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Are you planning to open an equity in Vietnam? What type of entity is best suited to you and how to overcome risks in small businesses? We have the local knowledge to help you navigate these minefields. Let's dive into crucial information below before starting a business in Vietnam.
How many types of businesses in Vietnam?
There are 5 main business enterprises types which foreign enterprises can choose to set up legal entities in Vietnam. In which, the two most common types are Limited Liability Company (LLC) and Join-stock Company (JSC). Brief description of 5 types are as follows:
*FOEs: Foreign-owned Enterprises
**JVEs: Joint Venture Enterprises
1. Limited Liability Company (LLC)
- 100% FOEs* and JVEs** can be established as LLC
- There is usually no minimum capital requirement for establishing an LLC in
- Total members must be less than 50. Investors can be corporations or individuals.
2. Joint-stock Company (JSC)
- FOEs* and JVEs** can issue securities and bonds as joint-stock companies
- There is no minimum charter capital requirement
- A JSC is required to have at least three shareholders. There is no limitation on the maximum number of shareholders, nor on their nature – they can be individuals or institutions, Vietnamese or foreigners
3. Partnership Company
- JVEs** can be established as a partnership company in Vietnam
- Partnerships cannot issue any type of securities in Vietnam
4. Representative Office (ROs)
- A representative office is forbidden from conducting any revenue-generating activities
- ROs are permitted to conduct market research
- ROs in Vietnam are permitted to hire staff directly
5. Branch Office
- A branch office is not allowed to constitute a separate legal entity
- Be entitled to do business in Vietnam
- To set up a branch, a parent company must have had conducted business in its home country for at least 5 years.
Pros and Cons of each type
1. Limited Liability Company
Legal Status: Separate legal entity
Liability limited to capital contribution
No restrictions on business scope
Cannot issue shares
Maximum 50 members
2. Joint-stock Company
Legal Status: Separate legal entity
Liability limited to capital contribution
No restrictions on business scope
Can issue shares and go public
No limitation on the number of shareholders
The required minimum shareholders is 3
Supervisory Board is required for most JSCs, depends upon the number and type of investors
3. Partnership Company
Legal Status: Half separate legal entity. Generally used for professional services offered by individuals (e.g: attorney, architect)
One of the partners can be excluded from unlimited liability
Requires at least 2 partners
Requires professional certificates
Individually liable for the partnership debts without limit
4. Representative Office
Legal Status: Non-separate legal entity
Easy registration procedures
Cannot conduct profit-making activities
Parent company bears liability
5. Branch Office
Legal Status: Non-separate legal entity
Can carry out commercial activities within the parent company’s scope
Business scope is limited to parent company
Parent company bears liability
How To Set Up A Foreign-owned Company
Note: Depends on the type of business you choose, documents required and processing time can be varied. Above information is basic requirements for setting up an entity for foreign companies in Vietnam.
Bonus: Some facts you should know before setting up an office in Ho Chi Minh city:
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China and the US trade war effect
Foreign investors have continued to flock to Vietnam’s factory districts as the trade war between the United States and China approaches its second year.
“US-China trade war is speeding up a trend that was already well under way, namely to move factories out of China,” said Adam McCarty, chief economist at Mekong Economics in Hanoi.
Few countries have benefited more than Vietnam from the year-old trade war between the United States and China. Companies, already under pressure from rising production costs in China, have been scrambling to identify factories to work with in the Southeast Asian country to avoid heavy tariffs. Besides, 52 percent of Vietnamese goods are enjoying an import substitution effect as a result of the high tariffs imposed by both the United States and China against each other. Among the economies studied in Nomura Securities, Vietnam is the biggest beneficiary from the trade war — with a possible increase of up to 7.9 percent in the country’s GDP.
In the first five months of 2019, Vietnamese exports to the U.S. have surged 36% compared with the same period last year. With $25 billion in shipped goods through May, Vietnam has become the eighth biggest source of American imports, up from 12th place a year ago.
