Benefits and problems of registering a company in Vietnam 2021

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  • Benefits and problems

    Benefits of Vietnam company registration

    advantages for registering business in Vietnam

    • For manufacturing and distribution, multi-national Clients view Vietnam as a cheaper alternative to China. For example:
      • Vietnamese labour costs are approximately 20% of those in China. For example, Vietnam’s highest monthly minimum wage is just US$68.5 (in Ho Chi Minh City), compared with US$358 in Shanghai, China.
      • Average monthly warehouse rental in Ho Chi Minh City is US$4.1 per square metre (US$6.86 per square metre in Shanghai);
      • Living costs are some 60% lower in Vietnam than in China;
      • Vietnam borders southern China, and manufacturers can directly and cost effectively access supply chains in China;
      • Vietnam has good port infrastructure, allowing manufacturers direct access to some of the world’s main shipping routes;
      • The country enjoys free trade agreements with i) China and Japan ii) India iii) Australia and New Zealand iv) USA v) the EU vi) Canada and vii) South Korea.
      • Vietnam has i) four Key Economic Zones ii) 325 industrial parks iii) 17 coastal economic zones and iv) three Hi-Tech Parks.
      • Because it is politically-stable, Vietnam is not locked in a trade war with large economic blocs like the USA or EU. Consequently, the USA is the world’s largest importer of Vietnamese manufactured goods.
      • In the 2020 Agility Emerging Markets Logistics Index (click link), 48% of global companies surveyed advised that Vietnam and India were their most likely investment destinations should their businesses relocate their manufacturing functions.
      • In 2019, consumer electronics accounted for 25% and 41% of total exports to the US and the European Union respectively. As a World Trade Organisation (WTO) member, Vietnam is legally bound to protect intellectual property, including trademarks and patented technology.
      • Because of all of the above, a number of manufacturing businesses have also moved operations to Vietnam, including Foxconn, Samsung and LG.
    • Multi-national Clients find Vietnam an attractive low tax country because:
      • The first-year net profits of a new company are legally tax-exempt. Each year thereafter, annual net profits suffer a flat corporate income tax rate of 20%.
      • The maximum VAT rate is 10%.
      • Vietnamese withholding tax on overseas payments ranges from 5% to 15%.
      • Dividends paid by a Vietnamese company to corporate shareholders are tax-exempt.
      • There is zero corporate tax, customs duties or VAT for companies in a Vietnam free zone or industrial zone.
      • Exports are free of VAT and duties.
      • Tax breaks of up to 15 years are available for large manufacturing projects.
      • There are four years of zero tax for health and education investments, and a 50% tax rate for the following five years.
      • There are 80 double tax agreements in place to minimise Vietnamese withholding tax on the repatriation of funds overseas.
      • Certain sectors being promoted by the Vietnamese government enjoy 10% corporation tax including i) high technology and software production and ii) environmental protection and renewable energy iii) infrastructure development and iv) scientific research v) agriculture vi) healthcare and vii) education.
    • Vietnam is considered a gateway to Asian markets because:
      • Vietnamese companies enjoy zero or low tariffs when trading within the ASEAN Free Trade Area.
      • Vietnamese companies also benefit from access to the Vietnam-European Union Free Trade Agreement (FTA) and the ASEAN Hong Kong FTA, which offer low or zero tariffs on trade.
      • Logistics infrastructure is improving, especially around Hanoi and Ho Chi Minh, and is one of the country’s fastest-growing sectors.
      • Because Vietnam is a regional manufacturing hub, the government has a long-term transport and logistics Master Plan which will improve the country’s regional and global connectivity. This includes a US$8 billion scheme to build world-class ports in Vietnam.
    • Foreign investors perceive Vietnam as a ‘safe’ investment destination because:
      • Average GDP growth over the past 20 years is 7%. Unemployment averages just 2% and inflation is stable at 3%.
      • Approximately 50% of the country’s exports go to the USA and EU, the remainder to Asian countries including Japan and China. This means diversified geographical demand for Vietnamese products, especially consumer electronics and textiles.
      • Vietnam is politically stable since 1975, presenting little risk to business.
      • The government has been widely praised globally for its response to the Covid-19 pandemic, increasing trust among the public and business community.
      • Vietnam’s government debts are low, and in September 2020 the country’s foreign reserves hit a record US$92 billion.
    • Vietnam is an attractive consumer market because:
      • It is experiencing rapid population growth, with a rapidly rising per capita income and disposable income, especially among the middle class.
      • Because of the above, there is a growing domestic demand for consumer goods and services such as mobile phones, digital banking services, household items such as fridges and furniture, cars, hospitality, retail and entertainment product and services.

