Business and Investment Guide in Vietnam

7/31/2019 Business and Investment Guide in Vietnam

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GUIDEBOOKONBUSINESSANDINVESTMENT

INVIETNAM

BERLIN,2011


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FOREWORD

Over the past two decades, Viet Nams economy has been developing rapidly

owing to its Doi moi (Renovation) policy and activeness to integrate itself into the

global economy. With its enormous efforts and determination, and effective

cooperation with international partners and friends worldwide, Viet Nam is takingfirm steps towards industrialization and modernization.

With a stable political environment and great economic potentials, Viet Nam is an

attractive destination for doing business and investment. The Government of Viet

Nam has been ceaselessly endeavoring to improve the investment climate with the

aim at creating an increasingly business-friendly environment in Viet Nam.

Germany is the biggest economic partner of Viet Nam in Europe. The economic

cooperation between the two countries has been fruitfully burgeoning. In an effort to

further strengthen the economic cooperation between Viet Nam and Germany, the

Embassy of the Socialist Republic of Viet Nam in coordination with the relevantministries of Viet Nam to publish the Guidebook on Business and Investment of

Viet Nam, which is expected to provide German businesses with an overview of the

Viet Nams economy and its business and investment climate. We are confident

that German businesses can find helpful information and guidelines on investment

and doing business in Viet Nam from the Guidebook, and thereby have a deeper

understanding of the Viet Nams economy, a dynamically emerging and reliable

destination for international investment flows.

We deeply thank the Ministry of Foreign Affairs and the Ministry of Planning and

Investment of Viet Nam for their kind support and assistance. We would like toexpress our sincere thanks to Dr. Andreas Stoffers, Board Member of German

Business Association Vietnam and Member Executive Committee Euroean

Chamber of Commerce Vietman for reviewing this book. We also heartedly thank

Marktforschung und Kommunikation GmbH for her great cooperation and excellent

coordination in publishing the Guidebook.

Dr. Do Hoa Binh

Extraordinary and Plenipotentiary Ambassador

of the S.R. Viet Nam to the Federal Republic of Germany


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ABBREVIATION

ASEAN Association of Southeast Asian Nations

BCC Business co-operation contract

BOM Board of Management of IZs, EPZs, HTZs and EZs

BOT Build-operate-transfer (including its derivative forms, BTO and BT)

BT Build-transferBTO Build-transfer-operate

CEPT Common Effective Preferential Tariff Scheme

CIT Corporate income tax

CPC Civil Proceedings Code

DOLISA Provincial Department of Labour, War Invalids and Social Affairs

DPI Provincial Department of Planning and Investment

EIAR Environmental impact assessment report

EL Enterprise Law

EPC Environment protection commitment

EPZ Export processing zone

EU European Union

EZ Economic zone

FIC Foreign-invested company

FOB Free on board

GDP Gross Domestic Product

HTZ High-tech zone

IL Investment Law

IZ Industrial zone

JVC Joint venture company

LTT Law on Technology Transfer

LUR Land use rights

LURC Certificate of land use rights

MFN Most Favoured Nation

MOIT Ministry of Industry and Trade

MOLISA Ministry of Labour, War Invalids and Social Affairs

MONRE Ministry of Natural Resources and Environment

MOST Ministry of Science and Technology

MPI Ministry of Planning and Investment

NOIP National Office of Intellectual Property

ODA Official development assistance

PCT Patent Cooperation TreatyPIT Personal income tax

PPP Public Private Partnership

RO Representative Office

SBV State Bank of Vietnam

TTC Technology transfer contract

USD United States of America dollar

VAT Value-added tax

VCAD Vietnam Competition Administration Department

VND Vietnamese Dong

WTO World Trade Organisation


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TABLE OF CONTENTS

FOREWORD ................................................................................................................... 2

VIETNAM AT A GLANCE .................................................................................................. 5I: KEYFACTS .................................................................................................................... 5

II: POLITICALSYSTEM ...................................................................................................... 6

III: ECONOMY ................................................................................................................... 6

IV: INFRASTRUCTURE ..................................................................................................... 13

V: VIETNAM-GERMANYECONOMICRELATIONSHIP..................................................... 21

LEGAL GUIDE FOR INVESTING AND DOING BUSINESS IN VIETNAM ................................ 24

I: INVESTMENTREGULATIONS ..................................................................................... 24

II: TRADEREGULATIONS ................................................................................................ 30

III: TAXATION .................................................................................................................. 35

