Attorney Vu Manh Quynh is the Managing Partner of ECOVIS Vietnam Law, advising international investors on Foreign Direct Investment (FDI), corporate governance, and regulatory compliance in Vietnam.

The ERC-First Strategy: Why Investors Choose It and Where It Goes Wrong

The standard Vietnam FDI entry sequence is IRC first, then ERC — the investment project is licensed before the legal entity is incorporated. But a growing number of foreign investors, particularly those acquiring minority or majority stakes in existing Vietnamese companies, or those seeking to move faster than the standard IRC timeline allows, are entering through a different route: obtaining approval to contribute capital to a Vietnamese entity first (which results in an ERC amendment or new ERC), and then applying for an IRC for the investment project.

On paper, this approach can compress the initial timeline. In practice, ECOVIS Vietnam Law observes three specific failure modes that turn the shortcut into a prolonged and costly compliance problem.

Failure Mode 1: Business Line Rejection at the IRC Stage

When a foreign investor contributes capital to a Vietnamese company and obtains approval at the ERC stage (or through the capital contribution approval process), the business line review at that point is relatively light — the approving authority checks that the intended activity is not on the prohibited or conditional investment list and that the corporate structure is permissible. It does not conduct a detailed zoning, technology, or environmental impact assessment.

The IRC application, however, triggers a full project-level assessment by the investment registration authority — and in an industrial park, by the Industrial Park Management Board. That assessment evaluates the project against the zone’s approved development plan, technology classification requirements, and environmental master plan. Activities that passed the ERC stage without scrutiny — including certain R&D, testing, logistics coordination, and business process outsourcing activities — may be rejected at the IRC stage because they do not conform to the zone’s approved production activity profile.

When the core business line is rejected at the IRC stage, the investor’s position is extremely difficult: the ERC has been issued (the entity legally exists), capital may have already been contributed, but the investment project cannot be licensed in the intended location. The investor must either renegotiate the business line to conform to what the zone permits (changing the operating model), find an alternative location that accepts the intended activity, or unwind the capital contribution and exit — all while carrying the legal and financial obligations of an existing incorporated entity.

Failure Mode 2: Financial Capacity Proof Using Local Accounts Only

When applying for the IRC after the ERC has already been issued and capital has been contributed, the investment registration authority requires the investor to demonstrate financial capacity to implement the proposed investment project. Under standard practice, this is done using the investor’s foreign financial statements, bank confirmations, or other evidence of the parent company’s financial standing.

However, once capital has already been contributed to the Vietnam entity through the ERC process and registered through the DICA (Direct Investment Capital Account), the applicable standard shifts: the licensing authority expects the demonstration of financial capacity to come from the Vietnam entity’s own audited financial statements or from the DICA account balance confirmation — not from the parent company’s foreign accounts. For investors whose Vietnam entity is newly established and has not yet accumulated meaningful audited accounts, this creates a documentation gap that delays or prevents IRC issuance.

Failure Mode 3: The DICA Disbursement and 90-Day Rule Trap

This is the most operationally damaging of the three failure modes. When foreign capital is contributed to a Vietnam entity, it must be remitted into the DICA account at a Vietnam commercial bank within the statutory timeframe — 90 days from the issuance of the ERC or capital contribution approval. The bank requires confirmation of the relevant approval document (the capital contribution approval or ERC) before accepting the inward remittance into the DICA.

Investors who remit capital before obtaining the correct approval document — or who remit through an ordinary bank account rather than the DICA — commit a foreign exchange management violation. The transferred capital does not register correctly in the official investment record, and the bank cannot retroactively reclassify the remittance as a DICA deposit. The practical consequence is that the contributed capital is treated as unregistered for foreign exchange management purposes: the company cannot use it as the contribution base for future IRC capital capacity demonstrations, and — most damagingly — it cannot be included in the calculation for future profit remittance, because the capital record is incomplete.

The 90-day clock begins from the approval document date, not from when the investor decides to transfer. Companies that obtain capital contribution approval but then delay the bank transfer while waiting for ERC amendments, signing procedures, or operational setup frequently miss the 90-day window without realising the deadline has started.

When the ERC-First Approach Does Work

The ERC-first approach is appropriate and low-risk in specific circumstances: when the investor is acquiring shares in an existing Vietnamese company outside an industrial park; when the intended activities do not require IRC licensing (domestic trading and service companies in many sectors do not); when the capital contribution approval process is used for a preliminary stake with a plan to obtain IRC for the full project subsequently, and the timeline is planned with legal counsel from the outset; or when the investor is entering a sector where the capital contribution approval route is the standard legal mechanism for foreign ownership.

The key distinction is preparation: investors who enter the ERC-first route with a legal advisor who has mapped both the ERC and the subsequent IRC process — including the zoning risk, the financial capacity documentation requirement, and the DICA disbursement timeline — can navigate it successfully. Those who use it as an improvised shortcut to avoid the IRC timeline typically encounter one or more of the three failure modes described above.

Frequently Asked Questions

If the IRC application is rejected after the ERC has been issued, what are the investor’s options?

The investor can appeal the IRC rejection (arguing for a different business line classification or presenting technical evidence that the activity conforms to the zone’s development plan); seek an alternative location where the intended business line is accepted; or restructure the operating model to fit the approved activities in the current zone. Each option involves legal cost, timeline delay, and potential capital exposure. None is straightforward. Prevention — confirming IRC licensing feasibility before committing to ERC and capital contribution — is materially cheaper.

What happens if foreign capital is remitted outside the DICA and the 90-day window is missed?

The investor must work with the bank and the licensing authority to document the remittance and attempt to regularise the capital registration. This process is not guaranteed to succeed and may result in the capital being treated as an unregistered contribution — with consequences for profit remittance and subsequent capital increases. In the worst case, the investor may need to repatriate the funds and re-inject them through the correct DICA channel after obtaining the correct documentation — accepting the foreign exchange cost and delay of a double transfer.

How long does the standard IRC-first process take compared to the ERC-first approach?

For a standard manufacturing or service project in an established zone, the IRC-to-ERC standard process takes four to eight weeks for IRC issuance plus five to seven days for ERC. The ERC-first (capital contribution approval) route can in some cases reduce initial registration time by two to three weeks — but this saving is typically recovered and exceeded by the time spent resolving the IRC stage complications. For projects where the IRC timeline is genuinely critical, the more reliable approach is to pre-prepare the IRC application package fully before submission rather than route around the IRC stage.

Considering the ERC-first entry route for your Vietnam investment? Before committing to capital contribution or signing an acquisition term sheet, confirm that your intended business line, location, and capital structure are IRC-compatible. Contact Attorney Vu Manh Quynh at ECOVIS Vietnam Law. Email: vietnam@ecovislaw.vn | Website: www.ecovislaw.vn

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. Legal and regulatory references reflect the position as of July 2026.

Attorney Vu Manh Quynh is the Managing Partner of ECOVIS Vietnam Law, advising international investors on Foreign Direct Investment (FDI), corporate governance, and regulatory compliance in Vietnam. Email: vietnam@ecovislaw.vn | Website: www.ecovislaw.vn