Relocating Production from China to Vietnam: Legal Roadmap for German Manufacturers

Production Relocation Is a Multi-Dimensional Legal Project

For German manufacturers currently operating in China who have decided to relocate or diversify production into Vietnam, the transition involves far more than establishing a new corporate entity. It is a multi-jurisdictional legal, tax, and operational project that requires structured sequencing to execute successfully.

Companies that approach China-to-Vietnam relocation as primarily a logistics and procurement exercise consistently encounter avoidable legal and regulatory complications that delay project timelines and increase implementation costs.

Phase 1 — Strategic and Legal Structure Design

Relationship Between Chinese and Vietnamese Entities

The first legal question is how the Vietnamese entity will relate to the existing Chinese operation within the corporate group structure. Common configurations include:

• Independent Vietnamese subsidiary of the German parent: Clean legal separation, direct reporting line to German headquarters.
• Vietnamese subsidiary of the Chinese holding entity: Creates cross-border related-party relationships that generate transfer pricing, withholding tax, and governance complexity.
• Regional holding structure (Singapore, Netherlands, or other holding jurisdiction): Used where the group is establishing a broader Asia-Pacific manufacturing platform and Vietnam is one of several expansion locations.

The structural choice has material implications for tax efficiency, transfer pricing documentation requirements, IP ownership and licensing arrangements, and corporate governance over the long term.

IP and Technology Transfer

For German manufacturers with proprietary manufacturing processes, machinery specifications, or product technology, IP protection in Vietnam is a primary concern. Key considerations include:

• Vietnam is a party to the Paris Convention and TRIPS Agreement — formal IP protection frameworks are in place.
• Practical IP protection in manufacturing environments depends substantially on employment contract confidentiality obligations, non-disclosure agreements with Vietnamese management, and operational security protocols.
• Technology licensing arrangements between the German parent and Vietnamese subsidiary require careful structuring to comply with Vietnam’s IP licensing regulations and transfer pricing requirements.

Phase 2 — Vietnamese Investment Licensing

Investment Registration Certificate (IRC)

Foreign manufacturing investment in Vietnam requires an Investment Registration Certificate (IRC) from the relevant investment authority. For industrial zone projects, the IRC is typically issued by the Industrial Zone Management Authority. For projects outside industrial zones, the Department of Planning and Investment at the provincial level has jurisdiction.

The IRC application requires documentation of the project scope, investment capital, business objectives, land use plan, and — for certain sectors — pre-approvals from relevant sector authorities.

Enterprise Registration Certificate (ERC)

Following IRC issuance, the company must be registered with the business registration authority. The ERC establishes the legal entity, its charter capital structure, governance framework, and authorized representatives.

Sector-Specific Approvals

Certain manufacturing sectors require additional approvals beyond the IRC and ERC:

• Food processing: food safety approvals from the Ministry of Health or Ministry of Agriculture.
• Chemical manufacturing: chemical business licensing from the Ministry of Industry and Trade.
• Medical device manufacturing: registration with the Ministry of Health.
• Electronics and high-tech manufacturing: in designated high-tech zones, technology assessment requirements.

Phase 3 — Operational Setup and Compliance

Intercompany Supply Agreements

German manufacturers running parallel operations in China and Vietnam during the transition period need clearly drafted intercompany agreements covering:

• Supply of components or raw materials from China to Vietnam (or vice versa).
• Pricing methodology compliant with transfer pricing regulations in both jurisdictions.
• Quality standards and delivery obligations.
• IP licensing terms.

Transfer pricing documentation is required in Vietnam for related-party transactions under Decree 132/2020/ND-CP. German manufacturers with existing transfer pricing frameworks will need to extend these to cover the Vietnamese entity.

Customs and Import Planning

Many German manufacturers relocating from China intend to import machinery, equipment, production lines, or tooling into Vietnam. The customs treatment of these assets — whether imported duty-free as capital contributions, subject to preferential duty rates under trade agreements, or fully dutiable — requires advance planning.

Export Processing Enterprise (EPE) status, available to fully export-oriented manufacturers, provides the most comprehensive customs benefit: full exemption on imported inputs and zero VAT on exported outputs. EPE registration is separate from the IRC/ERC process and involves specific operational restrictions.

Labor Law Compliance

Vietnam’s Labor Code 2019 and its implementing regulations govern employment relationships in Vietnamese manufacturing entities. Key differences from Chinese labor law that German employers frequently encounter include:

• Probationary period limitations and requirements for written probation agreements.
• Mandatory trade union consultation procedures for internal labor regulations.
• Social, health, and unemployment insurance contribution structures and registration requirements.
• Foreign employee work permit requirements and exemptions.
• Annual leave entitlements and mandatory benefits.

Timeline Considerations

A realistic timeline for establishing a new greenfield manufacturing entity in Vietnam, from initial site selection to first production, is typically 12 to 24 months depending on project complexity, sector-specific approvals required, and construction timeline. The licensing phase alone (IRC to operational licenses) typically requires 3 to 9 months.

German manufacturers planning production relocation from China should build these timelines into their transition planning — and coordinate with customer delivery commitments accordingly.

Managing the Parallel Operations Period

The period during which both Chinese and Vietnamese operations are active simultaneously is legally and operationally complex. Clear documentation of intercompany flows, transfer pricing positions, and operational responsibilities between the two entities is essential during this phase — both for internal governance and for regulatory compliance in both jurisdictions.

Practical Recommendations

• Engage Vietnam legal counsel at the structure design phase — before industrial zone selection or licensing applications begin.
• Conduct a transfer pricing readiness review early — Vietnam’s transfer pricing regulations apply from the first year of related-party transactions.
• Assess EPE eligibility before committing to an investment structure — the tax and customs benefits are material for export-oriented manufacturers.
• Plan labor compliance framework before the first hire — retroactive corrections are more costly than correct initial setup.
• Build LkSG compliance requirements into the Vietnamese entity’s operational design from the outset.

This material is for general informational purposes only and does not constitute legal, tax or professional advice. Investors should seek specific advice based on their business sector, ownership structure and investment location in Vietnam.

About the Author: Attorney Vu Manh Quynh is the Managing Partner of ECOVIS Vietnam Law, advising international investors on Foreign Direct Investment (FDI), manufacturing expansion, and corporate governance in Vietnam. He leads the German Desk at ECOVIS Vietnam Law, advising German and European companies on market entry, factory setup, and cross-border investment structuring. Contact: vietnam@ecovislaw.vn