Vietnam

Doing Business In Vietnam: Overview, Advantages And Challengs

Vietnam is one of the ideal places to do business and generate many profits if you want to go worldwide. The economy of the country continues to grow rapidly, owing to free trade agreements (FTAs) and a more regulated business environment.

Before finding out how to start a business in Vietnam, you should go over the pros and cons of doing business in Vietnam so you can make an informed decision before entering the Vietnamese market.

An overview of Vietnam’s business environment

Vietnam has become one of the most desirable investment destinations in Asia in recent years, particularly for international investors.

The following are some of the major highlights of the Vietnamese business environment:

  • In 2020, GDP will expand at a rate of 2.91%
  • With a population of nearly 97 million people, the country has strong purchasing power
  • Top manufacturers for electrical items, mobile phones, textile garments, and other sectors around the world
  • There are around 32,539 FDI projects in the pipeline, with a total registered capital of around US$381 billion
  • Several sectors are duty-free between the EU and Vietnam.

Vietnam also boasts a welcoming business environment that encourages foreigners open business in Vietnam.

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Due to low labor costs, the country also enjoys a prominent position in the IT and industrial industries.

Let’s look at the advantages of doing business in Vietnam from a variety of perspectives in the following part!

Advantages of doing business in Vietnam

When starting a business in Vietnam, you will gain a lot of advantages. We’ve compiled a list of important points for you to consider.

Tax incentives

To start a business in Vietnam, you need to be familiar with the following taxes that apply to business operations and investments in Vietnam:

Noticeably, there are several tax benefits available for doing business in Vietnam. Depending on the sector, location, and size of the project, new investment projects may be eligible for tax breaks.

Furthermore, if you undertake expansion projects, you will be eligible for CIT incentives if certain criteria are met.

Taxes Applied To Business And Investments in Vietnam
Taxes Applied To Business And Investments in Vietnam

High-growth economy plus potential market

Vietnam is a fast-growing market with unlimited opportunities! Despite the impact of the Covid-19 outbreak, Vietnam’s economy grew at a rapid pace, placing it among Asia’s fastest-growing nations.

In 2020, Vietnam’s inflation rate was kept at 3.2 percent. This is an excellent performance in comparison to its aim of 4%, which helps to stabilize the country’s market prices. Vietnam’s purchasing power is assessed by its population of 97 million people, which has evolved from a centralized to a market-oriented economy.

The country is also among the top 15 countries in the world in terms of population. In sum, Vietnam is one of the fastest-growing and developing countries in the world. The declaration of the EVFTA and the EVIPA in June 2019 has had a positive impact on the Vietnamese market and foreign investment in the future time.

Competitive labor cost

If you’re a foreigner wanting to do business in another country, one of your biggest concerns can be labor costs.

Starting a business in Vietnam will alleviate this worry because the country’s labor costs are relatively low and competitive.

Vietnam has a young population and a workforce that is ready to work. Surprisingly, the country’s average labor cost is lower than neighboring countries such as China.

According to statistics, China’s manufacturing labor cost per hour in 2020 was US$6.5, while it was just roughly US$3 in Vietnam.

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– See more: Business Registration Certificate in Vietnam: All detailed steps

Regulatory framework

Vietnam has spent a lot of time and money improving its legal and administrative framework. An open business environment, fair investment policies, and attractive profit-based incentives for businesses underpin Vietnam’s regulatory system

In general, the Enterprise Law and the Investment Law of 2015 are crucial regulations that control the establishment and administration of firms in Vietnam. Individuals’ carte blanche to do business in approved business sectors has been standardized, and businesses have faced a slew of administrative headaches as a result of these rules.

Additionally, these restrictions have given the private and FDI sectors preferential treatment. The strengthening of Vietnam’s regulatory regime has aided the country’s international standing.

In the World Bank 2020 report, the country is ranked 70th out of 190 economies. In January 2021, the National Assembly of Vietnam approved the Investment and Enterprise Laws.

Further upgrades and adjustments have made doing business in Vietnam easier and more advantageous for foreign companies.

Strategic location

Vietnam is strategically located in the center of the ASEAN region. Furthermore, it is one of Southeast Asia’s most promising economies.

The Pacific Ocean, China Thailand, Cambodia, and Laos all share borders with Vietnam. This creates ideal conditions for international shipping and trade in Vietnam. Notably, the shift in China’s supply chains is also beneficial to Vietnam’s market.

