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Signing contracts with partners in Vietnam opens up many attractive business opportunities for foreign enterprises, from goods procurement to outsourcing services or remote personnel. However, barriers in language, business culture, and especially differences in the legal system often lead to unintended risks. Understanding common mistakes in drafting and reviewing contracts in Vietnam not only helps protect assets but also ensures the sustainability of your investment.
At DEDICA, we have assisted hundreds of businesses from the US, EU, Korea, and Japan in handling ironic situations that could have been avoided if the contracts had been built strictly from the beginning. Below are in-depth analyses of the legal "blind spots" that foreign enterprises often encounter.
Failure to verify the legal status and authority of the signatory One of the most basic but dangerous mistakes is absolute trust in the Vietnamese partner's representative without physical verification.
Legal entity status and operating status: Many foreign enterprises transfer deposits to a non-existent entity or one with a closed tax ID. In Vietnam, checking information on the National Business Registration Portal is a mandatory step. If the partner is a "ghost company" or in a state of temporary suspension, your contract is almost worthless when a dispute occurs.
Contract signing authority: According to the Civil Code of Vietnam, a contract must be signed by the legal representative or a legally authorized person. We often encounter cases signed by a department head without a power of attorney. In a dispute, the Vietnamese company may declare the contract void, making payment recovery extremely difficult.
Underestimating contract language and priority of application Foreign enterprises often prioritize English. However, if a dispute is resolved in a Vietnamese Court, the Vietnamese version will be the sole basis or a notarized translation will be used. A common mistake is using international legal terms that are not fully compatible with the Vietnam Commercial Law. For example, concepts like "Force Majeure" or "Liquidated Damages" must be expressed accurately to be accepted by Vietnamese jurisdictions.
Loose payment mechanisms and deposit protection For sourcing or outsourcing contracts, down payments are common. The biggest fear is "money gone, never to return."
Lack of deposit refund clauses: Contracts often lack conditions for automatic refunds or bank guarantees.
Not linking payments to actual progress (Milestones): Paying based on time instead of results is risky. A smart contract should break down payment phases and only release funds upon clear evidence of acceptance.
Misunderstanding penalties for violations and damages
Maximum penalty: Vietnam Commercial Law stipulates that the penalty cannot exceed 8% of the value of the breached obligation. Many draft 20-30% for deterrence, but courts will not recognize the amount exceeding 8%.
Obligation to prove damages: Unlike penalties, compensation requires proving actual and direct losses.
Infeasible choice of dispute resolution body Many default to foreign courts or international centers like SIAC. However, they forget enforcement. If the Vietnamese partner has no assets abroad, you must bring that judgment to Vietnam for recognition and enforcement—a very complex and costly process.
Ignoring contract termination and Intellectual Property (IP) Common mistakes include not clearly defining ownership of derivative products or products created during the contract. Lack of "Termination for Cause" clauses can trap you in an ineffective relationship.
Reality Analysis: Why prevention is always cheaper than handling? In Vietnam, once a dispute goes to litigation, 100% recovery is rare due to asset dispersal, business closure, or administrative delays in civil judgment enforcement. A lawyer's review fee is a tiny fraction of the cost of a hopeless multi-year lawsuit.
DEDICA Solutions: Protecting business interests from the start We provide peace of mind through: Due Diligence, Contract Drafting/Review, Negotiation Support, Execution Monitoring, and Dispute Resolution.
Note: This content is for general reference. Consult a lawyer for specific cases.
Contact DEDICA Law Firm:
📞 Hotline: (+84) 39 969 0012 (Available via WhatsApp, WeChat, Zalo)
🕒 Working Hours: Monday – Friday (8:30 – 18:00)
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