Capitalizing on Hospitality Demand: Starting a Hotel in Vietnam

Vietnam’s tourism and hospitality sector has a magnetic appeal for international investors. This is because of its deep-rooted cultural heritage, abundant historical treasures, diverse landscapes and captivating coastlines. In this article, we will explore the various considerations that must be taken into account, in order to start a hotel in Vietnam.

2023 – Tourism Growth Returns to Southeast Asia & Vietnam

Following the impact of the COVID-19 pandemic, the revival of tourism in the Asia Pacific region was led by Southeast Asia. Countries in this subregion reopened their borders to international visitors, by alleviating or even eliminating travel restrictions. This led to increased mobility and a resurgence in the hospitality industry. 

January and February 2022 witnessed a notable year-on-year surge of over 102% in total international visitors in the region. Destinations in Southeast Asia were projected to witness a substantial 86% year-on-year rise, with a total hotel investment volume of USD 1.5 billion for 2022. 

Such promising prospects made investors actively seek opportunities to acquire hotel assets in the subregion, in preparation for the anticipated return of foreign tourists. Specifically for Vietnam, it took a pioneering step by reopening its doors to tourists on March 15, 2022, following the impact of the COVID-19 pandemic. Since then, the tourism sector has exhibited a robust recovery. In the first ten months of 2022 alone, Vietnam witnessed an extraordinary surge in tourist arrivals, with approximately 2.1 million visitors, marking a remarkable 24.9-fold increase compared to the previous year.

Moreover, it was estimated that between 2022 and 2023, Vietnam will welcome a staggering 8 to 9 million foreign tourists. To support the industry’s growth, the nation has allocated a substantial portion of its GDP (more than other Southeast Asian nations) to infrastructure development. These investments primarily focus on the development of a vast network of highways spanning 2,000 kilometers, the enhancement of metro systems, and the undertaking of other significant construction projects in Hanoi and Ho Chi Minh City.

Prospects of the Hotel Industry in Vietnam

Vietnam is expected to witness a 7% annual growth rate in the hotel industry in the next four years, with positive signs for the tourism market, including the resumption of flights between China and Vietnam. The return of Chinese tourists is anticipated to have a significant impact on the recovery of tourism activities in Southeast Asia, benefiting countries like Vietnam. Furthermore, Vietnam’s government has implemented initiatives to support tourism development and attract more visitors, including expanding visa exemptions and investing in infrastructure projects.

Growth in international tourism and domestic travel

The hotel market in Vietnam is poised for significant growth, driven by the revival of the tourism sector, especially international tourism. According to Statista, the segment is projected to witness substantial revenue growth, with estimates indicating it will reach a notable USD 1.49 billion this year. This positive trend is expected to continue, with a robust annual growth rate (CAGR 2023-2027) of 7.32%, resulting in a projected market volume of approximately USD 1.98 billion by 2027.

Alongside revenue growth, the Hotels segment is also anticipated to experience an increase in the number of users, with an estimated 12.33 million users expected by 2027. In Vietnam, the hotel industry is projected to witness an annual growth rate of 7% from 2023 to 2027, with an average revenue per guest expected to reach USD 158 by 2027, increasing by 0.3% annually.

Ho Chi Minh City, in 2022, welcomed nearly 3.5 million international tourists. 2023 beacons positive signals for the tourism market with the resumption of flights between China and Vietnam, further boosting the prospects of the tourism sector.

According to Michael Kokalari, Chief Economist at VinaCapital, Chinese tourist arrivals are expected to fully recover in the second half of 2023. Since Chinese tourists account for one-third of the total number of tourists in Vietnam, their complete recovery would translate to an additional 20% increase in tourist arrivals for the year. As per Savills, a real estate services firm, this development will expedite the recovery process of the hotel and resort real estate market in Vietnam.

