Business Startup Procedures Still Need Further Reform

11:09:32 AM | 4/29/2022

Many studies showed that heavy burdens of administrative procedures on businesses are one of the excuses for a stagnant economy, a weak business community, poor investment appeal and high corruption. That is why many countries, including Vietnam, are trying to reform their business registration procedures to encourage economic expansion, investment attraction and poverty alleviation.

Reducing cumbersome procedures

According to the report "Quicker business procedures in Vietnam: Reality and solutions”, procedures to start a business (based on the definition “Starting a business in the Doing Business 2020 Report) in Vietnam are today much simpler and more convenient than those in previous legal regulations (Law on Enterprises 2014 and 2005). According to surveys by the Vietnam Chamber of Commerce and Industry (VCCI), for many years in a row, the business registration procedure is always rated to have the fastest and steadiest changes by enterprises in the provinces, have the best connection to the information system, and apply the earliest interagency mechanism among other fields of procedures. And above all, behind these advances is a strong shift in thinking toward service for businesses. In addition, significant progress has been made, including the Law on Enterprises 2020, Decree 122/2020-ND/CP, Decree 22/2020-ND/CP on amendments to Decree 139/2016-ND/CP, or Decree 01 2021-ND/CP, expected to create new changes to speed up business registration procedures.

As of July 2021, Vietnam's latest business startup procedures, after being amended, have some fundamental changes. Particularly, more than half of procedures are reduced (abolishing procedures for making seals and notifying seal samples, updating business registration information with the Business Registration Office, license tax, and making reports by employers. Tax code is also assigned to the code of social insurance for employers which accordingly only need to carry out social insurance procedures for their employees). Besides, the business startup procedure also needs less time for the completion of invoice issuance. Currently, companies are urged and encouraged to use e-invoices. New companies, if IT conditions are met, are required to register to use e-invoices. Therefore, the procedure for approving the VAT invoice form (provided by taxation authorities) or notice of tax invoicing takes only two days instead of 5 to 10 days as before.

However, there are many obstacles in carrying out business startup procedures. Most companies are still hiring others to perform business registration services rather than do this on their own. Hiring external services helps them avoid hassles in studying procedures, contacting authorities and reducing repeated corrections. This shows that carrying out business startup procedures in practice in Vietnam is still inconvenient and there are many unclear points that easily lead to mistakes. Despite having no official statistics on the percentage of enterprises hiring third-party services to perform business startup procedures, according to interviews with providers of business registration and support services, most startups hire law firms or providers of business registration services to do this process for them.

In addition, business registration procedures are time-consuming in practice. According to current regulations, it takes three days for experts to answer document validity or ask for correction and supplementation. In case of correction and supplementation, applicants may need three more days to have valid documents. Besides, in some places, it is time-consuming to print, sign, stamp, and deliver the Business Registration Certificate. This time may be longer than licensing time.

Although the Law on Enterprises of 2014 abolishes industry declaration on the Business Registration Certificate, the Business Registration Office still requires companies to declare industry and has a procedure for notification of changing industry. Representatives of some consulting firms said that many employers find it difficult to declare the right business lines.

Notably, there are still many shortcomings in information technology applications. There are so many small platforms while information on online business registration gateways is not integrated.

Consistent and unified reform needed

To speed up business startup procedures in Vietnam, according to the report, the room for reforming current legal regulations, like cutting unnecessary procedures, is quite narrow. Therefore, in order to improve this area, it is necessary to ensure unity and consistency in the legal system. Tax and customs fields need to be reformed first.

Particularly, it is necessary to build a platform to be the only receiver of business registration information. Indeed, reforms are moving in this direction. However, businesses still have to use many different platforms to carry out some post-establishment procedures like those related to tax authorities and insurance for employees. For authorities, the management of many different platforms, administered by different agencies, makes it difficult to synchronize information. For businesses, it takes time to learn how to use, declare the same type of information multiple times, and interact with different authorities. Therefore, specialized agencies need to study ways to integrate current individual platforms, and establish a single receiver of business registration information, not only business establishment registration information but also procedures related to tax and insurance to enable enterprises to go into operation quickly after being licensed.

Besides, it is necessary to improve the quality of online business registration support services and rearrange the interface for easy access, by type of enterprise and by procedure. Designing the platform should be aimed at people who have never implemented business registration procedures before, because they are business owners, not lawyers or consultants. The information that users need is simple to understand, and specific and timely.