Better regulations for foreign investors
Vietnam will maintain its policy of encouraging foreign investment and continue to improve its investment environment to facilitate investors, said Prime Minister Nguyễn Xuân Phúc.
Government has been undertaking much reform of its complicated tax system in recent years, and this has been reflected in a rise in the World Bank’s Ease of Doing Business rankings. Those rankings state there are 10 corporate tax payments to be made each year, with other tax burdens including VAT (Value Added Tax) and social insurance. The country’s Ministry of Finance notes that the Tax Department has issued regulations that create favorable conditions for businesses, including listing invoices of goods and services purchased and sold together along with the VAT declaration, and a simplification of procedures for calculating VAT and CIT (Company Income Tax). There has also been much work undertaken in the IT side of tax reporting, with electronic tax declaration fully implemented. In addition, proposals to amend and supplement current laws on CIT, VAT, special sales tax and natural resources tax regulations comes into force on January 2019; these proposals aim to clarify unclear tax issues and reduce the tax compliance burden for businesses with operations in Vietnam.
The World Bank’s Doing Business rankings has Vietnam at No 104 in the world for ease of starting a business (69 overall globally for doing business), but it does note that reform is underway - it only takes eight procedures now, where it was over 100 a few years ago. You must have a company address and a lease signed before you register your entity. It’s also worth noting there are conditions and limits placed on some foreign investments, with some undertakings - dealing with certain types of drugs, chemicals and minerals, some biological businesses, and firecrackers - banned from accepting foreign injections.
The entrance of foreign investors, many service sectors such as finance-banking, insurance, auditing, maritime transport, logistics, education-training, healthcare and tourism have developed remarkably recently.
Vietnam named among fastest growing economies in 2020
Report from Standard Charter predicts that Vietnam’s per-capital income will surge to US$10,400 in 2030 from roughly US$2,500 in 2018.
According to Institute of Chartered Accountants in England and Wales’ recent Economic Insight: South East Asia report, the Vietnamese economy is expected to grow at around 6.7 percent this year, the fastest rate in Southeast Asia. In fact, its economy grew at 6.8 percent in the first quarter driven by strong manufacturing, steady services and higher agricultural output.
Southeast Asian economies except Vietnam have seen exports drop in the second quarter of this year compared to the same period last year while Vietnam’s exports grew albeit slower than in 2018.
Foreign direct investment (FDI) and manufacturing are expected to remain big drivers of economic growth. According to the Foreign Investment Agency, FDI disbursed in the first two months of 2019 increased by 9.8 percent year-on-year to around US$2.6 billion.
More and more giant foreign companies coming to Vietnam
Over the past time, the local market has seen giants Singapore-based Grab, and Sea Group joining hands and acquiring Vietnam startups. Grab purchased e-wallet application Moca’s shares from Access Venture Capital for hundreds of thousands of US dollars. Besides, Shopee’s parent company – Sea Group – also spent $64 million to acquire 82 per cent of the shares of Foody Corporation – the owner of food delivery firm Now. The firm also purchased the local delivery firm Giaohangtietkiem at an undisclosed price.
In addition, Malaysia-based real estate company Property Guru acquired its online real estate searching website batdongsan.vn after years of investment.
Speaking of logistics vertical, foreign companies are taking up 70%-80% of Vietnam’s market thanks to a series of merger and acquisition (M&A) deals over the past years, leaving domestic firms struggling with fierce competition. International firms account for only 2%-3% of more than 1,300 logistics companies in Vietnam but they dominate the logistics and warehousing market which is likely to reach US$86.7 billion by 2022, according to Pieter Pennings, consulting director at CEL Consulting.
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While micro-communities of business enthusiasts are popping up all over the country and in particular in Da Nang, Hai Phong and Dong Thap, the main startup hubs are still centered around the capital city of Hanoi in northern Vietnam, and Ho Chi Minh City (HCM) in the south.
The local business culture in both areas have quite distinct characteristics. Hanoi is known as a technological hub, where local players are pushing the needle in terms of software development and innovation. However, Ho Chi Minh’s community is known for its strong entrepreneurial mindset and culture, producing local talent who are business-minded, market-oriented and know how to build and scale businesses.