IV: CUSTOMSREGULATIONS .......................................................................................... 42

V: LANDLAW ................................................................................................................. 44

VI: FOREIGNEXCHANGEANDLOANS ............................................................................. 49

VII: EMPLOYMENT ........................................................................................................... 52

VIII: COMPETITIONLAW ................................................................................................... 58

IX: ENVIRONMENT ......................................................................................................... 62

X: INTELLECTUALPROPERTY ......................................................................................... 64

XI: TECHNOLOGYTRANSFER .......................................................................................... 71

XII: DISPUTERESOLUTION ............................................................................................... 73

BUSINESS TRAVEL GUIDE TO VIETNAM ......................................................................... 77

APPENDICES

APPENDIX 1: LIST OF SECTORS ENTITLED TO INVESTMENT INCENTIVES ............................. 80

APPENDIX 2: LIST OF GEOGRAPHICAL REGIONS OF INVESTMENT INCENTIVES ................... 84

APPENDIX 3: USEFUL CONTACTS AND ADDRESSES IN VIETNAM ......................................... 87


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VIETNAM AT A GLANCE

I: KEY FACTS

Official name: The Socialist Republic of Vietnam.

Capital: Hanoi.

Largest city: Ho Chi Minh City.

Administrative subdivisions: 58 provinces and 5 municipalities (Hanoi, Hai

Phong, Da Nang, Ho Chi Minh and Can Tho).

Official language: Vietnamese.

Location: In the center of Southeast Asia, neighboring on China to the north,

Laos and Cambodia to the west, and the East Sea and Pacific Ocean to the

East and South.

Area: 331,690 km2.

Coast line: 3,260 km. Climate: tropical in south; monsoonal in north with hot, rainy season (mid-

May to mid-September) and warm, dry season (mid-October to mid-March).

Population (2010): 86.9 million, by area (urban: 30% and rural: 70%) and by

age (less than 15 years old: 24.7%, 15-64 years old: 68.5% and more than

65 years old: 6.8%).

Population density: 262 people/km2.

Literacy: 93.7%.

Natural resource: Energy resources (oil, gas, coal, hydropower and windpower); minerals (bauxite, iron ore, lead, gold, precious stones, tin,

chromate, anthracite, construction materials, granite, marble, clay, white

sand and graphite); sea and tropical forestry resources and agricultural

potential.

Currency: Vietnamese Dong (VND).

Exchange rate (April 2011): 1 USD = 20,725 VND.

GDP (2010): 104.7 billion USD.

GDP per capita (2010): 1,204 USD. GDP real growth rate (2010): 6.78%.

GDP by sector (2010): Agriculture (20.6%), Industry (41.1%) and Service

(38.3%).

Exports: Crude oil, garments, shoes, marine products, electronic products

and components, funitures, rice, coffee, rubber, tea, pepper.

Major export markets: USA, Japan, China, Australia, Singapore, Germany,

South Korea, Malaysia, the Philippines, Netherland.

Imports: Machinery & equipment, petroleum products, pharmaceuticals,fertilizer, steel products, metal, textile, garment and shoe inputs, vehicles.


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Major import markets: China, Japan, South Korea, Taiwan, Singapore,

Thailand, USA, Malaysia, India, Germany.

II: POLITICAL SYSTEM

The current Constitution was adopted in 1992 and amended in 2001. It clearly

indicates that the State is of the people, by the people and for the people. The

people access the State power through the National Assembly and People'sCouncils, which are composed of elected representatives who represent the

people's will and aspirations.

The Constitution endows all citizens, men and women alike, with equal rights in all

political, economic, cultural and social spheres as well as in family affairs, the right

to and freedom of belief and religion and the right to choose and practice a religion,

the right to and freedom of movement and residence in Vietnam, and the right to go

abroad and return home as stipulated by laws.

The National Assembly is the highest representative body of the people, endowed

with the highest State power of the Socialist Republic of Vietnam. It governsconstitutional and legislative rights, decides fundamental domestic and foreign

policies, socioeconomic tasks, and national defence and security issues, etc. It

exercises the right to supreme supervision of all activities of the State.

The State President is the Head of State, elected by the National Assembly from

among its deputies to represent the Socialist Republic of Vietnam in domestic and

foreign affairs. The term of office of the President is the same as that of the

Chairman of the National Assembly.

