SMALL AND MEDIUM ENTERPRISES (SMEs)

08 GROUNDS FOR DOING BUSINESS IN VIETNAM

Managing and operating small and medium enterprises (SMEs) always present many challenges for managers when facing a series of issues from business, human resources, internal management,… 08 following basic grounds will help business founders prevent many risks, operate businesses methodically, and gain competitive advantages:

LEGAL DOSSIERS OF ENTERPRISE

This is a document establishing legal status including the formation process, asset origin, business registration procedures, tax registration, lease contracts, property rights certificates, licenses and certificates,… Due to their importance, the documents need to be systematically collected, originals stored, copies saved on computers to serve exploitation and use,…

The list of basic dossiers of the legal dossier in business includes:

1. Business licenses (IRC, ERC, decisions, policies, documents,…)
2. Property rights (Land use rights, intellectual property rights, machinery and equipment,…)
3. Shareholder documents, ownership relations (Enterprise establishment profile, charter, capital contribution,…)
4. Other compliance documents (Tax registration, accounting method registration, depreciation, certificates, practicing certificate,… for conditional fields)

The legal dossiers of a business regarding compliance procedures with many state agencies and relating to the rights and obligations of business owners, are special assets in business that can gain business value and need to be managed in a specific way.

MANAGING EMPLOYMENT RELATIONS

Relationship between employees and employers:

• Internal regulation, wage regulation, contract, collective labor agreement, trade union.
• Payroll, payslip.
• Implement the contents and changes regarding the contract. Employment relation termination.

Relationship between employers and the Insurance Department:

• Insurance registration.
• Salary structure for insurance.
• Insurance cost management.

Relationship between employers and Tax Department:

• Tax calculation.
• Tax declaration.
• Tax finalization (Personal Income Tax, Corporate Income Tax).

Comprehensive labor relation management for foreigners in Vietnam:

• Work permit, Temporary residence card.
• Declare, finalize, and complete Personal Income Tax obligations.
• Calculate, declare, pay, and withdraw social insurance when leaving Vietnam.

TAX MANAGEMENT AND ACCOUNTING 

Tax planning is the optimization of the amount of tax payable within the framework of the law. Optimization doesn’t mean minimizing or not paying taxes.

1. Analyze industry sectors, tax exemptions or incentives.
2. Analyze business performances based on investment activities, revenue, and actual costs.
3. Analyze the structure of revenue, expenses, and the legality of the invoice and voucher system.
4. Analyze corporate finances, cash flow, cost of capital…
5. Determine tax expenses according to each type of tax and the relationship between taxes.
6. Make a short and long-term tax payment plan.

Type of common tax that arises with businesses:

1. VALUE-ADDED TAX: Value-added tax is a tax imposed on the added value of goods or services arising in the process from production, circulation to consumption. This is an indirect tax levied on the final consumer, although the subjects paying it to the collection agency are companies.
2. CORPORATE INCOME TAX: Corporate income tax is a direct tax, levied on companies/economic organizations with taxable income from business activities, production, and transportation of goods, services and other income of the enterprise adhere to regulations.
3. FOREIGN CONTRACTOR TAX: A foreign contractor tax is a tax levied on foreign organizations or individuals that do not have a permanent establishment in Vietnam but generate income in Vietnam on the basis of providing goods and services.
4. CAPITAL TRANSFER TAX: Capital transfer tax is a type of tax levied on income derived from the transfer of all or part of the invested capital into a business, including cases of selling a business, transferring securities, transferring capital contribution rights, and other forms of capital transfer as regulated by the law. 
5. CAPITAL GAINS TAXES: Capital gains tax is a tax calculated on Income from Interest received from lending to organizations, or businesses under loan contracts or loan agreements. Dividends received from contributing capital to purchase shares. Income received from capital contribution to a limited liability company…
6. PERSONAL INCOME TAX: Personal income tax is a direct tax levied on income earned by individuals and is becoming an increasingly important part of budget revenues in Vietnam.

CORPORATE FINANCE – MONETARY AND BANKING

Cash flow in an enterprise is like “blood flow” in a body. There are 04 sources that form the cash flow in businesses including:

2. From sales revenue.
3. Trade credit.

Managing cash flow professionally will help create business advantages, prevent and control risks.An optimal capital structure will help increase the rate of return on equity by decreasing interest costs, benefiting from tax shields, and reducing business risks… Cash flow management is also a critical foundation for building a business management system, compliance procedures with state agencies.

MANAGEMENT OF SELLING AND PURCHASING

Issuing commercial policies and applying the contract form system must simultaneously meet the following goals:

1. Comply with laws on import, export and trade.
2. Comply and optimize tax regulations.
3. Establish legal relationships and protect the company’s interests with suppliers.
4. Establish legal relationships and protect the company’s interests with clients.
5. Guide and bind employees’ responsibilities during the implementation process.
6. Ability to improve and update state regulations and internal company policies.

Proactively provide information to managers, state agencies, and participate in legal procedures.

Aligned with commercial credit policies and corporate financial management, capital utilization costs.

Operate purchasing and sales policies through tailor-made processes for businesses:

1. Purchasing process.
2. Selling process.
3. Criteria and process for due diligence and review suppliers
4. Criteria and process for due diligence and review clients (KYC)
5. The process of executing purchase transactions. 
6. The process of executing sales procedures. 
7. Management and implementation of commercial contracts process.
8. Management and storage of commercial records. 
9. Procurement and sales planning, budget forecasting. 
10. Reporting regime 
11. Internal audit of compliance with procedures and forms in buying activities.

Set up the operating form system:

1. Principle contract system.
2. The appendix system is the terms and conditions for preventing risks and protecting the company’s benefits.
3. System of dossiers before signing contracts, and buying goods.
4. Contract implementation dossier system.
5. Suppliers and clients’ due diligence forms.

