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Which Challenge You Might Deal with When Investing in Vietnam

Vietnam already has a lot of advantages and a strong investment climate. So they have many companies investing a billion-dollar in Vietnam, and more of the billions of projects be assigned soon. But before you follow the trend when everybody invests in Vietnam, do you know which benefits and challenges you might encounter and how you can deal with them?


1. Cumbersome processes to have construction permits

The process of obtaining construction permits in Vietnam, despite government efforts to streamline it, still takes 110 days. It involves interacting with multiple official departments and completing 11 required procedures.

The process to have construction permit in Vietnam is complicated
Figure 1. The process to have construction permit in Vietnam is complicated

In addition to the lengthy process of obtaining construction permits in Vietnam, inspections are also required. The Department of Construction and the municipality conduct inspections, ensuring compliance with regulations. Moreover, before commencing construction, certificates must be obtained from the Firefighters Prevention Department, the Department of Construction, and the Department of Natural Resources and Environment.


2. Joining an electricity network is quite difficult

If you decide to rent a building in Vietnam, you can bypass this step, as obtaining an electrical connection can be an arduous undertaking. This procedure may consume as long as 115 days to finalize, entailing a substantial investment of finances and effort before you can proceed with your plans. Additionally, the local power corporation conducts inspections for your construction project. Following that, you need to complete processes involving the Traffic and Transport Department and the Firefighters Prevention Department. These additional steps ensure compliance with regulations and safety standards before you can proceed with establishing your desired setup. Thus, it’s essential to consider the coordination required to secure an electrical connection when renting a building in Vietnam.


3. Registering Property

In terms of legal requirements for foreigners wishing to buy property in Vietnam, various vital paperwork must be obtained. A valid passport, a valid visa, and a foreign investing certificate are all required. Foreign investors are prohibited from property ownership but are allowed to lease it for up to 50 years, renewable.


The procedure of buying property in Vietnam’s quite simple, however, keep in mind all transactions must be completed in VND. The initial step is to call a local real estate agent and supply them with the required paperwork. After that, the real estate agent will look for available houses that fit your specifications, negotiate the purchase price, and assist you with the paperwork. After you have completed the purchase, you must register the property in your name with the local housing authority.


The first item to examine is the foreign housing quota. This refers to the maximum number of units that foreigners can possess in a given location. Foreigners are permitted to own up to 30% of the total units in a certain region under Vietnam's Housing Law. This quota is in place to defend local inhabitants' interests and prevent foreign investors from crowding them out. Furthermore, foreigners' residences must be registered in the name of a Vietnamese citizen or legal organization.


In conclusion, to register a property in Vietnam, the process can take up to over 50 days to complete. But that is still an average time for East Asia and the Pacific. Contracts between the transferor and the transferee are signed before taxation’s registration for the right to use land is complete.


4. So many kinds of taxes to consider when investing

There are a massive 32 corporate tax payments to be made each year which takes an average of 872 companies’ working hours to complete. In comparison to the OECD norm of 176 and the East Asia and Pacific average of 209, taxation stands out as a highly burdensome process for foreign investors in Vietnam. It poses significant challenges and obstacles to conducting business operations in the country.


Based on Singapore's preferential and equal treatment policy for international and indigenous investors, Vietnam offers preferential tax measures for investors. However, the stage of application and execution of state policies continues to have numerous flaws and requires significant development, particularly in simplifying or concretizing administrative procedures.


Based on an NC Network survey, foreign investors in Vietnam spend four times longer than their counterparts in East Asian and Pacific regions to resolve tax liabilities. This highlights the considerable time commitment required to navigate the tax system in Vietnam.


Moreover, there is widespread dissatisfaction among investors with Vietnam's administrative procedural system. This dissatisfaction stems from both the cumbersome nature of the processes and their misalignment with investors' expectations.

So many kinds of taxes to consider when investing in Vietnam
Figure 2. So many kinds of taxes to consider when investing in Vietnam

5. Trading across borders is still complicated

Despite Vietnam's participation in numerous free trade agreements, and facilitating cheaper cross-border trade, the process remains complex. Engaging in international trade involves navigating various paperwork requirements for both importing and exporting, potentially causing delays in your workflow. The need for extensive documentation can pose challenges and consume additional time and resources. To avoid potential setbacks, it’s essential to allocate ample attention to the necessary paperwork involved in importing and exporting processes. Being well-prepared for the intricacies of these procedures is crucial for a smooth and successful trading experience. While the existence of free trade agreements offers advantages, it is important to recognize and address the complexities associated with trading across borders in Vietnam.