The Government is the executive body of the Socialist Republic of Vietnam. It has

the same term of office as the National Assembly and administers theimplementation of State affairs in the fields of politics, economics, culture, society,

national defence and security and foreign relations. The government is headed by

the Prime Minister and comprises Deputy Prime Ministers, Ministers and other

government members.

The Supreme People's Court is the judicial body of the Socialist Republic of

Vietnam. It supervises and directs the judicial work of local People's Courts, Military

Tribunals, Special Tribunals and other tribunals, unless otherwise prescribed by the

National Assembly at the establishment of such Tribunals.

The Supreme People's Procuracy oversees the enforcement of the law andexercises the right to prosecution, and ensures serious and uniform implementation

of the law.

III: ECONOMY

Since the Doi moi (reforms) were introduced in the mid-1980s, Vietnamese

economy has changed rapidly. Replacing the old centrally-planned economy,

Vietnam has shifted to a new economic structure namely a socialist-oriented

market economy, and has gained significant success. Today the aim of Vietnam is

to become a basically industrialized country by 2020.


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Overall achievements

Vietnam embarked on Doi moi in 1986 and the country has seen many dramatic

changes since. Over the last decade it has recorded an average GDP growth rate

of 7.3 percent per annum, ranking it second in the region after China. Its economy

suffered from the 2008-09 economic crisis but recovered rapidly, with GDP growth

rate of 6.78 percent in 2010. ADB forecasts that the economy of Vietnam willincrease by 6.1 and 6.7 percent in 2011 and 2012 respectively. Vietnam already

became a lower middle income country with its GDP per capita of 1,204 USD in

2010.

To a large extent, Vietnam has successfully transformed from a centrally-planned

economy with heavy bureaucracy and subsidies to a socialist-oriented market

economy characterized by strong dynamism and rapidly growing entrepreneurship.

The country's economy has integrated deeply into the global and regional

economies, bringing about a sharp rise in trade volumes as well as an influx of

foreign investment.

The economy is well on the way to being a multi-sector model operating according

to market mechanisms. The private sector has enjoyed very favourable conditions

created by the Enterprise Law of 2000, which institutionalizes the freedom of all

individuals to conduct business in areas not prohibited by law and removes a large

number of administrative obstacles that hampered enterprises.

With a view to raising the efficiency of the state-owned sector, the government has

adopted assertive policy measures to reorganize the sector through equitization. As

a result, more than 3,970 state-owned enterprises were equitized by the end of

2010.

GDP of Vietnam, 2000-2010

Source: General Statistics Office

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

0

20

40

60

80

100

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

GDPgrowth

rate(%)

GDP(billionUSD)

Year

GDP GDP growth rate


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Progress in particular sectors

As Vietnam's GDP continuously increases the country's economic structure has

also seen notable changes. From 1990 to 2010 the share of the agriculture sector

reduced from 38.7 percent to 20.6 percent, while that of industry and construction

increased from 22.7 percent in 1990 to 41.1 percent in 2010.The service sector

remained relatively constant: 38.6 percent in 1990 and 38.3 percent in 2010.Agriculture still plays a critical role in Vietnam's socio-economic life since it

generates about 57 percent of total employment and makes important contribution

to the expansion of the country's foreign trade. Vietnam are among the leading

countries in terms of agricultural exports such as rice, coffee, cashew nuts and

aqua-products, etc.

Industry continues to grow rapidly in terms of gross output, at an average rate of

10-15 percent per annum. Besides state enterprises, foreign-invested and the

private enterprises play an increasingly important role in industrial development and

exports.Services are growing at an average rate of 7-8 percent. In 2010 the value added of

service sector grew 7.52 percent with good performances being recorded in the

trade, finance, and hotels and restaurant sub-sectors as consumption and tourism

remained buoyant.

Industry and services continue to increase their share in the economy. This reflects

market oriented reforms, a gradual reduction in barriers to competition and to

private sector development, and improvements in physical infrastructure. Greater

diversification in industrial production and services lays the foundation for further

sustained growth in output and employment.VA growth rate by sector of Vietnam, 2000-2010


0.0

2.0

4.0

6.0

8.0

10.0

12.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Perc

ent

Year

Agriculture Industry Service


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International economic integration

Vietnam has made major steps forward in its commitments to regional and

international economic integration. Following the introduction of Doi moi it signed

an economic and trade cooperation agreement with the EU in 1995, joined ASEAN

in 1995, adhered to CEPT/AFTA in 1996 and became an APEC member in

1998.The Bilateral Trade Agreement (BTA) with the United States was signed in2000, which resulted in a dramatic increase in the trade volume between the two

countries. Vietnam became the 150th member of the World Trade Organization on

January 11, 2007.

