From technically specialized manufacturing to innovative software development, Vietnam has everything to offer to international entrepreneurs. With over 137,000 businesses registered and over 56,000 businesses re-opened between January and November 2022 (a 30-40% increase over 2021), the country’s prospects are evidently promising. Here are seven reasons to start a business in Vietnam.
1. A Tech Startup Boom
Vietnam is host to one of the most thriving startup scenes in the Southeast Asia region. The investment in the country’s startups increased threefold from USD 451 million in 2020 to USD 1.4 billion in 2021. Moreover, the number of deals closed in 2021 went up by 3 times year-on-year.
Factors like a young and educated population, the inflow of foreign direct investment, and favorable government policies act as a catalyst in boosting the startup culture in Vietnam.
According to the World Bank, Vietnam’s GDP is expected to grow by 6.7% in 2023, ranking it among Southeast Asia’s rapidly developing economies.
2. Europe pivoting toward Vietnam
ASEAN’s trade statistics for 2020 ranked Vietnam as the EU’s 15th largest trade partner. Moreover, the country imports essential items from the EU, such as aircraft, machines and equipment, automobiles, and pharmaceuticals. Conversely, Vietnam also exports a range of products to the EU, such as shoes, electronics, textiles, etc.
As per the EU Trade Commission data, in 2019, the EU invested USD 6.1 billion in Vietnam as FDI. The industrial processing and manufacturing sector received the largest share of the investment.
Vietnam’s biggest trading partner in the EU is Germany. According to the Vietnamese government, in 2021, the bilateral trade clocked USD 7.8 million. Moreover, in the first seven months of 2022, bilateral trade has already registered USD 7 billion, up 18.5% (YoY).
Due to both sides’ undeterred commitment to further deepening their trade relationships, it seems likely that bilateral trade will further grow in the future.
Moreover, according to a study published in June by the German Chambers of Commerce Abroad, 90% of German businesses operating in Vietnam plan to continue investing in the country. The study also reflected that the majority of German entrepreneurs are optimistic about getting more business opportunities over the next year.
3. Vietnam’s Successful Multilateral Diplomacy
With the prevalence of China and the U.S. trade disputes, Vietnam has been able to carefully manage its relations with the two leading economic powers. While the country’s diplomacy has always placed emphasis on fostering close ties with China, the nation has also sought to strengthen relations with the United States.
However, the government must also try to assess China’s growing concerns over the fast-developing U.S.-Vietnam relationship, particularly with regard to defense cooperation in the South China Sea.
The country had long held to the “four noes” policy. As per the policy, foreign countries are prohibited from establishing military bases in Vietnam or using Vietnamese soil against another country. Moreover, it does not join military alliances, ally with countries that attack foreign countries, engage in violent acts, or pose threats to international relations.
4. The hottest economy in SEA
As it recovers from the pandemic, Vietnam will maintain its title as Southeast Asia’s fastest-growing economy through 2023. The Prime Minister of Vietnam is confident that the GDP growth will exceed the government’s target of 6%-6.5% and shall reach 8% by the end of 2022.
The PM insisted that the government is going to handle economic recovery policies while staying on top of rising inflation. In addition, the authorities will ensure to maintain adequate funds for enterprises while strictly regulating loans to potentially high-risk business domains.
5. Attractive Tax Incentives for tech and agriculture companies
Vietnam’s tax incentives make it an attractive place for foreigners to expand their business operations and invest in new projects when compared to other countries in Southeast Asia. Typically, the country has three types of taxes: Corporate Income Taxes, Personal Income Taxes, and Value-Added Taxes.
Owing to the country’s relaxed corporate income tax structure, international investors continue to show their interest in the country and start businesses. From 2000 to 2018, the Vietnamese standard CIT rate dropped from 32% to 20%. Following is a comparison of Vietnam’s CIT rate with its neighboring countries:
- Vietnam – 20%
- Philippines – 30%
- Indonesia – 22%
- Malaysia – 24%
A business can enjoy tax-free income for the first 4 years of the business operations, provided the business is eligible for corporate tax incentives.
Two ways a business can be exempted from paying taxes:
- If the income is derived from the execution of new public sector-related projects in a geographically disadvantaged area specified in the Appendix of Decree No. 218/2013/ND-CP.
- Tax exemptions and reductions apply to enterprises involved in the application of advanced technologies for a specified duration. These incentives begin from the year they are granted the Certificate of Hi-tech Enterprise or Certificate of Agricultural Enterprise Applying High Technologies.
6. Low cost of operations
The TMX report ranked Vietnam second among 9 Asian countries with the lowest operating costs. Moreover, the report found that in most cases, Vietnamese manufacturers incur a monthly manufacturing cost of USD 79,280, which is a little more than Cambodia’s USD 65,313. Several factors, such as low wages, a conducive business climate, and supportive tax policies, combined with affordable operating costs, encourage foreign investment in Vietnam.
The report also indicated the level of competitiveness of the markets. It was based on various qualitative factors like logistics, business environment, availability of talent, and readiness for digitalization. Based on the findings, countries were then assigned to one of the stages of the manufacturing value chain, i.e., basic assembly lines, developing supply chains, and early automation.
| Countries | Stage | Industry |
|---|---|---|
| Cambodia and Myanmar | Basic Assembly Lines | Textile and Garments |
| Philippines, Indonesia, and Vietnam | Basic assembly lines and developing supply chains | Electronics |
| Singapore, India, and Thailand | Early Automation | Smart manufacturing and innovation |
7. Aggressive Sustainability Targets
Due to its vulnerability to climate change, Vietnam has adopted programs to counter its effects and encourage sustainable development.
As per Vietnam’s Deputy Minister of Planning and Investment, the country must allocate USD 360 billion to successfully execute its green/sustainable targets by 2030. Moreover, the country needs to establish a perfect blend between the protection of the environment and socio-economic development.
In particular, the net-zero target that Prime Minister Pham Minh Chinh announced at COP26 was highly appreciated by the international community. As a result, the international community is inclined towards providing consultancy, sharing experience, and financial support to the nation.
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InCorp Vietnam is a leading provider of global market entry services. We are part of InCorp group, a regional leader in corporate solutions, that encompasses 8 countries in Asia-Pacific, headquartered in Singapore. With over 1,100 legal experts serving over 15,000 Corporate Clients across the region, our expertise speaks for itself. We provide transparent legal consulting, setup, and advice based on local requirements to make your business perfectly fit into the market with healthy growth.
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