, the process would go in an upbeat manner. Company registration to industry-based licenses-the steps will keep your business on track, operating within the legal and efficient boundaries.

If you are feeling overwhelmed or even unsure about how to work your way through the system, then Viettonkin Consulting is here to help you. Drawing from our experience of supporting businesses across a wide range of sectors, we are able to guide you through the legal and administrative requirements and ensure a smooth path to getting your business up and running in Indonesia.

Contact us today for expert advice and support. Follow this link to discover more about how we can serve your business.

Read More: Exploring the Challenges of Doing a Business in Indonesia

Trading companies played a great role during the early stages in setting up Indonesia's commercial scenery. From highly being characterized by small enterprises operated by families, during the expansion of the economy, it became more diverse and sophisticated. Today, setting up a trading company in Indonesia thus bears a great deal of opportunity and potential problems, given its strategic location in Southeast Asia and large potential market that it holds.

Setting up a trading company in Indonesia requires adequate knowledge of local legislation, market dynamics, and ways of doing business. This article will outline what a trading company is and how to set up a trading company in Indonesia, from the perspective of legislation to market entry methods.

Key Takeaways:

• Today, setting up a trading company in Indonesia presents huge opportunities with potential challenges, considering the fact that Indonesia is strategically located in Southeast Asia and it comes with a highly promising market.
• According to Olegario Llamazares, the managing director of Global Marketing Strategies, in his various publications in Global Negotiator entitled 'What is a Trading Company?', a trading company specializes in handling the entire process of export and import operations, making cross-border trade easier since it will handle logistics, regulations, and market distribution.
• Trading companies tend to concentrate on high-volume product transactions-such as raw materials, chemicals, and generic pharmaceuticals-where economies of scale are an important determinant of profitability.

What is a Trading Company?

According to Olegario Llamazares, Managing Director at Global Marketing Strategies, in his serial publications entitled 'What is a Trading Company?' in Global Negotiator, trading companies are highly specialized in handling the entire operation process of export and import, thus helping cross-border trade to be rather easier by providing logistics, regulations, and market distribution. These companies purchase goods in one country and sell them in another, using an already developed distribution network to access international markets in most instances.

Trading companies also often specialize in products where high volume is exchanged, such as raw materials, chemicals, and generic pharmaceuticals, for which the economy of scale is a critical determinant of profitability.

In addition to buying and selling, trading companies may provide transportation, storage, and packaging services that add value for both the manufacturer and buyer.

These companies are very important in linking suppliers to international demand; they are a means for businesses to expand their territory beyond their native borders. From moving goods and managing sophisticated regulatory requirements, trading companies are very active participants in the global economy; they make international trade less cumbersome and more effective.

The major activities of a trading company involve the broad range of responsibilities that enable international trade to take place. This includes:

• Diversify from country to country and find suppliers capable of supplying enormous quantities of generic products at competitive prices.
• Negotiate the terms of sale and delivery with the supplier, consolidate an agreed price, timeline, and condition of sale and delivery for both parties.
• Financing and payment to the supplier-exporter, usually providing financial and legal guarantees with the aim of limiting financial risks for the parties.
• Logistical and transportation management: efficiently move the goods across borders.
• Customs clearance and overcoming international trade barriers by ensuring that all regulations are complied with in order to minimize delays.
• Distribution and sale of products through a well-organized retail network so that the products reach effective markets.

These activities also bring out the crucial role trading companies play in managing the complexities of global supply chains, right from sourcing to final distribution.

3 Different Structure of Trading Company in Indonesia

In Indonesian market, there are 3 types of trading company's structure, such as distributor trading companies, export-only companies, and industrial companies.

Distributor Trading Companies

The most common structure among trading companies is the distributor company, which assists in the importation of several types of goods to Indonesia. There are, however, two major restrictions which a foreign investor should pay attention to, as cited from PNB Law Firm-a law firm based in Indonesia with legal services-below.

Foreign Shareholder Restriction

Under Indonesia's Negative Investment List, the foreign ownership of a distributor trading company is limited to 67% of maximum shareholding. The remaining 33% of the shares, held by either Indonesian people or companies, shall be fully owned by Indonesian entities. Foreign companies or individuals can be foreign shareholders.

Distribution Restriction

In this case, foreign-owned distributor companies are allowed to operate only in wholesale trades and, therefore, cannot sell directly to consumers in Indonesia. Thus, the company would need to cooperate with a local Indonesian company if it wants to perform retail or sell directly to the end customers. Therefore, the provisions constitute that foreign investors develop partnerships with reliable local distributors.

First, there is the requirement for local shareholders; second, the requirement to cooperate with a local company. Both the foregoing requirements introduce additional risks for business conducted by foreign investors. Hence, trust in partners is very important. To enable foreign investors to reduce the risk arising from the aforesaid grounds, some law firms, like PNB Law Firm, extend nominee shareholder services that allow foreign investors to appoint one of their controlled entities as the local shareholder, giving full control over the company and reducing the risk of future shareholder disputes.

Export-Only Companies

Foreign investors who would like to export goods or commodities only from Indonesia can establish a distributor company for export activities. For this type of business, foreign ownership of 100% is allowed with less strict regulations compared with the ones applied to businesses whose products are sold in the local market.

On the other hand, export-oriented companies cannot sell their products in Indonesia and must address their entire production to foreign markets only.

Industrial Companies

Generally, industrial companies in Indonesia are always more cumbersome to set up due to supplementary regulatory requirements. Some common requirements that would normally apply to an operating industrial company include:

Operational Licenses

Industrial companies are supposed to apply for special operational licenses from relevant ministries related to a particular kind of industry and ways of production.

Land and Building Licenses

Every manufacturing plant has to obtain land and building permits issued by local governments. In the given case, it is essential that those licenses be granted to ensure lawful operation of the factory.

Environmental Licenses

Industrial companies must obtain an environmental license before starting activities. The type of environmental license required will differ depending on the size and type of factory. In general, the majority of licenses will be issued through an environmental assessment process.

