The season of reforms in Vietnam

The World Bank recently published its latest Doing Business 2019 report, ranking Vietnam 69th among the 190 economies for ease of doing business. Despite a step back compared to last year, Vietnam experienced a significant net improvement over the last few years, gaining 13 spots.

The Doing Business Index is a measure to compare various countries across the world and to assess the regulatory factors, which support the business activity. Despite a downgrading compared with last year, the overall score of Vietnam has increased by 1.59. Vietnam's foreign trade procedures may be more complex than its neighboring countries - such as Thailand,Malaysia and Singapore - however the underlying reasons that Vietnam have attracted large foreign investment have not changed.

Improvement of Doing Business

Compared to the economies that have a higher score, the good positioning of Vietnam for transparency, accountability and media reform may not necessarily promote investors' confidence. However, these factors alone do not reflect the country's economic expansion in recent years.
The economic results of Vietnam can be attributed to the reforms implemented by the government, in the context of a politically stable economic climate. Although Vietnam lost a spot in this year's ranking, the government have been willing to continue along a reform path. Last year, Vietnam has achieved the highest score in recent years. Since then, Vietnam has concentrated efforts to improve the economic environment in the following three areas: corporate constitution, corporate tax, contract compliance.

There are two challenges in starting a business in Vietnam. It takes an average of 18 working days for the creation of a new activity, as well as a series of mandatory and time-consuming administrative procedures. In this context, Vietnam has introduced reforms aimed at reducing registration taxes. Besides there are online tools to help directly domestic businesses.
In Vietnam the administrative procedures to pay taxes are relatively fast. To further simplify these procedures, they have been recently introduced some news. Firstly, companies are no longer obliged to submit paper copies of the VAT declaration, secondly it is possible to pay taxes on commercial licenses and value added tax in a single solution. Furthermore, under the scope of social insurance, company's contribution to the labor fund has been reduced.
In addition to these reforms, Vietnam was well positioned in the rankings for "Building permits" (21st) and "Electrical connection" (27th).

Areas to be improved

The Doing Business report also highlighted areas where the country could make further improvements.

In respect of the 2018 ranking while the score for "Access to Credit", "Protection of minority shareholders" and "Foreign Trade" did not change, the "Credit recovery" decreased.
For the "Foreign Trade" import and export procedures are an important issue. At the moment timeframes are long, indeed the procedures may take up to 21 days to be completed and require numerous documents. Consequently, the foreign trade can be a serious obstacle for companies in Vietnam, regardless the export magnitude. Moreover, the advantageous conditions of doing business are limited to the largest and most developed city, Ho Chi Minh City. Finally, due to the many FDI, government procedures make difficult to carry out the activities. Government offices may have massive workloads and do not have time to deal with all required paperwork.
For a foreign company willing to enter Vietnam it may be useful to use a local third party to facilitate administrative tasks and reduce preparation time. These are, in fact, linked to a specific knowledge of the existing industrial zones both and of the legal and fiscal landscape of the country.

Vietnam continues to attract investments

The World Bank report suggests that Vietnam is still lagging behind many other Asian economies in terms of the business environment. However, the ease of doing business cannot attract alone FDI. According to Maxfield Brown, Business Intelligence Manager of Dezan Shira & Associates, “Vietnam’s reforms have taken shape in discounted manufacturing opportunities and a first-rate international trade agreement network for exports.” In recent years Vietnam has created a favorable environment to attract FDI. Besides that, there are other favorable macroeconomic factors. Althought Vietnam has become a known destination abroad, investors may do have an adequate knowledge of the existing business conditions.