Difficulties and challenges faced by foreign investors in Vietnam?

4/1/2021

Vietnam is ranked 70th out of 190 countries in the World Bank’s 2020 Ease of Doing Business Index. The main challenges of doing business with Vietnam are: 

  • corruption 
  • bureaucracy 
  • grey areas of Vietnamese law 
  • lack of Intellectual Property Rights (IPR) enforcement 
  • inadequate infrastructure 
  • lack of skills 
  • language barrier (so translators and interpreters are often needed) 

Bribery and corruption 

Corruption remains an issue in Vietnam and you are likely to encounter, or hear of, corruption in one form or another, such as facilitation payments, bribes and giving and receiving expensive gifts in order to develop business relationships.  

Corruption remains a serious issue in the court system as there is little judicial independence in Vietnam. 

In Transparency International's latest 2018 Corruption Perceptions Index (announced January 2019), Vietnam is ranked 117th out of 180 countries. This is a slight improvement over a few years ago and, although modest, reflects the government’s renewed efforts to tackle corruption, including a new Law on Access to Information. However, the score has begun to drop in the last couple of years and the government’s efforts have only translated into limited action on the ground, as prevention and enforcement activity remain weak. 

Intellectual property (IP) 

IP rights are territorial, which means that they only give protection within the countries where they are registered. You should therefore consider registering your IP rights (if necessary) in all your export markets. 

Vietnam is ranked 77th out of 140 countries for IP protection in the World Economic Forum’s Global Competitiveness Report 2018. Vietnam has the regulations in place to protect IPR. However, enforcement is not strong, so you should take measures to protect your IP before exporting. 

Trademarks, designs, patents and copyrights are the principal forms of Intellectual Property protection available under Vietnamese law and are all governed by legislation. The common law also provides protection against a person passing off goods or services as those of another, as well as protection for confidential information or trade secrets. 

  • The Intellectual Property Office of Vietnam (NoIP website) has responsibility for IP registration. 
  • The National Copyright Office of Vietnam (NCO website) takes care of copyright issues. 

Businesses in specific industry sectors are encouraged to research information about IP issues that are relevant to them. Defensive measures should be enforced early when planning to enter the Vietnamese market. 

Cybersecurity 

Vietnam’s new law on cybersecurity came into force on 1st January 2019, introducing requirements on data localization, business presence and user information storage and authentication. 

The law requires businesses to provide information to Vietnamese authorities when requested, and to prevent and delete certain content within 24 hours. Detailed guidance on the implementation and enforcement of the law has not yet been adopted. 

If you are planning to provide services to customers in Vietnam over telecom networks or the internet (e.g. social networks, search engines, online advertising, online streaming/broadcasting, e-commerce websites/marketplaces, internet-based voice/text services (OTT services), cloud services, online games, and online applications), you should seek legal advice about compliance with the law. 

Natural disasters 

Tropical cyclones can occur along the eastern coastal regions, usually during May to November, although they may happen outside of this season. The resultant rainfall and strong winds can cause flooding and travel disruption. 

You should monitor approaching storms on the National Center for Hydro-Meteorological Forecasting website and follow the advice of the local authorities, including any evacuation orders. 

Localized flooding, flash floods and landslides are relatively frequent occurrences due to Vietnam’s tropical monsoon climate which produces large amounts of rainfall in a short time. You should take particular care when trekking through rural and mountainous areas. 

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Besides that, there are 10 top challenges of doing business in Vietnam according to TMF: 

Starting a Business 

There are 10 procedures to undertake when starting a business in Vietnam, making it among the most complex start-up environments in the world. Additionally, many tasks facing new corporate entities may be unfamiliar to overseas companies, making the task far more rigorous. Registration of the seal-sample at the Police Department, for example, or publicly announcing the formation in a local newspaper are procedures most companies generally don’t have to complete. 

Dealing with Construction Permits 

It takes 110 days and 11 procedures to get permits for construction in Vietnam, once again requiring interaction with several official departments. Inspections must be carried out by the Department of Construction and the municipality, and certificates should be obtained from the Firefighters Prevention Department, the Department of Construction and the Department of Natural Resources and Environment.

Getting Electricity

Getting electrical connection is among the most rigorous tasks facing startups in Vietnam, taking 115 days to complete and costing a significant percentage of income per capita. Inspections by the local power corporation are required before completing processes with the Traffic and Transport Department and the Firefighters Prevention Department.

Registering Property

Registering property takes 57 days to complete, which is far higher than the OECD norm but around average for East Asia and Pacific. Contracts between the transferor and the transferee are signed before taxation is paid and registration for the right to use land is complete.

Getting Credit 

Vietnam is home to quite a stable credit environment, and obtaining capital is a relatively smooth process for businesses. However, the lack of a private credit bureau can make the process a little trickier for overseas firms.

Protecting Investors

Investor protection is an area in which Vietnam fails miserably. It is ranked in 169th place by the World Bank and IFC, with a weak director liability index and shareholder suits index. 

Paying Taxes 

There are a massive 32 corporate tax payments to be made each year which takes an average of 872 company hours to complete. Compared to the OECD norm of 176 and the East Asia and Pacific average of 209, taxation is one of the most burdensome processes of doing business in Vietnam.

Trading Across Borders

Given its strong manufacturing base and reliance on interconnectivity, trading across borders is a cheap endeavour. However, that isn’t to say the process is not complicated, and the stream of documentation required for both importing and exporting highlights that cross-border trade can be difficult at the best of times. 

Enforcing Contracts and Resolving Insolvency

Enforcing contracts takes 400 days to complete and 34 procedures. Resolving insolvency is a far more laborious process, taking five years on average to complete and with a low recovery rate.

Culture

The Vietnamese believe in the teachings of the early Chinese philosopher Confucius which emphasize the importance of relationships, responsibility and obligation. Vietnam is also a collectivist country and community concerns will almost always come before business or individual needs.

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