Typically, for industrial companies, there is flexibility in terms of ownership for foreign investors, whereby foreign investors can own 100 percent of the shares, which provides greater flexibility than the distributor trading companies.

General Requirements for Establishing a Foreign Investment Trading Company in Indonesia

The Indonesian government has set a range of requirements which apply to foreign investment companies, referred to as PT PMA, who are trading in the country. A brief overview of the conditions set can be seen below.

Minimum Paid-up Share Capital

The PMA has to be founded with the minimum paid-up share capital of IDR 2.5 billion. While it is an obligation, in practice, it works more as an administrative requirement. Under the current law, the government does not require the entire capital to be deposited into the bank account of the company at the time of establishment.

Minimum Investment Value

BKPM obligates all foreign investment companies to invest at least IDR 10 billion in the economy. The above investment does not include an allowance for land and building purchases. In order to follow up on the execution of such investments, or to make sure that compliance is met on a continuous basis, the company needs to submit what is called an LKPM-Quarterly Investment Activity Reports.

You might also like: Navigating Indonesia’s Trading License Requirements

Characteristics of Trading Companies

There is a number of features that distinguish trading companies from other forms of business organizations. According to Bakrie University, some of the main characteristics of trading companies include the following:

No Production and Distribution Role

Trading companies are not involved in the manufacturing process. They are only concerned with buying and selling goods. In essence, a trading company is usually considered a critical distribution point that enables goods to move from the manufacturing company to retailers and eventually to consumers.

Inventory Management

Trading companies always maintain an inventory of goods that are saleable at any time. A very important characteristic of the trading company is managing this inventory correctly in shipment and distribution from the manufacturers or wholesalers to the customers with much efficiency.

Sales-Oriented Operations

The trading company has a vast concentration on sales as its objective. All the activities in the business are related to the selling of the products to generate maximum profitability.

Strategic Relationships with Suppliers and Customers

The trading companies need to establish and nurture solid relationships with suppliers and customers for an excellent functioning. The trading entity also sells its products directly to consumers either through physical retail space or through an online medium, in order to be more accessible and serve the consumers better.

How To Start A Company in Indonesia

Starting a company in Indonesia can be done within a few steps. Some of the explanations of each step are given below.

Step 1: Determining the Type of Company

It is necessary to decide, before incorporating a company, the type of company to be opened. It's a basic decision, as this would give the foundation for the requirement for capital, the risk in the business, and also the structure through which the operations of the company will be held. This will help in projecting the financial requirements, assessing the risks involved, and laying out the roadmap for how the company will be run in the future.

In this respect, steps will be brought out on how to establish a Limited Liability Company, PT, being one of the common structures.

Step 2: Requirements to Establish PT

According to Article 7, Paragraph (1) of Law No. 40 of 2007, a Limited Liability Company is a company which is founded by at least two persons or more, either individuals or legal entities, in the form of a written agreement. The beginning of its title shall be named "Perseroan Terbatas" or abbreviated as PT. In that respect, the establishment of the PT should be executed in the form of an authentic deed before a notary, who then will draw up an authentic deed of incorporation.

The authorized capital for the establishment of the PT shall at least be IDR 50,000,000, as stated in Article 31 of Law No. 40 of 2007. For certain sectors, however, minimum capital requirements differ according to the particular regulatory law of that industry.

Step 3: PT Registration

The process of the registration of establishment of PT is documented through some formalities, each of which is vital for the legality of the company. The steps to be followed in the process of registering a PT in Indonesia are highlighted below.

Submission of Company Name

The name of the proposed company shall be submitted through the SABH system by mentioning the name to the Ditjen AHU. It has to suit Indonesia's regulations and shall not be similar or used by another registered company.

Company Domicile

Domicile is the legal address-headquarter of the company. The domicile must be indicated in the deed of incorporation, also referred to as the statutory domicile of the company. All legal questions regarding the PT shall be performed here.

Purpose and Objectives

Article 3 of the deed of incorporation designates the purposes and objectives that PT will pursue. Based on this, it should be indicated in this article what kind of business activities will be performed by the company. Accordingly, in trying to determine those activities, the following shall be brought into consideration:

• The company is entitled to freely choose any business activity to conduct so long as it is not prohibited by law.
• The activities should be named in the constitution deed.
• The business activities that are going to be carried out must match the KBLI.
• Certain industries, for instance, restaurants, need to get additional licenses, such as a restaurant license.

Capital Structure

The PT capital structure must be articulated in the deed of establishment, comprising authorized capital, issued capital, and paid-up capital. This is legally and operationally important because this would give the financial structure of the company.

Notarized Deed of Incorporation

The notary has to prepare the deed of incorporation, which will legalize the establishment of the company together with its articles of association, capital structure, and shareholders.

NPWP of Founders

The founders should provide the NPWP in the name of the founders of the PT during incorporation.

Business Domicile Certificate (SKDU)

Business Domicile Certificate, SKDU, must be obtained from the head of the local sub-district. This document should prove the legal address of the company and will be used for further registration.

Founders Identification Documents

The founders will be required to provide legal identification documents in ID card format during the registration process.

Registration of Deed of Incorporation with Ditjen AHU

The draft deed of incorporation, once ready, shall be registered with Ditjen AHU under the Ministry of Law and Human Rights via the SABH system. Upon registration, it will get a Decree of Establishment or an Approval, which legalizes the company.

NPWP of the Company

The NPWP will be automatically generated once the registration process is done via the SABH system. It integrates with the DG Tax system. Later, the NPWP card can be printed from the local tax office which covers the place where the company is domiciled.

Business Licensing through Online Single Submission (OSS)

The last step is to obtain licenses for the sector in which the firm will operate through the OSS system. The OSS is integrated with the SABH system in such a way that the business activities of the PT are aligned with its licensing. In this respect, the OSS shall grant the firm a NIB, as well as other permits if required, with respect to the needs of its sector.

