5 Common Mistakes When Setting Up Company in Vietnam

Vietnam has emerged as a highly attractive destination for international investors, thanks to its rapidly growing economy and favorable investment environment. However, when foreign nationals begin the process of setting up a company in Vietnam, many entrepreneurs face challenges due to a lack of understanding of local laws and business culture. To help you better prepare for this journey and avoid unnecessary risks, FTA Law highlights the 5 most common mistakes when setting up a company in Vietnam.

1. Failing to Research the Business Industry

One common mistake foreign investors make when setting up a company in Vietnam is not thoroughly researching the business industry they plan to enter. Vietnam has a list of prohibited and restricted industries for foreign investors. Failing to understand these regulations can lead to difficulties when applying for permits and running the business.

How to Avoid This Mistake:

• Research the restricted industry list: Check the list of prohibited and restricted industries for foreign investors.

• Seek legal advice: Work with reputable consultancy firms to ensure full legal compliance.

2. Choosing the Wrong Legal Structure

Choosing the appropriate legal structure is a critical factor in the success of your business. However, many foreign investors mistakenly select the wrong type of company, such as a limited liability company (LLC), joint-stock company, or representative office, which can lead to legal and financial management issues.

How to Avoid This Mistake:

• Assess business goals: Clearly define your business objectives and scale to choose the right legal form.

• Consult legal experts: Seek advice from experienced legal professionals.

Figure 1.1: FTA Law will advise on the suitable business structure for you.

3. Not Complying with Capital Contribution and Investment Account Regulations

Many investors are unaware that when setting up a company in Vietnam, they must open a direct investment capital account (DICA) at an authorized bank. This account is used for investment-related transactions, including receiving foreign capital and transferring profits abroad. Investors must also comply with strict capital contribution deadlines, typically within 90 days of receiving the investment registration certificate. Failure to meet these requirements may result in penalties, such as administrative fines or the revocation of the investment license.

How to Avoid This Mistake:

• Open a DICA account promptly: As soon as you receive the investment registration certificate.

• Meet the capital contribution deadline: Ensure that the full capital is contributed within the specified time frame.

4. Ignoring Local Business Culture

Cultural differences in business practices between Vietnam and other countries can lead to misunderstandings in management and communication. For example, the rigid management style of some foreign investors may not be well-suited to the more flexible working style of Vietnamese employees, resulting in reduced work performance. Understanding and adapting to Vietnamese business culture is essential for managing a successful and sustainable business.

How to Avoid This Mistake:

• Study local culture: Research Vietnamese customs and business culture to manage your business more effectively.

• Train employees: Conduct cultural training sessions to create harmony in the workplace.

5. Failing to Protect Intellectual Property

Another common mistake when setting up a company in Vietnam is neglecting to protect intellectual property. Many foreign investors fail to realize the importance of registering trademarks, patents, or copyrights in Vietnam, leaving their ideas, products, or brands vulnerable to copying. This can not only harm your brand’s reputation but also lead to significant financial losses if faced with intellectual property disputes.

How to Avoid This Mistake:

• Register intellectual property early: As soon as you start your business.

• Monitor and enforce: Keep an eye on the market to detect and address violations in a timely manner.

Figure 1.2: Failure to protect intellectual property can have severe consequences.

6. Conclusion

Setting up a company in Vietnam offers numerous opportunities but also presents many challenges. By avoiding the common mistakes listed above and preparing thoroughly, foreign investors will find it easier to establish and develop a sustainable business in Vietnam. If you are facing difficulties in registering your company in Vietnam, don’t hesitate to contact FTA Law for detailed and effective legal advice.