The increase in the number of foreign tourists visiting Vietnam will potentially lead to a GDP growth rate of over 2% this year, effectively offsetting the decline witnessed in the manufacturing sector. 

Increasing demand for quality accommodations and services

In 2019, Vietnam garnered several tourism awards, including Asia’s Leading Destination, Asia’s Leading Culinary Destination, the World’s Leading Heritage Destination, and the World’s Best Golf Destination. These accolades have contributed to the country’s popularity as a top tourist destination. Over the years that followed, there has only been an increase in upscale accommodations signifying a strong surge in luxury tourism.

As per Savills’ forecast, Vietnam will witness an addition of over 5,000 rooms to the Ho Chi Minh City market by 2023, primarily concentrated in the central business district. This reflects the ongoing investment and development in the hotel sector to meet the rising demand from domestic and international travelers, for quality accommodations and services.

Positive government initiatives and support for tourism development

Vietnam’s recent plans, for tourism development, are aimed at sustainable growth and positioning the sector as a leading force in the country’s economy. Key considerations include enhancing quality, efficiency, and competitiveness by capitalizing on the sector’s success of earning USD 32 billion in 2019. The goal is to restore tourism to pre-pandemic levels by 2025, with projections of welcoming 18 million international visitors and 120 million domestic tourists.

To promote inbound tourism, Vietnam is mulling over expanding visa exemptions to cover more countries, including the US and the European nations. Furthermore, there are discussions about extending the visa-free period to accommodate tourists seeking longer stays. The government has also implemented a monetary and fiscal policy package to support socio-economic recovery and development, allocating approximately UD 4.95 billion for infrastructure development.

In Hanoi, the government plans to invest up to USD 76.3 million in five critical infrastructure projects for the city’s outskirts. By 2025, an estimated investment of around USD 21 billion will be required to develop Hanoi’s infrastructure projects. Similarly, the Ho Chi Minh City People’s Council has approved an infrastructure development scheme, allocating USD 1.95 billion for 2023.

As a tour operator, one can benefit from a substantial reduction in the deposit, to be made to a bank. This deposit is necessary to start a travel business in Vietnam. This incentive is applicable to all tour operators established between 2022 and 2023 and is valid for 80% of the service deposit.

Related: Why You Should Invest in Vietnam’s Tourism and Hospitality Industry

How can Foreigners Own a Hotel in Vietnam?

Establishing a new hotel from scratch

Foreign investors can choose between 100% foreign ownership or a joint venture with a local partner. 

For starting a hotel business with Vietnamese citizens, an international tourism operation license and investment certificate are required. While the official minimum capital requirement is not specified, ensuring adequate funds to cover business activities is important.

However, it’s essential to familiarize yourself with the necessary procedures. In this guide, we’ll walk you through the key steps involved in constructing a hotel in Vietnam for foreign investors.

1. Investment Registration: Obtaining an Investment Registration Certificate is a crucial initial step for your hotel project in Vietnam. Foreign investors must submit the necessary documents and information to the authorities for approval.
2. Business Establishment: This includes registering your hotel project as a legal entity in Vietnam by preparing and submitting the required company registration documents, such as articles of association, legal representative information, and capital registration.
3. Land Acquisition: Securing suitable land for your hotel project is crucial. Foreign investors can lease land from the State or Vietnamese economic organizations. This involves negotiating lease agreements and obtaining necessary approvals and documentation for land use rights.
4. Construction Permit: Before starting hotel construction, obtain a Construction Permit to ensure compliance with local building regulations. Seek approval from the local Department of Construction or relevant authority.
5. Other Permits and Licenses: Apart from core procedures, be mindful of other permits and licenses relevant to the hotel industry. These may include a hotel business license, fire safety permits, food hygiene, and safety certificates, and more, depending on your hotel’s services and facilities.

