The Vietnam Opportunity: Structured for Success
The third post in our Vietnam Opportunity series, we first looked at the trends and numbers for economic growth now China decoupling is becoming real. Then we interviewed Claude Rety, an entrepreneur on the ground in Ho Chi Minh city with two emerging businesses.
One point Claude emphasized was
"(You) need to get properly counselled...company set-up is important. You don’t want to get stuck with the wrong tax rate. You want to be able to use your money freely as much as possible."
That sounded like a similar situation to China and Claude agreed. In such a situation an experienced guide, lawyer or consultant is vital to navigate a red-tape thicket. Most things are completely achievable of course, but the pain, time and cost can vary widely.
So we found and spoke to an experienced Vietnam lawyer Alex Ho, a Senior Associate at PLF Law Firm.
A chat with Alex Ho, an expert on Vietnam business.
First, a bit of background on Alex. He advises local and foreign companies on their business operations in Vietnam and in the region.
Alex has extensive experience advising multinational companies and state-owned enterprises on Corporate & M&A, Labor & Employment, Intellectual Property, Tax, and Dispute Resolution with a strong focus on the infrastructure, manufacturing, logistics, and technology sectors.
Alex is regularly consulted by our clients on cross-border investments, M&A projects and commercial disputes.
Let's get down to the Q&A section.
Owen: Which sectors are seeing strong growth in foreign investment into Vietnam over the last few years?
Alex: Even though the Covid-19 pandemic has severely hit global flows of foreign investment, the total foreign investment capital registered in Vietnam continued to increase over the last few years, following an already existing upward dynamic. The manufacturing and real estate sectors are the industries that benefit the most from foreign investments.
Owen: What advice would you give to companies considering Vietnam as an alternative to manufacturing in China? What sort of timeframes are typically required for effective corporate establishment?
Alex: Investment and tax incentives typically depend on the location of the investment project. Hence, companies planning to set up in Vietnam must carefully determine the location of the factory. If setting up in an industrial park, the preparation of the lease agreement and supporting documents usually require 2 to 3 months. Then our legal team usually need about 1 month to obtain the Investment Registration Certificate (about 20 working days) and Enterprise Registration Certificate (about 3 to 5 working days).
In China, there is a negative list of industries where the government either restricts or bans foreign investment. Does Vietnam have a similar system?
Vietnam has a similar system, and the Law on Investment (dated June 17th, 2020) bans any business investment activity that causes damage or creates a risk of causing an attack on national defence and security and lists prohibited sectors (example: prostitution, money laundering or human trafficking).
Foreign investments are also restricted as per the list of industries and trades for whose market approach is conditional (link below).
In this regard, the main criteria are the share capital ownership ratio of foreign investors, forms of investment, scope of the investment operation and the capacity and previous experience of the investors.
Claude mentioned that repatriating profits can be an issue if your corporate structure is not well planned. How can foreign companies ensure they avoid or manage this issue?
Article 12 of the Law on Investment guarantees the right of foreign investors to transfer assets overseas “after all financial obligations to Vietnamese government are fulfilled”, including:
1. Investment capital and proceeds from liquidation of its investment;
2. Their income obtained from business investment activities;
3. Money and other assets under the lawful ownership of the investors.
Financial obligations imply to organize accounting reports, pay taxes and other financial obligations as stipulated by law.
Is Vietnam an attractive destination for entrepreneurs and if so, in your opinion, what areas?
The Law on Investment states that the Socialist Republic of Vietnam provides equal treatment between investors and has policies to encourage and create favorable conditions for investors to conduct business investment activities and sustainably develop financial industries. Moreover, Vietnam entered into numerous Free Trade Agreements, liberalizing and simplifying goods exchanges and creating attractive tax systems with lower customs duties.
In addition, Vietnam benefits from a good pool of physical working resources with a competitive labor cost added to a young, abundant, and increasingly qualified labor force. Vietnam also benefits from a booming middle class which means increasingly numerous local consumers, affluent and eager to spend or invest their money.
Nevertheless, Vietnam is not without flaws, especially as some create unnecessary hurdles to foreign investment. Red tape is the main obstacle to doing business in Vietnam, with lengthy and cumbersome administrative procedures notably for obtaining licenses for foreign-invested projects and work permits/visas for foreign workers.
However, those hurdles can be avoided with sufficient planning, time, and the right legal counsel.