7 Common Mistakes When You Set Up a Company In Vietnam
January 23, 2020
There are many slips that may occur when starting a new company, especially in Vietnam. This article will give you some heads up on seven most common mistakes foreign investors make when they start to set up company in Vietnam.
1. False to estimate setup cost
To invest in Vietnam efficiently, investors should estimate the total investment money and have an overall picture of Vietnam market.
There are some factors that affect the setup cost : location choosing, standard using, preferences or incentives from Vietnam’s government, build your own fixed asset or rent it, tax planning etc.
- The cost to build a 1 hectare factory around Hanoi or HCM city is about 1.6 to 2.2 million USD that including 50 year leasing land and construction fee. But the same factory located in an area 100km to 200 km away from Hanoi or HCM city the cost of that will be reduced up to 35%. Please read this article for more detail. And the cost to rent is $2 to $4 per square meter a month. Let’s consider the right plan based on your budged and scale of your business.
- Incentives from the Government of Vietnam for land use, tax incentives : ther are many business sectors that are exempted from tax for 10 to 15 years or even the whole operating time or just be taxed at 5%, 10% for 5 to 15 years. Please read this article for the detail.
By knowing how to use the provided information above wisely, the investor can reduce the investment capital up to millions of US dollars.
Here comes a reliable consulting agent Clearview. That will help you from the infancy stage of investment to the operating period.
2. False to make tax report and tax calculation
Companies operating in Vietnam should understand about tax calculation, tax incentives and tax report. Legally, that will save a lot of money.
- Corporate income tax (CIT). Vietnam imposes a standard flat rate of 20% (among lowest in Southeast Asia). But, Tax rate for corporations that operate in high tech ranges from 10% to 15% . Industries that operate in the field of forest, environment protection are subject to 10% corporate income tax, etc. And many tax incentives in sectors : Education, high tech, health care, sport/culture, infrastructural development, computer software manufacturing, large scale manufacturing projects, etc.
- Personal income tax (PIT). If i have the gross salary about $1000, my PIT will be only $20 ( 2% only). Because i know how to use tax and tax calculation system. If not, the PIT may be 5 to 10 times. Let’s imagine your company has hundreds of employees.
- VAT. VAT to pay = outcome VAT–income VAT. So income VAT invoices as well as using VAT calculating method are very important to a company in Vietnam. If you forgot to take, you will have to pay alot of money. Besides, the standard VAT is 10% but there are many sectors or business lines with VAT just 0%, 5%. Let’s contact Clearview for right consulting or read our setup cost estimation service for more detail.
See more at: penalties for accounting violations.
3. Not asking for VAT invoices
Note that not every receipt is a VAT invoice. A lot of companies decline to issue VAT invoices if you don’t request for them before or on the same day of the purchase.
It is important to keep all the VAT invoices for expenses that you make before and after the company registration. These can be recorded as company expenses and you can claim them later on.
In addition, reclaiming proper VAT invoices can reduce the corporate income tax rate. If you don’t get a proper VAT invoice, you cannot use that VAT amount as income VAT.
Let’s see VAT calculation here .
You may state non-VAT invoices as expenses. However, the tax office does not consider these as expenses and this will increase your corporate income tax rate a lot. Let’s think about standard corporate income tax in Vietnam is 20%. See this article for more detail and how to use it.
4. False to use preferences from the Vietnam government
As mention above. There many potential incentives from the Government of Vietnam to exploit for: tax, land. But not thinking about FTAs is a big mistake. This item no.4 we will discuss about FTAs.
- EVFTA : The Agreement consists of 17 Chapters: trade in goods, rules of origin, customs and trade facilitation, food safety and hygiene measures (SPS), technical barriers to trade (TBT), trade in services,investment, trade remedies, competition, state-owned enterprises, government procurement, intellectual property etc. The EU will eliminate import duties on about 85.6% of tariff lines, equivalent to 70.3% of Vietnam’s exports to the EU. After 07 years from the date of entry into force of the Agreement, the EU will eliminate import duties on 99.2% of tariff lines. And Vietnam committed to eliminate tariffs as soon as the Agreement comes into effect with 48.5% of tariff lines (accounting for 64.5% of import turnover). Subsequently, after 7 years, 91.8% of tariff lines equivalent to 97.1% of EU exports will be removed from Vietnam by import taxes and many other preferences.
- The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a free trade agreement between Canada and 10 other countries in the Asia-Pacific region: Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Once fully implemented, the 11 countries will form a trading bloc representing 495 million consumers and 13.5% of global GDP, providing Canada with preferential access to key markets in Asia and Latin America.
- Member of ASEAN and ASEAN Free Trade Area (AFTA) , Member of World Trade Organisation (WTO), Bilateral Trade Agreement (BTA) with the US, Free Trade Agreement with the European Union-EVFTA (comes into effect in 2019).
5. Not using a good nominee
In the age of ineternet the effective way to touch Vietnam about information is through internet or a nominee or a consulting agent. It is easy to find a nominee on internet, it may seem like a good idea at first, but it carries risks that you don’t immediately think about.
However, this doesn’t mean that all nominee agreements are bad. The safest way is to use a professional service company such as Clearview. We provide a nominee service where your rights will be protected through a set of legal agreements.
This set of legal agreements drafted by lawyers is the difference between using a local friend and having a professionally arranged nominee service. If problems arise, you will be protected by the agreements as the company ownership is pledged.
6. False to expect time to set up company in Vietnam
As in many other developing countries, the process of incorporation in Vietnam takes more time than in developed countries. Setting up a legal entity in Viet nam can take up to 3 to 4 months.
Investors underestimate how long it takes to get all the supporting documents in order. Often the longest stage in the company establishment is getting the founder documents ready.
You can avoid the delay by preparing for your company registration in advance. Clearview can help you prevent unnecessary setbacks by assisting you with collecting the relevant documents. Especially, most of the steps are made by online. See our Business registration service, 100% REMOTE for more detail.
7. You set up company in Vietnam when outsourcing is a more effective way to enter
In Vietnam, if your scale of business is small-medium. There are services outside to do many of your operating tasks with more effective and saving : tax report, tax calculation, visa, work permit, payrolls etc.
Let’s check our homepage at our services for using or click here:
–Tax and accounting service (remote)
All the above-mentioned mistakes are quite common when foreign investors set up a company in Vietnam. However, you can avoid them with a thorough planning and wise preparation. Clearview can help you out with that.
If you have any questions, do not hesitate to get in touch with our consultants via email@example.com or by filling in the form below.