Vietnam’s economy went through immense transformations which led the country to become one of Asia’s fast-growing economies today [World Bank].
With the country being located at the heart of Southeast Asia, it is an excellent gateway to other major markets like China, Singapore and New Delhi.
Vietnam’s dynamic environment is also very well suited for foreign start-ups and entrepreneur, due to its trade openness, rich natural resources and wide pool of talents. This provides business owners with an assurance on achieving company formation in Vietnam.
In the succeeding sections, uncover why Vietnam is a top choice for foreign direct investment and how to have an efficient company formation in the country.
Table of Contents
I. Vietnam’s Economic History
a. Vietnam’s Economic Situation before the Doi Moi reforms
b. The Doi Moi Economic Reforms
II. Vietnam’s Economy Today
a. Positive Outcomes of the VN-EAEU Bilateral Trade
III. Choosing Vietnam for Offshore Company Formation
a. Case Study: Tapping into Vietnam’s Market Potential
b. Taking Part in Vietnam’s Vibrant Business Climate
c. Establishing a business in Vietnam
d. Understanding the Minimum Capital Requirement in Vietnam
IV. Speak to a Company Formation Expert
Vietnam’s Economic History
In the past, Vietnam was starved of economic prosperity, deemed as one of the world’s poorest nations to a lower middle-income country. However, over the years, many reforms and policies were set in place which gave Vietnam’s economy a huge boost. But, before attaining a stable growth, the country underwent decades of uncontrolled hyperinflation and economic crises.
Vietnam’s Economic Situation before the Doi Moi reforms
During the period of 1954 – 1975, Vietnam experienced turmoil caused by war and famine. The destruction of petroleum storage facilities, labour shortages, disruption of transportation routes, etc. This causes many complications to the divided nation.
After the Vietnam War, economic policies were set in place by the Vietnamese government. Small businesses were replaced with a state trading network and most landholdings were collectivised. From 1975 to 1985, the country struggled with its five-year plan to collectivise agricultural and industrial production.
Results of these economic policies led to the decrease in the per capita income of the country, which stood at $91 in 1980. In 1986, hyperinflation reached 775%. The scarcity of staples, impoverished living conditions, industrial stagnation and mounting foreign debts prevented the country’s economy to move forward. Additionally, the post-war effects have resulted in a severed tie with the US and also led to a U.S.’ trade embargo.
The Doi Moi Economic Reforms
With Vietnam’s economic situation, there was an immense pressure on the CPV (Communist Party of Vietnam) to solve the crisis. In December 1986, the Sixth National Congress adopted reforms known as Doi Moi. The previous centrally-planned economy was replaced with a socialist-market economy. It promoted a multi-sectoral economy, open-door policies on international trade, and private property rights.
A surge of foreign direct investments flowed into Vietnam when the Law on foreign Investment was initiated in 1987. By 1994, the country’s GDP reached 10%. Diplomatic and trade relations with the United States opened up several opportunities for Vietnam. It was a remarkable reform for the country as it allowed them to work with the world’s developed economies and international organizations. And in July 2000, the Vietnam stock market was established which contributed to the diverse investment capital resources.
Economy Today in Vietnam
Today, Vietnam is drawing comparisons from all over the world of being the next China. Its booming economy is attributed to the growth seen in FDI.
FDI in the first 6 months of 2018 reached $20.33bn. Together with this FDI growth, the country’s economy expanded by 7.08%. This further confirms the government’s continual efforts to ensure ease of business in Vietnam. This can also be seen with the amendment of the Law on Investment (LoI) and Law on Enterprise (LoE). This helps to streamline registration procedures, reduce the number of business lines prohibited to foreign investment and widen the eligibility for investment incentives.
Free trade agreements have also helped the country’s trade sector to expand. In 2016, the country is already part of the 10 regional and bilateral FTAs. One of the biggest trade agreements is the Vietnam-Eurasia Economic Union Free Trade Agreement (VN-EAEU FTA). Vietnam was the first nation to enter into a free trade agreement with the Eurasian Economic Union.
Positive Outcomes of the VN-EAEU Bilateral Trade
Following from the signing of VN-EAEU FTA, it opened up a market to 183 million people with a combined GDP of US$2.2 trillion for the Vietnamese firms.
Continuous growth can be also seen in 2018, when bilateral trade reached US$1.53 billion, growing by 35 percent. Russia remains to be a major trading partner in the bloc, accounting for 90 percent of the trade with Vietnam.
In addition, the FTA also led EAEU to commence talks with other ASEAN member states on trade and investment. This put Vietnam in a unique position and can serve as a supply chain gateway for EAEU companies in the region.
Choosing Vietnam for Offshore Company Formation
Vietnam’s government have recognised that the instability of the country will not attract foreign investors. Thus, for the past years, they have created a stable environment in multiple sectors to create an attractive FDI destination.
Here are some reasons to choose Vietnam as an FDI destination:
*Source: Pwc.com
Besides these factors, tax incentives for foreign investment projects in Vietnam also help attract the flow of foreign capital.
