DOING BUSINESS IN VIETNAM GUIDE 

The Vietnamese economy is projected to expand at a 6% annual rate in the years ahead, fueled by an expanding domestic market and a young, educated workforce, along with the fastest-growing middle class in South Asia. Nevertheless, investors should be aware of specific challenges when conducting business in Vietnam.

Vietnam stands as a success story in terms of development. Thanks to constant economic reforms and favorable global trends, the nation has transformed from one of the world's poorest into a middle-income economy within a single generation. Here are the primary 9 challenges associated with doing business in Vietnam.

1. Starting a company

According to TMF Group’s Global Business Complexity Index (GBCI) for 2024, Vietnam is ranked 49th in terms of business environment complexity. This represents a decrease from its 46th position in 2023 and 42nd in 2022, which indicates a simplification of business procedures over the last three years.

The process of starting a business now involves two procedures instead of seven, and the time required has been shortened by 15 days to less than one month and 15 days for regular business operations. To register, you must provide a company address and a signed lease. Certain foreign investments are subject to restrictions and conditions. Foreign cash investments are prohibited in activities involving specific types of drugs, chemicals, minerals, some biological businesses, and firecrackers.

2. Reporting and filing

All documents must be written in Vietnamese, and foreign paperwork must be accompanied by certified translations. These translations should be authenticated by courts in the investor's home country and then certified at the Vietnamese embassy. Licenses are also issued in the Vietnamese language. While some licensing and reporting procedures can be completed electronically, the requirements for language and authentication remain the same. Mandatory investment statistics reports are required, and penalties will be applied for violations.

3. Currency

The Vietnamese dong is closely tied to the US dollar using a crawling peg, ensuring exchange rate stability between trading partners. As one of the most stable Asian currencies, the dong's strength has supported FDI. The government tightly regulates foreign currency transactions, with inflow regulations generally being more relaxed than outflow restrictions.

4. Taxes

In recent years, Vietnam's government has undertaken reforms to streamline the complex tax system. The Ministry of Finance has introduced regulations designed to create a more favorable environment for businesses, including the implementation of electronic invoices and simplified procedures for VAT and CIT filing. Electronic tax declarations were introduced in late 2017 to improve the IT aspect of tax reporting. Moreover, amendments to existing laws concerning CIT, VAT, and tax administration aim to resolve ambiguous tax issues and decrease the tax compliance burden for companies operating in Vietnam.

5. Payments and the banking system

While Vietnam's banking system is relatively young compared to many of its Asian counterparts, it ranks among the world's fastest-growing. The economy, formerly reliant on cash, now features a mix of banking models, including state-owned banks, joint-stock commercial banks, and banks owned either through joint ventures or exclusively by foreign shareholders. Digitalization has lagged behind other Asian markets, however, digital banking has increased since COVID-19, when cashless payments saw a surge due to restrictions on in-person shopping. Digital banking in Vietnam, along with the developing fintech sector, is likely to continue to evolve in the near future.

6. Bureaucracy and transparency

Vietnam is transitioning and moving towards a more globalized perspective. Consequently, bureaucratic processes remain complicated, and a persistent lack of transparency exists as regulations evolve toward modern standards. As a result of overlapping jurisdictions among certain government ministries and complex commercial laws and regulatory regimes, inconsistent governmental policies can arise. Further complicating due diligence and KYC are poor corporate disclosure policies and a lack of financial transparency.

Recent improvements include control of corruption within the public service sector and the implementation of e-governance. Vietnam is progressively updating administrative procedures through the public service website system as a means of enhancing transparency. However, these updates remain at an early stage, characterized by system limitations and the unavailability of certain services.

7. Intellectual property

Although Vietnam has regulations safeguarding intellectual property rights, their enforcement is notably weak, and IP infringement continues to be a problem. As of 2023, Vietnam was ranked 6th among the top 20 countries with the highest rates of pirated software use. The government is actively addressing the issue by introducing new legislation aimed at protecting IP rights, encompassing copyright, industrial property, and plant breeding rights. Foreign companies seeking to register intellectual ownership should submit an application to the National Office of Intellectual Property of Vietnam (NoIP) through an authorized agent. Even with the authority of the NoIP, it is recommended that companies with IP take care of this process prior to exporting to or establishing a presence in Vietnam.

8. Corruption

Despite substantial reforms over the years, corruption remains widespread, and companies doing business in Vietnam are likely to encounter it eventually. The Vietnamese government is dedicated to combating corruption, having implemented anti-corruption laws, developed anti-corruption strategies, strengthened institutions, and ratified the UN Convention Against Corruption (UNCAC). Compared to some neighboring countries, the anti-corruption frameworks are thorough, but their practicality is challenging to enforce. While providing bribes, making facilitation payments, and taking expensive gifts to foster business ties are all unlawful, they are often practiced, posing a challenge for investors who advocate a zero-tolerance policy.

9. Respecting the business culture

Vietnamese business culture revolves around the social connections between business partners, potentially influenced by Confucianism. Dealmakers should expect to share personal details about their families and hobbies, as this can enhance relationships with local suppliers and ultimately influence business outcomes. Referrals and recommendations are key to establishing connections, and the method of introduction may affect pricing. Seniority is also crucial, particularly when dealing with government agencies or state-owned organizations. Collective decision-making is fundamental in Vietnamese business culture. Committees, rather than single individuals, make most decisions. Thus, the group dynamic takes precedence over individual connections.