Establishing a 100% foreign-owned enterprise under the “ERC First – IRC Later” procedure: Key legal considerations
The Law on Investment No. 143/2025/QH15, which takes effect on March 1, 2026, introduces a fundamental change to the market-entry procedures applicable to foreign investors. For the first time, the law permits foreign investors to establish an economic organization and obtain an Enterprise Registration Certificate (“ERC”) before completing the procedures for obtaining an Investment Registration Certificate (“IRC”), provided that they satisfy the market access conditions applicable to foreign investors.
From a regulatory perspective, this mechanism offers a clear advantage in terms of time efficiency. However, it also shifts a substantial portion of the legal risks from the state authorities to the investors themselves. How does the “ERC first – IRC later” procedure apply to the establishment of a 100% foreign-owned enterprise, and what should investors take into account? This article examines the key issues.
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1. The “ERC First – IRC Later” procedure is an option, not an obligation
Pursuant to Clause 2, Article 19 of the Law on Investment 2025, foreign investors are permitted to establish an economic organization to implement an investment project before completing the procedures for obtaining an IRC, provided that they satisfy the market access conditions applicable to foreign investors.
Under the Law on Investment 2020, foreign investors were required to obtain an IRC before registering the establishment of an enterprise. The Law on Investment 2025 does not abolish this sequence of procedures but introduces an alternative pathway. Accordingly, investors may now choose between two options: (i) obtaining the IRC first and then the ERC, following the traditional procedure; or (ii) obtaining the ERC first and then the IRC, under the new regulations.
Therefore, the “ERC first – IRC later” procedure changes the sequence in which the procedures are carried out; it does not eliminate the investment registration requirements applicable to projects subject to IRC issuance.
2. Market access conditions applicable to foreign investors
Being permitted to establish an enterprise before applying for an IRC does not mean that foreign investors are free to choose their business lines or ownership ratios without restriction.
Pursuant to Clauses 1 and 3, Article 8 of the Law on Investment 2025, foreign investors are subject to the same market access conditions as domestic investors, except for business lines included in the List of Business Lines with Restricted Market Access for Foreign Investors. Market access conditions may relate to foreign ownership ratios, forms of investment, scope of activities, investor capacity, partners participating in the investment activities, and other conditions prescribed by law.
Where a foreign investor establishes an economic organization before applying for an IRC, the enterprise registration dossier must include a commitment to satisfy the applicable market access conditions[1]. The issuance of an ERC does not constitute confirmation by the state authorities that the investor has satisfied those conditions. A substantive assessment will take place during the IRC issuance process.
In practice, if an investor makes an inaccurate commitment (for example, by registering business lines for which the foreign investor does not satisfy the applicable conditions) the enterprise may still obtain an ERC but subsequently be refused an IRC. This may leave the investor with an established legal entity, contributed capital, and incurred expenses, while being unable to implement the investment project.
Accordingly, for a 100% foreign-owned enterprise, market access conditions should be comprehensively reviewed before the ERC application is submitted. At a minimum, this review should cover: (i) the List of Business Lines with Restricted Market Access for Foreign Investors; (ii) Vietnam’s commitments under the WTO and applicable international investment treaties, taking into account the investor’s nationality; and (iii) business investment conditions under specialized legislation, including sub-licences, statutory capital requirements, personnel requirements, and facility requirements, etc.
3. The ERC and IRC must be based on a consistent investment plan
Under Clause 3, Article 72 of Decree No. 96/2026/ND-CP, where a foreign investor establishes an economic organization before applying for an IRC, the enterprise registration dossier must include a commitment to satisfy the market access conditions applicable to foreign investors.
Accordingly, the ERC and IRC procedures should not be treated as entirely independent processes.
The business lines registered in the ERC should be consistent with the objectives and scope of the investment project. In addition, matters such as the ownership ratio, charter capital, legal representative, registered office address, and proposed business operations should be structured consistently with the IRC application to be submitted subsequently.
In practice, preparing the ERC application and the framework for the IRC application simultaneously from the outset (including the investment project proposal, capital plan, implementation schedule, and project location) is the most effective way to avoid a situation in which the ERC has already been issued but the investor must subsequently revise the business lines, project objectives, or investment structure when applying for the IRC. Such revisions may require changes to the enterprise registration particulars and delay the overall implementation schedule.
4. Obtaining an ERC does not mean the investment project can immediately be implemented
Under Clause 4, Article 72 of Decree No. 96/2026/ND-CP, an economic organization established under the “ERC first – IRC later” procedure must complete the IRC issuance procedures within 12 months from its establishment date and may only implement the investment project after the IRC has been issued.
This requirement calls for a distinction between:
- Activities relating to the establishment, organization, and operation of the legal entity, such as opening bank accounts, leasing office space, recruiting management personnel, engaging accounting and legal service providers, conducting market research, and preparing the project dossier; and
- Activities implementing the investment project, such as commencing production or business operations in accordance with the project objectives, carrying out construction, installing production lines, importing machinery and equipment, or generating revenue from the project’s activities.
The absence of an IRC does not deprive the enterprise of its legal personality or prevent it from undertaking the corporate governance and organizational activities necessary for its own establishment and operation. However, current legislation does not specifically enumerate the boundaries between these two categories of activities. This creates an area of legal uncertainty that investors should approach cautiously. As a prudent approach, investors should limit their activities to preparatory matters, while deferring any revenue-generating activities or activities directly associated with the project objectives until after the IRC has been issued.