Conclusion

Starting a trading company in Indonesia can be quite fulfilling because the market is both lively and multivariate in its sets of opportunities. These steps in this article provide the base from which any business should take off and subsequently sail through the intricacies of the trading landscape. Understanding legal requirements, market research, formulation of a business strategy, to establishing partnerships-all these steps have equal relevance to your success.

Whichever way one considers, professional advice is bound to give good insight and probably see you through those trying times and support making the right decisions. Let Viettonkin Consulting guide you professionally to meet your needs. Our team will support you with our regulatory experience, develop your business strategy further, and help you contact the most relevant industry players.

Once ready and raring to go with your trading company, take a leap into the vibrant economy of Indonesia. Establish a profitable business, for oneself, yet one that sincerely serves the wheel of contribution at the local level and beyond, by commitment and with an approach proper to the end.

Please do not hesitate to contact Viettonkin Consulting for further information and personal advice. We want to stand by your side at every step in starting your business. For further details about Vienttokin Consulting, please click here.

You might also like: A Complete Guide to Business Licenses in Indonesia for New Companies

Ever wonder how Indonesia’s vibrant market can propel your business to the next level? As a strategic business consultant with over two decades of experience in FDI and manufacturing trends across dynamic markets like Vietnam, China, and Malaysia, I’ve guided numerous companies in unlocking their growth potential. Today, we’ll look into the essentials of setting up a Foreign Investment Limited Liability Company (PT PMA) in Indonesia. A PT PMA is a type of foreign investment company and serves as the legal structure for a foreign company to conduct business in Indonesia.

Here are some key takeaways before we begin:

• Establishing a PT PMA in Indonesia means navigating specific laws and regulations concerning foreign investment, also known as Penanaman Modal Asing.
• A PT PMA allows foreign investors to conduct business activities within Indonesia and is the primary vehicle for a foreign company to operate as a foreign investment company.
• A PT PMA is also referred to as a "pma" company in Indonesia and is established under the legal framework of Penanaman Modal Asing.
• The Investment Coordinating Board (BKPM) is central to the PT PMA registration process.
• A minimum of two shareholders and IDR 10 billion in paid-up capital (with at least IDR 2.5 billion to be paid immediately) are foundational requirements.
• Obtaining necessary business licenses and government registration is crucial before operations can commence.

Introduction to Establishing a Company in Indonesia

Establishing a company in Indonesia, specifically a PT PMA, requires a solid understanding of the nation’s legal framework. PT PMA stands for "Perseroan Terbatas Penanaman Modal Asing", which is a type of Perseroan Terbatas Penanaman Modal designed for foreign-owned businesses. This legal structure offers a solid legal basis for foreign investors to operate within Indonesia. This includes regulations pertaining to foreign investment and the structure of limited liability companies. Indonesian Investment Law, as detailed by sources like the Investment Coordinating Board (BKPM) in their Indonesia Investment Guidebook, provides the overarching principles for foreign capital investment.

Foreign investors can utilize the PT PMA structure, which is essentially a foreign investment limited liability company, to engage in various business activities within the country. Perseroan Terbatas (PT) is a domestic limited liability company. If the PT is already operating in an industry that allows 100% foreign capital (according to PR 10/2021), shareholders can submit an application for additional capital and amendment of the Charter for BKPM to consider converting it into a PT PMA. Otherwise, a new PT PMA must be established.

The BKPM plays a pivotal role, streamlining and overseeing the registration process for PT PMA companies. Think of the BKPM as your primary liaison for navigating the investment landscape. To get started, a PT PMA must have at least two shareholders, one of whom can be a foreign individual or entity. A significant financial commitment is also required, with a minimum paid-up capital of IDR 10 billion. Beyond this, securing the appropriate business licenses and registering with the Indonesian government are mandatory steps before your operations can officially begin. The U.S. Department of State’s 2023 Investment Climate Statement on Indonesia also provides valuable context on the general investment environment.

The process for foreigners to register a business in Indonesia is often referred to as establishing a "Terbatas Penanaman Modal Asing".

Types of Companies

Indonesia offers several avenues for establishing a business presence. The most common for international investors is the PT PMA, which is a foreign owned company structure. For local entrepreneurs, the Local Limited Liability Company (PT) is the typical choice.

The fundamental difference lies in ownership and capital. A PT PMA is specifically designed for foreign investment, mandating the aforementioned IDR 10 billion minimum paid-up capital. A local PT, on the other hand, generally has lower capital requirements. These businesses can engage in different types of activity depending on their legal structure and sector. For entities not yet ready for full-scale operations, a representative office can be a strategic first step. This allows for market research, relationship building, and promotional activities, serving as a precursor to more substantial investment.

Depending on your investment goals, there are several ways to establish a presence in Indonesia. Here’s a side-by-side comparison of the most common options to help you decide:

Feature	PT PMA (Foreign-Owned Company)	Local PT (Domestic Company)	Representative Office
Ownership	Up to 100% foreign ownership (depending on sector)	100% local (Indonesian) ownership required	No ownership; acts as an extension of foreign parent company
Minimum Capital	IDR 10 billion (with at least IDR 2.5 billion paid-up)	Lower capital requirements (varies by sector)	No capital investment required
Legal Status	Full legal entity	Full legal entity	Not a legal entity (non-revenue generating)
Allowed Activities	Full operational capabilities (sales, hiring, contracts)	Full operational capabilities	Market research, promotion, liaison; cannot generate revenue
Permits & Licenses	Business License, NIB, NPWP, location permit, etc.	Same as PT PMA	Must register with BKPM but limited licensing required
Time to Establish	6–10 weeks (on average)	4–8 weeks	4–6 weeks
Best For	Foreign investors ready to fully operate in Indonesia	Local entrepreneurs or joint ventures	Companies testing the market or supporting HQ operations

Business Structure

A PT PMA in Indonesia must adhere to a defined business structure. This includes appointing a board of directors, responsible for the company’s day-to-day management, and a board of commissioners, tasked with supervising the directors.

