Grant Thornton: How to do Business in Vietnam 2016

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how to do business in vietnam 2016

VietnamAdvisors and Grant Thornton present your first comprehensive guide on how to do business in Vietnam.

Vietnam is a rapidly developing country with a dynamic and emerging market economy. Located in South East Asia, the country has positioned itself as a focal point for investment, boasting an average annual GDP growth rate of 6.1% over the last ten years. GDP growth in 2015 was 6.7% and is expected to rise to 6.8% in 2016. With these figures in mind, it is natural you would want to learn how to do business in Vietnam in 2016.

Vietnam comprises a landmass of 330.972,4 km2, a vast sea area including a large continental shelf, and a string of archipelagos stretching from the Gulf of Tonkin in the North to the Gulf of Thailand in the South. Vietnam is a gorgeous place to do business.

Vietnam is an elongated “S” shape with a long borderline from China in the North, Laos in the West and Cambodia in the West and South West. Vietnam has a diversified topography of plains, midlands and mountains.

The capital of Vietnam is Hanoi, which lies in the north of the country. Other major cities include Ho Chi Minh City (often abbreviated to “HCMC” and also referred to as Saigon), Dong Nai, Ba Ria – Vung Tau, Binh Duong in the South; Hai Phong, Quang Ninh and Hai Duong in the North, Hue, Da Nang, Quang Nam, Quang Ngai on the Central and South East Coast.

Although the global economy been in turmoil, with uncertainties in Chinese markets and declines in oil price, Vietnam’s economy showed positive signs of continued macroeconomic stabilisation throughout 2015 with the lowest inflation rate in the last 14 years, relative stability in the exchange rate, and stronger external account balances. However, there are still potential macroeconomic risks which require the Vietnamese government to speed up institutional and administrative reforms in order to improve the business and investment environment. The success of such reforms will heavily drive the lucrativeness of doing business in Vietnam. It remains to be seen whether the Vietnamese government’s effort will be sufficient to restore economic growth in time for the country to transform itself into a high- income industrialized economy in the longer-term.
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Capital: Hanoi
Area: 330,972.4 sq km
Language: Vietnamese
Currency: Vietnam Dong (VND)
International dialing code: +84
Business and Banking hours: 8 am to 5 pm
Political Structure: Single-party socialist republic state
Doing Business rank (by World Bank) 2016: 90

Geography and population

Vietnam has the third largest population in South East Asia (after Indonesia and Philippines) and is ranked 13rd in the world in terms of total population, reaching 90.7 million according to the population survey as at 1 April 2015. The rural population accounts for approximately 67%.

The city of Hanoi covers a large urban and rural area in the north of the country. The registered population was around 7.2 million at the surveyed date.

Ho Chi Minh City, the primary economic hub for Vietnam, had a population of about 8.2 million. However, the actual population of Ho Chi Minh City (and Hanoi, to a lesser extent) is likely to be significantly higher due to unrecorded migration from rural areas. In addition, Ho Chi Minh City is also bordered by the established industrial and urban areas of Binh Duong, Dong Nai and Long An Provinces, which arguably extend the City’s limits into these provinces.

Political and legal system

The Constitution in general establishes the rights of the people under the leadership of the Communist Party. The power of the people is exercised through the National Assembly at a central level and through People’s Committees at a local level.

The National Assembly is the supreme representative and legislative body and determines domestic and foreign policies, socio -economic tasks, national defense and security issues. Their policies heavily affect the versatility of doing business in Vietnam.

The Head of State is the President, elected by the National Assembly and represents the Nation in internal and foreign affairs. The highest executive body in Vietnam is the Government, formerly known as the Council of Ministers. It is in charge of the general management of the economy and the State. The court and prosecution system in Vietnam has a structure similar to the administrative system. At a central level, the Supreme People’s Court is the highest judicial body in Vietnam. At a local level, courts exist at provincial and district levels.

In January 2016 the 12th National Party Congress was held in Hanoi to select new leaders for the country. Nguyen Phu Trong, the incumbent General Secretary of the Communist Party was re-elected. The new President, Prime Minister and Chairman of the National Assembly Were also elected in April 2016

The Vietnamese legal system consists of a constitution, codes, laws, ordinances, decrees, decisions, circulars, directives and official letters. Although all have the force of law, only laws passed by the National Assembly are referred to as such.

