Vietnam has steadily grown into a magnet for foreign direct investment, attracting $25.35 billion in 2024, up 9.4% year-on-year, with major investments from Singapore (31.7%), South Korea (14.6%), and China (14.4%). With a burgeoning consumer base and supportive government policies, more international companies are now looking to set up business in Vietnam as part of their expansion strategies.
However, venturing into this market without proper planning can lead to unnecessary hurdles. This article sheds light on common pitfalls that decision-makers face when establishing operations in Vietnam and outlines practical ways to avoid them.
TL;DR
- The most common mistakes when setting up business in Vietnam involve legal non-compliance, HR mismanagement, poor cost forecasting, weak market localization and wrong market entry structure.
- Registration under the Law on Investment 2020 requires strict documentation, capital clarity, and sector-specific permits.
- Using structured workforce solutions such as Employer of record (EOR), payroll outsourcing services, or recruitment process outsourcing (RPO) reduces compliance risk and accelerates operational readiness.
Mistake 1: Underestimating Legal and Regulatory Complexity
Navigating Vietnam’s Business Law: What investors commonly overlook
Some executives assume that the registration process here follows the same template they have seen elsewhere. In reality, Vietnam’s Business Law requires detailed documentation and may include industry-specific permits.
When applying for the Investment Registration Certificate (IRC), foreign firms face rigorous documentation requirements. Depending on the activity, whether you plan to manufacture medical devices or launch a fintech platform, specialized permits may be mandatory (see Law on Investment 2020 and Decree 31/2021/ND-CP). Specific industries impose minimum capital thresholds or demand proof of technical qualifications, which, if overlooked, can stall or invalidate the application.
The high cost of non-compliance: penalties and delays
Non-compliance triggers more than just fines. Inadequate legal representation might leave you open to lawsuits or regulatory action, stalling your entire operation. For instance, Decree 28/2020/ND-CP sets administrative penalties for labor violations, including:
- Worker Safety Non-Compliance: Fines range from VND 10 million to VND 75 million if companies fail to provide legally required safety training or protective measures.
- Probation Infractions: Employers that exceed the maximum probation period (often capped at 60 days for jobs requiring specialized skills) or violate mandatory terms can incur fines from VND 2 million to VND 20 million.
Apart from direct financial penalties, repeated infractions may lead to business license revocation or harm your organization’s reputation. Minimize risk by engaging legal counsel familiar with local labor codes and by systematically auditing your HR documentation.
Mistake 2: Mismanaging HR and Employment Practices
Hiring Pitfalls: Why Local Employment Practices Matter
Recruitment in Vietnam goes beyond merely posting a job description. The country has mandatory benefits for employees, including social insurance and overtime compensation, that may differ greatly from standards elsewhere. For example, employers generally contribute 17.5% to social insurance, 3% to health insurance, and 1% to unemployment insurance on behalf of each employee. Overlooking these obligations can trigger back payments and sizable fines.
Cultural facets also shape employment relationships. Staff often expect clear guidance on hierarchical structures. A direct, confrontational approach may erode trust. Brief training sessions on Vietnamese work norms help expatriate managers adapt and foster a positive environment.
Why Your Business Needs an Expert Employer of Record (EOR)
Collaborating with an expert Employer of Record (EOR) is one way to maintain consistent HR compliance when setting up a business in Vietnam. An EOR can handle local payroll obligations, manage work permits for foreign employees, and ensure you are applying the right labor classifications.
Key advantages of using an EOR:
- Reduced Legal Exposure – The EOR stays updated on frequent changes to labor laws, diminishing your risk of violations.
- Operational Efficiency – Professional management of payroll, benefits, and taxes frees up time to concentrate on core business initiatives.
- Adaptability Across Sectors – Whether you are building a fintech platform or e-commerce site, an EOR can accommodate varying compliance frameworks.
For a full breakdown of hiring models, workforce structuring, and compliance planning, read our Vietnam market entry Recruitment guide: Hiring, Compliance, Roadmap for Businesses
For deeper legal clarity:
Vietnam employment guide: how to hire and terminate staff legally
Payroll Compliance in Vietnam For Foreign Businesses
Outsourcing payroll – Is it suitable for your business?
If you are comparing workforce models, explore:
Recruitment Outsourcing (RPO) – How Does It Work?
Top recruitment service companies in Vietnam: How to choose the best partner
Mistake 3: Poor Cost and Operational Planning
Hidden Costs of Setting Up Business in Vietnam: What Many Fail to Anticipate
Foreign-invested entities may need to amend registration details multiple times, which increases administrative costs:
- Capital Modification: Any change in charter capital or shareholder structure demands an amended IRC, typically reviewed by the Department of Planning and Investment (DPI).
- Business Line Additions: Adding or altering business lines—such as expanding from import-export to local retail—necessitates a new or updated Enterprise Registration Certificate (ERC).
- Relocation: Moving your registered office even within the same city can call for new documentation and approvals.
If your operations involve manufacturing, an Environmental Impact Assessment (EIA) may be needed under Decree 40/2019/ND-CP, adding both cost and complexity.
Strategic Operational Planning: Aligning Expectations with Reality
While some companies open a representative office and assume they can upgrade to a full legal entity quickly, the actual timeline can surprise them. According to Decree 31/2021/ND-CP:
- Processing an IRC application typically takes 15 working days, although some localities can extend this to 20 or more if they request supplementary documents.
