Vietnam has experienced a notable increase in foreign investment in recent years, as numerous international enterprises seek to take advantage of the country’s expanding economy and favorable investment climate.
Nevertheless, investing in Vietnam can present challenges, requiring foreign investors to navigate a complex regulatory environment, cultural disparities, and other potential pitfalls.
This article aims to delve into common errors made by foreign investors when expanding into Vietnam and provide guidance on the dos and don’ts of foreign investment in the country.
Insufficient market research when entering the Vietnamese market
A prevalent mistake is the failure to conduct thorough market research before investing in Vietnam. Many businesses enter the market without understanding local behavior and preferences, which hinders their ability to tailor products and services to meet local demand effectively.
Disregarding the language barrier
While English is primarily used in business and tourist hubs, Vietnamese remains the official language of the country. Bridging the language gap is crucial when establishing a company in Vietnam, and hiring local employees fluent in both Vietnamese and English can provide valuable insights into local culture and business practices.
Assuming the need for a local partner in all business types
One common misconception when setting up a company in Vietnam is the assumption that a local partner is necessary in all cases. However, a local partner is only required in specific industries, such as tourism, marketing, advertising agencies, and transportation. Industries like IT, trading, consultancy, and manufacturing businesses allow for 100% foreign ownership.
Registering a company without sufficient capital investment
Although there is no minimum capital requirement for setting up a company in Vietnam, several key points must be considered:
- Proof of funds: The government mandates proof of funds in your bank account to cover planned expenses.
- Planned capital: This includes rental fees, equipment costs, employee compensation, and benefits when establishing your company in Vietnam.
- Rental fees: Sufficient capital should cover rental fees for the first 6 to 12 months for businesses renting a space.
Neglecting local competitors in the market
Foreign companies sometimes overlook local competitors when entering a new market. While being a first mover can be advantageous, the absence of competition may indicate a lack of market demand. It is essential to learn from existing competitors in the market and make informed decisions when establishing a company in Vietnam.
Engaging with unreliable local partners during company setup
Foreigners should carefully evaluate their options when engaging with local business partners for investment purposes. Relying on unreliable nominees or partnering with friends to bypass regulations can result in financial losses, legal issues, or loss of control.
Lack of understanding of the legal landscape
Foreign investors often struggle to comprehend the local laws and tax reporting regulations applicable to businesses in Vietnam. Quarterly compliance requirements include payment of Value-Added Tax (VAT), Corporate Income Tax (CIT), and personal income tax. GBS can assist businesses in meeting their legal requirements in Vietnam.
Failure to explore alternative business options in Vietnam
Establishing a company is not the only approach to conducting business in Vietnam. It is crucial to explore all available options and identify the most suitable one for your specific intentions. Some alternative ways to engage in business activities in Vietnam include:
- Employer of Record: This service enables you to hire and manage employees in Vietnam while an Employer of Record like GBS takes care of onboarding, payment, and employee management, allowing you to focus on day-to-day operations.
- Importer of Record: With an Importer of Record service provider like GBS, you can import goods into Vietnam without the need for a local legal entity or import licenses. This saves time and eliminates the complexities associated with regulations, making it the quickest and most efficient importation method.
GBS can assist in determining the best option for your business