Being among the world’s fastest-growing nations, Vietnam has become a strategic location for investment by many international entrepreneurs. The relatively cheap yet highly skilled workforce is not the only factor entrepreneurs from all over the world are attracted to set up a business in Vietnam.
There are causes why doing business in Vietnam is becoming attractive to foreign businessmen and investors. Thanks to economic reform and rising affluence, Vietnam is one of the biggest emerging economies in Asia these days.
|Benefits of doing business in Vietnam||The drawbacks of doing business in Vietnam|
|Labor force||Setting up a company|
|Economic pace||Vietnamese currency|
|Taxation policies||The Vietnamese language is used in the paperwork|
|Administrative policies||Taxes in Vietnam|
|Favorable market||Lack of transparency and bureaucracy|
Advantages of doing business in Vietnam
- Strong Economic Growth Rates
After the economic reforms initiated in 1986, the economy in Vietnam has expanded considerably, even in times of instability. While the financial crisis slowed growth, the national economy stayed very robust and recovered to pre-crisis figures soon afterward. Currently completely recovered, the 6.41 GDP increase is forecast to expand to 7 percent in the next year.
The nation that once was one of the poorest countries in the world has now become a market for labor-intensive goods. It has long become an appealing prospect for foreign direct investment ( FDI) and will soon be becoming popular among overseas companies opening a company in Vietnam.
It is anticipated to gradually replace China between strong Asian economies in its leading role.
- Young, Skilled Population
Indeed the development of the Vietnamese population could support foreign investors. Southeast Asia’s third-largest population is relatively young, with more than half the population below 30 years of age. The large, well-educated, and relatively cheap manpower has become one of the significant assets of Vietnam.
Vietnam’s literacy rates are above 90 percent and one of Southeast Asia’s highest internet penetration rates. International investors take full advantage of their technical expertise, the strong entrepreneurial culture, and the general openness of the nation to new ideas.
Setting up a company in Vietnam together would save investors cheaper labor for equally affordable local employees.
- Government Support
Since the Vietnamese government understands that foreign investment has an economic effect. It demonstrates an ongoing commitment to reforms and various improvements to its regulations. The 2016 – 2020 Socio-Economic Development Plan (SEDP) recognizes inadequate progress on some policies and stresses the importance of its changes.
The strong attempts to create Vietnam’s investments more open yields results. The place of Vietnam in the annual survey of regions that provide business-friendliness is growing continuously. Vietnam is now ranked 82nd out of 190 countries according to the World Bank Group, with a change of 9 positions upward compared with the previous year.
- New Market
During the last 30 years, the Vietnamese economy has undergone a boom. In Vietnam setting up a company is fairly new and less complicated than in other countries. Consequently, investors do not face tough competition when attempting to bring creative or risky ideas into practice for their companies.
- Free Trade Agreements
Vietnam is an ASEAN member and a World Trade Organization member, facilitating its fairly smooth trade with other nations. In addition, it has concluded regional and bilateral free-trade deals with several of the world’s leading economies.
The Free Trade Agreement ( FTA) with the European Union entered into force in 2018, would help Vietnam’s eagerness to foster economic growth in the country.
- Low Expenses
Vietnam is now becoming a “developing” country, with its growing economy. Although it may invoke thoughts about a strong motorbike culture and noise, these drawbacks are outweighed by the consequent economic benefits.
Simply put, starting a company in Vietnam opens up a big opportunity to make huge savings. Local prices and the cost of living are not that high in this region, after all. Unlike other developing countries, you’ll have the best local talent in the field here. That also refers to a new company or enterprise.
- Infrastructure Development
One of the main drivers for economic development is modern infrastructure. Despite this, the government is not underestimating its position and investing in its renovation. New urban rail networks, local airports expanding, as well as an international gateway airport are all part of major infrastructure development programs.
In addition, Vietnam is profiting from its strategic position at the ASEAN center. Also, the long coastline of the country provides the country with easy access to the major shipping routes in the world. This becomes another great justification to start a company that will be attractive to foreign investors in Vietnam.
Disadvantages of Doing Business in Vietnam
- Starting a company
The Doing Business rankings of the World Bank have Vietnam at No 104 in the world for ease in starting a company (69 overall for doing business globally), but it states that change is underway-it only takes eight processes now, where it was over 100 a few years ago.
Before you register your company you must have a firm address and a lease signed. It is also worth noting that restrictions and limitations are set on some foreign investments, with certain undertakings-dealing with some types of medicines, chemicals and minerals, certain biological enterprises, and firecrackers-barred from receiving foreign injections.
- Reporting and filing
All documentation must be recorded in the Vietnamese language, and all international paperwork must have Vietnamese certified translations-they should be notarized or approved by home country courts, and then checked by a Vietnamese embassy. Licenses are given in Vietnamese, too.
The Vietnamese dong is closely linked to the US dollar via a crawling peg, which provides stability of exchange rates among trading partners. Reasoned one of Asia’s most competitive currencies, the dong has assisted indirect foreign investment.
It is worth noting that transactions in relation to foreign currencies are heavily regulated by the government, with regulations on inflow typically more flexible than those on outflow.
In recent years, the government of Vietnam has undergone a lot of reform of its complex tax system, and this has been reflected in an improvement in the Ease of Doing Business rankings at the World Bank. Those rankings note that there are 10 annual corporate tax settlements to be made, with other tax burdens involving VAT and social security.
The Ministry of Finance of the country states that the Tax Department has released regulations that establish favorable conditions for companies, including listing invoices of products and services purchased and sold along with the VAT declaration, as well as simplifying the VAT and CIT calculation procedures.
- Intellectual property
While Vietnam has legislation in place to protect intellectual property rights, compliance is notoriously lax, and misuse of IP remains a problem in Vietnam; software piracy rates were estimated at 74 percent for 2017.
The government is taking steps to resolve the issue and enact new laws to protect IP rights, including copyright, intellectual property, and varieties of plants. International companies wishing to register their intellectual property should file an application through an approved agent with Vietnam’s National Office of Industrial Property, or NoIP.
Despite the country’s reform, corruption in Vietnam is still prevalent and everyone doing operations in the market is likely to experience it or hear about it at some point. The Vietnamese government is committed to tackling the problem, implementing anti-corruption laws, establishing anti-corruption policies, improving its institutions, and ratifying the UN Convention on Organist Corruption (UNCAC).
Its mechanisms against corruption are robust compared with some of its Asian neighbors. But while there’s the motive, the work is harder for the officers. Taking bribes, making offers for facilitation, and accepting lavish gifts to establish business relationships are all illegal practices and many multinational businesses are advocating a set-up zero-tolerance approach.