Vietnam's commitments in the WTO increase market access for exports of goods

and services of WTO's members and establish greater transparency in regulatory

trade practices as well as a more level playing field between Vietnamese and

foreign companies. Vietnam undertook commitments on goods (tariffs, quotas and

ceilings on agricultural subsidies) and services (provisions of access to foreign

service providers and related conditions), and to implement agreements onintellectual property (TRIPS), investment measures (TRIMS), customs valuation,

technical barriers to trade, sanitary and phytosanitary measures, import licensing

provisions, anti-dumping and countervailing measures, and rules of origin.

At present, Viet Nam has established diplomatic relations with 172 countries and

signed 55 bilateral investment agreements and 58 double taxation agreements with

countries and territories including Germany. It has economic and trading relations

with about 165 countries and territories. Vietnam holds membership in 63

international organizations and over 650 non-governmental organizations.

The policy of multi-lateralization and diversification in international relations hashelped Vietnam to integrate more deeply into the global and regional economies

and increase trade and investment ties with nations all over the world. More

importantly, Vietnam has improved its enable business friendly environment over

time. World Bank recognized that Vietnam is one of the 10 most-improved

economies in ease of doing business in 2010. Currently, its ranking is 78 and even

higher than other Asia countries such as Indonesia, Philippines, China, India.

Vietnams rankings according to various indices

Index 2011-2010 rank 2010-2009 rank

World Banks Ease of doing business 78/183 88/183

World Economic Forum's Globalcompetitiveness index

59/139 75/133

ATKEARNEY' FDI confidence index 12/top 20 12/top 25 (*)

Note (*) data for 2007


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International trade

Total export volume of Vietnam increased by 18 percent per year on average in the

last decade and its import volume also did so by 19.2 percent per year. In 2010 its

total trade volume reached $155.6 billion ($71.6 billion of export and $84 billion of

import), equal to 149 percent of its GDP.

Both the composition and quality of exports have improved significantly. Theproportion of industrial products has risen considerably. The five biggest export

items include oil, textiles, footwear, seafood and wood products.

Vietnam is in the early stage of the industrialisation and modernisation process and

receives a large inflow of FDI therefore it relies largely on the imported equipment

and materials.

Trade relations with foreign countries, especially other countries in the region, have

expanded over time. The biggest trading partners of Viet Nam include China,

America, ASEAN, EU, Japan and South Korea.

International trade of Vietnam, 2000-2010


0

20

40

60

80

100

120

140

160

180

0

10

20

30

40

50

60

70

80

90

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Tradeingoodsas%G

DP(percent)

Trade

(billionUS$)

YearExport Import Trade in goods as % GDP


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Top 10 export and import items of Vietnam, 2010


Foreign direct investment

Since the introduction of the Law on Foreign Investment in 1987, by the end of 2010,

12,236 foreign investment projects were licensed with total registered capital of

$193.4 billion and total disbursed capital of over $61 billion. The investors from 92

countries and territories have committed investments in Viet Nam. Most of them arefrom Asia, Europe and America. Taiwan, Republic of Korea, Singapore, Japan and

Malaysia and are the top five countries and territories investing in Vietnam. The next

five countries and territories are British Virgin Islands, America, Hongkong, Cayman

Islands and Thailand. These top ten countries and territories account for over three

quarters of the total licensed projects and foreign registered capital in Viet Nam.

Since 1996 there has been a tendency towards investment in producing goods for

export, infrastructure construction, producing import substitutes and in labour-

intensive industries. There are more than 8,327 projects in the manufacturing and

processing, real estate and construction industries with a total capital of about

US$153,5 billion, accounting for nearly 80% of the registered capital.

While there are foreign invested projects in all provinces and cities in Viet Nam,

most investment has been in the key economic areas in the South including Ho Chi

Minh City, Dong Nai, Binh Duong, Ba Ria, Vung Tau, and in the North including

Hanoi, Hai Duong, Hai Phong and Quang Ninh.

