Set Up Company In Vietnam - Challenges And Opportunities

Set up a company in Vietnam - Challenges and opportunities

Vietnam's economy is "openness" so it is in contact with the world economy. Vietnam also faces its own challenges in laying the groundwork for development. Vietnam's economy in 2019 is likened to a "colorful picture" with many highlights. In this article, we draft out the challenges and opportunities about the process of setting up a company in Vietnam. 

The world economy is forecast to slow down, or even decline slightly. At the same time, world trade also faces downside risks. The internal problems of the Vietnamese economy include institutional "stagnation" such as economic restructuring, retargeted equity ownership ratio of state-owned enterprises, and few large projects are implemented in public investment activities. The above context causes businesses to face many challenges in setting up a company in Vietnam.

How do the policy responses covid affect the entrepreneurial system  in Vietnam?

Vietnam overcame the difficult year of 2021 when the COVID-19 pandemic caused serious economic and human losses. The country experienced a serious blockade in the middle of the year, lasting nearly five months, shutting down production and disrupting the supply chain. In Vietnam, before the complex development of the COVID-19 pandemic, which has a major impact on the lives of businesses and people, the Vietnamese government responded by issuing some regulations to support businesses.

The Government always supports businesses to remove difficulties, stabilize production and return to work. The government's support package to stabilize the economy includes:

1. 10% discount on retail electricity prices in production and operation areas

According to Decision No. 648/QĐ-BCT dated March 20, 2019, retail electricity prices in production and operation areas will be reduced by 10% during peak, normal and off-peak hours. Electricity as production.

2. Financial support

Prime Minister Nguyen Xuan Phuc has just issued a document directing the State Bank to guide credit institutions to meet production capital needs, speeding up administrative procedures such as shortening the processing time for dossiers, speeding fast administrative procedures for loans, lowering fees and interest rates for customers. Difficulties due to COVID-19 (contract worth about 250 trillion VND).

3. Solution suggestions for businesses

As for taxes, companies must quickly apply for the exemption and delay filing until business resumes. By working online from home, you can reduce office costs such as utilities and stationery.

Additionally, businesses should gradually shift to online sales to reduce spending on marketing strategies.

Vietnam's economy is heavily influenced by policy responses with covid

The pandemic is expected to subside by 2022 as vaccination becomes more common among the Vietnamese population. With respect to the medium-term outlook for the next five years, several key drivers are expected to continue to drive Vietnam into one of Asia's fastest growing emerging markets.

First, Vietnam will continue to benefit from relatively low production wages compared to China's coastal provinces, where manufacturing wages have risen rapidly over the past decade.

Second, compared to many other regional competitors in Southeast Asia, Vietnam has a relatively large and well-trained workforce, making it an attractive manufacturing hub for foreign companies and multinationals.

Third, capital spending is expected to grow rapidly, reflecting continued strong foreign direct investment by foreign multinationals as well as domestic infrastructure spending. For example, the Government of Vietnam estimates that it needs $133 billion for new power infrastructure by 2030, including $96 billion for power plants and $37 billion for grid expansion.

All of the above conditions help Vietnam have many motivations for the development of the business environment and attract foreign investors.

Challenges in the process of setting up a company in Vietnam

There are three main challenges: land, access to capital, taxation and administrative procedures. These challenges have improved in recent years, but many problems remain, especially those related to land.

Some specific challenges when setting up a company in Vietnam include:

There are many challenges for foreign investors in setting up a company in Vietnam

Vietnamese procedures are used entirely in Vietnamese

All reporting and submission procedures, including permits, must be written in Vietnamese. Documents in English or other languages must be translated into Vietnamese and approved by the district court. It doesn't stop there. Notarized translation documents must be certified by the Vietnamese embassy.

Tax in vietnam

Although Vietnam is undergoing complex tax reforms, 10 corporate taxes are still payable each year. Other taxes include VAT and social insurance.