Acquiring an existing hotel property

Acquiring an existing hotel property in Vietnam as a foreigner involves understanding hotel ownership regulations and undergoing due diligence. According to Vietnamese legislation, foreigners can fully own hotels but need a tourist operating license to provide tourism-related services. The operation license can be acquired for up to 50 years, with the option to prolong the contract. Foreign investors can also purchase an existing operating license from an erstwhile hotel owner. To facilitate the process, it is advisable to have a local consultant or agent, such as InCorp, act as a proxy in Vietnam and assist with the transfer of the operation license acquisition.

Conducting due diligence is a crucial step before buying a hotel in Vietnam. It involves thoroughly analyzing the individual owner, and associated parties and ascertaining potential risks or difficulties that may have occurred in the past or could arise in the future. By gathering comprehensive information, one can assess the credibility of the prospective hotel or vendor, identify any outstanding debts or tax issues, and ensure that all paperwork is in order.

There are additional regulations to consider when purchasing a hotel property in Vietnam. Fire safety requirements must be met, including the following:

• Obtaining approval for firefighting plans;
• Establishing self-defense forces and firefighting groups; and; 
• Adhering to strict fire safety regulations for electricity systems. 

Firefighting and prevention plans must be drawn up. It is also important to ensure that the hotel has the appropriate ranking registration, including star ratings, and is registered with the Ministry of Tourism.

Entering into a joint venture or partnership with local investors

To carry out a hotel business project in Vietnam, another option for foreign investors is to set up a joint venture or partnership with a local investor. This is a way to share risks and take advantage of locals. If you’re a foreigner interested in establishing a joint venture for a hotel business in Vietnam, here’s a step-by-step guide:

• Register your company: Begin by registering your company with the Trade Register in Vietnam. This includes applying for the required licenses, such as a business license, hotel license, and tourism license.
• Obtain a tourism operation license: To provide tourism-related services, foreign investors must obtain a tourism operation license. While foreigners can fully own hotels in Vietnam, this license is necessary for offering such services.
• Find a local partner: Foreign investors need to have a local partner who possesses a special license issued under the Law on Tourism Services and Hotel Services in Vietnam. This local partner will play a crucial role in the joint venture.
• Apply for an international tourism operation license: Joint venture companies formed by local and foreign partners can apply for an international tourism operation license. The participation of foreign investors in the joint venture is not limited.
• Meet technical facility and service requirements: It is essential for hotels to meet the minimum requirements for technical facilities and services to cater to tourists. This may include voluntary registration to rank according to national standards.
• Seek assistance from local consultants or lawyers: Engaging the services of a local consultant or lawyer is advisable to navigate the intricacies of opening a hotel in Vietnam. They can assist with licensing procedures, approvals, and liaisons with different entities.

Relevant Paperwork and Legal Considerations

Investment registration and business licensing

There are specific procedures linked to investment registration and company license that you must adhere to when opening a hotel in Vietnam.

• Investment Registration: To invest as a foreigner in Vietnam, you need to register your investment with the relevant authorities. This includes submitting an investment proposal detailing your hotel project’s location, size, scope, and expected investment capital. This registration process ensures compliance with Vietnamese government regulations and requirements.
• Business Licensing: Once you’ve registered your investment, the next step is to obtain a business license for your hotel. This license grants you legal permission to operate your hotel business in Vietnam. To obtain the license, you’ll need to submit required documents like the investment registration certificate, lease agreement for the hotel premises, financial statements, and other relevant paperwork. The specific requirements and procedures for obtaining the license may vary based on the size and location of your hotel.