6. Intellectual property rights

In April 2018, Vietnam enacted Decree No 22/2018/ND-CP, which updated rules and various articles concentrating on copyright under the Civil Code and the Law on Intellectual Property. Recently, the IP office released Official Letter No 5360/SHTT-NDHT on support to persons filing foreign patent applications in April 2020.


The Vietnamese government also announced Decision No. 1068/QD-TTg, or National IP Strategy on Intellectual Property Strategy with a Vision to 2030, in August 2019. The paper will serve as a roadmap for ministries, sectors, and state agencies to accept intellectual property rights – the first time this has been done as a national policy in Vietnam.


As Vietnam becomes increasingly globally linked, in part through free trade agreements, intellectual property rights will become an ever more essential aspect in how firms evaluate the business climate in Vietnam, especially as the country's economy and technology grow. Fortunately, Vietnam is eager to grow and improve its intellectual property laws to propel it further into the global economy.

You need to protect your intellectual property benefits in Vietnam
Figure 3. You need to protect your intellectual property benefits in Vietnam

7. About the Vietnamese currency in foreign exchange

The Vietnamese Dong is not a freely convertible currency, and it is not permissible to carry it out of the country. Foreign-owned projects that receive revenue in Vietnamese Dong face the following risks: (i) the Vietnamese Dong depreciating until such revenues can be converted into foreign currency; (ii) the risk that no foreign currency is available at the time of conversion; and (iii) the fact that currency cannot be converted or remitted except for permitted purposes (e.g., repatriation of investing proceeds or dividends, repayment of foreign loans) and at specified times.


The currency is now appreciating slowly. In the last 25 years, foreign money flows have been delayed only on a few occasions. Dividends and capital gains can be freely transferred as long as all tax duties have been met and the investor has contributed funds in the proper channels.


Mitigation: Shareholder loans and other arrangements are frequently used to provide greater flexibility in the timing of foreign exchange payments.


8. Infrastructure does not meet international standards

According to a survey of many FDI enterprises investing in Vietnam in 2021, 42% of those polled stated that Vietnam has a relatively poor infrastructure system and public service quality when compared to other countries in the region such as China, Thailand, Singapore, Indonesia, and Malaysia, among others.


This conclusion has influenced international investors' investing decisions in the Vietnamese market as well as future investing patterns if Vietnam does not show favorable outcomes in infrastructure improvement. Because, in addition to the additional costs of transporting production infrastructure to Vietnam, FDI enterprises must consider other factors such as legal regulations, business conditions, economic geography, local human resources, supply partners, and so on to transport, install, and build new infrastructure systems suitable for the business field.


Building and rebuilding from the ground up takes a significant amount of time and energy. As a result, many international investors may reconsider investing in Vietnam, since a sound infrastructure system is one of the most important variables affecting company production, export, and business system.


9. Limited supply chain

With the significant change in the global supply chain, numerous international organizations and enterprises have increased their investment in Vietnam. In general, no manufacturer, especially multinational corporations, can create all elements and components of a product on their own.


As a result, foreign investors hunt for companies that can offer some product parts and components so that they can construct a full product. Southeast Asia is now regarded as one of the most efficient and promising supply marketplaces.

Limited supply chain in Vietnam
Figure 4. Limited supply chain in Vietnam

However, the technology industry supporting component manufacture in Vietnam is still in its infancy, posing certain challenges for FDI businesses constructing supply chains. Foreign investors are obliged to invest in other nations because of this, as well as the inferior infrastructure system, even if Vietnam's policies and investment criteria are appealing to them.

Conclusion

Despite all the drawbacks mentioned above, Vietnam is an ideal place with lots of benefits in Southeast Asia for a foreign company that wants to invest. Hiring an outsourcing company is a great way to save your company lots of time and effort when they take care of your company’s paperwork in Vietnam.


Source: Internet


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