Local experts suggest that the community is not as united in Hanoi as in HCM city, partly due to the fact that lower average levels of English in Hanoi reduce the amount of international and bi-lingual events held there. There are a number of regular events in English across HCM city, appealing to foreign founders, returning Vietnamese who were born or have lived abroad, and locals who tend to have much higher levels of English than in other parts of the country.
Contributing 45 percent to the country’s gross domestic product (GDP), HCM City has seen investment in companies triple from 2017 to 2018 – making it only natural that Singapore’s programme to connect the city-state with major innovation hubs across the globe has now turned its attention to Vietnam’s largest city.
Also, HCM City is the third ASEAN city to join the GIA (Global Innovation Alliance) network after Jakarta and Bangkok. The eight other cities in the network are Beijing, Shanghai and Suzhou (China), Berlin and Munich (Germany), San Francisco (United States), Tokyo (Japan) and Paris (France). From a city-wide perspective, Ho Chi Minh City’s addition to the GIA is in line with city planners’ goal to turn the urban sprawl of 8.6 million people into an international financial hub. By June 2020, the newly-developed Thu Thiem area in District 2 is expected to start construction of a financial centre complex as part of the government’s plans to attract major investors, enterprises and financial institutions.
Besides, culture differences existing in big cities should be taken into consideration before doing business. Of course, wherever you choose to invest and work, your lifestyle choices will be much better than that with which you have become accustomed in your own countries.
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Over decades, Vietnam has emerged as a favored destination among foreign firms looking to invest in many sectors. Since Vietnam offers a lot of potential for foreign investors, especially for those who are looking to venture into Southeast Asia. According to the World Bank, Vietnam has moved from being one of the world’s poorest nations into a lower middle-income country over the past three decades.
Here are some facts updated in 2019 proving why Vietnam has become more of an attractive destination for investment.
Consistently strong growth
Associate Professor, Dr. Dang Van Thanh, Chairman of the Vietnam Association of Accountants and Auditors, said that Vietnam is reaching a growth rate of about 6% and the figure is expected to reach 6.7% this year. The number of registered enterprises increased significantly, while the number of dissolved enterprises decreased. Budget collection and expenditure still reached the desired target.
Regarding infrastructure, in the next five years from 2019, the investment in this sector is about 7.3% of the total GDP. The main investment source depends on FDI. Along with that, the private sector will get more involved in infrastructure and will change the overall picture of infrastructure. There is also a positive impact of the investment flows into increased imports, exports, transportation and tourism, then resulting in the increase in number of tourists entering Vietnam, which in turn stimulates development of infrastructure.
Red tape to be cut in 2019
Government announced to make resolutions on improving the business environment and national competition from 2019 to 2023. The resolution reflected the Government’s determination to cut red tape for businesses this year with detailed targets and specific deadlines. As a result of this, company licensing procedure is increasingly being digitalized, this makes the process become faster than ever.
According to Mr.Tuan who is head of the Việt Nam Chamber of Commerce and Industry (VCCI)’s Legal Department, the Government’s target of having 1 million firms by 2020 was challenging given the fewer-than-expected number of new firms set up. This means government is seeking many ways to prevent bureaucracy and cut down on official processes.
In fact, the local authorities were still slower in tackling problems raised by firms than ministries and ministerial-level agencies. Though it is known that reforms being still a long road for policies to benefit businesses, the room for positive changes remained large in the upcoming days.
