Invest in Vietnam: The Dos and Don’ts for Foreign Investors

Foreign investment in Vietnam has been on the rise in recent years, with many foreign businesses looking to tap into the country’s growing economy and favorable investment climate. However, investing in Vietnam can be challenging, and foreign investors must navigate a complex regulatory environment, cultural differences, and other potential pitfalls.

This article highlights common mistakes foreign investors make when expanding to Vietnam. We’ll share practical ‘dos and don’ts’ to help you avoid pitfalls and ensure your venture is set up for success.

1. Not Understanding the Legal Landscape

Perhaps one of the most common aspects that foreign investors struggle to understand is the local laws and tax reporting regulations for a business in Vietnam. 

Things like quarterly compliance requirements, such as payment of Value-Added Tax (VAT), Corporate Income Tax (CIT), and personal income tax, seemingly simple, often cause the most headaches. 

Furthermore, industry-specific licenses and permits add another layer of complexity, each with its own separate approval process. Assuming that a single investment license is sufficient can lead to unexpected legal hurdles and operational setbacks.

To navigate these challenges, conducting thorough due diligence and staying updated on policy changes is key. For expert guidance, Emerhub’s local experts can help ensure tax compliance and keep you updated on the latest regulatory changes or licensing needs.

2. Registering A Company with Insufficient Capital

A common mistake is not allocating enough capital during business registration. While Vietnam does not have a universal minimum capital requirement, certain sectors like finance, real estate, and education have legally mandated capital requirements.

In industries without fixed requirements, authorities will assess whether your declared capital aligns with your business’s scope and operational needs. Insufficient capital may lead to registration rejection, delaying market entry and operations. Additionally, misrepresenting capital investment in registration documents can result in fines or even business suspension.

Beyond regulatory compliance, undercapitalization is also an issue. Without enough capital, you may struggle to cover initial costs, pay employees, or invest in growth, leading to cash flow problems, difficulties securing loans or investors, and potential business failure.

3. Overlooking Alternative Business Options 

Many foreign investors focus solely on registering a Limited Liability Company without exploring more flexible business structures, such as:

• Joint Ventures: Partnering with a local company to navigate regulations and gain market insights.
• Representative Offices: Establishing a market presence without full operational commitments.
• Franchising: Expanding with lower risks and investment compared to starting from scratch.
• Employer of Record (EOR): With RecruitGo’s EOR service, you can legally hire employees and operate in Vietnam without setting up a legal entity.
• Importer of Record (IOR): Specifically for those interested in the import/export industry. Emerhub’s IOR service manages import logistics, customs compliance, and regulatory requirements for businesses looking to bring products into Vietnam.

Another overlooked opportunity is Vietnam’s Special Economic Zones (SEZs), which offer tax incentives, relaxed regulations, and infrastructure benefits that can significantly lower operational costs. Additionally, the Vietnamese government provides various incentives for priority industries such as technology, manufacturing, and renewable energy, offering tax breaks, land-use benefits, and import duty exemptions to attract foreign investment.

By leveraging RecruitGo’s EOR and Emerhub’s IOR services to take advantage of these alternative business models and incentives, you can streamline market entry, reduce risks, and optimize operational costs in Vietnam.

4. Ignoring the Language Barriers

Another mistake that many foreign investors often make is underestimating or even entirely ignoring the language barrier in Vietnam. While English proficiency is growing, especially in business centers like Ho Chi Minh City and Hanoi, assuming you can operate entirely in English across all aspects of your business is risky.

Vietnamese remains the official language for government administration, as well as the legal documents, and communication with the broader local employees and customer base.

Hiring local employees fluent in both Vietnamese as well as English helps bridge the language gap when setting up your company in Vietnam. They provide valuable insights into local culture and business practices.

5. Underestimating Local Competitors

Sometimes, foreign companies focus heavily on international rivals and overlook the strength and strategies of established local players in Vietnam.

While a unique offering is great, having zero local competition might even be a warning sign about market demand or specific regulatory hurdles.

Moreover, you should actively study local competitors – understand their pricing, marketing tactics, customer base, and operational strengths.

Learning from the existing market landscape allows you to position your own business more effectively and anticipate challenges that can help you make wiser strategic decisions upon entry.

6. Skipping Market Research

Launching into Vietnam without deeply understanding the local landscape is a common early misstep. You might bring assumptions from your home market about consumer behaviour, preferences, or even distribution channels, only to find they don’t apply here. 

Failing to tailor your products, services, or even your marketing strategy to local demand can lead to slow adoption and wasted resources. 

Therefore, it is advisable to invest time upfront to grasp local nuances, try to understand who your competitors are (and what they do well), and identify the real needs your business can fulfill within the Vietnamese context.

You can discuss your needs and plans with Emerhub’s local experts to get their insights before you set up your business in Thailand.

7. Choosing An Unreliable Local Partner 

Concerning local partnerships, selecting the wrong local partner can lead to operational disputes, financial losses, and legal complications. To minimize risks, you should conduct thorough due diligence before entering a partnership. Key steps you could take include:

• Verifying Their Business History: Check their financial records, reputation, and previous partnerships.
• Assessing Industry Expertise: Ensure they have relevant experience and a strong local network.
• Confirming Legal Standing: Verify business licenses, tax compliance, and any past legal issues.

Common red flags to look out for when selecting a local partner include:

• Lack of Transparency: Hesitation to share financial documents or legal records.
• Poor Track Record: A history of failed ventures or disputes with previous partners.
• Mismatched Goals: Differing visions on business growth, profit-sharing, or management control.

To protect your interests, you should have clear agreement contracts outlining roles, responsibilities, and exit strategies between your partners. The majority of control clauses help maintain decision-making power, while dispute resolution mechanisms ensure conflicts are managed effectively. These safeguards minimize risks and promote a stable partnership in Vietnam.

8. Assuming A Local Partner is Required for All Business Activities

When it comes to setting up a company in Vietnam, a common misconception is that foreign investors always require a local Vietnamese partner. For many businesses, this is simply not true and unnecessarily complicates ownership and control. 

Vietnam actively encourages foreign investment and permits 100% foreign ownership in a wide array of common sectors. That includes popular areas like IT services, software development, trading (import/export), many consulting activities, and most manufacturing operations.

A local partner is typically only mandated by law in specific restricted sectors. These sectors are usually related to national interests, local culture, or specific services like aspects of tourism, advertising, or transportation. 

Therefore, you should always verify the exact foreign ownership regulations applicable to your intended business activities before assuming a partnership is needed or agreeing to one.

If you’re unsure whether your industry requires a local partner, Emerhub’s market entry consulting services can help you identify the best structure for your business while ensuring compliance with local regulations.

Looking to expand your business in Vietnam while avoiding common regulatory pitfalls? Fill out the form below to get expert guidance on your business setup.