The foreign invested sector has increased rapidly, gradually asserting itself as a

dynamic component of the economy, and has made an important contribution to

enhancing the competitiveness and efficiency of the economy. In 2010, the foreign

invested sector has accounted for 21.5% of the country's total investment,

contributed 18.3 percent to GDP, 54.2 percent to export volume (crude oil

included), 44.4 percent to industrial gross output and employed 1.6 million persons.

0.0 5.0 10.0 15.0

Rubber

Precious stone & metals

Machinery & equipment

Rice

Furniture

Electronic products

Crude oilSeafood

Footwear

Garment

Export volume (billion USD)

Export item

0.0 5.0 10.0 15.0

Animal feed

Metals

Garment and shoe inputs

Platics

Vehicles

Electronic products

FabricPetroleum products

Steel products

Machinery & equipment

Import volume (billion USD)

Import item


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FDI Inflow of Vietnam, 2000-2010

Source: Ministry of Planning and Investment

FDI of Vietnam by sector, 2010

Note: Accumulated inflow of FDI by the end of 2010


0

200

400

600

800

1000

1200

1400

1600

1800

0

10

20

30

40

50

60

70

80

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

No.ofproject

FDIinflow(billionUS$)

YearDisbursement Total investment

Processing &manufacturing

48.7%

Mining, 1.5%Power, water,gas, 2.5%

Real estate &construction

30.8%

Telecom. &transportation

4.1%

Agriculture,

1.6%Service,10.7%

Registered capital

Processing &

manufacturing59.8%

Mining, 0.6%

Power, water,

gas, 0.5%


8.4%


7.7%

Agriculture3.9%

Service,19.2%

Project number


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Top 10 destinations and investors of Vietnam, 2010

Note: Accumulated inflow of FDI by the end of 2010


IV: INFRASTRUCTURE

Road network:

- 171,392 km country-wide.

- 2 North-South pivot routes: (i) the 1A National Highway of 2,260km in

length from Lang Son to Ca Mau and (ii) the Ho Chi Minh Highway of

3,167km in length from Cao Bang to Ca Mau.

Railway network:

- Total length of 2,632 km.

- 278 stations country-wide.- Hanoi Ho Chi Minh City line: 1,726 km (it takes 29.5 hours for

express train).

- Linked to China railways in two directions, one from Lao Cai province

to Yunnan province and one from Lang Son province to Kwangsi

province of China.

- Planned to construct the railway lines connecting with Laos and

Cambodia.

Inland waterway:

- More than 2,300 rivers and canals with total length of 198,000 km.

- Inland waterway system of 35,386 km.

0.0 10.0 20.0 30.0

Quang Nam

Hai Phong

Thanh Hoa

Phu Yen

Ha Tinh

Binh Duong

Dong Nai

Ha Noi

Ba Ria - Vung Tau

Ho Chi Minh City

Top 10 FDI receiving provinces

Total registered investment (billion USD) 0.0 5.0 10.0 15.0 20.0 25.0

Thailand

Cayman Islands

Hong Kong

America

British Virgin Islands

Malaysia

Japan

Singapore

Korea Republic

Chinese Taipei

Top 10 investing countries and territories

Total registered investment (billion USD)


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Sea ports:

- Vietnam has 3,260km coastline, a strategic position close tointernational shipping routes and favored natural conditions offoundation, sea depth, current, tidal, sedimentation and channels fordeveloping seaport business.

- 17 national level sea ports, 23 provincial level sea ports and 9

offshore oil and gas sea ports. Current major important ports includeCai Lan and Hai Phong in the North, Da Nang and Quy Nhon in theCentre and Sai Gon and Cai Mep in the South.

Airports:

- 8 international airports: Cam Ranh (Nha Trang), Cat Bi (Hai Phong),

Da Nang (Da Nang), Lien Khuong (Lam Dong), Noi Bai (Ha Noi), Phu

Bai (Hue), Tra Noc (Can Tho), Tan Son Nhat (Ho Chi Minh City). In

2010, Tan Son Nhat Airport received 15.5 million passergers and Noi

Bai airport did 9.5 million passengers.

- 14 domestic airports: Buon Ma Thuot (Dac Lac), Ca Mau (Ca Mau),Chu Lai (Quang Nam), Co Ong (Ba Ria - Vung Tau), Dien Bien Phu

(Dien Bien Phu), Dong Tac (Phu Yen), Dong Hoi (Quang Binh), Gia

Lam (Ha Noi), Na San (Son La), Pleiku (Gia Lai), Phu Cat (Binh

Dinh), Phu Quoc (Kien Giang), Rach Gia (Kien Giang), Vinh (Nghe

An).