Here are some of the incentives that the government offers:
- Tax exemptions:
- Tax exemption for 4 years, 50 percent reduction of payable tax amounts for 9 subsequent years;
- Tax exemption for 4 years, 50 percent reduction of payable tax amounts for 5 subsequent years;
- Tax exemption for 2 years, 50 percent reduction of payable tax amount for 4 subsequent years.
- Incentives in disadvantaged locations:
- Incentives for prioritised industries:
*Source: Vietnam-briefing.com
Case Study: Tapping into Vietnam’s Market Potential
As Vietnam’s economy move forward, more Vietnamese are joining in the growing middle and upper-income classes. These customers who want to buy premium goods, unfortunately, don’t have easy access to sellers of luxury items. French entrepreneur Loic Gautier saw this as a remarkable opportunity to make premium brands more available to Vietnamese.
To fill this gap, Loic Gautier and Pierre-Antoine Brun founded LeFlair in 2015. The company sells branded products at much lower prices. It follows a flash-sale model which was proven successful in Europe and China.
For these French entrepreneurs, they chose Vietnam to take advantage of the budding opportunities in the e-commerce sector. Growing demographics coupled with frustrated consumers due to lacking shopping options made LeFlair thrive in this economy. Today, the website now has 1million in monthly traffic. Moreover, they even received a new investment of $3 million from Capital Management Group.
LeFlair’s success in the economic climate of Vietnam attracted several foreign investors and even closed 3 rounds of funding. AME Ventures saw how the platform can eventually be expanded to neighbouring countries to add scalability to the model. With such potential, the company even received a new investment of $3 million from the Capital Management Group.
Several startups are now setting up their businesses in Vietnam. The government is even being active in promoting online shopping. Many investors see the potentials of the country as an excellent choice to invest and establish a legal entity.
Taking Part in Vietnam’s Vibrant Business Climate
Foreign investors who want to participate and benefit from Vietnam’s lucrative business environment must understand the investment procedures:
*Source: Home.kpmg.com
Establishing a Business in Vietnam
Foreign entrepreneurs can establish an offshore business in Vietnam with these three legal entities:
- Limited Liability Company (LLC). Members’ liability is limited to their capital contributions which means that their individual assets are protected.
- Joint-stock company (JSC). This structure is ideal for investors who prefer a more vigorous management structure and be listed on Vietnam’s stock exchange.
- It is established between two individual general partners. The general partner has unlimited liability in the partnership.
Amongst these three legal structures, LLC is the most common form adopted by foreign investors. This is due to the asset protection of a corporation whilst having the flexibility of a partnership. Since the company is treated as a separate entity from the owners, it can be used to purchase and own property.
Understanding the Minimum Capital Requirement in Vietnam
Many business lines in Vietnam do not need a minimum paid-up capital. In fact, a foreign entrepreneur can generally start with a budget-friendly capital.
But, business lines that will have an impact on social order, ethics or national defence are categorised as conditional. Sectors in this category have a minimum capital requirement. Conditional business lines can be checked under the Law on Investment 2014 and Law No. 03/2016/QH14.
Here is a chart on some of the conditional business line and the legal capital requirement:
| Business line | Capital requirement |
| Security service | $85,717.00 |
| Finance company | $21,429,250.00 |
| Labour exporting service | $214,292.50 |
| Importing books | $214,292.50 |
| Film production | $42,858.50 |
Speak to a Company Formation Expert
Foreign direct investments have definitely played a key part in developing Vietnam’s economy. Since the government recognised its importance to the country’s rapid growth, more focus was set to make amendments in terms of policies for a smooth business registration process. Competitive incentives and benefits were placed to further attract foreign entrepreneurs.
Before venturing to a new market, it is essential to understand the different business laws to maximise the benefits. Offshore company formation professionals fully understand the country’s business climate. Thus, they can guide you in establishing your company in Vietnam.
Speak to us today if you want to find out how you can efficiently start your offshore business.
References:
Economic History in Vietnam: Early On, During the French period and During and After the Vietnam War, Factsanddetails.com
Vietnam’s Political Economy in Transition (1986-2016), Worldview.stratfor.com
Expanding Bilateral Trade between the EAEU and Vietnam, Vietnam-briefing.com
Vietnam’s Economy Sees Strong Growth in the First Half of 2018, Vietnam-briefing.com
Vietnam, destination for foreign startups, Thestar.com.my
Setting up and operating in Vietnam – Part 7 – Legal capital required, Mondaq.com
Doing Business in Viet Nam [PDF], Pwc.com
Legal structures for setting up a presence in Vietnam [PDF], Daonguyenlegal.com
Investing in Vietnam 2017 and beyond Going for Gold [PDF], Home.kpmg.com
Only the best will do for Leflair, Vneconomictimes.com
Vietnamese e-commerce startup LeFlair secures US$1 million funding led by Caldera Pacific, Reuters.com