Ordinances are issued by the Standing Committee of the National Assembly to regulate an area where a law is not yet promulgated or regulated. On matters the National Assembly has entrusted to the Government, of the National Assembly will issue decrees, decisions, circulars or directives to implement the issued laws or ordinances.

Decrees, decisions and circulars are normally issued by individual ministries and other State agencies, including People’s Committees, with respect to subjects within their sphere of responsibility and the force of subordinate legislation.

It should be noted that while codes, laws and ordinances are referred to by name; decrees, decisions, circulars and directives are usually referred to by the number, signing date, and the name of issuer.

Language

Vietnamese is the country’s official language. Foreign languages such as English, French, Russian, Chinese, Japanese and German are also used to varying degrees. English, however, is by far the most widespread foreign language and is commonly used alongside Vietnamese in legal documents relevant to foreign trade and foreign direct investment. English is also featured on the websites of many businesses (both local and foreign-owned) and Government agencies.

Business hours/time zone

Normal working hours for doing business in Vietnam are 8 hours per day and 6 days a week. However, the standard working week for officials and public employees and employees in administrative organizations is 40 hours (5 days). Other organizations are encouraged to apply the standard working week of 40 hours. The total number of overtime hours should not exceed 4 hours a day, 30 hours a month or 200 hours a year. In special circumstances, and subject to the government’s allowance, the total number of overtime hours can be extended to a limit of 300 hours per person per year.

Public holidays

Employees who have been employed for 12 months are provided with a minimum of 12 days of paid annual leave (vacation) per year, in addition to the Public Holidays.

Economy

how to do business in vietnam 2016

Vietnam is a developing country that has been transitioning from the rigidities of a centrally- planned economy since 1986. Vietnam joined the World Trade Organization in January 2007, which has promoted more competitive, export-driven industries. Vietnam successfully finalised negotiations for the Trans-Pacific Partnership (TPP) trade agreement, signed a number of bilateral and multilateral free trade agreements (FTAs) with other countries, including the EU Vietnam FTA, and joined the ASEAN Economic Community (AEC). It is expected that Vietnam would have much to gain from these agreements and partnerships, especially where booming apparel and shoes industries are poised to benefit from the 0% tariffs in the United States and other significant importing markets.

Agriculture’s contribution to the country’s GDP has continued to shrink from about 25% in 2000 to 17% in 2015, while contribution from the industrial and construction sector increased from 36% to 39% in the same period. The foreign invested sector was identified as an increasingly significant source of growth for the Vietnamese economy, accounting for 23.3% of the total capital invested in 2015, an increase of 19.9% from 2014.

In 2015, a total of 71,391 domestic firms closed down, an increase of 22.4% from 2014. The number of newly-established businesses was 94,754, an increase of 26.6% in number and 39.1% in terms of capital. In addition, 21,506 enterprises resumed their operations, up 39.5% compared to the same period in 2014.

Employment levels

As at 1 January 2016, Vietnam had 54.61 million people over 15 years old, including 48.19 million people of working age (15-54 for female and 15-59 for male), with approximately 68% of the labour force concentrated in rural areas.

The number actually employed in 2015 was estimated at 53 million, of which, 44.3% were working in agriculture, and the forestry and fishery sectors, 22.9% working in the industrial and construction sector and 32.8% working in the service sector.

The underemployment rate was 1.82 on average while it was 0.82% in rural areas. Overall the unemployment rate in 2015 was 2.31%, slightly higher than that of 2014 and 2013 (2.10% and 2.18% respectively); however, the unemployment rate in urban areas improved to 3.29% compared to 3.59% in the previous year. According to the General Statistics Office (GSO), this would come from the recovery of the whole economy, especially the industrial and service sectors.

Cost of living

According to the Mercer’s survey of 207 cities across five continents in 2015, Vietnam’s two major cities: Ho Chi Minh City and Hanoi were ranked 86th and 90th respectively in terms of the cost of living, increasing from 131st and 135th respectively in 2014. Living in Ho Chi Minh City and Hanoi is more expensive than in Phnom Penh Kuala Lumpur and Jakarta (ranked 142nd, 113rd and 99th respectively) but not as expensive as in Bangkok.

Living standards

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The national poverty rate continued decreasing to 5.97% compared to 7.8% in the previous year, and has dropped from 37.4% in 1998.