For important contracts entered into during this period, such as long-term factory leases, equipment procurement agreements, and contracts with business partners, investors should consider including conditions precedent linked to the issuance of the IRC or clauses allowing termination without penalty if the IRC is not granted. This is because the risks associated with preparatory activities undertaken before the IRC is issued rest with the investor. If the IRC is refused or issued with terms that differ from those anticipated, the investor cannot rely on the ERC to hold the state authorities liable.
The 12-month period should also be managed as a firm deadline. If the IRC issuance procedures are not completed within this period, the enterprise will remain a legal entity that is unable to implement the investment project. The investor will then need to consider appropriate options, such as revising the investment plan, transferring the enterprise, or dissolving it.
5. Capital contributions, investment capital accounts, and expenses incurred before the irc is issued
Financial capacity. Establishing an enterprise before obtaining the IRC allows the investor to defer the demonstration of the project’s financial capacity beyond the enterprise registration stage. The funding sources and financial capacity requirements will be assessed during the IRC issuance process, taking into account the project’s scale, objectives, and implementation schedule. However, this is merely a difference in the timing and sequence of assessment; it does not exempt the investor from demonstrating financial capacity.
Investment capital accounts. Under Clause 3, Article 7 of Circular No. 38/2026/TT-NHNN, an economic organization established before obtaining an IRC may open one foreign-currency investment capital account and/or one Vietnamese-dong investment capital account at an authorized bank. During this period, the account is primarily used to: (i) receive capital contributions and accrued interest; (ii) pay lawful expenses related to investment preparation activities; and (iii) return capital to the investor if the IRC is not granted.
Capital contribution deadlines. This is one of the issues most likely to be overlooked. Under the Law on Enterprises, the owner or members of a limited liability company must fully contribute their committed capital within 90 days from the date of issuance of the ERC, excluding the time required to transport or import contributed assets and complete procedures for transferring ownership of such assets. For a joint-stock company, shareholders must fully pay for the shares they have subscribed for within 90 days from the date of issuance of the ERC, unless the company’s charter or share subscription agreement specifies a shorter period[2]. Foreign investors’ capital contributions must be made through investment capital accounts in compliance with foreign exchange regulations.
Accordingly, investors must manage two parallel but distinct deadlines: 90 days to fully contribute charter capital under the Law on Enterprises, and 12 months to complete the IRC issuance procedures under Decree No. 96/2026/ND-CP. Obtaining the ERC before the IRC does not allow investors to defer their capital contributions until the IRC is issued. In other words, investors will generally be required to fully contribute their charter capital before knowing whether the investment project will be approved through the issuance of an IRC.
If the investor fails to contribute the full committed capital within the prescribed period, the enterprise must register an adjustment to its charter capital and ownership ratios to reflect the actual contributed capital within the statutory deadline. Administrative penalties may also apply, depending on the nature and severity of the violation.
Expenses incurred before the IRC is issued. Under Clause 3, Article 7 of Circular No. 38/2026/TT-NHNN, the enterprise may use its investment capital account to pay lawful expenses associated with investment preparation activities, including expenses for premises, personnel, accounting, legal services, banking services, office equipment, management services, and other necessary administrative costs.
These expenses should be properly recorded, supported by complete documentation, and kept separate from expenses incurred for the actual implementation of the investment project. This is necessary not only for accounting and tax compliance but also for determining the amount of capital that may be returned to the investor, after deducting lawfully incurred expenses, if the IRC is not granted.
6. Charter capital and investment capital must be structured from the outset
Pursuant to Clause 5, Article 72 of Decree No. 96/2026/ND-CP, the charter capital of an economic organization implementing an investment project is not required to equal the total investment capital of the project. This provision gives investors greater flexibility in structuring their capital. Accordingly, charter capital may be determined based on the enterprise’s initial establishment and operational needs, while the project’s total investment capital may be determined based on its actual scale and funding requirements.
However, any difference between the total investment capital and charter capital must be funded from other lawful sources, such as loans or additional charter capital contributions. Investors should also take into account regulations concerning foreign loans, interest expenses, and minimum capital requirements applicable to certain conditional business lines.
Therefore, when preparing the ERC application, investors should establish a clear relationship between the charter capital, the investor’s capital contribution, the project’s total investment capital, the capital contribution schedule, additional funding sources, and the investment cash flow.
7. Conclusion
The mechanism permitting foreign investors to establish an economic organization and obtain an ERC before applying for an IRC gives investors greater flexibility in establishing a legal entity, organizing its operations, and preparing the necessary conditions for an investment project. However, obtaining an ERC first does not mean that the enterprise may immediately implement the investment project or that it has been confirmed as fully satisfying the applicable market access conditions. The enterprise must still complete the IRC issuance procedures within 12 months and may only implement the investment project after the IRC has been issued.
Accordingly, when choosing the “ERC first – IRC later” procedure, investors should simultaneously consider market access conditions, consistency between the ERC and IRC dossiers, the deadline for completing investment procedures, capital contribution obligations, investment capital accounts, and the project’s capital structure. If these matters are properly managed from the preparation stage, the “ERC first – IRC later” procedure can help investors shorten the time required to establish a legal entity and take a more proactive approach to preparing for investment activities in Vietnam.
This article was prepared by Oanh Thai and reviewed by Lawyer Y Huynh.
This article is intended for general informational purposes only and should not be construed as legal advice for any specific case. The legal provisions cited herein are effective as of the date of publication but may be amended, supplemented, or replaced by the time readers consult this article. Accordingly, readers are advised to seek advice from a lawyer before applying the information contained herein.
[1] Clause 3, Article 72 of Decree No. 96/2026/ND-CP
[2] Clause 2, Article 47; Clause 2, Article 75; and Clause 1, Article 113 of the Law on Enterprises No. 59/2020/QH14, as amended and supplemented by Law No. 76/2025/QH15
