Posted 16.07. 2019 by Cekindo / Last update on 9.09. 2019
The Vietnamese economy is thriving and regarded as the fastest growing economy in Southeast Asia, alluring many foreign investors to invest in Vietnam. The ongoing Foreign Direct Investment (FDI) over the years has been the major driver of this burgeoning growth. Furthermore, the middle class in Vietnam has been expanding, making Vietnam a flourishing consumer goods market.
While many business opportunities are very appealing to foreign investors, foreign investors need to be calculative of some risks and issues. If you are not careful, those elements could become the major hindrance of your business in Vietnam.
In this article, we highlight some of the key considerations you need to be aware of when entering the Vietnamese market.
Should you establish a representative office or a foreign-owned company? Should you engage a nominee company or buy a shelf company? It can be daunting when it comes to choosing the right legal entity for your business.
Some foreign entrepreneurs would think that setting up a nominee company is the easiest and cheapest option. However, depending on the purpose of your entering the market, it may not be the right option because even a nominee company has its own risks. If you are not aware of how to use a local nominee company carefully, it is possible that your assets and capital may be trapped in Vietnam in the future.
To use a local nominee company safely, read Local Nominee Company for Your Business in Vietnam
Other option would be to set up a fully foreign-owned company, which is also known as the foreign limited liability company, or foreign LLC. The set up a foreign company is quite simple. It is also commonly used by foreigners to enter the Vietnamese market.
Despite the simplicity of LLC establishment, it may not be the right choice for you if your business is categorised as a medium or large business. You will need to consider another option, which is a joint-stock company (JSC).
The charter capital and the loan capital are both the components of investment capital. For charter capital, shareholders must inject their shares in 90 days, starting from the establishment date of the company. It is extremely important to not delay the capital injection. Failure to do so, your company will be put at risk as its direct investment capital account will be suspended.
The Direct Investment Capital Account (DICA) and the Current Accounts are the two most important accounts for foreign investors. A foreign company is allowed to have only one DICA but more than one current account. Current accounts can have different currencies at different banks. A DICA is generally used for loan, dividends, and capital transfer in and out of Vietnam.
Foreign companies that are unable to comply with laws and regulations in Vietnam will face penalties ranging from mild to severe. The severe one can be really costly and sometimes it involves business blacklist.
The Vietnamese laws are particularly stringent on all things relevant to taxes. Tax compliance in Vietnam is a complex undertaking because the laws are changing constantly.
As an entrepreneur doing business in Vietnam, an annual tax audit is necessary. Then the tax report must be submitted to the tax authorities within 90 years starting from the end of the tax year. The last day of the tax year is often on March 31 in Vietnam.
You will also need to pay attention to tax incentives and deductibles. There are many types of tax incentives in Vietnam based on sector (if the sector is supported by the government), size of project, location, etc.
Of course, there are definitely some non-deductible corporate expenses that investors should be aware of, due to the reason that these non-deductible expenses may affect the company cash flow and create non-compliances if they are not handled properly.
What is more, several red tapes create even more challenges for investors. Always consult a professional legal team to ensure that you are in full compliance, if there is no one in your company that is familiar with the laws and regulations.
Cekindo has profound insights in the Vietnamese market as well as professional experience with company registration and business incorporation process in Vietnam.
If you are not sure about the right entity for you or you need assistance with tax reporting in Vietnam, our comprehensive business solutions are exactly what you need.
Get in touch with us today by filling in the form below if you are ready to invest in Vietnam now.