- Once the IRC is granted, obtaining the ERC usually requires 3 to 5 working days, followed by other post-licensing procedures (seal carving, tax code registration) that may add 1 to 2 weeks.
- Overall, plan for 1 to 2 months, or more in complex cases, before fully operating.
Mistake 4: Ignoring Local Market Dynamics and Cultural Nuances
Cultural Misalignment: Why Understanding Vietnamese Business Etiquette is Key
Business etiquette in Vietnam places emphasis on mutual respect and relationship-building. Face-to-face interactions remain fundamental in building alliances, particularly for large deals or partnerships. Avoid abrupt, contentious negotiation tactics. Instead, reflect genuine respect for senior decision-makers, and allocate time for relationship-building. Leaders who adopt a collaborative approach and encourage open dialogue usually see stronger team engagement.
Neglecting Market Research: A Recipe for Early Failure
Underestimating market research leads to mispriced products and weak marketing tactics. Some organizations roll out global campaigns that prove irrelevant in Vietnam. Alternatively, competitors might already saturate the same niche. Without adapting messaging or product features, a venture may struggle to retain even a modest market share.
Astute companies:
- Commission localized surveys or focus groups.
- Examine competitor pricing and branding to determine how to differentiate.
- Continually reassess consumer response to refine offerings.
Mistake 5 – Choosing the Wrong Market Entry Structure
One of the most expensive mistakes when setting up business in Vietnam is choosing a market entry model for speed or simplicity instead of long-term operational alignment.
Vietnam offers several structures for foreign investors: Representative Office, Wholly Foreign-Owned Enterprise (WFOE), or Employer of Record (EOR). Each serves a different purpose. The mistake occurs when businesses:
- Open a Representative Office expecting to generate revenue
- Establish a full legal entity before validating market demand
- Hire directly without understanding statutory compliance obligations
- Choose an EOR without planning future transition to entity setup
The result is restructuring costs, licensing amendments, capital reallocation, and delayed expansion.
For example, a Representative Office cannot issue VAT invoices or conduct commercial trading. A WFOE, while offering full operational control, requires upfront investment in compliance infrastructure and a capital commitment. An EOR enables fast workforce deployment but does not replace the need for entity setup if revenue-generating activities are required.
The core issue is not which model is “best.” It is whether the model matches your:
- Revenue expectations
- Investment horizon
- Compliance capacity
- Risk tolerance
In Vietnam, structure determines scalability. Correct sequencing market validation, workforce setup, then entity incorporation often proves more efficient than immediate full registration.
If you need a comprehensive breakdown of each model, compliance roadmap, and hiring strategy, refer to our detailed guide:
Vietnam market entry Recruitment guide: Hiring, Compliance, Roadmap for Businesses
Other resources:
EOR vs. Entity setup in Vietnam: 8 Critical Signs for Your Best Decision
H2: Best Practices to Avoid These Mistakes When Setting Up Business in Vietnam
Avoiding the most common mistakes when setting up business in Vietnam requires more than caution; it requires structure. Market entry should be a controlled execution strategy, not an exploratory experiment. The most successful investors approach Vietnam with governance discipline from day one:
- Securing experienced local legal counsel before filing registration documents
- Selecting the right entry model (Employer of Record, Recruitment Process Outsourcing, or full entity setup) based on expansion stage
Allocating a compliance buffer to absorb regulatory amendments and procedural adjustments - Aligning launch timelines with actual licensing sequences instead of optimistic projections
- Strategic localization: adapting leadership approach, pricing models, and go-to-market messaging to Vietnamese business norms and consumer behavior.
Preparation in this market is not a sunk cost. It is risk insulation. Companies that invest early in compliance architecture, workforce structuring, and operational forecasting protect their capital, accelerate regulatory approvals, and build long-term credibility with authorities and employees. In Vietnam, disciplined preparation is not optional; it is the foundation of sustainable growth.
For detail guide for market entry, read on: Vietnam market entry Recruitment guide: Hiring, Compliance, Roadmap for Businesses
Simplify Your Market Entry with Sunbytes HR Services
Sunbytes is a Dutch technology company headquartered in the Netherlands, with a strong delivery hub in Vietnam. For 14 years, we have supported international organizations in accelerating workforce capacity helping them scale quickly and sustainably through structured recruitment, Employer of Record (EOR), payroll services, and Accelerate Workforce Solutions. What differentiates our approach is that it is not built purely from an HR perspective, but reinforced by deep delivery expertise. Because we provide Transformation Solutions that design, build, and modernize digital products end-to-end, we understand what high-performing product and engineering teams truly require across custom development, QA/testing, and long-term product support. This operational insight translates into sharper role scoping, stronger candidate fit, faster onboarding, and reduced ramp-up risk.
Our Secure by Design mindset further strengthens workforce governance. With cybersecurity embedded into our delivery foundations, teams scale with clearer compliance standards, stronger data protection awareness, and reduced operational vulnerabilities. This is particularly critical for organizations expanding into regulated industries or managing cross-border data flows.
With Sunbytes, you do not simply add a headcount to enter Vietnam. You build a delivery-ready team structured, compliant, and aligned with your product roadmap so your expansion is not only faster, but fundamentally stronger.
Check out our success stories to see how we supported other companies across industries.
Let’s start with Sunbytes
Let us know your requirements for the team and we will contact you right away.
