Vietnam - Background
The Vietnam economy is a developing, planned and market economy and since the mid 1980’s the government has been in the process of shifting the focus of the economy from that of a centralized planned economy to a socialist orientated market economy through its five year plans.
Since the mid 1980’s the economy of Vietnam has experienced rapid growth as the country is integrated into the global economy and is expected to become the world’s 35th largest economy by 2025 and one of the fastest growing economies today with a potential annual growth rate of around 10%.
Vietnam is situated on the eastern Indochina peninsular between the latitudes 8° and 24°N, and the longitudes 102° and 110°E and covers a total area of approximately 127,881 square miles, almost the same size as Germany. The country has an estimated population in excess of 90 million and is the world's 13th most populous country.
The country, now unified, was divided into the two politically divided states of North and South Vietnam from 1954 until the end of the Vietnam War in 1975 when the then communist government re-unified the country. The country remained impoverished and isolated until the government began its implementation of political and economic reforms in 1986 and Vietnam is now one of the fastest growing economies in the world.
Most Vietnamese enterprises can be classified as small or medium sized enterprises and Vietnam has, in recent years, become an attractive destination for foreign investment as well as being a leading agricultural exporter.
Whilst the country has undergone many reforms, the government does still play a major role in business in Vietnam and state owned enterprises make up 35 percent of GDP and it is expected that the government will continue to maintain majority control of major and sensitive industries such as energy, aviation and telecommunications.
It’s fair to say that, although the country has made great strides in recent years, doing business in Vietnam is not without its challenges. Commercial law and regulatory regimes are still evolving and the jurisdiction of government bodies often overlaps which can lead to inconsistencies in decisions made on commercial projects and red tape can be a hindrance.
Many firms have also found that the protection of intellectual property rights in Vietnam is largely ineffective. Piracy rates for software, for example, are estimated to be in the region of 81%
Despite the challenges and a slight slowdown in growth recent years, Vietnam offers a growing market for foreign companies in many different market sectors.
As with most Eastern countries, business people looking to do business in Vietnam would be well advised to research the cultural differences as well as the legal requirements before starting out on a new venture. For example, the importance of handing out of business cards with both hands and never being late for a meeting cannot be overstated.
Vietnam - Opportunities
As the country's economy continues to grow the economic reforms continue to take effect, it is a good time for overseas investors to explore the emerging markets of Vietnam.
Vietnamese domestic demand for imports from its 90 Million population is expected to grow by 250% by 2020 as it’s increasingly more affluent consumers seek new products and consumables and the country pursues further trade liberalization and reform.
The government of Vietnam is now actively encouraging foreign trade and investment and has a stated objective of becoming trade partners, with an open market, with countries in the rest of the world.
Opportunities for foreign businesses exist in almost all sectors across the board. For example, in technology, the IT sector is enjoying a 20-25% average growth rate and contributes some 7% of the country’s GDP and in engineering, Vietnams aviation industry is the third fastest growing in the world. Oil and gas also represent a major opportunity for foreign companies as Vietnam is the third largest producer of oil and gas in Asia.
Internally, the government is pursuing an ambitious mass transit development program in the major cities of Hanoi and Ho Chi Minh city which, with an estimated investment requirement of $120 billion is generating a great deal of trade potential.
A further major area of investment on the part of the government is its planned $1.5 billion investment in healthcare projects including the upgrading of existing hospitals and the building of new ones and, as Vietnam prepares for the 2019 Asian Games in Hanoi, opportunities exist in civil engineering and other areas related to the games in the coming years too.
In general terms, the on-going urban regeneration projects and the growing consumer market of the country make Vietnam an exciting prospect for investment and business. Opportunities in the sale of equipment, consulting services and technologies related to the countries implementation of major infrastructure projects and its growing export and industrial sectors continue to grow.
The disposable income of the population is growing, particularly in the more affluent urban centers which is creating significant new opportunities in the fast emerging services and retail sector whilst engineering, IT, oil and gas, transportation, infrastructure and environmental projects, fuelled by the government's own development plans are also providing some exciting opportunities for foreign businesses.
The two main business centers in Vietnam are Hanoi, the capital and the country’s second largest city with an estimated population of 2.6 million and Ho Chi Minh City, formerly Saigon, the largest city in Vietnam with a population of around 9 million. Both are rapidly expanding, cosmopolitan cities with good communications and facilities available to foreign businesses.
Vietnam – Setting up in business
With the Vietnamese government actively promoting foreign investment in the country and its desire to become a full-fledged member of the international business community, setting up in business in the country is not difficult but can be more time-consuming that it might be elsewhere.
There are a number of options open to foreign companies wishing to have a presence in Vietnam:
As the name suggests, a representative is for that purpose only and may not conduct any profit making activity in its own right. A representative office may however be used to conduct market research, act as a representative or liaison office of an overseas company or act as a product showroom.
A branch Office is licensed to carry out business in Vietnam on behalf of its parent company. It can only conduct business within the scope of its license which must the business that its parent company has conducted itself for at least five years.
Limited Liability Company
A foreign company may set up a wholly owned Vietnamese Limited Liability subsidiary in Vietnam or a joint venture company with a local business partner. There is no minimum capital requirement but an investor will be required to commit to a reasonable level of investment in line with the scale and business scope of the business.
As with any foreign investment, it is advisable to seek local legal advice and assistance from a reputable firm but the basic steps to setting up a limited company in Vietnam are as follows:
1. Check that the proposed company name is available and acceptable in Vietnam and obtain a business registration certificate and a tax registration certificate from the local business registration Office.
2. Obtain a company seal and have a sample of it registered with the Police Department. Most business documents in Vietnam need to be signed and stamped with the company seal before they are considered to be legally valid.
3. Open a Bank Account. To open a business account in Vietnam you will need to provide the bank with a completed application form along with the company seal, certificate, the resolution of the management board and the company’s business registration.
4. Within 30 working days of the establishment of the company, details of the registration must be published on the National Business Registration Portal and a publishing fee paid.
5. An initial annual business license tax will become payable immediately the company is registered with the tax authorities.
6. It is important to note that sales invoices must conform to a pre-prescribed format. You can purchase pre-printed VAT invoices from the taxation department or you can apply for authority to produce your own self-printed invoices. This process alone can take ten days.
7. In addition to the above, a newly registered company will have to register with the local labor office, register employees with the Social Insurance Fund and, within 6 months of starting operations, register with the relevant trade union.
The rules and regulations for operating a business in Vietnam are not that dissimilar from other countries, though the government red tape can be frustrating at times. Always obtain local advice from a reputable firm of accountants or lawyers for more detailed and up to date advice.