Vietnam has emerged as an attractive destination for foreign investment thanks to its stable growth and strong competitive advantages; however, from an operational and compliance perspective, it is not a “set up and run” market, but rather one that requires careful preparation from the pre-investment stage.

In practice, many investors are well-prepared in terms of strategy and financial resources, yet they often underestimate critical local factors such as legal, tax, accounting, and HR compliance. These gaps may not be immediately visible, but tend to evolve into significant risks once the business becomes operational or is subject to inspections and audits.

Legal: Not Just Market Entry, but Structuring for Sustainable Operations

A common misconception among foreign investors is to view legal requirements merely as procedural entry barriers, whereas in reality, the legal framework serves as the foundation that determines the long-term operability of the business. The fact that a sector is open to foreign investment does not necessarily mean that business activities can be carried out flexibly in practice, as regulators assess not only formal documentation but also the substance of operations, the level of foreign control, and alignment with regulatory intent.

A frequently observed risk is the misalignment between licensed activities and actual operations. For example, a company may register for “consulting services” but effectively perform implementation work, or register trading activities while delivering service components, which may lead to challenges regarding the legality of operations. In addition, investors often underestimate the need for sub-licenses, particularly in sectors such as trading, education, F&B, or digital services, resulting in situations where the company is legally established but unable to operate due to missing regulatory approvals.

At a deeper level, the issue is not whether a license can be obtained, but whether the investment structure is fit for the intended business model, as an inappropriate structure may lead to license amendments, operational constraints, or compliance risks during inspections.

Tax: A Documentation-Driven System Where Transactions Must Be Proven

Unlike jurisdictions where tax systems rely more heavily on the economic substance of transactions, Vietnam’s tax framework operates on stricter principles, where the validity of supporting documentation is decisive in determining whether expenses are recognized and deductible.

As a result, even commercially reasonable expenses may be disallowed for tax purposes if they are not supported by proper contracts, invoices, and payment documentation.

One of the most significant yet often underestimated risk areas is Foreign Contractor Tax (FCT) on cross-border transactions such as management fees, royalties, or intra-group services. Without proper structuring and assessment at the outset, businesses may face taxation in both jurisdictions without an effective optimization mechanism, significantly increasing actual costs.

Additionally, issues related to transfer pricing and Value Added Tax (VAT) in modern business models—such as digital platforms, integrated services, or complex supply chains—can create substantial risks if not carefully analyzed during the structuring phase. It is important to emphasize that in Vietnam, tax is not merely about rates, but about the ability to substantiate the entire transaction flow.

Accounting: Beyond Standards – The Ability to Withstand Scrutiny

While the differences between Vietnam Accounting Standards (VAS) and international frameworks such as IFRS are widely acknowledged, the more critical challenge in practice lies in the close linkage between accounting and tax, with accounting records serving as the primary basis for tax inspections and audits.

This means that a well-designed accounting system must not only meet internal reporting or group consolidation requirements, but also ensure that all records and supporting documents can withstand review from a local compliance perspective. Issues such as timing differences in revenue and expense recognition, discrepancies between accounting treatment and tax deductibility, or inconsistencies in documentation can all lead to tax reassessments and penalties.

A common scenario is that many FDI companies maintain parallel systems—one for group reporting and one for local compliance—but without proper design from the outset, reconciliation between these systems becomes complex and creates long-term risks.

HR – Payroll – Social Insurance: The Intersection of Multiple Compliance Obligations

HR is often underestimated at the pre-investment stage, yet it has a direct and continuous impact on both operating costs and legal risk. In Vietnam, HR sits at the intersection of labor law, personal income tax, and mandatory insurance obligations, forming a multi-layered compliance framework.

Improper salary structuring can lead to increased insurance contributions or tax inefficiencies, directly affecting both employer costs and employee net income. For foreign employees, additional complexities arise in relation to work permits, tax residency status, and reporting obligations. If not properly managed, these issues may result not only in penalties, but also affect the deductibility of expenses and the ability to remit funds abroad.

Conclusion: Due Diligence Is Not a Checklist, but a System Design Process

Ultimately, the key difference between successful investments and those requiring later adjustments does not lie in scale or industry, but in the level of preparation at the outset. Treating due diligence as a mere checklist is unlikely to uncover critical risks; instead, it should be approached as a process of designing the entire operating model from a local compliance perspective.

TPM Pre-Investment Advisory: From Advice to Practical System Design

At TPM, we do not approach pre-investment advisory as a service that merely provides information, but as a process of working alongside investors to design business models that are both operationally viable and sustainable in Vietnam. By integrating legal, tax, accounting, and HR perspectives, we help investors not only answer “what can be done,” but more importantly, “how to do it right from the beginning.”

Start Right – Or Pay to Fix Later

As Vietnam’s regulatory environment continues to tighten and professionalize, the greatest cost no longer lies in market entry, but in correcting issues after operations have begun. A well-prepared investment decision not only mitigates risk but also builds a solid foundation for long-term growth.

Contact TPM to begin your investment journey in Vietnam with a structure designed right from the start.

Van Le – Head of Tax Advisory
T: +84 916 777 662
E: van.le@tpm.com.vn

Or TPM Hotline: +84 28 3505 1800