Operationally, securing a Taxpayer Identification Number (NPWP) and a Business Identification Number (NIB) is essential. The NIB, issued through the Online Single Submission (OSS) system acts as the primary identifier for your business; and is the basis for applying for NIK (customs identification), BPJS (social security programs) registration and more, but it does not automatically issue an import license (API) or BPJS Certificate.

The entire business structure, including its purpose, shareholding, and governance, must be clearly outlined in a Deed of Establishment. The company's legal structure and shareholding must be clearly defined, as this directly affects the eligibility of foreign shareholders to obtain an investor kitas. This foundational document must be notarized by an Indonesian public notary and subsequently registered with the Ministry of Law and Human Rights. Compliance with Indonesian law, particularly regarding foreign investment and company law, is non-negotiable. UNCTAD’s Investment Policy Hub provides access to Indonesia’s Investment Law (Law No. 25 of 2007), which is a critical reference.

Also read: Unlocking Indonesia’s Potential: FDI Inflows at a Glance

Investment Requirements

The headline figure for PT PMA investment is the IDR 10 billion minimum paid-up capital, which also serves as the minimum investment required for PT PMA establishment. This isn’t just a paper figure; it generally needs to be demonstrably available and often deposited into the company’s Indonesian bank account after establishment.

Beyond the paid-up capital, it’s understood that the overall investment plan will be substantially larger, often cited as at least IDR 10 billion in total investment value, excluding land and buildings. These requirements can fluctuate based on the specific business sector and the company’s intended operational location within Indonesia. For large scale companies or capital-intensive sectors, higher capital requirements may apply to attract significant investors. Adherence to Indonesia’s investment laws, including regulations on foreign ownership limitations in certain sectors (often referred to as the “Negative Investment List” or DNI, though this has been reformed by the Omnibus Law and subsequent regulations), is crucial. The BKPM will typically require a statement letter confirming your investment plan and the paid-up capital status.

These requirements are part of Indonesia's foreign direct investment regulations, which govern how foreign investors can participate in the Indonesian market.

Registration Process

The registration journey for a PT PMA involves several interconnected steps. It begins with due diligence on your intended business activities and name, followed by the preparation and notarization of the Deed of Establishment.

Once the legal entity is approved by the Ministry of Law and Human Rights, the next steps involve securing the NPWP and NIB through the OSS system. Depending on the business sector, additional specific operational or commercial licenses may be required. While the OSS system has streamlined procedures, the overall timeline can still range from several weeks to a few months, contingent on the application's complexity and the specifics of the business sector. Engaging with experienced local consultants or a law firm is a common and often wise approach to ensure a smooth process and full compliance. As noted by Indonesia Investments, understanding these legal nuances is key.

PT PMA Setup Timeline, Checklist & Pitfalls

🕒 Typical Timeline (6–10 Weeks):

• Week 1–2: Business activity confirmation, company name check, shareholder documentation.
• Week 3: Drafting and notarization of Deed of Establishment.
• Week 4–5: Submission to Ministry of Law and Human Rights.
• Week 6: Application for NPWP and NIB via OSS system.
• Week 7–8: Apply for relevant business licenses (industry-specific).
• Week 9–10: Office lease, bank account opening, capital deposit.

✅ Quick Setup Checklist:

• Confirm permitted business activities (check sectoral restrictions)
• Choose unique company name (check availability)
• Prepare shareholder IDs and passport copies
• Draft and notarize Deed of Establishment
• Submit legal entity registration to the Ministry
• Apply for NPWP and NIB via OSS system
• Secure necessary licenses (business, location, sectoral)
• Rent physical office space (min. 10 sqm in commercial zone)
• Open corporate bank account and deposit capital
• Maintain regular reporting and compliance obligations

⚠️ Common Pitfalls to Avoid:

• ❌ Failing to check if your business activity is open to full foreign ownership
• ❌ Underestimating the IDR 10B capital commitment
• ❌ Missing legal deadlines for licensing or reporting
• ❌ Renting a non-compliant office space (e.g., residential zones)
• ❌ Submitting incomplete or improperly notarized documents
• ❌ Delays from banking bureaucracy—start the account process early

Capital and Funding

Sufficient capital is the lifeblood of any PT PMA. The IDR 10 billion minimum paid-up capital is the starting point, ensuring the company has initial financial grounding.

Beyond this initial injection from shareholders, a PT PMA can explore various funding avenues. These can include bank loans (though often requiring a track record in Indonesia), further investment from existing or new shareholders, or even private equity once the business demonstrates traction. All capital and funding activities must align with Indonesian regulations, especially those governing foreign investment and company finances. Maintaining a clear and robust funding plan is critical for long-term growth and operational stability.

Business Operations

Once your PT PMA is established, compliant business operations are paramount. This means ongoing adherence to Indonesian laws, including foreign investment stipulations and the Companies Law.

Securing and maintaining all necessary business licenses and permits is an ongoing responsibility. Your initial business plan and strategy will guide your operations, but flexibility to adapt to the Indonesian market is also key. A critical aspect of operating in Indonesia is compliance with its labor laws. This includes proper employment contracts, adherence to minimum wage regulations, and participation in mandatory social security and healthcare programs (BPJS Ketenagakerjaan and BPJS Kesehatan). A thorough understanding of the local market dynamics, consumer behavior, and business etiquette will significantly contribute to your PT PMA's success. Think of this as not just a legal requirement, but a strategic imperative for sustainable growth.

Ready to unlock unprecedented growth in Indonesia? Navigating the dynamic FDI landscape here requires strategic insight. Partner with us to transform challenges into strategic wins—because when it comes to securing your next breakthrough, the only way is forward!

Office and Banking

When establishing a PT PMA in Indonesia, foreign investors are required to secure a physical office and open a local bank account as part of the company establishment process. The PT PMA Company must have an office address in Indonesia, proven by a valid Lease Agreement or Proof of Ownership. OSS will check the planning compliance - specific minimum area (e.g. 4 m², 6 m², 10 m²) is only a procedural guideline in some localities but not a mandatory national regulation (Regulation No. 24/2018 - Article 10(2)).

