There are many slips that may occur when starting a new company, especially in an emerging market. This article will give you some heads up on seven most common mistakes foreign investors make when they start to set up company in Vietnam.
#1 Thinking that a local partner is required for every type of business
The first misunderstanding regarding foreign investment companies in Vietnam is thinking that you must have a local associate. This is outdated and misleading information that a lot of agents in Vietnam still give to their clients.
In reality, you can set up a 100% foreign-owned company in a lot of industries. For instance, manufacturing, trading, consultancy, IT, etc. However, there are still some sectors that require you to have a local partner, for example, tourism industry.
You can register a local company quickly and easily, that is why many local agents recommend it. If you wish to transfer the ownership to you, you can do it later on. However, it has legal risks and might take just as long as to register a wholly foreign-owned enterprise in the first place.
#2 Using an unreliable nominee
Another common mistake that foreign investors tend to make when they set up company in Vietnam is getting into an agreement with an untrustworthy nominee. This might be the result of putting too much blind trust in your local friend or misbelieving that you need to have a local partner for every industry.
It may seem like a good idea at first, but it carries risks that you don’t immediately think about. Human relations can take bad turns or something might happen with your trustee. Divorce, marriage or death – all these cases can involve third parties who may have different intentions with your business.
However, this doesn’t mean that all nominee agreements are shady. The safest way would be to use a professional service company such as Emerhub instead of an individual nominee. We provide a nominee service where your rights will be protected through a set of legal agreements.
This set of legal agreements drafted by lawyers is the difference between using a local friend and having a professionally arranged nominee service. If problems arise, you will be protected by the agreements as the company ownership is pledged.
#3 Investing a wrong amount of capital into the company
There is no minimum capital requirement for most business lines in Vietnam. This means that you do not need to set a high capital in order to set up company in Vietnam as some other agents may advise.
However, the authorities will determine whether your capital meets the expected needs. So, it is important that your charter capital is sufficient to cover the planned expenses.
The amount of capital is not strictly set. It is not difficult to increase it later on if needed.
Also note that the minimum capital you appointed must be fully paid in within 90 days from the date of your company registration, as stated by the Enterprise Law.
Your minimum capital does not necessarily have to be a financial contribution. Other assets are acceptable as well, just make sure that you have an invoice for the corresponding product.
For more thorough information, read our previous article about minimum capital requirements for foreign businesses in Vietnam.
#4 Not asking for VAT invoices
Note that not every receipt is a VAT invoice. A lot of companies decline to issue VAT invoices if you don’t request for them before or on the same day of the purchase.
It is important that you ask for and to keep all the VAT invoices for expenses that you make before and after the company registration. These can be recorded as company expenses and you can claim them later on.
In addition, reclaiming proper VAT invoices can reduce the corporate income tax rate. If you don’t get a proper VAT invoice, you cannot use that VAT amount as income VAT.
Accounting-wise, you can also state non-VAT invoices as expenses. However, the tax office doesn not consider these as expenses and this will increase your corporate income tax rate.
It is also a good idea to make an agreement with landlords, contractors, etc., beforehand so they could issue VAT invoices after your company has been registered.
#5 Thinking that you don’t need to follow a regulation if no one told you about it
Another slip foreign investors are prone to make is not complying with local laws and tax reporting requirements. This will often happen due to not being aware of or not understanding the local regulations and will bring about unnecessary fines for the company.
You should also keep in mind that foreign-owned companies are usually under higher scrutiny. Therefore, it is even more important to comply with the regulations.
For example, quarterly compliance requirements include the declaration and payment of:
- Value-added tax
- Corporate income tax
- Personal income tax
To learn more about compliance in Vietnam, see our article about the compliance requirements foreign-owned companies need to fulfill in Vietnam.
#6 Not planning enough time to set up company in Vietnam
As in many other developing countries, the process of incorporation in Vietnam takes more time than in developed countries. Setting up a legal entity in Vietnam can take up to 3 months. It includes the collection and submission of the founder documents.
Investors underestimate how long it takes to get all the supporting documents in order. Often the longest stage in the company establishment is getting the founder documents ready.
You also need to legalize these documents in the country of issuance. After that, you can submit them to the Department of Planning and Investment.
You can avoid the delay by preparing for your company registration in advance. Emerhub can help you prevent unnecessary setbacks by assisting you with collecting the relevant documents.
#7 You set up company in Vietnam when outsourcing is a more effective way to enter
Establishing a legal entity when entering a new market may not always be the most effective way to do it. If you set up a company in Vietnam only for the following purposes, we have other alternatives for you:
If the purpose of setting up a company in Vietnam is:
More cost-effective alternative
Hiring local employees
Sending and receiving invoices
Emerhub offers a variety of outsourcing services that will free you from acquiring licenses or setting up a company when it is not necessary.
- Staff augmentation enables you to hire employees in Vietnam without any legal presence in the country. We will hire employees on our payroll and there is no need for you to understand local laws and requirements. You can focus on your core business instead.
- Invoicing service lets you issue and receive invoices without incorporating a local company.
- Undername import is the quickest way to start importing to Vietnam since there is no need to spend 3 months to get the necessary import licenses. When using our undername import service, all you need to do is provide us with some relevant documents and get started with importing to Vietnam.
All the above-mentioned mistakes are quite common when foreign investors set up company in Vietnam. However, you can avoid them with a thorough planning and preparation. Emerhub can help you out with that.
If you have any questions, do not hesitate to get in touch with our consultants via [email protected] or by filling in the form below. Or you can proceed straight to company registration as well.