Vietnam economy and free trade agreements
One key way of boosting trade and economic development is through participation in free trade agreements (FTAs). Over the past few years, Vietnam has been active in signing bilateral trade agreements with countries throughout the world. Additionally, due to its membership in the Association of Southeast Asian Nations (ASEAN), Vietnam has become a party to several FTAs that the regional trade bloc has signed as following:
· ASEAN Free Trade Area (AFTA)
· World Trade Organization (WTO)
· The U.S.-Vietnam Bilateral Trade Agreement (BTA)
· EU-Vietnam Free Trade Agreement (EVFTA)
· Trans-Pacific Partnership (CPTPP)
Two such pacts that are slated to come into effect in 2019 and could have a profound impact on the economy are the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the European Union-Vietnam Free Trade Agreement (EVFTA). According to the Vietnamese Ministry of Planning and Investment, the CPTPP could raise Vietnam’s GDP by 1.3 percentage points and exports by 4.0 percentage points by 2035, while the EU considers that the EVFTA could lift Vietnam’s GDP by 15%.
These two deals, along with other FTAs which will likely come in the future, should help ensure that the next 30 years are just as positive.
Vietnam has become Asia’s hottest investment destination
With a record US$19.1 billion in foreign direct investment (FDI) disbursement in 2018, Vietnam has become Asia’s hottest investment destination, according to a Forbes report.
Following this, data from the Foreign Investment Agency under the Ministry of Planning and Investment showed foreign investors registered to pour US$8.47 billion into Vietnam in the first two months of 2019, 2.5 times higher than the same period of last year. Disbursement of FDI projects also rose by 9.8 per cent year-on-year to $2.58 billion, hitting a three-year record high.
Notably, foreign investment in science and technology surged sharply, helping it for the first time ranked third in the hottest sectors in the country’s FDI attraction. The positive move is continuing this month with many provinces and cities consecutively announcing licences for high-quality projects.
Infrastructure has been a central factor of Vietnam’s fast-paced economic development. However, economic growth is putting increasing pressure on Vietnam’s infrastructure. Freight volumes are expanding rapidly. Road traffic has increased by an astounding 11 percent annually and the demand for energy is expected to grow by about 10 percent per year until 2030.
Demand for transportation assets benefits from strong GDP growth due to a rapidly growing middle class, increasing urbanization and improving connectivity in Vietnam, with future growth rates expected to outstrip GDP growth. Road and rail network investment will be key to drive infrastructure investment across other sectors in Vietnam. Demand for these assets reflects strong traffic and freight volumes supported by strong and sustained economic growth as well as increasing connectivity and improving logistics.
The growth outlook for the next three years remains robust at around 6.6 percent, providing the perfect opportunity for Vietnam to continue making its infrastructure more productive—especially in energy, transport, and telecommunications—and so generating the jobs and prosperity its people seeks and wants. Vietnam already invests much in infrastructure—almost double the global average—but keeping up with its fast-paced economic growth and development will demand even higher levels.
These developments would be attractive to foreign investors in a general sense.
Tax Incentives for Foreign Investment in Vietnam
Tax incentives have been applied consistently to stimulate investment, especially for the inflows of FDI in Vietnam. It can be seen that reductions in tax obligations while increasing tax incentives in some investment sectors and locations have created favourable conditions for the enterprises to increase capital accumulation, expand manufacturing and speed up the economic growth in Vietnam in the past more than two decades of economic reform.
FDI enterprises enjoy a wide range of incentives when operating in Vietnam, including tax incentives that allow them to pay only 10.7% in corporate tax on average, compared to 20 percent for regular businesses
In the upcoming revision of its incentive policies for FDI enterprises, Vietnam will focus on attracting foreign investment into areas of manufacturing with high added value and technological content.
Lately, many world big corporations start pouring investment into Vietnam. Here are some examples of companies having their presence/ planning to invest in Vietnam:
April 2018, Indian firms strengthen renewable energy investment in Vietnam
Indian giants, including TATA Group, Adani Green Energy Ltd., and Suzlon Energy Ltd. set foot in Vietnam very early after the country opened its doors for foreign investment. TATA Group's solar power project in Binh Phuoc province is the latest Indian investment project. Its total capacity is 49 megawatts and is located on 55 hectares in Loc Ninh district of the southern province. To date, India has 176 projects in Vietnam with the total investment of $814 million
April 2018, The Samsung Electronics factory in Thai Nguyen, in northern Vietnam, employs more than 60,000 people. Its three canteens serve some 13 tonnes of rice a day. It churns out more mobile phones than any other facility in the world. It and Samsung Electronics’ other factories in Vietnam produce almost a third of the firm’s global output. The company has invested a cumulative $17bn in the country.