Opening a bank account in Indonesia is another crucial step. The PT PMA must deposit the minimum paid-up capital of IDR 10 billion into this account, as mandated by the Investment Coordinating Board (BKPM). This ensures that the company has the necessary financial foundation to operate and signals compliance with Indonesian investment regulations. Many foreign investors choose to work with local service providers or utilize a company establishment package to streamline the process of finding a suitable office and setting up the bank account. These packages, often recommended by the BKPM, can cost approximately USD $3,000 and typically take around 10 weeks to complete, covering everything from office search to account opening. Leveraging local expertise can help foreign investors navigate the practicalities of setting up a PT PMA in Indonesia efficiently and in full compliance with local requirements.

Legal Compliance

Legal compliance is a cornerstone of establishing and operating a PT PMA in Indonesia. Foreign investors must adhere to the regulations set forth in Law No. 40/2007 on Limited Liability Companies (Company Law) and the prevailing Investment Law. These laws outline the minimum capital requirements, the necessity for at least two shareholders, and the procedures for the establishment of a PT.

To ensure full compliance, a PT PMA must obtain all required business licenses and permits, including a business license, company registration, and a taxpayer identification number. The Indonesian government has introduced a single submission system to simplify the process of acquiring these licenses and permits, making it more accessible for foreign investors to meet all regulatory requirements. Staying up to date with the latest laws and regulations is essential, as non-compliance can result in delays or legal complications for your business. By following the established procedures and leveraging the support offered by the Indonesian government, foreign investors can ensure their PT PMA operates within the legal framework and is well-positioned for success in Indonesia’s dynamic market.

Taxation and Employment

Understanding taxation and employment regulations is vital for foreign investors establishing a PT PMA in Indonesia. The minimum paid-up capital required is IDR 2.5 billion, which represents 25% of the total minimum capital requirement of IDR 10 billion. This amount must be deposited into the company’s local bank account and is a prerequisite for obtaining key business documents.

PT PMA companies are subject to Indonesian tax regulations, including the payment of corporate income tax and value-added tax (VAT) on applicable transactions. Additionally, foreign investors and key personnel must secure a work permit (KITAS) and a taxpayer identification number (NPWP) to legally work and reside in Indonesia. The company is also required to register with the local manpower office and obtain a business identification number, ensuring compliance with employment and labor laws. The Investment Coordinating Board (BKPM) offers guidance on these matters, helping foreign investors navigate the complexities of Indonesian tax and employment regulations. By staying informed and compliant, PT PMA companies can avoid penalties and build a strong foundation for sustainable business operations in Indonesia.

Conclusion

In summary, setting up a PT PMA in Indonesia offers foreign investors a robust platform to participate in one of Southeast Asia’s most promising markets. PT PMA allows 100% foreign capital depending on the industry, and can hold land in the form of Hak Pakai or Hak Guna Bangunan, but cannot own it permanently (Hak Milik) (Law No. 5 of 1960 (Basic Agrarian Law) – Article 56(1)). The process, while detailed, is manageable with the right support—requiring compliance with the Investment Coordinating Board (BKPM), adherence to minimum capital requirements (IDR 10 billion total, with at least IDR 2.5 billion paid up), and the acquisition of all necessary business licenses and permits.

By following Indonesian laws and regulations, leveraging the single submission system, and seeking professional guidance, foreign investors can successfully navigate the complexities of setting up a PT PMA company. With careful planning and compliance, your business can thrive in Indonesia’s dynamic environment, unlocking new opportunities for growth and investment.

Disclosure:
This article is authored by a consultant affiliated with a firm that offers professional services for PT PMA setup in Indonesia. While the content is intended for informational purposes, readers should be aware that the author may have a commercial interest in the subject matter.

Last Updated: June 11, 2025
Regulatory conditions and legal requirements in Indonesia are subject to change. Please consult official sources or professional advisors for the most current guidance.

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Overview of Banking Sector in Vietnam

Given the slowdown of the economy in 2023, Vietnam's banking sector has relatively downturned.

Vietnam's banking sector faced difficulties in H1/ 2023 with stagnant credit growth of 4.73% in June 2023 due to disruption in the real estate market, the slowdown of the global economy and an increase in bad debts. Despite its slowdown, deposit growth was seen to be more severe than credit growth, The net interest margin (NIM) also saw a contraction with growth rate at only 3.68% compared to 8.15% in H1/2022 due to the rise in deposit rate and stagnant credit disbursement. Ensuring to meet the minimum capital adequacy ratio (CAR) of 10% continues to be a challenge for several banks.

A JP Morgan report showed that Vietnamese banks offer the best combination of growth and ROE in banks are projected to slightly decline as a result of slow economic growth. ROE of those who had high buffer and less exposed to the real estate market were still remain high and projected to recover in 2024.

Vietnam started opening up its banking system in 1990. Following that, the wave of foreign banks’ presence in Vietnam exploded following its joining the WTO in 2007 and completing the integration policies. HSBC, Citibank, ANZ, and Shinhan Bank currently account for the majority share of the foreign banks market in Vietnam.

The four traditional modes of market entry for foreign banks in Vietnam are:

• Representative office
• Branch office
• Wholly foreign-owned bank
• Joint venture bank

Though popular, these licensing modes have been tightened in recent years . Nevertheless, investors can still consider an alternative approach called New forms of investment (NFI). Under NFI, a foreign bank may choose to join forces with a local partner under (i) a Business Cooperation Contract (BCC) or (ii) Strategic Partnership or partake in (iii) an M&A arrangement.

Guidelines on establishment of Foreign Banks presence in Vietnam

Modes of market entry

Description

An RO is the most limited form of setup due to its inability to perform revenue-generating activities, hence the least expensive option and usually only used at early market entry stages.

