Making startups register business in Vietnam discussed at TECHFEST 2020

Prime Minister Nguyen Xuan Phuc presented at TECHFEST 2020

“Two years ago, we started the first capital mobilisation programme that cost us a lot of time to negotiate with overseas and local investment funds. Most of them required us to establish business outside of Vietnam,” said Phan Ba Manh, founder of An Vui – a startup providing solutions for transportation in a conversation with Prime Minister Nguyen Xuan Phuc at TECHFEST 2020 last weekend.

Nguyen Duc Trung, member of Vinacapital Venture also said that the fund is using overseas capital to invest in innovative startups in Vietnam. The main reason behind this is the interruption stemming from Decree No.38/2018/ND-CP stipulating the requirements for investment in small- and medium-sized enterprises (SMEs) and startups whose scale is under 30 staff members. Specifically, investors are not permitted to invest more than 50 per cent of the company’s charter capital.

TECHFEST 2020 took place in November 26-29

Trung asked the prime minister, “What will the government do to ease this impasse?"

Startups setting up headquarters abroad

Trung's queries at TECHFEST 2020 are commonly shared in Vietnam. Lozi, a social network focusing on food vendors and restaurants, used to successfully mobilise $5 million investment from Singapore-based Golden Gate Ventures and Japan-based DesignOne Japan. However, the startup is headquartered in Singapore.

Antoree.vn, the first English learning platform in Vietnam is based in Singapore. Another startup named BabyMe providing healthcare knowledge for mums and babies is in the same situation.

Trinh Tuan, founder of BabyMe, said that most local startups are opening companies in Singapore. “We have to be located outside to smooth out investment procedures from foreign funds.”

On paper, BabyMe’s branch in Vietnam is working as an outsourcing partner for the company in Singapore aiming to meet the demand of its investors. “This is a kind of brain drain in the community of startups,” Tuan added.

There are many reasons behind this situation, including easier access to investment, simpler investment procedures, and plenty of incentives for startups in Singapore. Notwithstanding, most startups opting to incorporate themselves outside Vietnam is losing the country sizeable sums of money in the future, and reflects the local investment climate has not been favourable for local startups.

Waiting for solutions in the last days of 2020

At the TECHFEST 2020 event, Deputy Minister of Science and Technology Tran Van Tung said that since Decree 38 was put into operation, there are a handful of shortcomings. “And what you (Trung from VinaCapital Fund) mentioned is also a thing we are concerned about and finding solutions for.”

“We are now in collaboration with the Ministry of Planning and Investment to adjust regulations and will publish the changes soon,” said Tung.

The prime minister has also required relevant ministries to finish the adjustments within this year.

The problem is nothing new to the government, and over the years many incentives for startups as well as high-technology companies have been issued. Last month, Decree No.94/2020/ND-CP outlining policies and incentives for the National Innovation Center (NIC) has officially come into force.

Under the regulation, businesses, including startups under the NIC will reap benefits and access the most favourable investment conditions like having to deal with fewer administrative procedures and having 100 per cent land leasing cost for 50 years in high-tech areas. Moreover, they will be able to enjoy a preferential tax rate of 10 per cent over the first 30 years, instead of the previous 20 per cent.