Vietnam’s economy is one of the fastest-growing in Southeast Asia attracting numerous international investments. The country’s middle class is on an ever-expanding trajectory, consequently making Vietnam a thriving consumer goods market. Furthermore, the FDIs have been a major driving force behind this emerging expansion over the last 10 years.
Although the Vietnamese market presents lucrative business opportunities, foreign investors must be aware of legal quandaries and risks involved. These aspects could be a bigger impediment to businesses in Vietnam if not taken into account.
In this article, we will emphasize some of the main aspects of entering the Vietnamese market that foreign investors must be familiar with to avoid procedural pitfalls.
Choosing the Right Legal Entity to Invest in Vietnam
Choosing the right type of company in Vietnam can be an overwhelming task as there are several types of legal entities to choose from. For instance, a foreign investor can choose from a foreign-owned company (usually an LLC), a representative office, a nominee company, or a shelf company.
Some foreign businesses believe that forming a nominee company is the simplest and most cost-effective solution. However, depending on the nature and scale of the business, it might not be the best solution. Moreover, if the nominee company is not managed properly, assets and cash may be detained in Vietnam in the future.
To use a local nominee company safely, read Local Nominee Company for Your Business in Vietnam
Setting up a wholly foreign-owned firm entity, often known as a foreign limited liability company or foreign LLC, is another alternative. This is generally the most popular type of entity chosen by foreign firms entering Vietnam.
However, despite the ease of forming an LLC, if you own a medium or a large corporation, forming a Joint Stock Company (JSC) would probably be the more optimal entity for you.
Inject Your Charter Capital Before Due
Investment capital is made up of two parts: charter capital and loan capital. To qualify for charter capital, owners must inject their shares within 90 days of the company’s founding date. Failing to do so means the business’s direct investment capital account will be stopped, putting the business operations at risk.
Setting up a Proper Company Bank Account
For foreign investors, the Direct Investment Capital Account (DICA) and the Current Accounts are the two most essential accounts. A foreign business is only permitted to have one DICA, but several current accounts. At various banks, current accounts might have multiple currencies. A DICA is commonly used in Vietnam for loans, dividends, and capital transfers.
Complying with Vietnamese Laws
Foreign firms who fail to comply with Vietnamese rules and regulations will face a variety of penalties, ranging from minor to severe, which can occasionally end up with the firm on a corporate blacklist.
The rules in Vietnam are extremely austere when it comes to taxation as they are continuously changing, making tax compliance a difficult task. An annual tax audit is required for each entrepreneur conducting business in Vietnam. The tax report must then be filed to the tax authorities within 90 days of the tax year’s conclusion.
One will also want to keep an eye on tax breaks and deductions. In Vietnam, tax incentives vary by industry (if the sector is sponsored by the government), project size, location, and other factors. Moreover, there are some non-deductible corporate costs that investors should be aware of, since these non-deductible charges may have an impact on the company’s cash flow and result in non-compliance if not managed appropriately.
Furthermore, a slew of red tape adds to the investor’s difficulties. If no one in an organization is aware of the rules and regulations, always consult a competent legal team to verify that one is in comprehensive compliance.
Invest in Vietnam with the Right Assistance
Cekindo has extensive knowledge of the Vietnamese market as well as professional expertise with the registration and formation of businesses in Vietnam.
Our comprehensive business solutions are just what you need if you’re not sure whether an organization is suitable for you or if you need help with tax reporting in Vietnam.