It’s easy to make a few mistakes when starting a new business and emerging markets, like Vietnam, present their own unique challenges when it comes to setting up a company. With that said, setting up a company in Vietnam can be quite tricky. In this article, we will discuss some of the most common mistakes foreign investors make when trying to start a business in Vietnam.
#1 Thinking you need a local partner for all types of businesses
It is a common misconception that you need a local partner to start a business in Vietnam. This is true for some industries like tourism. However, a lot of industries allow 100% foreign ownership. For example, you don’t need a local partner for IT, trading, consultancy, and manufacturing businesses.
#2 Registering your company as a local business then transferring ownership
Registering a local company is quicker and easier compared to registering a foreign company. This is why some agents recommend registering your company as a local business first and then transferring ownership to you later on.
While registering may be faster for local businesses, the time it will take to transfer ownership may take just as long as registering a foreign company. Additionally, this method has some legal risks.
It is also worth noting that companies that are majority foreign-owned go through the exact same process as 100% foreign-owned companies. However, all businesses, whether local or foreign, have the same requirements when it comes to sub-licenses and compliance.
#3 Planning to register the company with insufficient capital
There is no minimum capital requirement for most business lines in Vietnam. This means that you don’t need to put down a lot of money to set up your company. However, you must still be reasonable and realistic when coming up with your planned capital.
The authorities will determine whether your capital meets the expected needs of your business. For example, the capital for a manufacturing business must be able to cover machinery and construction costs. Additionally, the capital for any business renting a space should be able to cover rental fees for the first 6 to 12 months. This amount is not strictly set and you can increase this later on, should it be necessary.
#4 Failing to make the capital contribution on time
Another thing to consider when calculating your capital is that it must be fully paid within 90 days from the date of your company registration. If you fail to do this, you may have to close your company for a few weeks or months. During this time, the company’s founders cannot set up any other business in Vietnam.
Your minimum capital does not necessarily have to be a financial contribution. Other assets are acceptable as well, provided that you can present an invoice for the corresponding product.
#5 Not keeping or asking for VAT invoices
Not every receipt is a value-added tax (VAT) invoice. You must always remember to ask for VAT invoices on or before the day of purchase. Many companies will not issue VAT invoices if you request for it after the purchase.
It is important to keep all VAT invoices for expenses made before and after the company registration. You can record these as company expenses and can claim them later on. Reclaiming proper VAT invoices can reduce your corporate income tax rate. It is also a good idea to make an agreement with landlords, contractors, and the like so they can issue VAT invoices after completing your company’s registration.
Because all companies with any foreign ownership need to submit audited financial statements, it is very important that the accounting is in order.
#6 Thinking local laws don’t apply to foreign companies
Foreign investors are also very likely to make mistakes when it comes to complying with local laws and tax reporting requirements. One possible reason for this is just not being aware or not understanding regulations around this.
Please note that foreign-owned companies are usually under higher scrutiny. In this light, it is even more important to understand all the regulations so you can comply with them. For example, quarterly compliance requirements include the declaration and payment of value-added tax, corporate income tax, personal income tax.
Owning all or part of a company also does not automatically make you a resident of Vietnam. Starting July 2020 investors with less than USD 130,000 worth of shares in a single company will no longer be eligible for resident cards. Foreign investors need to understand regulations around stay permits.
#7 Leaving things to the last minute
As with many other developing countries, the process of incorporation in Vietnam takes longer than in developed countries. Setting up a legal entity in Vietnam can take up to 3 months. This includes the time it takes to collect and submit all relevant documents.
Foreigners tend to underestimate how long it takes to get all the supporting documents in order. In fact, the longest stage in the company establishment is usually getting the founder documents ready. Some business lines may also require sub-licenses and operational licenses. Acquiring these may involve testing or obtaining individual certificates.
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.
#8 Not exploring all options to do business in Vietnam
Opening a company is not the only way to do business in Vietnam. You should learn about all the available options to find the best one for what you intend to do. Below you will find other ways to conduct business activities in Vietnam.
- Employer of record. Through this service, you can hire and manage employees in Vietnam through us. We will take care of recruitment and payroll management for you, and there will be no need for you to understand local laws and requirements.
- Invoicing service. With this service, you will be able to issue and receive invoices without setting up a company in Vietnam.
- Importer of recorder. This is the quickest way to start importing to Vietnam. There will be no need to get the necessary import licenses. All you need to do is provide the necessary documents and you can start importing to Vietnam.
- Product registration. You may also register products through us if necessary.
In some cases, outsourcing through these services may be a better fit for your plans. Talk to one of our consultants to find the best option for you by filling out the form below.
#9 Using a local friend as a nominee shareholder
It is not uncommon for foreign investors to enter arrangements with local business partners since some business lines cannot be fully foreign-owned. However, keep in mind that this is an important business decision. As such, you should not just partner up with a friend to circumvent regulations or get the process done faster.
For cases where you need a local partner, consider using a nominee company. Arrangements with nominee companies come with a set of legal agreements that should protect your rights as the business owner.
With careful planning and preparation, you can avoid making mistakes when setting up your company in Vietnam. Emerhub can help you with registering your business to ensure that everything goes without a hitch. Get in touch with our consultants by filling out the form below or sending an email to [email protected].