The Vietnamese economy is expected to grow by 6% annually in the coming years, driven by a growing domestic market and a young, educated and hard-working population that is also the fastest-growing middle class in South Asia. However, there are certain challenges of doing business in Vietnam that investors will need to consider.
In terms of development, Vietnam is a success story. Continuous economic reforms and beneficial global trends have propelled the country from being one of the poorest in the world to a middle-income economy in a single generation.
In 2023, Vietnam's GDP grew by 5.05%, while foreign direct investment (FDI), one of the country's key economic drivers, rose 3.5% to $23.18bn in the same year. These funds were pledged primarily to the manufacturing and real estate sectors, followed by electricity production and distribution and banking and finance.
Despite these clear advantages, there are a number of significant challenges for foreign companies looking at doing business in Vietnam, from a lack of digital transformation to slow progress in environmental and financial policies.
Here are the top 9 challenges of doing business in Vietnam.
1. Starting a company
TMF Group's Global Business Complexity Index (GBCI) 2024 ranks Vietnam 49th for the complexity of its business environment. This position is down from 46th in 2023 & 42nd in 2022 and reflects that the country has simplified its business processes over the past three years.
It now takes two procedures instead of seven to start a business and the timeline has been reduced by 15 days to less than one month and 15 days for normal business activities. You must have a company address and a lease signed before registering your entity. There are conditions and limits placed on some foreign investments. Activities that deal with certain types of drugs, chemicals and minerals, some biological businesses and firecrackers are banned from accepting foreign cash injections.
2. Reporting and filing
All paperwork must be written in the Vietnamese language and foreign paperwork must have certified translations. These should be notarised or certified by courts in the investor's country of origin and authenticated at the Vietnamese embassy. Licences are also issued in Vietnamese. Some licensing and reporting procedures can be done online, but the requirements regarding language and authentication remain unchanged. Investment statistics reports are compulsory and administration penalties will be applied in cases of violation.
3. Currency
The Vietnamese dong is closely connected to the US dollar through a crawling peg, which provides exchange rate stability between trading partners. Considered one of the most stable Asian currencies, the strength of the dong has aided FDI. The government heavily regulates transactions concerning foreign currencies, with rules on inflow generally more relaxed than those on outflow.
4. Taxes
Vietnam's government has reformed the complicated tax system in recent years. The Ministry of Finance issued regulations that create favourable conditions for businesses, including the implementation of electronic invoices and the simplification of procedures for filing VAT and CIT. On the IT side of tax reporting, electronic tax declarations were implemented in late 2017. In addition, amendments to current laws on CIT, VAT and tax administration also aim to clarify unclear tax issues and reduce the tax compliance burden for companies that operate in Vietnam.
5. Payments and the banking system
While the banking system in Vietnam is young in comparison to many of its Asian neighbours, it is among the fastest-growing in the world. The formerly heavily cash-dependent economy now has a mix of banking models such as state-owned banks, joint-stock commercial banks and banks owned by either joint venture or exclusively by foreign shareholders. While digitalisation has been slow when compared to other Asian markets, digital banking has been on the rise since COVID-19 when the use of cashless payments accelerated due to restrictions on offline shopping. Along with the emerging fintech industry, digital banking in Vietnam will likely continue to evolve in the near future.
6. Bureaucracy and transparency
Vietnam is a country in flux and is slowly moving towards a more globalised outlook. As such, bureaucratic processes remain complex, and the country faces an ongoing lack of transparency as regulations inch into the modern age. Vietnam's regulatory regimes and commercial laws, as well as the overlapping jurisdictions of some government ministries, can result in inconsistent government policies. Poor corporate disclosure policies and a lack of financial transparency add additional complexity to the challenges of due diligence and KYC.
Recently the control of corruption in the public service sector and the implementation of e-governance have improved. Vietnam is gradually updating administrative procedures through the public service website system to increase transparency. However, these updates are still at a preliminary level as the system has many limitations and some services are not yet available.
7. Intellectual property
While Vietnam has regulations in place to protect intellectual property rights, the enforcement of these is notoriously weak and IP abuse remains a problem. As of 2023, Vietnam ranked 6th in the top 20 countries for the use of pirated software. The government is taking steps to address the problem and is introducing new legislation to protect IP rights (including copyright), industrial property and plant breeding rights. Foreign companies wishing to register intellectual ownership should file an application with the National Office of Intellectual Property of Vietnam (NoIP) via an authorised agent. Regardless of the authority of the NoIP, it is recommended that companies with IP take care of this process before exporting to or setting up in Vietnam.
8. Corruption
Despite significant reforms over the years, corruption is still widespread and companies doing business in Vietnam are likely to encounter it at some point. The Vietnamese government is committed to fighting the problem and has introduced anti-corruption laws, developed anti-corruption strategies, strengthened its institutions and ratified the UN Convention Against Corruption (UNCAC). The anti-corruption frameworks are comprehensive when compared to some neighbouring countries, but while the intention is there, the practice is difficult to police. Taking bribes, making facilitation payments and receiving expensive gifts to develop business relationships are all illegal but are commonly practised, presenting a challenge for investors who promote a zero-tolerance policy.
9. Respecting the business culture
Vietnamese business culture centres around the social connections made between business partners, perhaps a lingering effect of Confucianism's impact on the local people. Dealmakers must be prepared to share personal information about their family and hobbies as it can improve relationships with local suppliers and ultimately impact business deals. Most connections are made through referrals and recommendations and the price offered can be dictated by the method of introduction. Seniority is also important, especially when dealing with the government or state-owned organisations. Collective decision-making plays a big part in Vietnamese business culture. Most decisions are made by committee with no individual having absolute power. This makes the group connection, rather than an individual connection, even more important.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.