Top challenges of doing business in Vietnam
Vietnam is one of the crown jewels in Asia’s high growth emerging markets, often presenting an easier base for business in China than China itself. Yet Vietnam still poses challenges for foreign businesses wanting to invest in the country.
The Vietnamese economy is expected to grow more than 6% annually in the coming years, driven by a growing domestic market and a young, educated and hard-working population which is the fastest-growing middle class in South Asia.
A member of the WTO and regional forums, including ASEAN and its Economic Community, Vietnam is also party to an EU-Vietnam Free Trade Agreement and the Trans-Pacific Partnership, making Vietnam a prime investment destination. GDP has grown by 8.02% in 2022, the fastest since 1997.
Foreign direct investment into Vietnam, one of the country's key economic drivers, rose 13.5% in 2022 to $22.4bn. The manufacturing and real estate sectors received the most pledged foreign funds in that period, followed by electricity production and distribution, and scientific and technological activities. Yet Vietnam still poses challenges for foreign businesses wanting to invest in the country. If you want to move your business into Vietnam, it pays to spend some time in the country doing research before you make your final decision.
TMF Group’s 2022 Global Business Complexity Index ranks Vietnam 42nd for the complexity of its business environment. It was ranked 21st in 2021 and 24th in 2020, reflecting the fact that Vietnam has become less complex than before.
It only takes two procedures now (it has taken seven in the past) to start a business, and the timeline is reduced to less than two months for normal business activities. You must have a company address and a lease signed before you register your entity. It’s also worth noting there are conditions and limits placed on some foreign investments, with some undertakings — dealing with certain types of drugs, chemicals and minerals, some biological businesses, and firecrackers – banned from accepting foreign injections.
All paperwork must be written in the Vietnamese language, and all foreign paperwork must have certified Vietnamese translations. They should be notarised or certified by courts in the home country, and then authenticated by a Vietnamese embassy. Licences are also issued in Vietnamese. There are some licensing and reporting procedures that could be conducted online now, but the requirements regarding language and authentication remain unchanged.
The Vietnamese dong is closely connected to the US dollar through a crawling peg, which provides exchange rate stability between trading partners. Considered one of the most stable Asian currencies, the dong has aided foreign direct investment. It’s worth noting that the government heavily regulates transactions in relation to foreign currencies, with rules on inflow generally more relaxed than those on outflow.
Vietnam’s government has been undertaking much reform of its complicated tax system in recent years. There are 10 corporate tax payments to be made each year, with other tax burdens including VAT and social insurance. The country’s Ministry of Finance has issued regulations that create favourable conditions for businesses, including application of electronic invoices, and a simplification of procedures for filing VAT and CIT. There has also been much work undertaken in the IT side of tax reporting, with electronic tax declaration fully implemented as of late 2017. In addition, amendments to current laws on CIT, VAT and tax administration also aim to clarify unclear tax issues and reduce the tax compliance burden for businesses with operations in Vietnam.
Vietnam is one of the most cash-dependent economies in the world; more than 90% of all domestic transactions are done in cash as there is a lack of ATMs and trustworthy cashless systems. The Vietnamese also feel distrustful of corrupt local banks. As such, many Vietnamese businesses will use wire transfers to send funds. The government aims to make Vietnam a “cashless economy”, and the plan is to provide the infrastructure for such a system, increase the fees on cash payments, and decrease fees related to electronic payments.
Vietnam is a country in flux, one moving into a more globalised outlook. As such, you’ll likely still encounter a lot of bureaucracy and lack of transparency as regulations move into the modern age. Vietnam’s regulatory regimes and commercial law, and the overlapping jurisdictions of some government ministries, can result in a lack of consistency in government policies. There’s also poor corporate disclosure standards and a lack of financial transparency, which can add to challenges for due diligence and KYC.
While Vietnam has regulations in place to protect intellectual property rights, the enforcement is notoriously weak and IP abuse remains a problem in Vietnam; Vietnam is also ranked 11th in the top 20 countries using pirated software, as of 2022. The government is taking steps to address the problem, and introducing new legislation to protect IP rights, including copyright, industrial property and plant varieties. Foreign companies that want to register their intellectual ownership should file an application with the National Office of Industrial Property of Vietnam, or the NoIP, via an authorised agent. Regardless of the authority of the NoIP, foreign businesses with IP to protect are advised to ensure it’s looked after before exporting or setting up in Vietnam.
Despite reform in the country, corruption is still widespread in Vietnam and anyone doing business in the country is likely to encounter it or hear about it at some point. The Vietnamese government is committed to fighting the problem and has introduced anti-corruption laws, developed anti-corruption strategies, strengthened its institutions and ratified the UN Convention Against Corruption (UNCAC). Its anti-corruption frameworks are comprehensive when compared to some of its Asian neighbours. But while the intention is there, the practice is more difficult to police. Taking bribes, making facilitation payments and receiving expensive gifts to develop business relationships are all illegal activities, and many foreign companies promote a zero tolerance policy from set-up.
Vietnamese business culture centres around the social connection made between business partners, perhaps a lingering effect of Confucianism’s impact on the local people. Be prepared to share personal information about your family and hobbies – it will improve your relationship with local suppliers and can ultimately impact business deals. Most connections are made through referrals and recommendations, and the price you are offered can be dictated by how you met the business. Seniority is also important, especially when dealing with the government or any state-owned organisation. Finally, be prepared for collective decision-making; most decisions in Vietnamese businesses are made by committee, with no individual having absolute power. This makes the group connection, rather than an individual connection, important.
Whether you’re looking to enter Vietnam, or have been operating there for years, it’s important to work with a partner on the ground who knows the culture and can help you navigate these minefields.
Find out more about doing business in Vietnam
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