    Problems with Vietnam company registration

    • Multinational Clients find Vietnamese business set up challenging because:
      • It take takes at least four months to register a company because i) a capital account, into which the initial paid-up capital is deposited, must be opened ii) an investment certificate must be obtained from the Department of Planning and Investment and iii) the company must submit an office lease agreement to the government;
      • There are 14 steps required to complete company set up, making Vietnam one of the world’s most complex start-up environments. Many of the procedures are unfamiliar to multinational Clients, making them more confusing and stressful. This includes, for example i) registering the company seal sample at the Police Department or ii) publicly announcing the company’s formation in a local newspaper.
      • Dealing with government agencies, banks and the business community is challenging because the official language of business is Vietnamese. English proficiency in Vietnam is low.
      • Getting an electrical connection in Vietnam takes 115 days on average, significantly hampering start-up times.
    • Multinational Clients find Vietnam’s labour force challenging to do business because:
      • It is one of the world’s least productive;
      • Employers’ social insurance contributions amount to 21% of an employee’s salary;
      • Employees who have worked for one year or more at a firm are entitled, if their contract is terminated, to half of one month’s salary for every year they have worked for the firm, as severance pay;
      • It is difficult to dismiss a poor performing employee in Vietnam. Trade unions are powerful;
      • Computer literacy remains quite low by Asian standards, although the government in 2020 launched a major program to create a digital society.
      • The number of Vietnamese enrolling in higher education is low. Approximately 25% of Vietnamese compete tertiary education, meaning the skilled, qualified workforce pool is limited.
    • Business set up costs can quickly escalate in Vietnam. For example:
      • While there is no official capital requirement to register a foreign-invested company, in practice a minimum paid-up capital of US$10,000 is required. If the business plans to sell locally-manufactured products, expect to inject a minimum capital of US$100,000;
      • All Vietnamese companies require a resident director (known in Vietnam as a legal representative). Most Clients request our nominee services to fulfil this requirement;
      • Despite having a population of almost 100 million, Vietnam faces shortages of qualified technical, professional and managerial talent. Many foreign-invested companies rely on expensive, qualified expatriate talent to fill these positions, with high salaries and relocation packages;
      • Because official documents are in Vietnamese, multinational Clients will likely have to pay for translation and legalization costs when doing business in Vietnam.
    • Doing business in Vietnam is also difficult because:
      • Unfortunately, corruption is part and parcel of everyday business life;
      • All monetary transactions, from payments to contracts and quotations, must be undertaken in Vietnamese dong, the local currency.
      • Intellectual Property is poorly protected in Vietnam. The domestic ‘informal economy’ is flooded with fake goods. Where IP protection laws exist, they are poorly protected, even though Vietnam is a member of the World Trade Organization (WTO) and is bound by its rules on IP protection.
      • Vietnam suffers from poor roads, railways and ports compared to other south east Asian nations. This deters export-orientated firms;
      • Compared to other south east Asian countries, Vietnam’s banking system is inefficient. Banks are poorly regulated, and finance is restricted. Most banks operating in Vietnam offer poor internet banking and poor customer service.
      • Multinational Clients find Vietnam to be bureaucratic and with heavy administrative burdens including i) quarterly corporation tax payments in Dong ii) e-invoicing being compulsory for all enterprises iii) accounting records which must be maintained in Vietnamese iv) monthly VAT returns which must be submitted v) a massive 32 corporate tax payments to be made each year, taking an average of 872 company hours to complete and vi) the stream of documentation required for both importing and exporting highlights that cross-border trade can be difficult
      • Investor protection is an area in which Vietnam fails miserably. It is ranked in 169th place by the World Bank and IFC, with a weak director liability index and shareholder suits index. Enforcing contracts takes 400 days to complete and 34 procedures.
    • The government heavily regulates transactions in relation to foreign currencies (mostly US dollars). For example:
      • Only when a foreign investor has fully paid its tax obligations and other financial obligations with the Vietnamese state, can our Client’s bank allow repatriation proceeds back home;
      • The Vietnamese dong is not freely convertible and cannot be remitted overseas.
      • Foreign currency transfers outside Vietnam are authorised only for transactions such as payments for imports of goods and services from abroad, repayment of loans and the payment of interest accrued thereon, transfers of profits and dividends and for transfer of technology or royalties.
      • Foreign investors and foreigners working in Vietnam can transfer abroad profits and income earned in the country, and any remaining invested capital upon the liquidation of an investment project. Individuals can only take a maximum of US$5,000 in foreign currency out of Vietnam.
  • Best uses for a Vietnam company

    1. With low labor costs and a corporate tax rate of only 10%, Vietnam’s free zones are a good location for the establishment of a manufacturing company. Especially, manufacturing companies that import/export to other ASEAN countries will fully benefit of the low tax agreements within the region;
    2. Establishing a Vietnamese company is a good way to buy a property in the country, as a 50 year leaseholds being available to foreign owned companies from July 1st 2015. Without a company, foreigners need to be resident in Vietnam to hold property.

Contact us

For additional information on our business registration services in Vietnam, please contact our in-house country expert, Mr. Simon Guidecoq, directly:
client relationship officer - Simon