The country is regularly in the top 3 countries with the largest foreign investment capital in Vietnam, Japan has become a strategic partner of Vietnam’s economy and enjoys preferential investment rights.
According to a quick report of the Foreign Investment Department under the Ministry of Planning and Investment of Vietnam on the situation of attracting foreign investment capital by February 2024, there are 48 countries and territories that have invested in Vietnam during the first two months of 2024[1]. Only behind Singapore and Hong Kong, Japan is currently one of the countries with a diverse number of investment projects and investment capital as well as investment sectors in Vietnam. To maintain the trust of Japanese investors, the Vietnamese Government has had many incentive programs for investors from this cherry blossom region.
However, navigating Vietnam’s investment regulations might pose challenges for foreign investors, including those from Japan. Here are some essential factors to keep in mind when considering investments in Vietnam, with a focus on “Japan investment in Vietnam.
1. Market Research
Originating from the specific nature of business investment activities, any investor when conducting business needs to study the market carefully and thoroughly research before implementing. This research will help investors determine the market needs in the industry in which they plan to operate. Thereby, investors can outline effective business strategies in detail.
The young population and low labor costs are among the advantages of the Vietnamese market. Besides, the benefits of a dynamic economic region, located at the trade gateway of many regions, also attract more attention to Vietnam. However, cultural barriers and unique characteristics in business, politics, and infrastructure,… will make investors in general and Japanese investors if there is no thorough research.
2. Forms of investment
Japanese investors can choose different investment forms in Vietnam depending on their respective business strategies and objectives. Accordingly, investors can consider common forms such as establishing economic organizations in Vietnam; Joint ventures with domestic partners investing under business cooperation contracts, or development-operation-project transfer.
3. Determination of capital and commitment to contribute capital
Capital and financial concerns are significant factors for those involved in Japan’s investment endeavors in Vietnam. Regarding investment capital and charter capital when carrying out business activities, it is necessary to pay attention to the capital contribution roadmap as well as to comply with regulations related to capital contribution under the provisions of Vietnamese law. In addition, it is essential to avoid any delays or breaches in capital contribution commitments to prevent potential penalties imposed by the competent state authorities.
4. Plan human resource utilization
Depending on the nature of your business sectors in Vietnam, investors need to determine the quantity and type of human resources required to carry out business activities. This includes the job positions to be recruited and the skills and experience required for each position. The Vietnamese government also encourages recruitment, training and development of domestic human resources to solve the employment issue for workers. Therefore, investors need to plan personnel before conducting business activities to ensure the quality and quantity of employees to be recruited, meeting the set business plan.
5. Japan Investment incentives in Vietnam
Currently, Vietnam offers various investment incentives to attract foreign investors, such as tax incentives, land use incentives and incentives when investing in specific sectors or areas. Japanese investors should also note that taxable income arising when conducting business activities in Vietnam is not only governed by Vietnamese law but also governed by the Double Taxation Avoidance Agreement between Vietnam and Japan.
6. Specific regulations by business lines
In addition to meeting the conditions on restricting market access for certain business lines, it should be noted that Japan and Vietnam are members of the World Trade Organization (WTO), the ASEAN – Japan Comprehensive Economic Partnership Agreement (AJCEP), the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), The Regional Comprehensive Economic Partnership (RCEP)… Based on the provisions of these agreements, Vietnam will have specific regulations on market access for certain specialized sectors for Japanese investors.
Furthermore, it is necessary to pay attention to specialized legal provisions corresponding to each sector that the investor plans to operate in. For example, in certain sectors such as banking, insurance, telecommunications, and labor leasing, there are specific industry-specific requirements and regulations.
7. Reporting compliance
One of the regulations that Japanese investors should pay attention to is the obligations arising periodically (monthly, quarterly, yearly) such as the reporting regime on investment activities, production and business operations of enterprises. The report will focus on the use of investment capital, results of production and business operations, information on employees, enterprises ‘s obligations to the state budget, environmental protection treatment and performance indicators in each sector of operation.
8. Dispute resolution
Accessing the Vietnamese legal system is considered not an easy problem for Japanese investors. In principle, Vietnamese law will govern most business activities of Japanese investors in Vietnam. Therefore, compliance will only be guaranteed when investors can ensure access to and understand legal regulations as well as the level of their responsibilities and obligations.
Besides, investors also need to familiarize themselves with dispute settlement mechanisms in Vietnam, including arbitration or courts. It is advisable to seek legal advice and assistance to avoid any potential disputes that may arise during the investment process.
In general, although investing in Vietnam may come with certain restrictions, Japanese investors can benefit from Vietnam’s growing economy and favorable investment environment by understanding and complying with relevant regulations as well as seeking professional advice where necessary. Thoroughly preparing a clear roadmap based on the above considerations will help investors avoid unnecessary risks, as well as easily obtain approval and permits from competent authorities when conducting investment and business activities in Vietnam.