Through the reforms, the Vietnamese government intends to simplify all tax calculation and reporting procedures, remove tax ambiguity and create a favorable business environment.

There is still a lot of work to be done by the competent authorities in improving tax filing technologies such as electronic tax filing.

 Payment in cash

Vietnam mainly relies on cash for domestic payments. There is no ATM system, more than 90% of transactions in the country are done in cash.

Corrupt domestic banks have also created more challenges for Vietnamese people to accept and trust other types of payment methods.

However, the government aims to make Vietnam one of the few cashless countries in the region, focusing on ease of use of digital payment systems and adoption of technology.

Opportunities in the process of setting up a business in Vietnam

Skilled young population helps the economy recover quickly

Foreign investors can also benefit from Vietnam's population growth. The third largest population in Southeast Asia is relatively young, with more than half of the population under the age of 30. Its large, well-educated and relatively cheap workforce has become one of Vietnam's most important assets.

Vietnam has a literacy rate of over 90%, one of the countries with the highest literacy rate in Southeast Asia. Foreign investors take advantage of the technology awareness, solid business community and the country's general openness to new ideas. At the same time, when setting up a company in Vietnam, investors pay cheaper labor costs and allow local employees to compete equally.

Low cost to set up a company

Living costs in Vietnam are relatively cheap compared to other countries in Southeast Asia. Some decent meals cost less than $ 2. Meals at fine dining are less than US $ 30 per person. Monthly rents for modern full-service apartments start at just $ 400. This is greatly influenced by the exchange rate itself. In early 2020, US $ 1 is worth more than 23,000 dong. And this is a big advantage as the cost of living in Vietnam matches the cost of running your business.

Launching a business itself costs only a small portion of the initial capital. On average, investors spend about $ 20,000 to set up a limited liability company in Vietnam. Technically, there is no minimum capital requirement. For example, you might start at $ 5,000.

Advantage from low investment cost and high profit of foreign investors when setting up a company in Vietnam

Important and improved trade agreements

Vietnam is serious about establishing and maintaining trade agreements with countries around the world. This is evidenced by the fact that the country is improving bilateral business relations with all Southeast Asian countries, including China, Hong Kong, Japan, South Korea, Australia and even Chile. This guarantees Vietnam's economic stability. Trump's tariffs and EU trade agreements are the latest big news that can boost Vietnam's economy and create more opportunities for investors and business owners.

All four positive facts above are the basic benefits of starting a business in Vietnam. There are many other benefits to this, depending on the fields you enter.

If your business is flexible, you don't need a license. However, depending on the particular activity, you may be able to apply for a permit. We recommend contacting your local lawyer to compare prices with recommendations.

Diverse types of businesses registered in Vietnam

• Limited Liability Company-100% A foreign-owned limited liability company can be established in Vietnam with one shareholder, regardless of nationality or whether the person is a resident of Vietnam. Shareholders then appoint a director who must come to Vietnam and apply for a work permit.

• Joint Venture-Some are also known as one foreign limited liability company, which is the most common type of foreign affiliate established in Vietnam. The company was founded by at least one Vietnamese shareholder and one foreign investor. However, license delays are common in this structure.

•  Limited Company-A corporation is a company founded by three or more shareholders of all nationalities, whether or not they live in Vietnam. If the company appoints a legal representative and foreign director, that person must come to Vietnam and apply for a work permit.

• Branch-A foreign company that has been in business for at least 5 years can also set up a branch in the country. Resident representatives must be shown along with the fulfillment of other obligations. This option is not recommended as it allows investors unlimited liability.

There are many types of businesses for foreign investors to choose from

• Representative Office-You can also open a representative office in Vietnam to find a company that has been doing business abroad for a year. The representative office is 100% foreign owned, but the company is not allowed to engage in commercial or production-related activities.

Learning about the business environment in Vietnam is very important for you to determine the type of business and the procedures for setting up a business.

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