Beyond the Headline Numbers: Business Registration and Startup in Vietnam

It is widely perceived that the private sector in Vietnam has thrived since the promulgation of the Enterprise Law in 2000. This perception stems in large part from reports that the company registration process has become much easier, and from the six-figure headline numbers often cited for new business registrations over the last four years. However, some evidence suggests that the private sector may not be quite as healthy and robust as the headline numbers imply. In particular, the registration numbers are being inflated to some degree by such factors as: single businesses enacting multiple or rolling company registrations; little or no tracking of business closures; and the presence of so-called “ghost companies” (companies which exist only in name but have not begun operations or exist mainly to buy VAT invoices and on-sell them). In this context, The Mekong Private Sector Development Facility and the World Bank office in Vietnam decided to initiate a study of the business registration and formation process in Vietnam. The primary goals of the research are to: better understand the process that new firms go through when registering; see how companies are faring after registration; and thereby get a more nuanced picture of what actually lies behind and beyond the oft-recounted headline numbers.

The analysis from the survey show gereral findings: (i) The headline numbers should be used with care, as the existing databases for business registration are weak. The General Statistics Office’s (GSO) annual figures for operational firms are roughly 40% smaller than those provided by the NBIC for business registrations; (ii) The high company registration numbers should not be used as a proxy indicator for the overall health of the private sector. Among surveyed firms, 16% were registered prior to the enactment of the Enterprise Law in January 2000 and subsequently re-registered. In the same vein, roughly 45% of firms were originally informal entities (household businesses) that had decided to formalize their company under the Enterprise Law; (iii) Notwithstanding recent commendable advances, the time it takes to register a new company in Vietnam is still relatively long by international standards. Attaining the first red invoice VAT book appeared to be the most burdensome part of the business formation process. The current procedures could be simplified so as to allow firms to simultaneously register for the company seal, tax code and purchase invoices and thereby shorten the whole registration period; and (iv) Post-registration issues (land, capital, public administration) are still barriers to the growth of enterprises.

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