Land use rights and property ownership regulations

When starting a hotel business in Vietnam, it is essential to understand land use rights and property ownership regulations. Here are some key points to consider:

• Land Use Rights: In Vietnam, the land belongs to the state, and individuals and organizations can only hold land use rights. To establish a hotel, you must secure the appropriate land use rights, which can include leasehold rights and rights to transfer or assign land use rights. Leasehold rights are granted for a specific period and can be renewed when expired.
• Land Allocation or Lease: Foreign individuals and entities cannot directly own land in Vietnam. Instead, they can obtain land use rights through lease agreements or land allocation with the government or landowners. The lease duration can vary but is generally long-term, typically ranging from 30 to 50 years or more, depending on the location and type of land.
• Land Use Planning: Ensure that the chosen hotel location aligns with local land use planning for commercial or tourism purposes, ensuring compliance with zoning regulations.
• Land Use Conversion: Land use rights may need to be converted from one purpose to another, such as agricultural to commercial or tourism use. This requires local authority approval and may have specific conditions or restrictions.
• Property Ownership: Foreign individuals and entities can own hotel buildings and infrastructure while leasing or holding land use rights, as direct land ownership is not allowed for foreigners in Vietnam.

Employment and labor regulations

When starting a hotel business in Vietnam, it is crucial to consider employment and labor regulations. Here are some key points to remember:

• Hire local employees and adhere to labor law requirements regarding minimum wages, working hours, overtime pay, and social insurance contributions.
• Use written employment contracts that comply with Vietnamese labor law, clearly stating job responsibilities, working hours, wages, benefits, and termination procedures.
• Foreign employees generally need work permits, which are obtained through the Department of Labor, Invalids, and Social Affairs, unless exempted.
• Implement occupational health and safety measures to ensure a safe working environment, following regulations related to safety inspections, fire safety, and occupational health.
• Fulfill your obligations by contributing to social insurance funds for employees, including health insurance, social insurance, and unemployment insurance.
• Foster good employee relations and establish effective communication channels. Follow proper procedures for resolving labor disputes, such as negotiation, mediation, or legal recourse.

Consulting legal experts or labor consultants well-versed in Vietnamese labor laws is essential to ensure compliance and avoid potential legal issues.

Taxation and financial reporting obligations

The following tax and financial reporting considerations should be taken into account when opening a hotel in Vietnam:

• Tax registration: Register your hotel business with tax authorities and obtain a tax identification number.
• Corporate income tax (CIT): Hotels are subject to corporate income tax, typically at a rate of 20%. Maintain accurate financial records and comply with tax filing requirements.
• Value-added tax (VAT): Collect and remit VAT on hotel services. The standard rate is 10%, but there may be specific provisions for certain services.
• Tax incentives: Explore potential tax incentives and exemptions offered by the government for specific hotel projects or investments in designated regions.
• Financial reporting: Keep proper financial records and prepare financial statements according to Vietnamese accounting standards. Submit regular financial reports to relevant authorities.
• Payroll taxes and social insurance: Deduct and remit payroll taxes and social insurance contributions for employees. Understand the requirements for calculation and reporting.
• Consultation and professional advice: Consult tax professionals or accounting firms experienced in Vietnamese taxation for guidance on tax planning, compliance, and industry-specific financial reporting obligations.

Stay informed and seek professional advice to comply with taxation and financial reporting obligations for your hotel business in Vietnam. It is crucial for success and financial optimization.

Timeline and Duration

Estimated timeframes for obtaining permits and licenses

When starting a hotel business in Vietnam, the estimated timeframes for obtaining permits and licenses can take around 3-4 months:

• Investment Registration Certificate: from 15 to 45 working days, depending on the complexity of the project and the workload of the authorities.
• Business Registration Certificate: from 3 to 10 working days once you have received the Investment Registration Certificate.
• Construction Permit: vary depending on the size and complexity of the construction project. It can take several weeks to a few months to obtain the necessary approvals and permits from the relevant authorities.
• Hotel Business License: from 15 to 30 working days, subject to the completeness and accuracy of the required documents.
• Fire Safety Permits and Food Hygiene and Safety Certificates: vary but generally take a few weeks to obtain, depending on the specific requirements and inspections conducted by the relevant authorities.