Southern China’s manufacturing hub — one of the world’s greatest economies and commerce centers – is nearby. Vietnam has become a desirable destination for investors seeking access to China’s supply chains as a result of its proximity.

Vietnam’s free trade agreements (FTAs)

Vietnam has actively joined free trade agreements in the global economy. With a number of significant trading partners, the government inked 15 free trade agreements.

Vietnam has also established diplomatic ties with 190 nations throughout the world. These FTAs have surely piqued foreign investors’ interest in entering the Vietnamese market.

Developing infrastructure

Domestic demand and rising trade have sparked a massive construction boom in Vietnam, which is aimed at strengthening the country’s infrastructure. The Vietnamese government provides significant support to the building sector, which is a key aspect of the country’s competitiveness.

Manufacturing

Vietnam has made significant manufacturing investments, particularly in electronics. The industry is a major contribution to the country’s GDP (16.5 percent in 2019). In this very competitive field, Vietnam is up against established regional companies.

Ease of doing business

The government has made major reforms to the country’s regulatory business environment in order to attract international investment and stimulate entrepreneurial development. As a result of these improvements, businesses in Vietnam have found it much easier to operate.

Disadvantages and risks of doing business in Vietnam

Let’s go through some risks of doing business in Vietnam below:

Foreign ownership regulations

The Vietnamese government sets strict rules for what types of businesses can be held entirely by foreigners.  Businesses that engage in activities that do not come under the recognized categories for foreign ownership will need to form a Vietnamese joint venture.  Furthermore, if there are no WTO agreements or local regulations governing foreign ownership of a specialized or distinctive line of business, ministry-level authorization will be necessary to launch that business in Vietnam.

Lengthy registration process

The process of forming a corporation in Vietnam includes a number of procedures. The process will take from around one to four months, regardless of the type of business being executed.

The first stage, which might take up to a month, is to apply for and receive an Investment Registration Certificate. The firm will subsequently require a Certificate of Business Registration, which will take another week to complete.

Finally, depending on the type of business being launched, the corporation may be required to obtain extra permits.

Remains a developing country

Despite the numerous advantages and favorable outlook for international firms, Vietnam remains a developing country with infrastructural and telecommunications network limits when compared to neighboring Thailand.

Vietnam, on the other hand, is a very promising country, and its government is taking the necessary strategic steps to ensure its competitiveness.

Challenges of starting a business in Vietnam

Challenges of doing business in Vietnam
Challenges of doing business in Vietnam

The following paragraphs are about three challenges to doing business in Vietnam that foreign investors will face:

High corporate tax rates on certain investments

Most corporate organizations in Vietnam pay a standard corporate income tax rate of 20%. However, the tax rate is quite high in some business categories.

For example, depending on the location and circumstances of the projects, you may be subject to tax rates of 32% and 50% if you work in the exploration and mining of oil, gas, and other natural resources.

Restrictions of foreign currency

For indirect investment in Vietnam, you’ll need to convert your foreign cash into VND. Overall, all transactions, payments, quotes, advertisements, and other types of communication should be conducted in Vietnamese currency. Foreign currency inflows into Vietnam, on the other hand, have been more open, with few limitations. Similarly, relocating to another country has become less difficult.

Providing you plan to work in Vietnam, you can move your earnings abroad if you clear all financial obligations to the Vietnamese government.

Business setup requirements

To start a business in Vietnam, you’ll need to meet a number of conditions. Consider the requirement for paid-up capital. In most cases, your initial investment in Vietnam should be at least $10,000 USD.

The capital amount can also be lower or larger depending on the type of business. The process of obtaining a license might be difficult. Particularly if you’re involved in some conditional sector operations as defined in Appendix 4 of Law on Investment No. 67/2014/QH13.

You’ll need to submit other documents, such as a certificate of company qualification, professional liability insurance, and so on.

Conclusion

In general, Vietnam has regarded as one of ASEAN’s most promising markets. To attract foreign investment, the country has made significant progress in terms of GDP growth, regulatory systems, and tax policies.

Doing business in Vietnam 2021 will provide you with new chances in a variety of sectors, especially after the impact of the US-China trade war, which has resulted in new waves of investment in the global era. Hope you have a good time with Efex.

 

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