Article by Ms. Pham Thi Thanh Lan - Partner | Co-Head of Corporate and M&A, Indochine Counsel
Legal Pitfalls to Avoid When Starting a Business in Vietnam
Vietnam’s dynamic economy and expanding consumer market make it an attractive destination for entrepreneurs and investors. However, navigating the legal landscape can be challenging, especially for newcomers unfamiliar with local regulations. Understanding and avoiding common legal pitfalls is essential to building a sustainable and compliant business.
1. Choosing the Right Business Structure
Selecting the appropriate legal entity, such as a
- Limited Liability Company (LLC),
- Joint Stock Company (JSC),
- Representative Office (RO) or
- Branch Office (BO),
is a crucial first step. Each structure has different implications for operational scope, liability, taxation, and governance. Many startups rush into registration without fully understanding these differences, which can lead to inefficiencies or legal complications down the line.
2. Completing the Full Licensing Process
Operating without all required certificates is a common mistake. Beyond the basic Investment Registration Certificate (IRC) and Enterprise Registration Certificate (ERC), certain industries, such as retail, education, healthcare, and F&B, require additional permits or business licenses. Failure to obtain these can result in administrative fines, in severe cases, forced shutdowns.
3. Understanding Foreign Ownership Restrictions
Vietnam restricts foreign ownership in specific sectors like telecommunications, logistics and advertising. Entrepreneurs must research or consult with legal advisors to understand the conditional business sectors and restricted sectors under the Law on Investment. Ignoring these regulations can invalidate your business or investment approval.
4. Registering a Valid Business Address
Using a residential address or unapproved location for business registration, especially without proper documentation from the landlord or lessor, can lead to rejection by licensing authorities. Ensure your office lease is legally valid and compliant to avoid delays or the need to find a new location before your IRC and ERC are issued.
5. Opening a Direct Investment Capital Account (DICA)
After company establishment, capital contributions must be conducted via a DICA opened at a licensed commercial bank in Vietnam. The legal deadline for this contribution is 90 days from the establishment date. Delays in opening the account or transferring capital can result in reduced charter capital or even forced dissolution.
6. Tax and Accounting Compliance
Vietnam’s tax system includes
- Value Added Tax (VAT),
- Corporate Income Tax (CIT),
- Foreign Contractor Tax (FCT).
Misclassification or late filings can lead to penalties. Additionally, businesses must comply with Vietnamese Accounting Standards (VAS), which differ from international norms. Recruiting your own qualified accountant or hiring a local accounting or tax advising firm is highly recommended.
7. Employment Contract and Work Permits for Expatriates
Signing contracts with foreign employees without registering them or paying compulsory insurance is a frequent issue. Vietnam’s Labor Code mandates specific terms, working hours, benefits and valid work permits. Non-compliance can lead to legal disputes or reputational damage and administrative penalties for both employer and employee.
8. Filing Investment Control Reports
Foreign owned companies often overlook periodic reporting obligations to local authorities or fail to update their IRC or ERC after changes in investment and business scope. These lapses can result in fines and stricter compliance enforcement.
Conclusion
Legal compliance in Vietnam is not just a formality, it’s the foundation for long-term success. By proactively addressing these pitfalls, entrepreneurs can avoid costly mistakes and focus on growing their business with confidence in one of Asia’s most promising markets.
For more information, visit Indochine Counsel at https://indochinecounsel.com/vi/