- 1. Doing Business in Vietnam without Money
- 2. Not Being Aware of e-Invoice
- 3. Underestimating Vietnamese Business Culture
- 4. Unfamiliar with Taxes and Incentives
- 5. Hiring of Foreigners
- 6. Underestimating Timeline of Procedures
- 7. Doing Business in Vietnam with an Unreliable Nominee
- Doing Business in Vietnam with Assistance from Cekindo
Business mistakes and frustration are not unusual when doing business in Vietnam. The lack of insight into the Vietnamese market has often given rise to some rather disheartening investments and business failures.
As a reputable business consulting firm for so many years, Cekindo has had a lot of expertise to see what works and what does not. In this article, we are going to tell you what are the common mistakes and pitfalls you can avoid while doing business in Vietnam.
1. Doing Business in Vietnam without Money
In Vietnam, there is not a minimum required capital for most business sectors. Although, the government in Vietnam will need you to prove that you have sufficient money in your bank account to cover your planned expenses – depending on the type of your business.
This amount of money is also known as Charter Capital (similar to paid-up capital or share capital) and must be injected into your company within 90 days upon the issuance of Enterprise Registration Certificate (ERC), under the Enterprise Law. The set amount of charter capital can be increased later on.
This capital will have to be sent or transferred from a foreign bank account by the investor into the company’s capital account in Vietnam. It can also be paid via the form of asset contribution.
As a general rule of thumb, foreigners must always make sure they have enough capital – an investment of US$10,000 is generally considered as the minimum capital that is accepted by the Vietnamese government.
2. Not Being Aware of e-Invoice
Since November 1, 2018, the government in Vietnam has implemented the e-invoice system (also known as electronic invoices in Vietnam) for the sales of goods – in an effort to boost the business environment for foreign investment via the simplification of invoicing.
It is mandatory for all individual companies, enterprises, corporations and other economic organisations to adopt the e-Invoice system by the end of 2020.
Read more about e-invoicing in Vietnam How to Comply with Mandatory E-Invoices in Vietnam.
Not only that it is part of the compulsory requirement by the Vietnamese authorities, but this implementation can also help to reduce costs and resources in businesses – by switching from paper invoicing to e-invoice.
Cekindo can assist you in adopting the e-invoice system in order to comply with the Vietnamese Law now. Furthermore, we provide both outsourcing services and seminars to educate your accounting and HR departments, so you can decide if in-house our outsourced e-invoicing fits your needs better.
3. Underestimating Vietnamese Business Culture
No matter how well-prepared you are as a business investor in Vietnam, if you fail to appreciate the power of business culture in the country, it will tremendously impact your business.
In Vietnam, building and maintaining good relationships is essential for doing business. A strong business culture with mutual respect and appreciation in Vietnam will create a better work environment, smarter decisions and improved products and services.
Read our article and get fast insight into the Business Culture in Vietnam.
4. Unfamiliar with Taxes and Incentives
Another truth for most businesses in Vietnam is that many of them fail because they do not plan well on taxes and know about the incentives.
First of all, many foreigners will mistake all receipts as VAT invoices. This is certainly not true as a lot of companies do not issue VAT invoices if you do not ask for them. Please do not underestimate the usefulness of these VAT invoices because they can be treated as company expenses and are eligible to be claimed in the future.
Furthermore, you will require these VAT invoices to reduce your corporate income tax rate. Thus, do remember to keep all of them and most importantly to ask for them.
In addition, complying with tax filing and reporting law and regulation is one of the vital requirements for you to sustain your business in Vietnam – and there is no way around it. Also, keep in mind that when it comes to tax law for foreign-owned companies, the Vietnamese authorities will be more stringent on its compliance.
[2020 UPDATE ON TAXES]
To make it easier for you, here is a summary of some taxes that you need to pay attention to in 2020.
Corporate Income Tax
Tax rate: 20% on assessable income; 32-50% for the oil and gas and other extractive industries
Tax year: January 1 to December 31
Foreign Contractor Withholding Tax
Foreign organisations with income derived from contracts or have businesses in Vietnam are subject to this tax
Deemed CIT rate: 0.1 – 10% depending on the business lines
Deemed VAT rate: 0 – 5% depending on the business lines
Value Added Tax
Tax rate: 0 – 10% depending on the type of services and goods
Special Sales Tax
Applied on the importers, producers, and providers of goods and services
Tax rate: 7 – 150% depending on the type of product or service
5. Hiring of Foreigners
We cannot stress enough how important it is to know the visa and permit requirements for foreigners and certain positions or roles a foreigner can hold in Vietnam. In fact, this is the top business mistake that foreigners in Vietnam make.
Even though there is no specific regulation stating the foreign to local employee ratio in a Vietnamese company, you can only employ foreigners with particular skills that your business requires.
It is compulsory for Vietnamese companies to appoint a chief accountant as a statutory position, and this position can only be filled by a Vietnamese national. For other positions, the skills required are justified based on their demand in Vietnam. These skills are usually related to language proficient and international experience or skills that are currently lacking in Vietnam.
On top of that, foreign nationals must acquire a work permit and a resident card or business visa in order to work legally in Vietnam. Deportation of your foreign employees, shut down of business operation, or serious fines will be the consequences if you do not comply.
6. Underestimating Timeline of Procedures
Do keep in mind that you need to allow enough time to translate and legalise all required documents and licenses – for the registration and running of your company in Vietnam. These have to be done in your home country which issues the documents.
If you do not give sufficient time to perform these tasks, it will eventually turn into a more expensive and time-consuming process to get it right.
7. Doing Business in Vietnam with an Unreliable Nominee
Using an unreliable or even deceptive nominee is a very common mistake that many foreigners have committed when starting a business in Vietnam.
The engagement may be a result of unfamiliarity with the Vietnamese market (assuming that you need a nominee in every business sector) or trusting a business partner who is either not professional or tries to take advantage of you.
Partnering with an untrustworthy nominee might put you at risk that you have never expected – you will have no knowledge of who the shareholder of your company is. Also, a nominee who has been listed as shareholders in multiple companies will soon raise a red flag to the Vietnamese authorities.
Not to mention, without a proper agreement or professional medium that drafts and regulates the nominee agreement, you will likely to lose your company in case of the nominee’s death or illegal activities.
Therefore, rather than breaking the law, it is prudent for investors to take into careful consideration hiring a qualified consultant such as Cekindo to mediate the entire nominee process.
Doing Business in Vietnam with Assistance from Cekindo
Contact us for more information, and we will advise you on common business mistakes and how to do your business in Vietnam right.