Doing Business in Vietnam as a Foreign Investor: What, Where, Why, How?

All the essential do's and don'ts of doing business in Vietnam for foreign investors: benefits, challenges, and how to start.

The Vietnamese economy has burgeoned into one of the world’s strongest economies thanks to its stable political and influential macroeconomic environment. Since the late 1980s, its Doi Moi policy has employed a range of measures to foster its attractiveness to foreign investment and develop a resilient economy. Hence, doing business in Vietnam is a lucrative option for foreign investors planning to expand their operations. 

With over a dozen trade agreements in place, including the EU-Vietnam Free Trade Agreement, CPTPP, and most recently RCEP, the government remains committed to promoting international trade. As part of the country’s goal of embracing industry 4.0, the government is proactively implementing various initiatives as well as the rollout of a 5G network is also in the pipeline.

Vietnam’s Economy at a Glance

Combined with global trends and economic reforms that started in 1986, Vietnam emerged from being one of the world’s poorest nations into a middle-income country. Between 2002 and 2021, GDP per capita increased 3.6 times, reaching almost USD 3,700. Moreover, the poverty rate (USD 1.90/day) declined from over 32% in 2011 to below 2% in 2022.

Through different crises, including COVID-19, the economy has proven resilient due to its solid foundation. Vietnam was one of the few countries that registered a positive GDP during the pandemic. 

Vietnam is Set Up for Regional Dominance by 2036

Vietnam will be the second-largest economy in Southeast Asia by 2036, as projected by the Centre for Economics and Business Research’s (CEBR) World Economic League Table 2022. Positive trends in the global economy have allowed the country to record remarkable economic growth.

Diversifying exports, integrating manufacturing into global supply chains, and forming trade partnerships are all part of the country’s growth strategy.

In accordance with the Vietnam Investment Review (VIR), the national government plans to become a high-income nation by the year 2045. To achieve this milestone, the country needs to grow by approximately 5% per capita on an annual basis. Based on the country’s most recent five-year development plan, the economy is projected to expand at an approximate rate of 6.5% every year for the next ten years.

As it seeks to become a developed country, it faces several key challenges. Expediting the process of implementing policies is necessary to keep up with the declining global trade and the aging population.

Moreover, there is a need to update and modify the regulatory system in Vietnam, with special attention paid to technologically advanced enterprises and the interdependency of economic zones.

Ease of Doing Business in Vietnam

According to the Doing Business report published in 2020, Vietnam ranks 70th worldwide for the accommodation of business activities. Here is a breakdown of different several aspects of business and the country’s performance for the same:

Doing Business TopicsTopic Score
Starting a Business85.1     
Dealing with Construction Permits79.3
Getting Electricity88.2
Registering Property71.1
Getting Credit80.0
Protecting Minority Investors54.0
Paying Taxes69.0
Trading across Borders70.8
Enforcing Contracts62.1
Resolving Insolvency38.0

A Summary of Company Registration Entities in Vietnam

If you’re planning to start a 100% foreign-owned business in Vietnam, you’ll have four options: limited liability company, representative office, branch office, and joint-stock company.

Limited Liability Company

A Limited Liability Company (LLC) is the most popular type of entity that foreign investors can use to establish their business in Vietnam, especially for small and medium-sized businesses. An LLC only requires a single founder but large-scale LLCs can have more than one founder, comprising 2-50 members.

Some features of LLCs include:

  • Charter capital investment is the only liability
  • Simplified workflow and less paperwork
  • Raising more capital is relatively easy
  • Engage in income-generating programs without restriction

Representative Office

If a foreign investor wants to gauge the market dynamics in Vietnam, they can set up a Representative Office (RO) before making any further commitments. 

However, the company cannot generate revenue. It can only employ local talent, conduct research related to markets, and administer contracts negotiated with local businesses. 

Branch Office

If a parent company wishes to make profits and get involved in business operations without any legal binding, you can open a Branch Office (BO) in the country. Some of its attributes are:

  • BOs can issue invoices
  • BOs can keep accounting and taxation records separately or jointly
  • A legal representative is required

Joint-stock Company (JSC)

A JSC is suitable for medium and large-sized businesses because it has more restrictive structures and frameworks. Some of its characteristics are as follows:

  • The structure of the company is complex
  • There is no limit on a shareholder’s liability. Shareholders can easily transfer ownership of their shares.
  • Maximum number of shareholders is not restricted. 
  • It should have at least three founders.

Corporate Tax Overview

In Vietnam, companies typically pay 20% as corporate income tax (CIT). This rate is relatively low compared to China or India and on par with other countries in Southeast Asia. Moreover, operating in particular regions and certain industries grant tax incentives to business investors. 

In the case of rare and valuable commodities, namely precious metals and minerals, CIT can go up to 50%. On the other hand, the rate may be reduced by 40% if at least 70% of the allocated area is located in a socio-economically challenging region.

Prior to starting your business, be sure to find out what taxes apply to your sector and location. 

Tax Incentives in Vietnam

A few incentives offered by the Vietnam government are as follows:

  • Preferential Tax Rates

CIT can be paid at a lower rate than the standard 20%. The preferential rates are 10%, 15%, and 17%. The reduced rates are valid for certain industries and for a specified period. Except in a few cases, such as high-tech enterprises and projects, the preferred tax rate starts to apply from the year the company generates revenue.

