The legal framework on startups doesn’t bear too many shortcomings as the Law on Enterprises is relatively similar to American law. The shortcomings mostly come from administrative procedures and policies from ministries.

In particular, sub-licences for conditional business sectors and the definition of these sectors remain opaque in guiding documents. The taxation regime in also not really in line with non-traditional business models, which are common in startups.

Protecting startup products

Nam Do, SeeSpace founder

Policies to support local products are necessary for every country. These help countries create jobs and therefore increase GDP, export turnover and so on. It appears on the surface that the government is trying to stay abreast of the rapid development of startups by issuing “encouragement and preferential” policies.

When looking at the details, however, most of the shortcomings of the past are not fixed or only partially fixed. A typical example is import taxes. Vietnam is always saying that it wants to encourage innovation and domestic production, especially in the electronics and high technology field.

However, import tax rates on electronic and high technology components are from 5-20 per cent, while complete units - for example a HDMI converter - are subject to a tax rate of 0 per cent. Therefore, despite being innovative and producing certain products, the price of the Vietnamese product is higher than its imported equivalent, which goes against “encouragement” policies.

Domestic enterprises, and especially startups, need to see an end to these types of polices rather than have policies encouraging domestic production.

First and foremost is not goodwill in legal factors but a clear legal framework that cannot be misunderstood. Laws should be more protective of investors.

Article 292 of the Criminal Code, for example, not only makes startups anxious but also investors. When investors invest in a company they become partly responsibility for that company. With this article there will be few investors willing to invest in a startup in Vietnam’s internet or telecommunications sectors because even a small violation by the investee has legal ramifications for the investor.   

Vietnam’s startup ecosystem

It is in its initial stages so can’t really be called an ecosystem. Many startups are keen to “sell” but there is an absence of “buyers”. There are not many investors, and most of them are seed and angel round investors and there are very few domestic institutional investors.

Enterprises, large corporations and private equity investors have no interest in startups, so there are not many M&As and startups and investors find it difficult to sell at a profit. This is an important part of the “ecosystem” that Vietnam does not have.

Vietnam has many advantages for startups but its ecosystem is one of the worst in the region. One of the major reasons is that action by the government has fallen behind the development of startups compared to other countries in the region. Government management of startups is still “supervisory” instead of “supportive”.

Knowledge among government authorities on startup models is limited, and without regulation the startups cannot improve the government’s knowledge. The business environment is not supportive of innovation by startups, meaning startups cannot contribute much to the national economy.  

Startups will dominate the “sharing economy” and there will be more and more startup/technology hubs in different regions. The role of startup/technology hubs is even more important than financial hubs such as Singapore, Hong Kong, and Shanghai, and the countries where startup/technology hubs are located will be better placed than those with financial hubs.

With a population of 1.2 billion, Southeast Asia will be a major hub and other countries in the region have recognized this sooner than Vietnam. Whether Vietnam misses this opportunity, as it has done before, remains open to question.

By Nam Do, SeeSpace founder
VN Economic Times