Vietnam has been putting a lot of effort into developing its regional economy and luring globally renowned entrepreneurs with cutting-edge technical skills. However, even though Vietnam has a favorable business environment, making mistakes can heavily affect your business’s success.
This article will tell you the common mistakes and pitfalls you can avoid while doing business in Vietnam. By being aware of these errors, you can avoid difficulties in the Vietnamese market.
1. Not understanding the minimum capital requirements
There is no minimum required capital in Vietnam for most business sectors. Nevertheless, depending on the nature of your firm, the Vietnamese government may need you to demonstrate that you have enough money in your bank account to fulfill your projected expenses.
Charter capital is the total value of assets contributed or committed to contributing by members of the company or the company owner when establishing the company (according to Clause 34, Article 4 of the Enterprise Law 2020). Various kinds of partnerships, joint stock corporations, and limited liability companies have different charter capital needs.
A corporation’s minimum or maximum charter capital is not explicitly regulated in Vietnam. Therefore, one criterion for establishing a business in Vietnam is determining the charter capital appropriate for the company’s financial state, the founder’s financial ability, and the type of business.
For non-contingent service providers like management consulting, technology consulting, or other businesses that can launch with little investment, a recommended minimum capital of US$20,000 is acceptable.
2. Not Being Aware of e-Invoice
As part of its efforts to improve the business environment for foreign investment through simplified invoicing, Vietnam made the use of electronic invoices mandatory in July 2022. All individual companies, enterprises, corporations, and other economic organizations must adopt the e-Invoice system by July 2022.
Electronic invoicing is easy to use and assists firms in lowering the costs of printing, distributing, preserving, and storing invoices. Second, businesses may find it more convenient to use e-invoices. The technology can speed up the payment process by making it simpler to do invoice searches and enabling accounting and data reconciliation. Additionally, using e-invoices encourages business leaders and staff members to innovate, particularly in technology, adapt to changes, and strengthen competitive advantage in a constantly changing environment.
3. Underestimating Vietnamese Business Culture
No matter how well-prepared you are as a business owner in Vietnam, it will significantly influence your company if you don’t recognize the importance of the local business culture.
A thorough preparation is necessary before traveling to Vietnam. Learn about the political and economic atmosphere and the nation’s history and culture. Speak with business people who have experience in Vietnam. Utilize the information and assistance offered by government agencies and branch groups.
In Vietnam, a strong company that respects and deeply understands Vietnamese culture would provide better work environments, wiser judgments, and better goods and services.
Read our article and get fast insight into the Business Culture in Vietnam.
4. Lack of Knowledge of Taxes and Incentives
Another truth for most businesses in Vietnam is that many of them fail because they make more thorough tax preparations and understand the incentives.
Many foreigners mistakenly believe that every receipt represents an invoice for VAT. This is untrue because many businesses do not provide VAT invoices if you do not request them. Refrain from paying attention to the value of these VAT invoices because they can be used to establish business expenditures that may later be reimbursed.
Furthermore, you will require these VAT invoices to reduce your corporate income tax rate. So, remember to ask for them all and, most importantly, to keep them all.
In addition, complying with tax filing and reporting laws 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 the tax law for foreign-owned companies, the Vietnamese authorities will be more stringent on its compliance.
5. Hiring of Foreigners
We cannot emphasize enough how crucial it is to be aware of the visa and permit requirements for foreigners and the specific functions or positions they are permitted to have in Vietnam. This is the most common business error committed by foreigners in Vietnam.
The ratio of foreign to local employees in businesses registered in Vietnam is not regulated, but not all positions can be filled by foreigners. Companies can only hire foreign nationals for roles that call for specialized skills that are hard to locate locally.
Vietnamese firms must appoint a chief accountant as a legal requirement, and only a Vietnamese citizen may hold this job. Based on their demand in Vietnam, the abilities necessary for other occupations seem justifiable. These abilities typically involve knowledge of a foreign language, international experience, or skills currently lacking in Vietnam.Additionally, foreign nationals must get a work permit, a resident card, or a business visa to work lawfully in Vietnam. If you don’t comply, you risk having your firm shut down, having your foreign staff deported, or paying hefty fines.
6. Doing Business in Vietnam with an Unreliable Nominee
Many foreigners who start businesses in Vietnam make the typical error of using an unreliable or dishonest nominee. The engagement could result from a lack of understanding of the Vietnamese market (under the assumption that you require a nominee in every industry) or a decision to put your trust in a business partner who is either unprofessional or seeks to take advantage of you.
Partnering with an untrustworthy nominee might put you at risk that you never expect – you will not know who the shareholder of your company is. Additionally, the Vietnamese government will shortly take notice of a nominee who has been identified as a stockholder in several companies. You risk losing your business if the nominee dies or engages in unlawful activity if you don’t have a formal agreement or professional means to construct and regulate the nominee agreement.
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