According to the Human Development Index (HDI) report announced by UNDA in September 2015, Vietnam’s HDI positioned at 116 out of 188, climbing 5 places from last year thanks to some achievements in poverty reduction, healthcare and education improvements.

Business etiquette and travel

Business cards

Always carry business cards when you visit Vietnam and distribute them at every business meeting. When you meet someone for the first time in Vietnam, it is polite to offer your card with both hands. Upon receiving a card, do not stuff it into your pocket. Take a minute to look at the person’s card, take care to pronounce their name correctly and acknowledge their title to show your counterpart that you value the opportunity to meet them. When you have finished engaging with an individual, place the business card in your wallet or purse, to show respect.

If you have a business card that is in English and Vietnamese, it is good etiquette to present the card with the Vietnamese side facing upwards.

The order for a Vietnamese name is family name, middle name and given name. Vietnamese names list the surname first, so when referring to a Vietnamese person, use their given name, prefixed by the appropriate term of reference. Hence, the General Secretary of the Communist Party of Vietnam, Nguyen Phu Trong should be referred to as Mr Trong.

Language hints

Keep in mind that many Vietnamese have learnt English at high school or university and may not necessarily have had any particular level of contact with native English speakers. Thus you will need to speak slowly and concisely. Remember to avoid using words in English that are specific to a particular country or region, and if someone does not understand certain words, try using a different version (e.g footpath, sidewalk or pavement).

It is impolite to undermine the authority of a more senior Vietnamese person by directing questions or responding to a more junior person whose English skills may be better. When using interpreters, it is polite to talk directly to the person you are dealing with and maintain eye contact.

Business attire

The climate in Vietnam can be quite hot all year round, particularly in the South so it is advisable to make allowances for this when selecting your business wardrobe. However Hanoi does have a winter season and can experience temperatures as low as 7 or 8 degrees Celsius. Probably the most suitable business attire is a lightweight suit for both men and women or smart trousers with a collar and tie for men, skirt and blouse for women.

Handshakes

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Handshakes are used upon meeting and departing. Some Vietnamese use a two-handed shake, with the left hand on top of the right wrist.

Business notes

Vietnamese are a polite people and will often smile and agree with you when in fact they may not have fully understood what you have said. The smile and nod are usually to acknowledge that you have spoken, and may not always indicate a firm agreement or that that they have understood what you said..

It is often advisable to have bilingual sales literature, including business cards and product manuals, available for more complex negotiations. It is useful to have an agenda and relevant papers translated into Vietnamese prior to the meeting so both sides are clear on what they wish to discuss.

Eating and drinking is a major part of doing business in Vietnam. Toasting at banquets is a common activity during dinner. Many Vietnamese men may smoke during the meal. When cognac or whisky is served at a meal, the custom is for individuals to drink only after a toast is made.

Returning a toast is standard practice. Common toasts are “Tram Phan Tram” (100% Bottoms Up) and “Chuc Suc Khoe” (Good Health).

Business meetings

Hierarchy and face manifest themselves in different ways at business meetings. For example, the most senior person should always enter the room first. Silence is also common in meetings where someone disagrees with another and remains quiet, so as not to cause a loss of face.

Relationships are critical to successful business partnerships. Always invest time in building a good relationship based on both personal and business lines. Any initial meeting should be used solely as a “getting to know you” meeting.

Currency

The official Vietnamese unit of currency is the Vietnamese Dong, often abbreviated as Dong or VND. Current regulations require businesses to advertise prices in VND only. Businesses that require the flexibility to operate in foreign currencies may apply for the right so to do.

When visiting Vietnam, it is still advisable to carry a supply of foreign currency, usually US dollars. Large bills receive better rates than small bills for currency conversions. Travellers’ cheques in US dollars can be exchanged at certain banks.

Automated Teller Machines (ATM’s or cash dispensers) have experienced dramatic growth in recent years, with more than 16,100 machines and 187,200 POS machines located across the country. These provide a safe and cheap way to obtain Vietnamese currency. However, it is wise not to depend solely on ATM’s when visiting areas outside of the main urban locations.

Tipping, although not customary in Vietnam, is appreciated with small tips becoming more common in recent years for the service industries. The common tip value is 10% of your bills; otherwise, it is all up to the customers’ wish.