A branch office, on the other hand, can provide banking services. However, it is still heavily dependent on the parent bank for decision-making procedures and financing resources. The branches of foreign banks are subject to banking supervision from both the home country and Vietnam, with many limitations on activities as stipulated in Circular 23/2020/TT-NHNN.

Subsidiaries of foreign banks including Wholly foreign-owned and Joint ventures are legally independent of the foreign investor and utilize their own capital to do business. Thus, foreign banks will need to invest more capital abroad if they want to facilitate the same level of lending activity through a subsidiary rather than through a branch.

However, the issuance of such new licenses will likely be limited or possibly even discontinued in the future. The most recent 100% FDI bank in Vietnam is the Singaporean-invested United Overseas Bank (UOB), licensed in 2017 with a VND 3,000 billion (approximately USD 130,400,000 ) charter capital.

Requirements

For representative office (RO), Vietnam has no restriction in accordance with WTO commitments on services. The bank is eligible to set up a RO in Vietnam when it meets the requirements to operate abroad in accordance with the legal system of its home country. For branch offices/branches, the parent bank needs to maintain total assets of more than USD 20 billion at the end of the year preceding setup application. The bank must also provide a written guarantee to be liable for all obligations and commitments of its branch in Vietnam. The minimum charter capital for a branch is USD 15 million.

In general, branches are the most difficult and complex forms to obtain operating licenses and the only way for any foreign FI who would like to open foreign bank branch or found-up a new bank/nonbank credit institution is buying an existing one, especially the ones that have been applied the special controlling method by SBV. Thus, these modes of market entry are not encouraged by Viettonkin’s consulting team.

For wholly foreign-owned and joint ventures, the foreign partner will be asked for a written guarantee to provide financial, technological, administrative, executive and operational support. This written guarantee is to ensure to maintain the charter capital not lower than the legal amount and to comply with regulations on safety assurances. There should also be an agreement in place between a competent foreign Government authority and State Bank of Vietnam (“SBV”) on collaborative supervision of financial institutions’ operation according to international practices.

General guideline

In general, there are two steps that foreign banks must go through in order to successfully establish a RO/branch/wholly-owned foreign bank/joint venture in Vietnam. First, they must obtain a banking license issued by the SBV. Specific procedures can be found under Circular 40/2011/TT-NHNN or through the consultation of legal experts. Obtaining a banking license requires specific conditions such as charter capital and years of establishment, and takes longer periods of time. For RO, it takes 30-60 days to receive the license, and for branches and corporate forms, the process could consume up to 242 working days.

Upon obtaining the banking license, foreign investors must undergo the business registration process to acquire the relevant business licenses at the local Department of Industry and Trade (for ROs and branches) or Department of Planning and Investment (for wholly-owned and joint ventures). This procedure takes 30-60 working days, followed by the compulsory seal and tax registrations.

New forms of investment (BCC, Strategic Partnership, M&A)

Business Cooperation Contract (BCC)

Description

Under Business Cooperation Contracts (BCC), the parties, either a Vietnamese and a foreign bank or all foreign partners, will enter a contract to formally establish a cooperative relationship in business and agree to share profits or products in ratios decided through negotiation. Utilizing this form of investment, such parties are not required to establish a new legal entity. Instead, a coordinating board will be formed to execute the BCC. Investors can freely negotiate the details of the contract and said coordinating board. There are many ways to classify BCC contracts, such as jointly controlled assets or jointly controlled operations, or earning sharing based on either revenue before tax or net profits.

General guideline

The foreign investor needs to apply for an Investment Registration Certificate and depending on the size of the project, it might be required to apply for an Investment Policy Decision first. The focal point of coordination and instruction will be the local Department of Planning and Investment. After being granted the Investment Registration Certificate, investors can carry out investment activities to implement the project according to the BCC Contract.

Pros and Cons

BCC enables the investor to gain speedy access to the market through domestic partners and start generating earnings immediately. This works best between a foreign partner with abundant expertise and a domestic partner with good access to local permits and real assets. Another characteristic of BCC is the lack of a separate legal entity.

For many, it is advantageous for saving time and cost significantly, and sparing them the headache of dissolution once the project is completed. However, this can also be considered risky for investors, given there are no clear regulations on the implementation of the BCC contract. The parties are fully responsible for their negotiation results and can only refer to high-level guidelines from the Law on Investment and the Civil Code.

Strategic Partnership

Description

Rather than pinning down the business into a specific product or project, Strategic Partnership is a form of investment which offers greater flexibility. These engagements can be categorized into: (1) Contractual arrangements, (2) Equity investments, and (3) Joint ventures, as follows:

To qualify for this form, the foreign investor is expected to have a good credit rating by an international agency and total assets of US$10 billion (to own from 10% of shares) or US$20 billion (to be qualified as a strategic investor).

General guideline

Similar to BCC, strategic partnerships operate under the provisions of the Civil Code and the Law on Investment.

The general process of establishing a strategic partnership follows these 6 steps:

Pros and Cons

This could be a highly viable market entry solution for international banks or institutions. Strategic Partnerships present a wide array of opportunities for investors with different backgrounds and levels of familiarity with the Vietnam market. However, along with this flexibility comes the timeline issue. Banks will be cautious and meticulous in selection as engagement on a strategic level touches core business pillars, leading to a longer negotiation time period, which can last 2-3 years.

Opportunities for foreign investor

During the last Annual General Meeting of Shareholders season, many banks continued to reveal their intention to seek foreign strategic partners, including OCB, LienVietPostBank, SCB, Ban Viet Bank, Nam A Bank, VPBank, and NCB. Since the beginning of 2021, under new policies, banks have been allowed to register a maximum foreign ownership ratio that is lower than the prescribed ceiling.

