New law supports start-ups and SMEs

28 February 2018
Asian-Mena Counsel

On 12 June 2017 the National Assembly of Vietnam issued Law No. 04/2017/QH14 on supporting small and medium-sized enterprises (the “SME Support Law”) which took effect on 1 January 2018.

Criteria for identification of a small and medium-sized enterprise (the “SME”)

According to the SME Support Law, the SME includes micro-enterprises, small enterprises and medium-sized enterprises with an annual average number of employees participating in social insurance not exceeding two hundred (200), and which satisfy one of the following criteria:

(i) Total capital is not greater than VND100 billion; or

(ii) Total turnover of the immediately preceding year does not exceed VND300 billion.

General supports for SMEs

In each period, the Government will decide the policies on supporting financial institutions to increase the outstanding loan balance to the SME. In addition, the SME shall be granted credit guarantee from the Credit Guarantee Fund which is a non-budget State financial fund and is established by provincial People’s Committees. This guarantee for the SME shall be based on the security assets or the feasible business plan or credit ratings of the SME.

Furthermore, the SME shall be granted a preferential tax rate for a definite duration which is lower than the normal tax rate applicable to enterprises. With respect to legal assistance, the ministries shall establish the network supplying the SME consultancy services and the fee shall be exempted or reduced for the SME.

Beside the general supports discussed above, the SME Support Law also provides for other supports to the SME on accounting regimes; ground spaces for production; technology, incubators, technical facilities and co-working spaces; information access; etc.

Support for the SMEs in conversion from business households

The SME which converts from a business household shall be supported for free consultancy and direction for establishment of enterprises. The SME shall further be exempted from enterprise registration fees and other fees. For the purpose of receiving such support, the SME converted from business household must satisfy the following conditions:

(i) The business household is legally registered and operated before the conversion; and
(ii) The household business has been operating continuously for at least one (01) year by the day on which the first Enterprise Registration Certificate (“ERC”) is issued.

Support for the Start-up SMEs

The Start-up SME which has operated for less than five (05) years as from the date of issuance of its first ERC, and has not made any public offer in the case of joint stock companies shall be supported by the Government in terms of technology (i.e. technology application and transfer, use of equipment at a technical facility; co-working space participation support; etc.), training (i.e. in-depth practical training on product construction and development; investment attraction; etc.) and other supports.

The SME Support Law provides the legal framework for investment in Start-up SMEs. The investor in a Start-up SME includes Venture Capital Funds and domestic and foreign organizations and individuals. Such investors shall be exempted from corporate income tax for a limited period of time. However, the investment in a Start-up SME is limited to not more than fifty per cent (50%) of charter capital.

Supporting the SMEs in participating in industry clusters and value chains

Under the SME Support Law, the contents of support for the SME in industry clusters and value chains shall comprise in-depth training in production technology and techniques; information on the need for connection, production and business of the SME; support for brand development and for expansion; etc. The SME shall be entitled to support on satisfaction of either the following conditions:

(i) Creating products with competitive advantages in terms of quality and prime cost; and

(ii) Creative innovation in technological processes, materials, components, machinery and equipment.

As SMEs have long been a factor in regions with good records of investment, we are hopeful that these new supports from SMEs will offer the chance to open Vietnam to Fund and Company investment. While there is a long way to go before Vietnam can challenge Silicon Valley, this is an early step in the right direction.


Pham Minh Tien

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