This is not an isolated phenomenon. It reflects a structural trend of capital flow and the regional institutional environment, but it also does not stem from a lack of capacity or ideas among Vietnamese.

The National Startup Support Center (NSSC) says that Vietnam currently has 3,000-4,000 active tech startups. The Southeast Asia Digital Economy Report by Google - Temasek - Bain & Company for many consecutive years has recognized Vietnam as one of the fastest-growing markets in the region in terms of the digital economy and digital product development. Technical capacity is not a problem.

However, when entering the stage to raise international capital, a significant number of startups choose Singapore as their legal base. The real question is why they begin their legal journey in another system while continuing to operate in Vietnam.

Policy analysts often explain this phenomenon through the lens of “institutional friction,” a concept rooted in institutional economics and transaction cost theory. It describes the costs and delays that arise when regulations move from written law to real-world implementation.

There are no official statistics on how many Vietnamese startups register as legal entities in Singapore. Companies are recorded by place of incorporation, not by the nationality of their founders. Still, indirect indicators suggest the trend is real.

According to NSSC, about 90 percent of venture capital into Vietnamese startups came from foreign investors during the peak period of 2021. The 2024 report shows that total investment in Vietnamese startups reached about $494 million through 68 deals. 

Investors from Singapore accounted for about 39 percent of the number of deals. This shows that Singapore plays an important capital gateway role for Vietnamese startups.

Investment reality shows that many international funds require Vietnamese startups to restructure their legal entities. The model must be internationally familiar before they poor capital in. From there, a popular model has formed. The parent company is registered in Singapore, while the technical and operational teams are located in Vietnam.

Singapore does not keep the entire technical value. Most product development activities are still in Vietnam. They keep the legal and financial value layers. This includes fundraising transactions, share transfers, investment structures, and the recognition in global ecosystem rankings. 

From a long-term perspective, the story is not simply about the choice of a business registration address. It is a test of the quality of institutional implementation and the capacity to accumulate high-value layers of the economy.

Compared with Singapore, Vietnam has undertaken substantial reforms: digitizing business registration, piloting regulatory sandboxes in banking, promoting cashless payments, and revising capital market frameworks.

Viewed through the transaction cost lens, the difference does not lie in whether laws exist, but in three layers of implementation.

First, the degree of standardization and consistency in administrative experience. The Provincial Competitiveness Index (PCI) has, for years, shown notable differences among provinces in time costs and transparency. The law may be unified, but implementation experiences are not.

Second, predictability in processing time. The World Bank’s Doing Business 2020 report estimated that business registration in Vietnam takes about 16 days under standard procedures. However, Doing Business measured ideal conditions in major cities. PCI surveys indicate that time-related costs remain a concern for many enterprises in practice.

Third is a sandbox corridor with a specific entrance. Vietnam has issued a sandbox mechanism in the banking sector. This is an important step forward. In many new technology fields, businesses reflect a lack of detailed guidance for models beyond the traditional framework. This leads to having to wait for additional documents or asking for opinions on a case-by-case basis.

Thus, Vietnam does not lack laws. The cost of implementing laws, which is the actual transaction cost, still has room to continue decreasing. Vietnam aims for higher growth in the coming period. The drivers are innovation, digital transformation, and building a financial center. The story of where a startup's legal entity is registered is no longer just an individual business issue.

Double-digit growth cannot rely only on traditional production expansion. It depends on the speed of forming new businesses, new technologies, and new business models. Institutional competition in the current period is competition in the speed of reducing transaction costs. That is, reducing the time and cost for an idea to become a legal business and enter the market.

Du Lam