Top Mistakes When Setting Up Your Business in Vietnam

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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.

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.

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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.

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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.

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.

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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.

Best Practices for Successful Market Entry: Practical Recommendations

The core takeaways from these pitfalls revolve around proactive preparation. Key action points include:

Secure Local Legal Expertise – Prevent compliance woes with region-specific counsel.
Use an EOR Service – Simplify hiring processes and maintain proper employee documentation.
Budget for Add-On Costs – Remember registration amendments, unpredictable fees, and potential supply chain disruptions.
Localize Your Strategy – Adapt product lines, marketing messages, and managerial styles to Vietnamese norms.

Simplify Your Market Entry with Sunbytes HR Services

Sunbytes addresses major headaches around EOR, payroll and recruitment so you can set up business in Vietnam swiftly. With over 12 years of deep-rooted local expertise, our consultants handle payroll compliance, workforce onboarding, and relevant reporting. This approach lets you focus on product development and growth, leaving administrative minutiae to specialists.

Check out our success stories to see how we supported other companies across industries.