Its local subsidiary’s $58bn in revenue last year made it the biggest company in Vietnam, pipping PetroVietnam, the state oil company. It employs more than 100,000 people. It has helped to make Vietnam the second-biggest exporter of smartphones in the world, after China. Samsung alone accounted for almost a quarter of Vietnam’s total exports of $214bn last year.
November 2018, Thailand’s TCP Group to invest US$120 million in Vietnam in 3 years
The company owns several brands of energy drinks, including Krating Daeng (Red Bull), Som Plus, Sponsor, Puriku, as well as “Warrior”, its latest product geared for the Vietnamese market. The opening of the office in Vietnam is part of the group’s five-year plan announced in 2017 to triple its total sales to over US$3 billion annually, said Yoovidhya.
March 2019, American Universal Alloy Corporation and Alton International Enterprises were approved to build high technology parks
The central city of Da Nang said it licensed two projects of American giants – leading global manufacturer of aircraft components American Universal Alloy Corporation and electronics manufacturer Alton International Enterprises – to set up their production bases at its hi-tech parks while some others also from the US, such as Key Tronic EMS, are also proposing projects in the park.
Early 2019, Ikea planned to invest US$450 million
Hanoi City also expected to receive Ikea as the Swedish furniture giant plans to invest US$450 million in a retail centre and warehouse system in the capital.
2019 - Lenovo Group proposed a plan building a computer factory
In the northern province of Bac Giang, Lenovo Group from China also expressed a desire to develop a computer component factory during a recent meeting with local authorities. The group said it would need 20-30ha of land for the factory’s development and its products would be exported to the US, the provincial portal reports.
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Big companies like General Electric, Microsoft, Intel, etc., are running internship programs and internal “universities” to train their people, but small companies often reject these recruitment and training programs as too costly. But is it really? One really good employee who can take initiatives and work independently is worth training another 9 interns that go on to do other things. It’s a long-term commitment but it is worth it.
For years Enspyre struggled to find marketing and sales people. We interviewed, hired, trained and fired. Over and over again. It was costly, time consuming and extremely annoying.
In the fall of 2008 I was negotiating a cooperation deal between the ECCT SME Centre and Private Chinese Cultural University. From ECCT, what we had in mind was access to PCCU’s great locations for our seminars and workshops. PCCU have their main campus up on YangMing Mountain, but they also have three great modern buildings in downtown Taipei where Enspyre had been renting events facilities for years.
Now we were discussing with PCCU that they would give us free rooms in exchange for access to ECCT’s international network. We discussed many aspects of cooperation and the topic of internships came up. It is my feeling that many foreign entrepreneurs, even the ones who are doing well, are a bit removed from many aspects of Taiwanese society. One of these areas is internship and other more informal ways of recruiting. So I was very excited to have this discussion. PCCU has something like 25,000 students, a combination of regular students ages 18-23 and also older students who work during the day and study in the evenings.
We figured that if our members could have the university’s help to actively recruit suitable students for their company, we could add a whole new facet to our recruitment process.
The cooperation agreement between ECCT and PCCU was signed at a ceremony at PCCU’s JianGuo campus in February 2009. Since the economy was bad, employment down and everything international has a nice ring to it, the media was all over it. I was interviewed by 5-6 TV stations and many other media and felt like a real rock star.
A month or two later Enspyre started our first intern group with five people starting a three month program. Since Enspyre’s office often is completely full with people answering and making thousands of phone calls, I decided to have the group come in on Saturdays only and then I gave them work to be done at home.
Three years later, we have had over 120 interns coming from 11 different universities. Of them, maybe 60 finished the program and we have hired 20 great students to work part-time at Enspyre or one of our partner companies. As the crowning achievement one of the graduating part-timers has been hired as a full-time employee. The first of many, hopefully.