The population database of the Ministry of Public Security can be connected to the business registration database, allowing automatic authentication of personal information. Users do not need to scan personal documents and upload them to the system as it is now.

Formulating a set of sample documents for enterprise registration and tax declaration

Mr. Nguyen Van Cuong, Director of Cuong & Associates Law Firm

Current regulations are very good for starting a business, from general procedures to joint coordination of business registration offices and tax authorities. However, current regulations are still general, lacking detailed descriptions, making it difficult for ordinary people to clearly visualize the process of starting and operating a business. Therefore, if the startup is not a lawyer or a person with professional advice, it will be difficult for them.

The Ministry of Planning and Investment should select a set of sample documents for enterprise registration; a set of sample documents for organizational structure, code of conduct for all types of enterprises, with emphasis on the type of limited liability company with two or more members; and should also update current actual situations, enable them to choose whether to receive results in person or by post to reduce the time to carry out business registration procedures.

Tax authorities should select and formulate a set of sample documents for tax registration, declaration and payment and clearly explain accounting and statistical figures to enable enterprises to look up and use them easily. Social insurance agencies should create many forms and templates to explain the obligations and benefits of employers and employees when they hold health insurance and social insurance policies, enabling different users to look up and use them easily.

Reforming industry code application in business registration

Mr. Hoang Van Son, VNC Law Office

There is a need to reform industry code applications, which takes the longest time in business registration. In addition to conditional industries that need to be reviewed, applicants must find a business line that matches their industry. Article 23, Clause 3 of the Law on Enterprises 2020 stipulates that when registering a business, the Business Registration Certificate must contain a business activity/industry.

Reforming this content is very important and reduces the effort of both the licensing authority and the business owner. It can be done in the following way: If registering a business, the enterprise does not register conditional business activity/industry, then it can write down its business activity/industry without having to look up corresponding industry codes. This will also reduce returned applications as a result, making it easier for people to check records.

More detailed regulations needed to explain capital contribution

Ms. Phan Thi Huong Giang, Lecturer at Economic Law Faculty - University of Economics and Law

According to Vietnamese law, it is required to list assets contributed as capital, both tangible and intangible assets. However, it is necessary to have more detailed regulations to clearly explain capital contribution by knowledge or labor as long as it can be valued by money and mutually agreed upon by the parties. For example, when one party pledges to provide capital, the other party will contribute labor to work for the company. Obviously, labor can also be valued by money if that person has the vision and competence to run a company and make a profit later. Specifically, asset contributions may come from money, gold, land-use rights and intellectual property rights. Knowledge capital contribution may come from innovations, self-created products and business ideas. Labor capital contribution occurs when one party uses labor to operate the company.

At the same time, to avoid members and shareholders of the enterprise overvaluing their contributions, there is a need for a control mechanism from the business registration agency because contribution valuation affects not only the enterprise itself but also other entities although the business responsible for assets contributed as capital, use of assets as contributed capital and obligations and liabilities arising from assets contributed as capital.

An integrated system of business management agencies needed

Mr. Pham Tran Hung Binh, Lawyer at KRISMA Co., Ltd

We proposed that the Ministry of Planning and Investment issue a list of general information on business lines. The officially announced list of business lines provides enterprises with a more general view of their business lines, including VSIC industry code and corresponding CPC industry code; business lines/industries allowed to foreign investors in Vietnam; and business conditions linked to chosen business lines/industries (if any). At that time, enterprises only need to access this list to capture necessary information without having to study and explore many different legal documents.

In Singapore, authorities aggregate business governing bodies into the same website and only a single access to the ACRA system can search for all enterprise information. Meanwhile, it is separated in Vietnam, each governing body has its own management website, leading to the fact that enterprises do not fully understand legal regulations, have confused and incomplete understanding and omit a lot of information. For example, in case of changing the business address to another district, in addition to notifying the Department of Planning and Investment, the enterprise must also notify tax authorities.

Therefore, it is necessary to have an integrated system of enterprise management agencies, including the Department of Planning and Investment, the Department of Taxation, the Department of Intellectual Property, the Department of Labor, Invalids and Social Affairs, to make enterprise management more efficient and easier.

By Lan Anh, Vietnam Business Forum