BUSINESS RECORDS MANAGEMENT

According to regulations, the Director is responsible for compliance procedures in business, preparation and transparent performance of financial statements and is responsible for internal control that the Director determines to be necessary to ensure there are no errors or violations.

1. Compliance functions follow requests from tax authorities, insurance, and customs departments…
2. The function of proving and protecting the rights and interests of businesses against disputes with partners, clients, and employees.
3. The function of participating in trade defense lawsuits under international business law when Vietnam has been participating in many FTAs.
4. The function of inheriting knowledge through generations of employees, ensuring the transfer between generations of employees.
5. Supporting internal audit – review procedures, thereby identifying and managing risks. Especially common risks from tax and social insurance arrears due to non-compliance with regulations…
6. Consistent with organizational structure, operational processes, governance requirements, law compliance, information security, and prevention of abuse and conflicts of interest.
7. The function of providing management reports to owners: Providing detailed information about revenue, cost of goods, selling costs, and business management costs. Provide detailed information about inventory, receivables, payables, cash flow – budget estimates, provide other financial information to shareholders, banks, and other partners.

BUSINESS INFORMATION REPORT:

BIR (Business Information Reports)

Providing credit ratings for businesses through a reputation and quality valuation system that helps businesses manage risks when doing business with partners and clients

• Financial statement: provide the financial situation from the last 1-5 years of the business
• Shareholder and owner information: determine who is the true owner of the business. Is the business owned by a corporation, company or individual? Is the capital source strong and stable enough?
• Number of employees information: determine scale of the company, whether it is large, medium or small company.
• Board of Director profiles: determine who the business is being “driven” by and what experience they have in that field.
• Corporate Genealogy: understand the overview of the corporate’s genealogy: who is the parent company? Subsidiaries? branch company? Associated Company?

The financial strength ratio, and risk ratio: reflect the size of the business, the risk level scale helps evaluate the business’s situation as high risk or low risk. Financial ratios combine a company’s size and balance sheet information to create an overall rating for a business’s credit reputation, helping viewers quickly evaluate a company’s size and its credit reputation. Comprehend all the details in a business credit report by providing a general assessment of the credit reputation of the company.

DDR (Due Diligence Report)

Due Diligence reports that support the execution of M&A transactions are more detailed than business information reports. The basic components of the common due diligence and assessments are as follows:

• Financial Due Diligence includes an assessment of income, assets, liabilities, cash flows, loans, credit history, as well as internal assurance systems. The review is based on the following reports: Accounting policies, revenue, expenses, profit, cash flow, net assets, tax, internal policies, financial plans.
• Commercial Due Diligence (CDD) includes a review of goods and services quality, sales policies, business history, clients, competitors, industry sectors, and macro policies, prospects and risks. The assessment is usually based on the SWOT analysis model Strengths – Weaknesses – Opportunities – Threats.
• Legal Due Diligence (LDD) includes a review of establishment and operation records, capital and owners, managers and organizational structure as well as authority, labor relations management and policies, contracts in effect, tax compliance and accounting reports, property portfolio, use and disposition rights, bank relation and credit history, system conditional business license, list of penalties, related disputes and litigations.
• Tax Due diligence includes a review of relevant taxes, compliance papers, tax status, tax planning, incentives, and tax risks. Including the legality of the invoices to be issued.
• IT Due Diligence including review of accounting software, enterprise resource planning (ERP), internal servers, software and network systems.
• Intellectual Property Due Diligence includes a review of property titles on copyrights, patents, industrial designs, and trade secrets.

As an experienced consultant in Vietnam since 2006, VIVA Business Consulting will share and provide optimal solutions for registering a global business identification number (DUNS), preparing basic business information reports, in-depth reports to help you strengthen control and execution of business transactions, proactively seek and seize open opportunities in international trade.

DUE DILIGENCE – VALUATION –  M&A:

Many family-owned enterprises are facing major challenges in succession planning due to differences in personalities and mindsets between generations. Without a proper transition plan, emergency events can weaken the business. Our program is to consult and work with business owners to directly deploy a transfer platform including the following main contents:

1. Business legal dossiers and investment capital
2. Inventory and determine owner equity actual value
3. Prepare business valuation documents including goodwill (intangible value)
4. Digitize management through technology platforms – comprehensive management software
5. Create a corporate credit profile and register for the DUNS.
6. Prepare plans to raise capital, transfer capital to local and foreign investors and internal management systems.
7. Generational transfer plan, or sale of the business.

Having been a part of the Vietnamese business environment since the 2000s, VIVA has distilled and integrated the experiences and lessons learned from thousands of local and international businesses in a wide range of industries. You can join VIVA to deploy a package or, based on each priority topic, in the form of consulting or building and transferring to jointly create the foundations for risk management and sustainable development for many years ahead.

We sincerely appreciate your time spent with VIVA. With our expertise and extensive practical experience, we can offer helpful tools and solutions. As we have successfully worked with thousands of other businesses since 2006, we hope to get the opportunity to assist you as well.

Read more:

• Company in Vietnam – Using local consulting services for local business
• Doing business in Vietnam – Manage the mandatory compliance procedures
• Internal audit – The required business records and procedures
• Doing business in Vietnam – Statutory audit of financial statements
• Payroll services
• Re-purchase or transfer of stakes, increasing or decreasing charter capital – multi-member limited liability companies
• Doing business in Vietnam – Register a company
• Doing business in Vietnam – Enterprise establishment procedures
• FDI enterprise in Vietnam – The local required compliance procedures – One-stop solution
• Foreigners in Viet Nam – One Stop Solution for Local Required Compliance Procedures