You can check out http://www.interns.com.tw for more info about Enspyre’s intern program. That website is built and maintained by interns and at least as of this writing, anyone searching Yahoo! for “internship” in Chinese will find us right at the top of the list. Not bad for a bunch of students, eh?
How to set up your own internship program:
AIESEC is an international, student-run organization for students. It has a presence in over 110 countries, and has a membership numbering tens of thousands. AIESEC is a great way to find interns from all around the world, check their International site or Taiwan site.
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A Brief Look At Some Key Points
You need to get permission to invest in Taiwan, permission to be in Taiwan, permission to work in your business, and then, of course, you will need to obtain an Alien Resident Certificate, or ARC. The types of business entity which are legal in Taiwan may be different from your own country, and you should be wary of superficial similarities. You also need to apply for a business license. It’s also important that you understand the concept of the ‘Fuzeren,’ the person who is legally responsible for the company.
Banking, terms and methods of payment, and access to finance can all be challenging at first. Instead of a signature, you will need a chop/stamp with your Chinese name on it. The Taiwanese ‘fapiao,’ a combined invoice and receipt, is a new concept to westerners and impacts all your business processes. Taiwan operates a sales tax system, which we refer to as VAT (Value Added Tax) in this book. And then there are the inevitable differences in the way you are expected to manage your relationships with customers, staff and suppliers.
Being Foreign Is Not Enough
Some foreigners come to Taiwan and think that just because they are importing something foreign it will automatically be special and attractive to the Taiwan market. Or they might think that there are big numbers of Taiwanese people just waiting to learn whatever language they can teach.
I am sorry to say it is not that easy.
You have to do your research to identify the size of your market in Taiwan. Research might cost you some money but it will be worth it in the end.
While Taiwan is very open to foreign investment, it is similar to many other countries in that there are restrictions relating to sensitive industries.
Foreigners are generally prohibited from investing in industries involving national security, public order, national health, agriculture and animal husbandry, bus services, postal services, and radio broadcasting/television industry.
You should also obtain official approval from the relevant authorities before becoming involved in electricity and gas supply, medical goods manufacture, or financial intermediation.
Education is also a sensitive industry where there are lots of specific rules. Since this is an industry that many foreigners would like to get into, we plan to cover this information more completely in a separate publication in the future.
These restrictions still leave foreigners with lots of opportunities to make money in Taiwan. And one of the things I have found in Taiwan’s favor is that when I visit a government office, I am usually greeted by smiling people who are very friendly and helpful. Their English might not be great but they try really hard to communicate and help out as far as the rules allow them. And there are no bribes expected or asked for. Some friends of mine who come from countries where bribes are part of life have expressed their appreciation of this.
Starting a business here might not be quite as fast and easy as for example in the UK or US, it will likely take you much more time, but it is still fairly straight-forward. If you get the paperwork in order and have a friendly smile, the process is quite painless.
Six Pieces Of Advice For Startups
Self-taught entrepreneur Cédric Alviani has been living and working in Asia for almost 15 years. In 2005, he created Infine Art & Culture Exchange together with a local partner. It specializes in international art and design projects operated for local government organizations or real estate companies. Cédric is also the former CEO of business organization France Taiwan Chamber of Commerce and Industry (CCIFT). Cédric offers the following advice:
When I started my company, I had no experience in business and therefore made all the possible mistakes, and thus company growth was slow and painful. After years of effort, it turned out rather well but I have seen many entrepreneurs being less lucky. Some companies failed because the business model just wasn’t viable; some of them got amazing sales but ran out of cash; in some cases the partners couldn’t get along or the owner just got tired of working for nothing for years… I gained experience through a very painful process that involves a great deal of effort, time, money, and discouragement… I hope this advice can help future entrepreneurs.
Bad Reasons To Start A Business
I hear too many bad reasons why people want to start a business: “to get a resident visa”, “because I can’t find a job”, “because I want to be my own boss”… Starting a business is a serious commitment that implies financial, legal and sometimes even penal liability. If you want a visa, it’s cheaper to register as a Chinese language student. If you can’t find a job, maybe you are not qualified enough, don’t have enough connections, or are not patient enough to consider starting your own business.