Construction and setup timelines for a new hotel

The construction and setup timelines for a new hotel vary based on factors like project size, complexity, location, resources, and regulatory requirements. Here’s a general outline:

• Pre-construction Phase: Conduct feasibility studies, secure financing, acquire land, obtain permits, and finalize plans.
• Construction Phase: Prepare the site, build the structure, finish interiors, and install infrastructure.
• Interior Setup and Furnishing: Install furniture, fixtures, equipment, and amenities, and conduct quality checks.
• Testing and Commissioning: Thoroughly test and ensure all systems and facilities meet standards.
• Soft Opening and Operational Setup: Gradually welcome guests, fine-tune operations, and address any issues.

Timelines are approximate and subject to delays from permit processes, weather, and unexpected challenges. Experienced professionals can help ensure efficiency and timely completion.

Factors that may influence the duration of the process

It’s important to note that the duration can vary from case to case and is influenced by a combination of these factors. Some of these factors include:

• The duration of the process depends on the completeness and accuracy of the submitted documentation. Properly prepared and timely submitted documents can expedite the process.
• The efficiency of government procedures and the processing time of involved authorities can impact the overall duration. The responsiveness and workload of these authorities can vary, affecting permit and license acquisition timelines.
• The project’s complexity can impact the duration. Larger or more intricate projects may require additional reviews, inspections, and approvals, potentially extending the overall timeline.
• The location of the hotel can also affect the timeline. Different regions in Vietnam may have varying regulations, procedures, and approval timelines for permits and licenses.
• Ensuring compliance with regulations and requirements is essential. Identifying and resolving any issues or discrepancies during the review process is important to avoid delays.
• External factors, such as policy changes, legal frameworks, or unforeseen events, can influence the process duration.

Engaging experienced professionals and consultants who are familiar with the local procedures and requirements can help navigate the process more efficiently.

Buying an Existing Hotel

When buying an existing hotel in Vietnam, there are several important considerations to keep in mind. A successful handover from the current owner is crucial and negotiating a handover period can ensure a smooth transition. Statement of Purposes should be prepared to cover important tasks and employee turnover should be evaluated to ensure long-term stability.

Conducting due diligence is essential before finalizing the purchase. This involves the following:

• Verifying licenses and certificates, such as the Investment Registration Certificate (IRC), required for foreign-owned businesses;
• Verifying Enterprise Registration Certificate (ERC) is required for all businesses;
• Checking for additional sub-licenses that may be required, depending upon the business lines;
• Examining lease agreements, including checking ownership certificates, lease duration, priority rights, and liquidation clauses.

Financial aspects also require thorough scrutiny. It is advisable to request financial statements, profit and loss, balance sheet, and cash flow statements and further cross-check them with the company’s bank account balance. It’s important to check tax reporting and compliance, inclusive of reports as listed down below:

• The registered employers’ SHUI must be updated. For instance, health insurance, social insurance, trade union fee, and unemployment insurance.
• Reporting and taxes.
• VAT
• Social insurance registration
• Business license tax 
• Annual compliance reports

Understanding the company’s financial management practices and assessing the Point of Sale (POS) systems is also imperative. 

Related: What You Need to Know to Buy a Hotel in Vietnam as a Foreigner

Conclusion

Establishing a hotel business in Vietnam as a foreign investor presents opportunities and challenges alike. The country’s tourism industry is both rich and thriving, supported by positive government initiatives and bountiful investments in infrastructure. However, foreign investors must navigate the legal requirements and obtain all the requisite licenses for hotel operations.

To seize the ample opportunities, foreign investors are encouraged to explore the potential of the Vietnamese hotel market. Conducting due diligence is crucial to ensure a successful handover from the previous owner. Engaging in open communication with employees is important, considering the high turnover rate in Vietnam. By seeking personalized guidance from professionals, investors can make informed decisions. Consulting experts who specialize in hotel business setup and management in Vietnam will be valuable and ensure a smooth journey in starting a hotel.