No table of contents available
Signing a contract with a Vietnamese company may seem like a simple administrative step, but in reality, it is the stage that determines most of the legal risks and the possibility of recovering money if a dispute arises later. Many foreign businesses only discover problems when the Vietnamese partner delays delivery, ceases operations, or refuses payment. So before signing a contract in Vietnam, what should foreign companies check to minimize risks and protect their interests?
Vietnam is becoming an important destination in the global supply chain. Many companies from the United States, Europe, South Korea, Japan, and China choose factories, suppliers, or service partners in Vietnam to optimize costs and expand operations.
However, many foreign businesses enter transactions with the mindset that “the contract is just a formality,” or they use international contract templates without adapting them to Vietnamese law. This is one of the main reasons why disputes arise and later become difficult to handle.
In practice, there are cases where businesses transferred large deposits without any protection mechanism. In other situations, partners delayed delivery for months while the contract did not clearly specify penalties or compensation mechanisms. Some foreign companies only realized after disputes occurred that the Vietnamese partner had stopped operating, no longer had assets, or had changed its legal representative.
Another issue is that many foreign businesses do not have an in-house legal team in Vietnam, so they often do not know what to review before signing contracts. Once problems arise, litigation costs, processing time, and actual enforcement capability may be far greater than initially expected.
That is also why law firms in Vietnam such as DEDICA often advise clients that prevention through a carefully reviewed contract is always much cheaper than handling disputes afterward.
One of the most common mistakes foreign companies make is evaluating partners based only on websites, company profiles, or commercial discussions while overlooking basic legal verification.
In Vietnam, there are many cases where companies continue operating even while having tax debts, restricted business status, or even preparing for dissolution.
Before signing a contract, foreign companies should at least verify the following information:
The company’s exact legal name, enterprise registration number, legal representative, registered business lines, and current operational status.
This review is especially important because if the person signing the contract does not have proper legal authority, disputes regarding the validity of the contract may arise.
Under the 2015 Civil Code and current Vietnamese Enterprise Law, the person signing a contract must have representative authority or valid authorization. Without these elements, foreign companies may face difficulties when requesting contract performance or filing lawsuits later.
A very practical issue in Vietnam is that some companies legally exist on paper but have very limited operational capability in reality.
For manufacturing or sourcing contracts, foreign companies should review:
Factory capacity, export history, workforce size, ability to meet schedules, and dependence on third parties.
For service or outsourcing contracts, businesses should evaluate whether the partner has sufficient personnel, expertise, and operational systems to fulfill commitments.
Many disputes in Vietnam do not begin with fraud, but rather from the fact that the partner lacks the capability to perform the contract while still accepting projects or deposits.
This is the section that directly affects the possibility of recovering money if disputes occur.
In reality, many foreign companies transfer large deposits while the contract does not clearly specify refund conditions, payment timelines, or sanctions if the partner breaches obligations.
A secure contract in Vietnam should normally clarify:
Payment schedules linked to work progress or delivery milestones; acceptance conditions; rights to suspend payment; and mechanisms to retain part of the contract value as security for obligations.
In addition, foreign companies should consider security measures such as bank guarantees, letters of credit, or escrow arrangements depending on the specific transaction.
Many businesses focus only on price and forget that the biggest issue is not whether they can win a lawsuit, but whether they can actually recover money after winning.
Under Vietnamese Commercial Law, contractual penalties in commercial activities generally must not exceed 8% of the value of the breached obligation, except in certain specialized sectors.
However, many contracts used by foreign companies apply international practice without adjusting to Vietnamese law. This may create risks when disputes are resolved.
In addition to penalties, businesses should clearly define compensation mechanisms, methods for determining damages, and evidentiary obligations.
If contract terms are drafted too generally, proving actual damages in Vietnam can become very complicated and time-consuming.
This is a section many businesses only skim through, but it often determines the entire legal strategy later.
Foreign companies need to clearly identify:
Will disputes be resolved by Vietnamese courts or commercial arbitration? What language will be used? Will Vietnamese law or foreign law apply? Where will the dispute resolution take place?
If these issues are not clearly specified, businesses may spend significant time arguing about jurisdiction before even discussing the substance of the dispute.
In Vietnam, commercial arbitration is commonly chosen by international businesses because of its flexibility and confidentiality. However, arbitration costs may also be substantial depending on the dispute value.
Many companies use global contract templates without adapting them to Vietnamese regulations.
This may cause certain clauses to become difficult to apply or enforce in practice.
Lawyers in Vietnam not only help review legal compliance, but also assist businesses in evaluating operational risks, enforceability, and issues commonly arising in the local business environment.
Especially for manufacturing, sourcing, outsourcing, or freelancer contracts in Vietnam, practical factors are often just as important as legal wording.
Most contract disputes do not appear suddenly. Many warning signs already exist during negotiations but are not properly identified.
A well-reviewed contract is not only intended to “protect businesses during litigation,” but also helps companies:
Reduce the risk of disputes, increase control over partners, and establish mechanisms to handle problems if they arise.
This is also how many international businesses operating in Vietnam minimize long-term legal losses.
Each transaction has its own characteristics regarding industry, counterparties, and commercial structure. Therefore, businesses should not treat this article as a substitute for specific legal advice for individual contracts.
If your company is preparing to sign contracts with Vietnamese partners, or is already facing issues related to payment, delivery delays, project delays, or contract breaches, consulting lawyers from the beginning may significantly reduce legal risks and future handling costs.
DEDICA Law is a law firm in Ho Chi Minh City that regularly supports foreign businesses in contract review, commercial transaction advisory, and dispute resolution in Vietnam.
Contact DEDICA Law Firm for in-depth legal advice.
Hotline: (+84) 39 969 0012 (Support via WhatsApp, WeChat, and Zalo) Working hours: Monday – Friday (8:30 AM – 6:00 PM)
Contact us now for a free initial consultation with our professional legal team.
Select a platform to view details