If you are tired of being an employee, remember that your new business will soon put you under a lot of pressure and may jeopardize your family or private life. Many first-time entrepreneurs become slaves to their businesses, accepting risks and responsibilities that far outweigh the money they make. And think about the timeline: a new business will take on average 3 to 5 years to become stable, so you can’t just “give it a try” for six months or one year.
If You Want To Get Rich, Be Prepared To Lose Money
So, if you are still reading this, what are the good reasons to start a business? Basically, you have identified a real and solid business opportunity, which is confirmed by in-depth talks with professionals in the sector. Your skills and past experience, knowledge of the industry or the local market allow you to turn this opportunity into reality. If you don’t know Taiwan and don’t know the industry, you are likely to fail. The local competition is smart and has an advantage. Last, you must have enough money to invest and even though you expect to get rich in the long run, you are ready to risk losing it.
A Business Model Is Not A Gadget
A business model is not a gadget, it’s the basic operating system for your business. It identifies what you do and how you make money from it. Your business model will determine whether your business works or not in the long term. It must be as detailed as possible. Get advice from professionals.
The business must be scalable (you work once and the result of your works keep on making money) and I think it is important that you set up your business so you do not need to work full time as an employee in your own business. Your business must be able to grow and in the end become independent. Some businesses need more and more cash as you get more and more clients. If so, make sure you are prepared.
Some businesses depend on conditions you can’t control. Implementing a good business model is hard enough, having to fix a bad business model while operating your company is much harder.
The Two Faces Of Partnership
Make sure you know what you are doing when getting into cooperation with other persons. Starting a business together with a partner (spouse, local friend, foreign professional) feels reassuring, especially when you don’t know much about the country or are not familiar with the language. But working with them is a totally different relationship and may reveal hidden aspects of their personality. There can be many complications: decisions need consensus, people learn at different paces, have different purposes in life, get advice from different sources, etc.
In my experience, trust and friendship are well protected by contracts. Partners must have clearly-defined roles and each of them should bring added value that is agreed and identified, with ideally the same level of commitment. You also need to plan the closing or the end of cooperation if a relationship turns bad. A business relationship is healthier when everything is written down in advance.
Choose The Legal Entity Carefully
The choice and creation of the legal entity isn’t that important. It is used to sign contracts, recruit staff, make invoices, and collect money. It is merely a tool serving your business plan, not more or not less important than your computer or your telephone, but as for any tool it must be chosen after careful consideration of your needs. Don’t do it too early. Get advice, get organized, plan the growth, and come up with your financials and figures. Then set up your business according to the law and make sure that you know personally what options you have. Many SMEs in Taiwan make arrangements without knowing what is legal or not.
Follow The Law
I highly recommend going by the law at every step of your business development, so you don’t get any nasty surprises. For example, many entrepreneurs focus on tricks in order to pay less taxes… Honestly, in Taiwan taxes are more than reasonable and, as an entrepreneur, I would prefer to focus on running my business and pay a bit more in taxes from my much-increased profits.
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I came to Taiwan for my own personal reasons, but if you are not here already, why is Taiwan an attractive place to start a business?
Hi-tech, Wealthy, Democratic Environment
Taiwan is a modern first-world country with excellent infrastructure and a good quality of life. Everyone in Taiwan has access to good healthcare, corruption is rare, and there is strong commitment to human rights and freedom of speech.
For decades, Taiwan has been one of the ‘Asian Tigers’ boasting a strong manufacturing industry with expertise in electronics and technology. Today, there is an increasing focus on software and creative industries.
If you need to build a hardware product, Taiwan is a wonderful place because you can go out and find high quality suppliers and partners offering a whole buffet of components and systems at various levels of completeness.
