Experiences and common mistakes when establishing FDI businesses in Vietnam: Common problems and how to avoid legal risks

Experiences and common mistakes when establishing FDI businesses in Vietnam: Common problems and how to avoid legal risks. Establishing a foreign direct investment (FDI) enterprise in Vietnam is a complex process, requiring a deep understanding of legal regulations and the business environment. Below are some common mistakes and experiences, along with ways to avoid legal risks, which HTC Vietnam Law Firm will share with you in this article.

1. Experiences when establishing FDI enterprises

a. Understand the legal regulations

The Investment Law and the Enterprise Law are two important legal documents. Businesses need to be familiar with the regulations regarding conditional business sectors, capital requirements, and related administrative procedures.

Vietnam's WTO commitments and free trade agreements (FTAs) can also affect the rights and obligations of foreign investors.

b. Prepare the documents thoroughly.

Investment and business registration documents must be complete and accurate according to regulations. Minor omissions or errors can slow down the approval process.

c. Choosing the appropriate type of business entity

Different types of companies, such as limited liability companies, joint-stock companies, or partnerships, have their own advantages and disadvantages. Business objectives and the number of investors should be considered to choose the most suitable type.

d. Research investment locations

Key economic zones, industrial parks, or high-tech zones typically have better tax incentives and infrastructure.

e. Professional consulting

Working with experienced law firms or investment consulting firms in Vietnam helps businesses minimize risks and save time.

2. Common mistakes and how to avoid legal risks

a. Not thoroughly researching the business sector.

Some business sectors (e.g., finance, real estate, education, healthcare) require statutory capital or sub-licenses. Lack of preparation can lead to license refusal or penalties later on.

How to avoid this: Carefully review the list of business sectors and related requirements in the Investment Law and its guiding documents.

b. Errors in the capital contribution contract

The parties did not clearly agree on the capital contribution ratios, rights, and obligations, leading to internal disputes later on.

How to avoid this: Draft a detailed capital contribution agreement and consult a lawyer to protect the rights of all parties.

c. Non-compliance with foreign exchange regulations

Transferring investment funds into Vietnam or profits abroad in violation of foreign exchange regulations will result in penalties.

How to avoid this: Use direct investment capital accounts at authorized banks in Vietnam and comply with the regulations of the State Bank of Vietnam.

d. Delays in fulfilling reporting obligations

Foreign direct investment (FDI) enterprises are typically required to submit periodic reports (financial reports, investment activity reports) to relevant authorities. Delays or omissions can result in administrative penalties.

How to avoid this: Establish a compliance management system and utilize professional accounting and auditing services.

e. Lack of understanding of local business culture

Conflicts may arise in management or with Vietnamese partners due to cultural differences and work styles.

How to avoid this: Study Vietnamese business culture, enhance communication, and train local management teams.

3. Other notes

a. Investment incentive policies

The Vietnamese government implements numerous preferential policies to encourage foreign investment in specific sectors and regions. Investors should take full advantage of these incentives to reduce costs and increase profits.

Common incentive policies include:

- Tax incentives: Exemption or reduction of corporate income tax (CIT); Businesses in industrial parks, economic zones, or high-tech zones are often exempt from CIT for the first 2-4 years and receive a 50% tax reduction in subsequent years; Industries such as information technology, high-tech manufacturing, or renewable energy may enjoy a preferential tax rate of only 10% for 15-30 years.

- Import tax exemption: Exemption from import tax for machinery, equipment, and raw materials imported for production in certain cases.

- Land incentives: Exemption or reduction of land and water surface lease fees for investment projects in remote areas or in sectors specifically encouraged for investment.

- Financial and technical support: The government and local authorities can partially support the costs of research, human resource training, or infrastructure development for FDI enterprises.

b. Controlling legal and business risks

Foreign direct investment (FDI) enterprises in Vietnam face numerous legal and business risks, including policy changes, market fluctuations, and disputes with partners or authorities. Developing a risk management strategy is therefore essential.

Common risks and how to control them:

- Changes in legal policies: Vietnam is in the process of perfecting its legal system, leading to amendments to regulations on investment, taxation, and labor.

- Economic and market fluctuations: Factors such as inflation, exchange rate fluctuations, or changes in market demand can affect a business's profitability.

- Legal disputes : Disputes with Vietnamese partners or customers may arise due to poorly drafted contracts or misunderstandings regarding rights and obligations.

c. Building relationships with local authorities

Good relationships with government agencies, especially the Department of Planning and Investment, the Department of Industry and Trade, and the tax authorities, will help businesses easily resolve administrative procedures and handle arising issues.

Benefits of good cooperation with local authorities:

- Prompt support in processing applications: Investment registration and changes to business licenses will be faster if businesses receive support from government agencies.

- Resolving obstacles: When encountering difficulties in implementing regulations, businesses can seek direct support from regulatory agencies to ensure compliance.

Commitment to service quality:

HTC Vietnam Law Firm operates with the motto of dedication – efficiency – credibility, and is committed to ensuring the quality of its services, specifically as follows:

- Ensure that work is completed according to the agreed schedule, in compliance with legal regulations, and in accordance with the code of ethics and conduct for Vietnamese lawyers.

- We prioritize customer interests and strive to provide our customers with the best possible service quality.

- Protect the information provided by customers and information related to customers.

We look forward to a long-term partnership and mutual growth with our valued customers.

Best regards!

(Author: Vu Nam; Translator: Nguyen Phuong Anh; Date: December 5, 2024)

For detailed advice, please contact:

HTC Vietnam Law Firm

Address: 15th Floor, Multi-purpose Building, 169 Nguyen Ngoc Vu Street, Trung Hoa Ward, Cau Giay District, Hanoi City.

Phone: 0989.386.729

Email: hotmail@htcvn.vn

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