Discover the best strategy with Incorporation vs Employer of Record in Vietnam. Whether you seek full incorporation or an EOR for seamless hiring, find the ideal solution for expanding your business in Vietnam.
Expanding into Vietnam presents two main options: setting up a local entity through incorporation or using an Employer of Record (EoR) to hire talent. This guide highlights the key differences between these approaches to help you choose the best strategy for your business.
Incorporating a business in Vietnam involves several steps, beginning with choosing a business structure. For most foreign companies, the most suitable entity type is a Wholly Foreign-Owned Enterprise (WFOE), which allows full ownership by foreign investors. However, depending on your industry, you may also consider setting up a Joint Venture if local partnerships are beneficial.
Key steps to incorporating in Vietnam include:
The entire process of incorporation can take anywhere from 3 to 6 months, depending on the industry and business type. Foreign businesses must also comply with foreign ownership restrictions in certain sectors, such as telecommunications, education, and transportation.
By incorporating a business in Vietnam, companies gain full control over their operations. This includes the ability to make strategic decisions regarding hiring, marketing, and product offerings. Incorporating also enhances your company's credibility within the local market, which can be beneficial when dealing with local suppliers, partners, and government entities.
Incorporation allows you to establish a permanent presence in Vietnam, build your brand, and tap into local opportunities that may not be available to companies operating without a local entity. This structure is ideal for businesses planning to make long-term investments in the country, as it provides stability and direct access to the market.
While incorporation offers autonomy, it also comes with higher financial and administrative costs. Establishing a local entity involves paying for office space, legal services, and government fees. In addition to the initial capital investment, businesses must manage ongoing costs, including corporate taxes, employee benefits, and statutory compliance.
Foreign businesses must also navigate Vietnam's complex regulatory environment, which can be time-consuming and resource-intensive. Labor laws, tax regulations, and industry-specific requirements must be strictly followed, and failure to comply can result in hefty fines or legal complications.
An Employer of Record (EoR) is a service provider that allows companies to hire and manage employees in Vietnam without having to establish a legal entity. The EoR acts as the legal employer on behalf of the company, handling all aspects of payroll, taxes, and compliance. This solution allows businesses to enter the Vietnamese market quickly and cost-effectively while minimizing administrative burdens.
One of the biggest advantages of using an EoR in Vietnam is the speed with which companies can begin operating in the country. There’s no need to go through the lengthy incorporation process, meaning businesses can start hiring local talent and scaling their operations within a matter of weeks.
EoR services are also cost-effective, particularly for businesses looking to hire a small number of employees or enter the market on a short-term basis. The EoR handles all the complexities of employment compliance, including payroll management, social security contributions, and income tax withholding. This allows companies to focus on business growth rather than the administrative details of local labor laws.
While an EoR simplifies market entry, it does come with limitations. Since the EoR is the legal employer, businesses have less control over HR policies, employee contracts, and benefit packages. The EoR handles all employment matters, which can limit your ability to implement customized HR practices or internal processes that align with your company culture.
In addition, the use of an EoR may affect how your company is perceived in Vietnam. While EoR services are fully compliant with local laws, some partners or clients may prefer to engage with businesses that have established a physical presence in the country through incorporation.
Incorporation involves significant upfront costs, including registration fees, legal expenses, office setup, and initial capital requirements. Once established, businesses must also cover ongoing operational expenses such as rent, payroll, taxes, and statutory benefits. While these costs can be high, incorporation allows businesses to retain full control over their operations and workforce.
In contrast, an EoR typically charges fees based on the number of employees managed. These fees cover employment administration, payroll, tax filings, and compliance. The lower upfront investment makes an EoR a more affordable option for businesses looking to hire local employees without the financial commitment of setting up a local entity.
When incorporating a business in Vietnam, companies are responsible for managing all aspects of regulatory compliance. This includes ensuring that labor contracts meet local standards, filing taxes, and adhering to corporate governance requirements. Navigating Vietnam's regulatory environment can be challenging, particularly for companies unfamiliar with local laws.
With an EoR, compliance is handled on your behalf. The EoR ensures that all employment-related processes are in line with Vietnamese labor laws, including social security contributions, taxes, and employee benefits. This significantly reduces the risk of non-compliance and associated penalties, as the EoR assumes full responsibility for staying up to date with local regulations.
An EoR offers greater flexibility, especially for businesses that are looking to test the market or expand on a short-term basis. Since there’s no need to commit to setting up a legal entity, companies can hire local employees quickly and scale their operations based on market demand. An EoR is also ideal for businesses looking to hire remote teams in Vietnam without establishing a permanent presence in the country.
Incorporation, on the other hand, is better suited for businesses with long-term goals. Once the entity is established, companies can scale their operations with full control over HR policies, business strategy, and workforce management. However, incorporation is less flexible, as it involves a more permanent commitment to the market, requiring ongoing investment and compliance management.
For small and medium-sized enterprises (SMEs), the agility and lower commitment of an EoR make it an attractive option. SMEs can quickly expand into Vietnam, hire local talent, and manage their workforce without the administrative burden of incorporation. The cost savings and flexibility of an EoR make it a suitable solution for businesses that want to test the market before making a larger investment.
For larger corporations, incorporation may be a better fit, particularly if the company has long-term plans to build a significant presence in Vietnam. Incorporation allows for greater control over operations, more strategic decision-making, and the ability to secure contracts and partnerships that may require a local entity. Additionally, larger businesses with complex HR needs may prefer the autonomy that comes with incorporation.
Your business strategy will play a key role in determining whether to incorporate or use an EoR. If your business is focused on rapid market entry or plans to operate in Vietnam on a short-term basis, an EoR provides the flexibility and cost efficiency needed to meet your goals. An EoR allows you to start operations quickly and scale based on market performance.
However, if your company is looking to invest in Vietnam for the long term and build a lasting presence, incorporation may be the more suitable choice. Incorporation gives you full control over operations, the ability to manage HR internally, and the opportunity to build long-term relationships with local stakeholders.
At AYP, we understand the challenges of expanding into new markets like Vietnam. Our Employer of Record (EoR) services allow businesses to hire and manage employees in Vietnam quickly and efficiently, without the need to establish a local entity. We handle all aspects of employment compliance, from payroll to taxes, ensuring that your business remains fully compliant with Vietnamese labor laws.
Whether you're looking for a short-term solution or planning for long-term growth, AYP offers tailored solutions to fit your business needs. Let us help you navigate the complexities of incorporation vs. EoR in Vietnam so that you can focus on scaling your operations with confidence.