Something like 25% of China’s exports are actually sales by Taiwanese companies operating subsidiaries in China. Many companies also have factories in other countries in the region, so sourcing in Taiwan gives you a diversified supply chain.
Gateway To China
Taiwan is the perfect stepping stone if you want to do business with China. It is the most similar market, with strong cultural links, and is a great place to test new products - or your own cross-cultural business skills - before heading across the Taiwan Strait.
The contacts that you make in Taiwan will be invaluable when you enter the China market, as Taiwanese businesses with connections on the mainland will be able to help you in this very difficult environment.
Fantastic Hardware Eco-system In Taiwan
I am involved in a new start-up that is developing a proprietary tablet PC that will run our own software for a specific vertical market.
We have easily found suppliers of LCD screens, motherboards, and all the other components and a company to assemble it all. I am not saying that it would be impossible to do this in other countries, but I think it is much easier in Taiwan.
Favorable Legal Environment
Getting permission to invest in Taiwan is a process that takes 4-8 weeks, but it is very straight forward with few surprises.
Unlike some other countries like Thailand, as a foreigner in Taiwan you are free to own your own business 100%, and generally have the same rights as any local person. If you need to go to court for any reason, you can be reasonably confident of a fair hearing without anyone asking for bribes.
Taiwan is at the heart of the Asia-Pacific region, and has excellent transportation links to everywhere. The average flying time from Taiwan to the seven major cities in the Western Pacific is merely 2 hours and 55 minutes.
The average sailing time from Taiwan’s largest international harbor in Kaohsiung to the 5 major Asia-Pacific harbors is only 53 hours.
For years there were no direct flights between Taiwan and China due to the political situation. To fly to China, you had to go via Hong Kong, which cost more money and time. From 2008, it became possible to fly directly from Taipei to Beijing or Shanghai. There are now many flights daily and immigration formalities are kept to a minimum.
According to the World Economic Forum’s “2011 World Competitiveness Report” Taiwan ranks number six globally for R&D talent. According to the National Science Council, Taiwan has 10.6 researchers per one thousand employees. This is behind only Finland, equal to Japan, and slightly higher than the US1.
Looking at the numbers, Taiwan also has an advantage from a highly educated workforce. 43.7% of the workforce has a college degree, university or higher education background. Taiwan has a workforce of about 10 million people, accounting for about 48.07% of the total population. Every year, 320,000 students graduate from college, university or higher education.
Internet usage is very high in Taiwan. Seventy percent of all households have internet access, 90% of all homes in Taiwan own PCs, and more than 65% of homes have broadband.
Add to this that more and more people are going online with their smart phones using fast and reliable mobile internet. Coverage is very good. There are few places where you can’t use your phone to get online.
Why We Chose Taiwan
Revital Golan, the founder of Anemone Ventures, explains why Taiwan is a great place to do business:
“Taiwan is diverse and open and it is a great manufacturing hub. Logistically, it is also very well placed. USA and EU markets are stagnating. Asia is growing. Taiwan is a similar consumer market to Mainland China and offers a great place to ‘test’ a product/service prior to entering China. Hong Kong and Singapore are too small, and are not consumer markets. Korea and Japan are too different from China.
Revital adds that Taiwan’s labor laws are very favorable to SMEs. She also has an office in South Korea, where she feels the laws are too favorable to workers.
Park Gi Tae, a South Korean businessman living in Taiwan, agrees that Taiwan is a great place to do business. There is economic freedom, the price and quality of manufactured products are reasonable, and Taiwan is geographically well placed, being near to China and Korea.
Taiwanese are also very pragmatic when it comes to business. Gi Tae often approaches manufacturers for prices and samples and finds them very receptive to small businesses. This is in contrast to Korea where manufacturers may look down upon small businesses. It is primarily for this reason that Gi Tae has decided to stay in Taiwan and develop his business.
In Gi Tae’s opinion, Taiwan has another advantage over Korea: the workforce. There are plenty of well-educated and productive people in both countries, but in Korea, the salary for an average graduate is a lot higher - around NT$60,000 vs. NT$25,000 in Taiwan.