Benefits and problems of registering a company in Vietnam
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Benefits and problems
Benefits of Vietnam company registration
- Vietnam has witnessed a strong economic growth of around 6% per year since the early 2000s due to the profound economic and political reforms put in place. The country is expected to continue to grow at a high rate in the following decade;
- The country also has one of the highest inflows of FDI of the South East Asian region, mostly from Japan, Taiwan, South Korea and Singapore. Although the majority of the investments are focused on manufacturing, the government has increased investments in infrastructure and education to attract more high-tech productions;
- Vietnam has been able to increase the quality of life of its citizens, around 47% of the population came out of extreme poverty in the last 20 years and the per capita income increased from around US$100 in 1980s to US$2,500 in 2018. The country now counts with one of the fastest growing middle class in the region;
- Yet, the country still has one of the lowest labor costs in the region, with an average monthly wage of US$210 a month. Furthermore, most of its population is young, with almost 60% of its 1.128 million population being between the ages of 25 to 49 years old;
- Vietnam offers several tax benefits depending on the location, industry and business project, such as:
- Vietnam’s free zones and industrial zones offer exemption on corporate income taxes for up to 8 years, and exemption on custom duties and VAT taxes;
- Large manufacturing projects an apply for preferential tax incentives for up to 15 years;
- Projects dealing with socialized sectors, such as education and health, are entitled to four years of tax exemption and 50% tax reduction for the sequential 5 years.
- Vietnam has signed several free trade agreements with countries worldwide:
- The country is a member of ASEAN Free Trade Area, a trade bloc agreement between Indonesia, Malaysia, Philippines, Singapore, Thailand, Laos, Myanmar, Cambodia, Vietnam that aims to reduce the intra-regional tariffs on most products;
- Vietnam has concluded 7 regional and bilateral FTAs, including Vietnam European Union FTA and ASEAN Hong Kong FTA;
- It has concluded 80 double tax agreements.
- Vietnam is one of the most stable countries in the South East Asian region, and the top leadership appears committed to continue with the economic reforms and continue to make the country more accessible and attractive for foreign investment;
- Vietnam is located strategically and is well suited for trading opportunities. It is situated in the middle of ASEAN and is a close neighbor of China.
Problems with Vietnam company registration
- The standard corporate tax rate in Vietnam is 20%. A rate of 32% to 50% applies for companies conducting exploration and exploitation of oil and gas and other valuable and rare natural resources;
- There are several requirements for opening up a company in the country:
- The minimum paid up capital required to establish a company in Vietnam is US$10,000 and must be remitted to a capital account before incorporation;
- All business entities are required to appoint a resident legal representative. If the chosen legal representative is a foreigner not yet resident in Vietnam, he/she must i) travel to Vietnam, ii) obtain a work permit and iii) show evidence of 12 months of experience in a managing position;
- In order to be able to establish branch offices, the Vietnamese legislation requires that the foreign company must have been conducting business abroad for at least 5 years prior.
- Although Vietnam counts with a big pool of low cost labor, it still has a lack of skilled workers, especially those suitable for technical, professional and managerial positions. Many companies have to resort to applying for work visas for their foreign workers;
- Conducting business in Vietnam requires our Clients to overcome many challenges, such as:
- Corruption are still one of the main obstacles for business activities in the country. Vietnam ranks low in Corruption Perceptions and Ethics and Corruption rankings;
- Bureaucracy also negatively affects daily activities for business in the country. While company incorporation in both Singapore and Malaysia can be done in a month; depending on the type of business activities, starting a company in Vietnam can take at least 3 months;
- The country also performs very poorly in protection of property rights, which negatively effects the country’s reputation as a location to conduct business;
- Although progress has been made in the past few years, Vietnam still has an inadequate infrastructure, especially when compared to other Southeast Asian countries, such as Thailand, Singapore and Malaysia.
- Overall, according to the World Bank, Vietnam is negatively ranked in 70th from 190 countries worldwide in its Ease to do Business 2020.
Best uses for a Vietnam company
- 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;
- 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.