Doing Business in Vietnam: A Basic Yet Comprehensive Introduction

Doing Business in Vietnam: A Comprehensive Guide

Introduction

Vietnam has emerged as one of Southeast Asia’s fastest-growing economies, recording an impressive GDP growth rate of 8.02% in 2022 (according to the World Bank). The country is increasingly recognized as a key option for China plus one manufacturing, thanks to its competitive costs, skilled labor force, and open investment policies. Vietnam’s dynamic business environment, coupled with government incentives, low labor costs, and strategic location, makes it an attractive destination for foreign entrepreneurs and companies looking to establish their presence. With a young, tech-savvy workforce and robust infrastructure development, Vietnam continues to appeal to diverse industries, from manufacturing to IT services.

Key Business Metrics and Advantages

Economic Growth and Business Environment:

Vietnam’s consistent economic growth and favorable business climate are underpinned by government efforts to reduce bureaucratic hurdles and improve investment transparency. According to the World Bank, Vietnam ranks favorably in ease of doing business, primarily due to simplified registration and compliance processes. The government’s commitment to trade liberalization and international cooperation has also attracted global investors. Setting up a Limited Liability Company (LLC) typically takes between 4-8 weeks, depending on industry requirements and document accuracy. Business registration can be expedited by working with local experts who understand the intricacies of Vietnamese regulations.

Tax Regime:

• Corporate Income Tax (CIT): Standard rate of 20%, with preferential rates for technology and infrastructure sectors. Companies engaging in high-tech or environmental initiatives may benefit from additional tax reductions.
• Value-Added Tax (VAT): Rates of 8% or 10%, with reductions for specific goods and services. VAT refunds are available for exported goods and certain investment projects.
• Personal Income Tax (PIT): Progressive rates from 5% to 35% for residents, flat rate of 20% for non-residents. Tax obligations vary based on residency status and income source.

Foreign Ownership and Restrictions:

Vietnam permits 100% foreign ownership in numerous sectors, but certain industries like telecommunications and broadcasting may require joint ventures with local partners. Corporate bank accounts need an Investment Registration Certificate (IRC) and the appointment of a local representative, who must meet residency requirements. Understanding these nuances helps in strategic planning, especially for businesses operating in regulated sectors.

Types of Business Structures in Vietnam

• Limited Liability Company (LLC): Ideal for SMEs, offering flexible management, limited liability, and foreign ownership. Suitable for trading, services, and light manufacturing.
• Joint-Stock Company (JSC): Suitable for larger firms seeking equity financing or planning to list on the stock exchange. JSCs enable the issuance of shares to raise capital.
• Representative Office: Allows market research and non-commercial activities. Useful for foreign companies testing the Vietnamese market.
• Branch Office: Can engage in trade but is sector-specific. Typically used by established international businesses extending their operations.

We discuss this in more detail in our post about optimal company structures.

Setting Up an LLC in Vietnam

1. Business Structure Decision: Evaluate the business needs and select the entity type that aligns with operational goals.
2. Document Preparation: Complete the application for business registration, draft the company charter, compile a shareholder list, confirm capital, prepare identification documents, and secure a lease agreement for office space.
3. Obtaining Necessary Licenses: Apply for sector-specific licenses through the Ministry of Planning and Investment or relevant authorities.
4. Company Seal and Bank Account: Create a legally compliant company seal and open a corporate account to facilitate financial transactions.
5. Tax and Social Insurance Registration: Register for a Tax Identification Number (TIN) and ensure employees are covered under social insurance schemes as per local regulations.

Corporate Banking in Vietnam

To open a corporate bank account, companies must submit incorporation documents, director identification, and evidence of financial capacity. The process, typically taking 2-3 weeks, may involve verification by bank officials and a review of compliance documents. Vietnamese banks offer multi-currency accounts, facilitating international transactions.

Compliance and Licensing

Businesses in finance, healthcare, and manufacturing may require special licenses, with annual renewals mandated by law. Failure to comply may result in penalties or business suspension. Compliance also includes monthly payroll filing, withholding of PIT, and social insurance contributions. Adhering to local labor laws ensures smooth operations and minimizes legal risks.

Additionally, depending on your company type and industry, you might also be required to have a Chief Accountant.

Visas, TRCs, and Work Permits in Vietnam

• Investor Visa: Available to shareholders and key stakeholders, typically valid for 1 to 3 years.
• Work Permits: Essential for foreign employees working over three months. Requires proof of professional qualifications and a local sponsor.
• Application Process: Involves submission of passport, health certificate, and criminal background check. The entire process can take 1-3 months.

Closing a Business in Vietnam

• Formal Dissolution: Involves passing a shareholder resolution, completing final tax returns, and de-registering with relevant authorities, including the Department of Planning and Investment (DPI).
• Financial Obligations: Settle outstanding debts, pay all due taxes, and complete employee termination processes as per Vietnamese labor laws.
• Alternative: Opting for temporary suspension allows companies to pause operations without permanent closure, preserving licenses and registration for future use.

We discuss this in more detail on our post about Company Dissolution in Vietnam.

Conclusion

Setting up and managing a business in Vietnam can be a rewarding yet complex journey. From navigating local regulations and compliance requirements to handling tax obligations and employment procedures, it’s essential to have a trusted partner by your side. 

At United Consulting, we specialize in providing comprehensive support for business setup, licensing, and ongoing compliance, tailored to your unique needs. Whether you're a startup looking to establish your presence or an established company aiming to expand, our team of experts will ensure a smooth and efficient process. 

Reach out to us today to discuss how we can help you achieve your business goals in Vietnam. Let’s build your success together!