A number of large banks requested to increase current ownership limits to mitigate the effect of stagnant real estate market resulting in rising non-performing loans and bad debts. With regulations stipulating the maximum cap on the shares of a foreign strategic investor being 20% of the charter capital and the total foreign ownership being 30%, the current foreign ownership is seen as ranging from 12-20% below the ceiling limit. While some banks expressed their interests in increasing foreign ownership, others chose to lock their foreign rooms in order to retain part of the foreign ownership ratio for strategic investors. This proves an opportunity for foreign investors and the ongoing trend of increasing interests in foreign investments in the future. For instance, the foreign room at Techcombank is 22.5%, at OCB is 22% and at VPBank is 17.64%.

M&A

Description

Mergers and acquisitions (“M&A”) is an umbrella term that encompasses all forms of consolidation of companies and assets through various financial mechanisms including mergers, acquisitions, consolidations, tender offers, purchase of assets, and management takeover. In the current policy environment of Vietnam, M&A is one of the most recommended forms of investment, due to its alignment with recent regulations and less administrative complexity compared to traditional forms.

General guidelines

Despite its relative openness, M&A is still subject to certain conditions. Circular 36 stipulates that mergers, consolidation and acquisitions between credit institutions can only be conducted under certain forms: a commercial bank or a financial institution being merged or consolidated into another commercial bank; or a financial institution being merged or consolidated into another financial institution. Other than Circular 36, in general, the banking sector is mainly regulated by the Law on Credit Institutions 2010 and relevant documents analyzed above. Regulations on M&A activities in the sector are articulated in many different legal documents such as Law on Investment, Law on Enterprise, Law on Securities, Law on Credit Institution, Law on Competition, among others.

According to SBV, completing a bank M&A requires going through a process with 07 steps as follows:

1. Developing an M&A strategy, whereby bank managers need to define clear goals, ideas, and the expectations from the M&A;
2. Determine the criteria for the selection of M&A partners;
3. Planning: Detailed implementation, specifically from the beginning is identifying partners to approach, collect information and data, prepare legal issues, implement people (establishment) related teams and committees for implementation), time and content of valuation analysis, negotiation, preparation of capital sources, etc.;
4. Appraisal;
5. Drafting and signing contracts;
6. Releasing the committed capital;
7. Completion.

Pros and Cons

The biggest advantage of M&A is its alignment with the Government’s direction and policies on banking restructuring. Furthermore, commercial banks are required to publicly disclose information about business performance and investment activities and to be listed on HOSE or HNX, therefore it can enhance information transparency for the investors. M&A will also promote business efficiency by upscaling. Once the deal is in place, parties in the transaction can also exploit each other’s resources, increase market share, take advantage of customer relationships, thereby contributing to improving competitiveness and creating new business opportunities (Nguyen Thi Gam, 2019).

On the flipside, Vietnam has yet to develop a standard legal framework for M&A. With a plethora of laws to cross-examine, investors will have a hard time navigating through transaction and operation, while authorities also find it difficult to manage and give comprehensive instructions. Additionally, the Vietnam side of M&A is still passive and inexperienced, especially in due diligence, thus foreign investors should expect to take the lead in guiding them through the process.

Opportunities for foreign investor

There are many factors contributing to the growth of the banking M&A scene in Vietnam. The government is intending to expand foreign rooms limit to 49% from the original 30% for banks categorized as weak, including Vietcombank, MBBank, HDBank and VPBank, with the government's voting share holding at least 65% of the total share.

Second, still driven by policy, Circular 22/2019/TT-NHNN stipulated that all commercial banks must declare their capital adequacy ratio (CAR) and other regulatory ratios to SBV following Basel II standards. On the other hand, the European Union – Vietnam Free Trade Agreement (EVFTA) may facilitate European financial firms to penetrate the Vietnamese market. One of the key changes under the trade pact is that European investors are now able to increase their ownership ratio to a maximum 49 per cent in two Vietnamese banks.

The following financial instruments are available to foreign investors:

Conclusion

Given the slowdown of global and Vietnam economy, Vietnam's GDP growth rate is set low at 4.6% (HSBC 2023) with the banking sector's pre-tax profit is expected to increase by only 10% YoY (VCBS). Despite of the banking sector saw a sharp recovery in the first half of 2023, its projected growth rate remained low due to the recovery of bad debts and the stagnant real estate sector.

Viettonkin offers a full range of consulting services for all NFI variations, BCC, Strategic Partnership, or M&A. Our network of international experts, local connection, and strong on-the-ground support team guarantee a holistic and systemized approach customized to your company profile and demands.

Our CEO, Mr. David Lang is the country representative of a European Bank in Vietnam. Viettonkin plays a role as third parties to help this bank enhance its presence in Vietnam through credit packages for Vietnamese businesses. Currently, Viettonkin has consulted and connected a manufacturing enterprise in Vietnam to access a large loan with preferential interest rate from this Bank so that the business can recover and continue to grow.

Amidst the ongoing boom in information technology and the digital economy, technology-related investments have become increasingly popular among savvy investors. Within this landscape of enticing opportunities, the realm of electronic games, especially online games, stands out as an incredibly appealing segment that captures significant attention. However, despite its potential for great success, establishing an online game company in Vietnam presents its own unique challenges. The conditions and procedures involved in this process can be complex, leaving many investors bewildered and unprepared to navigate the regulatory landscape. As a result, improper implementation of the law becomes a common stumbling block for aspiring entrepreneurs in this field. 

Step 1: Conduct Market Research

After deciding what type of game you want to create in your gaming company, it is paramount to research the market well in order to get an idea of what you are venturing into. For instance, answering questions like – How big is the market? What is the growth potential? What are the risks and dangers involved? – can help you target your efforts concretely. In addition, it is also important to gather data on how the market functions and the mindset of your potential customers. Conduct surveys, understand the existing gaps in the market, and then work on bridging them.

Step 2: Develop a Business Plan

With the aim to launch a successful video game company and generate a substantial income from it, there are several key factors to consider before diving in. Take into account crucial aspects such as budgeting, determining the game's price, defining business models and legal structures, strategizing recruitment approaches for hiring talented employees, and more. It is essential to devote ample time to the planning phase since it’ll help to avoid challenges and setbacks later during the execution of the business venture. By doing so, investors can prepare for a smoother and more successful journey in the gaming industry.

