Common Mistakes To Avoid When Setting Up A Company In Vietnam

Setting up a company in Vietnam presents significant potential for foreign investors drawn to its growing market. However, the process involves navigating strict legal and regulatory requirements unique to the country. 

Errors in choosing the right business structure, meeting compliance deadlines, or managing capital requirements can lead to costly delays, fines, or even jeopardize your entire investment.

This article highlights critical pitfalls foreign investors frequently encounter to help you navigate the setup process smoothly and avoid costly setbacks.

Legal and Ownership Misconceptions for Opening Companies in Vietnam

1. Assuming A Local Partnership is Required for Every Business Type

A common misconception about setting up a company in Vietnam is that you must have a local partner. In reality, most business sectors allow 100% foreign ownership, giving you full control over your company. A local partner is only required for certain restricted industries, such as tourism and media, where foreign ownership may be limited under Vietnam’s investment regulations.

Unnecessarily involving a local partner can lead to complications in business control and profit distribution. You may face challenges in decision-making or difficulties in retrieving profits due to restrictive agreements. That’s why it is essential to understand whether a local partner is truly needed before structuring your business.

Emerhub can assess your industry and business activities to determine if a local partner is required, helping you choose the best structure for compliance and operational efficiency.

2. Registering As A Local Company and Transferring Ownership

Certain businesses try to bypass foreign ownership restrictions by registering under a local nominee with plans to transfer ownership later. However, this approach is risky, legally complex, and can lead to unforeseen complications.

Ownership transfers often come with additional legal and tax challenges, potentially resulting in unexpected costs or regulatory hurdles. In industries with foreign ownership restrictions, the transfer process may be uncertain or even impossible, putting your investment at risk.

A safer alternative is to structure your business under a legally compliant entity from the start. Options like a 100% foreign-owned company or a joint venture with a legitimate local partner can provide security while ensuring compliance with Vietnamese regulations.

3. Appointing A Local Friend As A Nominee Shareholder

Using a local friend as a nominee shareholder might seem like an easy workaround, but it comes with significant legal and financial risks. Since the nominee is the legal owner of the shares, disputes over control, profit distribution, or even full ownership of the business can arise, leaving you with little legal protection.

Additionally, nominee arrangements may not hold up under Vietnamese law if challenged, potentially leading to serious legal and financial consequences.

4. Believing Foreign Companies Are Exempt From Local Laws 

A common misconception is that foreign-owned businesses are exempt from local laws in Vietnam. In reality, all businesses, regardless of ownership, must comply with the country’s legal and regulatory framework. This includes tax obligations, licensing requirements, labor laws, and financial reporting standards.

Failing to adhere to these regulations can result in serious consequences, such as fines, penalties, or even the closure of your business. To avoid legal issues, you must understand Vietnam’s business laws and work with local legal and tax professionals to ensure full compliance.

Capital Requirements and Financial Compliance

5. Setting Up A Company Without Sufficient Capital

One of the key factors in setting up a business in Vietnam is ensuring you meet the minimum capital requirements, which vary depending on the industry. If you don’t have sufficient capital, your business registration may be rejected.

Insufficient funds hinder the registration process and delay the start of your operations, slowing down the approval of necessary licenses and permits. To avoid these setbacks, it is crucial to thoroughly research the capital requirements for your specific industry and ensure you have enough funds to meet them.

6. Missing the Deadline For Capital Contributions

Under Vietnamese law, you are required to contribute the agreed capital within a set period, usually 90 days from the business registration date. Failing to meet this deadline can result in penalties, such as fines, business suspension, or even the revocation of your company’s license.

To avoid these legal issues, it is important to ensure that your capital contributions are made on time. Meeting the deadline not only keeps you compliant but also helps you avoid unnecessary disruptions to your business operations.

7. Neglecting to Keep or Request VAT Invoices

In Vietnam, keeping and requesting VAT invoices is crucial for both tax deductions and regulatory compliance. Failure to maintain proper invoices can lead to higher tax liabilities, potential penalties, and complications during financial audits.

By ensuring proper invoicing, you not only stay compliant but also avoid tax disputes and other legal issues when setting up a company in Vietnam. To streamline the process and ensure your business remains on track, consider using Emerhub’s tax registration and compliance services for expert assistance.

Business Registration and Planning Mistakes

8. Procrastinating on Business Registration and Compliance

Delaying your business registration can result in missed opportunities and hinder your ability to operate smoothly in Vietnam. Certain industries require extensive paperwork and approval processes that can take months to complete.

Procrastinating and rushing at the last minute increases the risk of errors and compliance issues, potentially leading to delays or penalties. To avoid these complications and ensure a smooth setup, consider using Emerhub’s company registration service for professional assistance and timely registration.

9. Overlooking Alternative Business Structures in Vietnam

There are several business structures available in Vietnam, such as Representative Offices, Joint Ventures, and 100% Foreign-Owned Enterprises. Each structure has its benefits and limitations, and selecting the wrong one can limit your business operations or introduce unnecessary restrictions.

Exploring all available options ensures you choose a structure that best supports your business goals. Emerhub’s business registration services help foreign investors navigate the setup process, ensuring compliance with local regulations and selecting the most suitable structure for long-term success.

For business activities that don’t require a full legal entity, Emerhub also offers Importer of Record (IOR) and product registration services, allowing you to sell products in Vietnam without setting up a local company. This is a cost-effective and compliant alternative for companies looking to enter the market quickly while avoiding the complexities of company registration.

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