  • Tax Holidays AKA Corporate Tax Reductions

For preferred industries, usually related to information technology or agri-tech, foreign companies are eligible for the following reductions:

  • First 4 years: exempt from CIT completely
  • Next 9 years: 50% tax reduction of the 10% rate
  • Next 2 years: 10% CIT

On the 16th year of operations and after, CIT rates go back up to the standard 20%.

Identifying industrial production zones

Vietnam has three significant economic zones:

NKEZ (Northern Key Economic Zones)

northern key economic zone nkez

Along with the capital city, Hanoi, six provinces make up the NKEZ: Hai Duong, Bac Ninh, Hung Yen, Vinh Phuc, Hai Phong, and Quang Ninh. Among this area’s strengths are motorbike manufacturing, electronics, and technologically advanced products. In addition to being able to provide competitive labor costs, the region is also close to the second-largest economy in the world, China. It is considered to be one of the most sought-after destinations for manufacturers considering a strategy beyond China.

CKEZ (Central Key Economic Zones)

central key economic zone ckez

There are four provinces (namely Thua Thien Hue, Quang Nam, Quang Ngai, and Binh Dinh) and the Da Nang municipality in the CKEZ. There has been significant development in this region in areas such as textile manufacturing, apparel, materials for construction, and the production of wood and paper.

SKEZ (Southern Key Economic Zones)

southern key economic zone skez

Ho Chi Minh City and seven southern provinces: Ba Ria – Vung Tau, Binh Duong, Binh Phuoc, Tay Ninh, Dong Nai, Long An, and Tien Giang, constitute the SKEZ. Industries such as textiles, rubber, and plastics are located in this zone. SMEs and other businesses are attracted to this region due to its diverse economy and a large pool of resources.

RELATED: Setting Up a Business in Vietnam’s Free Zones

Overview of Vietnam’s Workforce

Vietnam’s impressively young professional workforce drives the country’s economic growth. The country is host to a booming population of 99 million people, out of which 51.6 million are employed. Moreover, more than 30 million Vietnamese are below the age of 35. 

According to the General Statistics Office, there were 45 million people of working age employed as of Q2 2022, an increase of 2.3% over the previous year. JobHopin, a recruitment company, witnessed an astounding 38.6% increase in the number of jobs posted on its platform. 

Moreover, after COVID-19, Vietnam is on the fast track to fully recover, with unemployment rates dropping by 34.9%.

RELATED: High Demand Skills and Recruitment Advice for Foreign Employers

Challenges Remain

Excessive bureaucratic procedures 

Between 2012 and 2020, over 57,000 officials were disciplined based on Regulation no. 47-QD/TW, dated 1 November 2011. Among them, 17.4% were charged with bureaucracy and irresponsibility, including power abuse, inaccurate reports, and bribery.

Drawing on criteria such as corruption levels and policy efficiency, the Political and Economic Risk Consultancy (PERC) has rated Vietnam among one of the worst countries in the world in terms of Bureaucratic Performance (2018).

Vietnamese Currency (VND)

In the recent months of 2022, the world has seen a sharp increase in the value of the dollar (USD). This is a result of the U.S Federal government tightening loaning policies to combat inflation. Vietnam’s currency, the Vietnamese dong, has also suffered from dropping values. 

price of usd to vnd

Price of the USD to the VND – source: Google Finance

However, the government has issued rather strict regulations for international transactions, especially for outgoing cash flow.

RELATED: The Remarkable Rise of the Fintech Industry in Vietnam

Required Use of The Vietnamese Language in Paperwork

All reporting and filing paperwork, including licenses, must be written in the Vietnamese language. For documents that are in English or other languages, they must be translated into Vietnamese through certified translations at the court in the home country. The certified translated documents must then be validated by a Vietnam embassy.

Taxes in Vietnam

There are typically three types of business tax payments required annually (although several more maybe required for your specific business activities), despite the fact that the reform of Vietnam’s complex tax structure is in progress.

Through some enacted reforms, Vietnam plans to simplify the process of finalizing taxes (tax filing/tax returns) and transitioning to a fully digitalized system for filing \taxes.

A lot of work must also be done by the authorities in respect of the improvement of technology for tax reporting such as electronic tax declaration.

RELATED: Tax Incentives in Vietnam

Cash-dependent Economy

Vietnam depends heavily on cash for payment in the country. More than 90% of the country’s transactions are done in cash due to the lack of standardized and reliable cashless systems and ATMs.

The government, however, aims to make Vietnam one of the few cashless countries in the region, with an emphasis on accessible digital payment systems and the adoption of blockchain technology.

One example is Vietnam’s very own Unicorn, Momo, which has become a ubiquitous mobile banking app and one of the leaders in B2C & C2C cashless payments.

This article was originally published in June 2019 and was updated with more accurate data and advice in November 2022.

Originally published: 12 June 2019; latest update: 17 November 2022

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Verified by:​

Thanh (Tim) Ta

Tim Ta is the Head of the Business Consulting Department of Incorp Vietnam. He is a seasoned professional with more than 6 years of consulting experience in Vietnam for market entry, incorporation, and real estate investment.

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