Business Expansion in Vietnam: Key Restrictions

Prabhat Nigam

07 May, 2022

When it comes to taking business global especially in South-East Asian region, one destination that pops up is Vietnam. Business expansion in Vietnam has been considered to be the most sought after because of the number of free trade agreement is has signed and the cross-border connectivity it possesses. However, this does not mean that ease of doing and expansion of business in Vietnam is seamless and smooth process. There exist many restrictions when it comes to business expansion in Vietnam.   

This piece of writing discusses the key restrictions that exist in the business expansion in Vietnam.  

What are the key restrictions related to business expansion in Vietnam?  

Following are the key restrictions related to business expansion in Vietnam:

1. Weak enforcement of IP rights: Though regulations have been put in place by the Vietnamese government to protect from infringement of intellectual property rights but there is poor enforcement from the authorities. This has been a major deterrent in business expansion in Vietnam because the right holder fears that his rights may get violated.  

• Inconsistencies within legislations: Vietnam takes pride in signing of various free trade agreements. Vietnam has also tried to align its national legislations with that of free trade agreements^[1]. However, legal and regulatory inconsistencies still exist to a great extent which acts as a deterrent in expansion of business in Vietnam. 

• Menace of bribery and corruption: Bribery and corruption have been a part of working in Vietnam. This has also reflected in the Transparency International’s Corruption Perceptions Index where Vietnam has been ranked pretty low. Paying money or giving presents in exchange for concessions has been a part of doing business in Vietnam giving a jolt to business expansion in Vietnam.

• Contract Enforcement and conclusion of Insolvency: a major impediment which makes the foreign investor wary of making investment in Vietnam is almost twice the average time it takes for the enforcement of contract in Vietnam and in conclusion of Insolvency proceedings.

According to an estimate, the average period of enforcing of contracts in Vietnam takes a good 400 days and 34 procedures and for the insolvency proceedings of a company to conclude it takes a lengthy period of 5 long years. It must be noted that in cases where recoveries do take place, the recovery rate is very low.

• Heavy documentation in trade across borders: Vietnam takes pride in its superior manufacturing capabilities and the existing cheap infrastructure to facilitate cross-border trade with the neighbouring countries. This does not make it a hunky-dory affair in terms of import and exporting items across the border. The reason which has been plaguing the cross border trade of goods is the heavy documentation and red-tapism. A person who wishes to export goods across the border needs to obtain umpteen number of permissions from various regulatory departments for the said consignment to be exported or imported. This is also a major cause of concern for the investors in establishing their business in Vietnam.

• Restrictions on inflow and outflow of currency: Another major cause of concern for the foreign investors is the highly regulated currency inflow and outflow mechanism adopted by the Vietnamese regulatory authorities. Though not much controls and regulations exist in the inflow of foreign direct investment but the same is not the case with outflow of foreign exchange with major regulations set by the authorities in the outflow of capital. This deters the foreign investor from making investment due to the security of their capital.

• Government and Bureaucratic restrictions: Vietnam is officially a socialist country with communist origins. Vietnam like any other country has government regulations and interference to a great extent in regulating the economic sector of the country. This also brings along the menace of red-tapism and lack of transparency in the system. With overlapping jurisdictions of multiple ministries with the commercial and regulatory law, it often results in lack of inconsistency in the government policies. On top of inconsistent government policies, there also exist poor disclosure standards from the government’s transparency which leads to challenges in due diligence and KYC.

• Compulsory filing in Vietnamese language: The government makes it mandatory for all the foreign companies to file all their paperwork in Vietnamese language and all the foreign paperwork shall have Vietnamese translations. Such paperwork also needs to be notarized and certified in the home country and then authentication needs to be done from the Vietnamese embassy. On top of it, licenses are also issued in Vietnamese.

• Payment of Taxes: A seemingly small but a significant restriction in business expansion in Vietnam is the significant amount of corporate taxes that need to be paid by the foreign companies established in Vietnam. The problem faced by the foreign companies is not only in complying with the amount of taxes but also the significant amount of time that it takes to file a total of mandatory 34 corporate taxes every. It takes an average of 872 hours for a company in Vietnam to pay its taxes. Considering the average time taken by OECD members of 176 hours and average of East Asia being 209 hours, the time taken in Vietnam in payment of taxes posed extra burden on the companies.   

1. Culture of Vietnam: Due to distinctions in the prevalent Vietnamese culture compared to the western and other Asian cultures, it is a challenge for the foreign companies to make inroads in the Vietnamese market.

Conclusion 

From the above discussion, it can be concluded that Vietnam has done a tremendous job when it comes to signing of free trade agreements and building infrastructure for connectivity making it attractive for the foreign investors to expand their business in Vietnam. However, despite having regulations in place, there is a need to for stricter enforcement of laws and removing of inconsistencies making business expansion in Vietnam viable and feasible for the foreign investors.    

Read Our Article: How to set up a Limited Liability Company in Vietnam?