Gifts

Gifts are not commonly exchanged when meeting for the first time. However a small token over dinner or at an appropriate moment is always appreciated. The gift is not as important as the sentiment sent with it.

A box of chocolates, a bottle of cognac (for a man), or a small souvenir from your country will show that you are a considerate person.

Travel to Vietnam

Visas

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A valid visa is required for entry into Vietnam. Legally, tourist visas are not valid for business visits, although this requirement is not strictly enforced. Vietnam has signed bilateral agreements with most ASEAN countries to exempt entry visas for ASEAN citizens visiting other ASEAN countries for a pre-determined period of time. Vietnam has also exempted citizens of The United Kingdom, Germany, France, Italy, Spain Denmark, Finland, Sweden, Japan, South Korea, Norway, Belarus and Russia for citizens visiting Vietnam from requiring entry visas for visits of less than 15 days. Currently, the government is considering entry visa exemptions to foreign visitors from Australia, New Zealand, India, and Canada and the majority of European countries.

In order to obtain a business visa, a business person should be sponsored by an organisation in Vietnam. The sponsorship can be by the visitor’s Vietnamese partner or the visitor’s representative office or branch, a trade-support institution, a consulting firm or authorized agent. Visitors must submit visa application forms with photographs and their passports to the Vietnamese Embassy in their country for visa issuance and pay a visa stamping fee.

A one-month renewable visa will generally be issued. Multiple entry- exit visas, which are valid for three to six months may be obtained for visitors who have regular business in Vietnam. It is dependent on each case, 6-month visa could be issued to visitors such as prestige tourism agencies or investors who are making investments in Vietnam.

Visas can be pre-arranged through certain travel agents and collected upon arrival at Hanoi or Ho Chi Minh City airports, avoiding the need to visit a Vietnamese Embassy abroad.

In order to make the process of obtaining a visa easier for tourists and business travellers, the Vietnamese Immigration Department has allowed for E-visa or so called Visa upon arrival. E- visa allows the traveller to apply for an approval letter from the Vietnamese Immigration Department online. The visa will be issued upon arrival at Vietnam international airport having paid the relevant fee. However Visa on arrival can be subject to delays of 30-120 minutes depending on the time of arrival, particularly in HCMC. So using the fast track option is recommended for an additional fee.

International airports and transport

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Vietnam’s three main points of entry by air are Ho Chi Minh City (Saigon), Hanoi and Da Nang. Ho Chi Minh City’s Tan Son Nhat International Airport is located approximately seven kilometers from the city’s downtown and a taxi fare of around VND150-200,000 (approximately USD7-9). In Hanoi, with the recent completion of Nhat Tan Bridge, the distance from Noi Bai International Airport to central business districts has been reduced to approximately 25 kilometers. The travel time of about 30 to 45 minutes by car and the taxi fare is approximately VND350,000400,000 (c.USD16-USD18). Da Nang International Airport, the third international airport in Vietnam, is an important gateway to access central Vietnam. The airport is 2.5 kilometres southwest of the city centre and is about a five minute drive from Da Nang city.

Visitors should only use metered taxis or Uber, Grab Taxi or licensed transfer services available inside the arrival halls, in Vietnam, preferably from one of the reputable taxi operators such as Mai Linh, Vinasun, TaxiGroup and Phuong Trang. There are many illegal or copy-cat taxi operators throughout the country. So to avoid inflated fares look for newer vehicles with distinctive corporate lettering and identification. Visitors are advised not to use transport if it is not metered unless booked through a hotel or reputable company.

Entry and departure requirements

Visitors to Vietnam can bring with them unlimited amounts of foreign currency, objects made of gold, silver, precious metals and gemstones or plated with silver or gold. However these must be declared in detail on customs forms. Foreign and Vietnamese currency equivalent to under USD5,000 and VND15 million respectively need not be declared. There is no restriction on books or other printed material apart from pornographic or politically sensitive material.

Books and other electronic media may be screened to ensure compliance with the laws. It is illegal to bring letters, packages or correspondence for others into or out of the country. It is also illegal to export antiques or images of Buddha. All luggage is x-rayed on international arrival and for all departures. Remember to keep your baggage claim tag, as it is often requested when collecting baggage when travelling domestically.

Disclaimer

© 2016 Grant Thornton (Vietnam) Limited. All rights reserved.‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires.

Grant Thornton Vietnam is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions.

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