Step 3: Legal and Regulatory Considerations

Before starting a gaming business, it is crucial to thoroughly familiarize yourself with the legal framework in Vietnam. Investors should pay close attention to compliance requirements and policy instructions to ensure they adhere to all regulations.

Regulations on the incorporation of FDI companies in the gaming sector

(1) Compliance with market opening commitments

According to the Schedule of Specific Commitments in Services of Vietnam’s commitments to the World Trade Organization (WTO), foreign investors are only able to register and provide game online services under the sector: “Electronic games business” (CPC 964) through business cooperation contract or joint-venture with Vietnamese partners who are specifically authorized to provide these services. The maximum foreign capital contribution allowed in joint ventures is only 49% of the legal capital. 

(2) Licenses for Investment and Company Establishment

To establish a foreign-owned game company in Vietnam, foreign investors must apply for the Investment Registration Certificate (IRC) and the Enterprise Registration Certificate (ERC). In the gaming sector, they are required to form joint ventures with Vietnamese partners who hold the necessary authorization for providing gaming services. The foreign capital contribution of foreign investors in these joint ventures is limited to 49% of the legal capital.

Sub- License

Trading in electronic games is a conditional business line according to the provisions of the Investment Law 2020, the established company needs to satisfy some conditions and be granted a license to operate in this field in Vietnam. Further details regarding these conditions will be discussed in the following section. 

Regulations on Online Gaming Industry in Vietnam

(1) Rating classification age of video game

In Vietnam, video games are subject to age-rating classifications based on specific regulations outlined in Decree No. 27/2018/ND-CP. The age groups are divided into three main categories: adults (18+), teenagers (12+), and everyone (00+). Each age group has specific guidelines governing the suitable content in terms of images, sounds, and actions. For instance, adult-rated games can feature armed combat but must exclude pornography in any form.

(2) Specialized Licenses relating to game online service

Depending on the nature of the online game services, providers must obtain specific licenses. For video games that have interaction among multiple players via the game server (G1 games), companies must obtain the license to provide G1 gaming services issued by the Ministry of Information and Communications with a validity period depending on the request of the companies and shall not exceed 10 years. In addition, for games that are identified as G2, G3, and G4 games a certificate of registration of game service provision is required, and at least 30 working days before officially providing, enterprises must send a Notice of provision of online game services for each game that will be provided to the Ministry of Information and Communications.

(3) Other regulatory requirements

In addition to the aforementioned regulations, there are several other requirements that businesses providing video game services in Vietnam must comply with.

Firstly, the enterprise must be established in accordance with Vietnamese law and have registered for the provision of online game services (G1, G2, G3, G4). It is important for the company to have a registered domain name and sufficient financial and technical capacity as well as measures for ensuring information safety and security. 

Secondly, when establishing an enterprise, there must always be at least one legal representative residing in Vietnam, who can be either Vietnamese or a foreigner with a valid working permit. 

Furthermore, the technical aspects of video game services must prioritize the safety, information security, and personal information confidentiality of players. Regarding transactions within video games, there are no specific controls on the amount of money that can be loaded into the game or specific timelines for transactions. However, failure to comply with the regulations may result in the suspension of the license.

Step 4: Financing gaming company

Financing is a critical aspect of starting any business. In Vietnam, there are various financing options available for gaming startups. Explore government grants, venture capital firms, and crowdfunding platforms. Prepare a compelling pitch that showcases the potential of your gaming company to attract investors. Consider building relationships with local investors and gaming industry networks to increase your chances of securing funding.

Step 5: Setting up operations

Establishing and running a successful gaming company necessitates meticulous planning and precise execution. Begin by registering your company in Vietnam, companies must ensure compliance with all the necessary legal procedures and requirements. Next, carefully consider the ideal office space for your operations. Factors such as location, accessibility, and cost should be taken into account as choosing a strategic location will not only facilitate collaboration and networking opportunities but also enhance your company's visibility and accessibility to potential clients and partners. 

Step 6: Marketing and Launching the Gaming Company

In the modern business landscape, the role of marketing and social media in launching a successful venture cannot be underestimated. They are instrumental in propelling your business off the ground and capturing your initial customer base, whether it be a hundred, a thousand, or even tens of thousands of customers. According to marketing metrics, establishing strong customer relationships is immensely rewarding. By employing a data-driven approach to user retention, you can experience significant growth in revenue metrics. Also, it is crucial to consistently monitor your growth metrics to gain insights into customer responses to your array of games. Regularly tracking these metrics will enable you to understand customer preferences and make informed adjustments to optimize your offerings.

The Bottom Line

Embarking on the journey of starting a gaming company in Vietnam requires meticulous planning, market understanding, and adherence to regulatory frameworks. This six-step guide has provided you with a roadmap to navigate the intricacies of establishing your business successfully. From conducting comprehensive market research to grasping the legal landscape and obtaining the necessary licenses, each stage is vital for your company's foundation. However, in an industry as dynamic and competitive as gaming, gaining a competitive edge and maximizing your chances of success demands more than just following a guide.

That's where Viettonkin's consulting services come into play. Our team of seasoned experts possesses a deep understanding of the Vietnamese gaming industry, market trends, and regulatory intricacies. With our guidance, you can unlock insightful strategies tailored to your unique business goals. We offer comprehensive support, from market entry analysis to strategic planning, financial feasibility assessments, and beyond. Partnering with Viettonkin ensures that your investment in the Vietnamese gaming market is not only compliant but also strategically sound.

Take the leap and reach out to Viettonkin today to embark on your journey toward a thriving gaming company in Vietnam. Let us be your trusted partner, empowering you to make informed decisions and unlock the full potential of this vibrant and promising market. Your success awaits with Viettonkin, your catalyst for achieving greatness in the gaming industry.