Business development zones:

- 260 industrial zones and export processing zones with total area of

71,394 ha of land.

- 3 high-tech zones (Hoa Lac, Da Nang and Ho Chi Minh City) withtotal area of 3,509 ha of land.

- 15 economic zones located along sea coast with total area of 638,633

ha of land.

Energy:

- Electricity output reached 92.7 billion kWh.

- Crude oil and gas exploited 23 million ton.

- Coal exploited 44 million ton.

Telecommunication:

- 26.8 million Internet users.- 153.7 million mobile subscriptions.

- 16.4 million fixed phone subscriptions.


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Vietnam rail network


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National seaports of Vietnam

No. Seaport ProvinceCurrent capacity of

ship (DWT)

1 Cam Pha Quang Ninh 50,000

2 Hon Gai Quang Ninh 40,000

3 Hai Phong Hai Phong 20,000

4 Nghi Son Thanh Hoa 20,000

5 Cua Lo Nghe An 10,000

6 Vung Ang Ha Tinh 30,000

7 Chan May Thua Thien Hue 30,000

8 Da Nang Da Nang 30,000

9 Dung Quat Quang Ngai 30,000

10 Quy Nhon Binh Dinh 30,000

11 Van Phong Khanh Hoa 50,000

12 Nha Trang Khanh Hoa 20,000

13 Ba Ngoi Khanh Hoa 30,000

14 Ho Chi Minh City Ho Chi Minh City 30,000

15 Vung Tau Ba Ria - Vung Tau 50,000

16 Dong Nai Dong Nai 20,000

17 Can Tho Can Tho 10,000

Source: Decision 2190/QD-TTg dated 24/12/2009


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Number and size of IPs and EPZs in Vietnam


1

12 65

130

183

260

3002,370

11,830

26,971

43,687

71,394

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0

50

100

150

200

250

300

1991 1995 2000 2005 2007 2010

SizeofIPs(ha)

NumberofIPs

Year

Number of IPs Size (ha)


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Economic zones of Vietnam


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SWOT Analysis of Vietnam

Strengths

One of fastest growing economies

in Asia with average GDP growth of

7.2% per year over the last decade;

Stable political and social security;

Abundance of human resources

(labour force of 46.2 million people;

young, motivated and educated

workforce; 60% of population under

35 years old);

Competitive business and

production costs (cost labor,

industrial land rent, energy cost,

telephone cost, marine

transportation, taxation);

Available mineral and natural

resources (coal, oil & gas, iron ore,

bauxite, rare earth,..);

Central location in South East Asia,

long distance coast.

Weaknesses

Few skilled professionals

available;

High bureaucratic barriers;

Weak infrastructure (power,

transportation);

Underdeveloped supporting

industries.

Opportunities

Global integration (ASEAN, APEC,

WTO membership); one of the

worlds most open economies;

Higher demand for consumer

goods and capital goods with betterquality because of being a lower

middle income country, aiming at

an industrialized country and

increasing urban population;

Export oriented and labour

intensive industries;

Infrastruture (road, railway,

seaport, airport, power) projects

funded by international donors orforeign investors.

Threats

High inflation;

High trade deficit;

Devaluation of VND;

Banking and finance sector in infant

stage;

Low national reserves.


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V: VIETNAM- GERMANY ECONOMIC RELATIONSHIP

Trade

Germany is the biggest trade partner of Vietnam in Europe. In 2010, despite the

global economic downturn, bilateral trade reached nearly USD 6 billion, a

substantial increase over the previous year. Total export value of Vietnam to

Germany reached nearly USD 4 billion, accounting for 19% of total Vietnamsexport to the EU while its import value from German amounted to USD 2 billion.

Vietnams main export items to Germany are garments, footwear, coffees,

furnitures, see foods, leather and leather apparel, office machinery, iron, metal

products, articles of plastics, ceramic products, crude rubber. Germany is the

second-largest market worldwide for robusta coffee and black pepper of Vietnam.

Main import items from Germany to Vietnam include: machines (in mining,

construction and civil engineering, textile, food and beverage,), aircraft, units for

electricity generation and distribution, passenger cars, chemical products,

pharmaceutical products, measurement, control and regulation technologyproducts, industrial plants, plastics, lifting and handling equipment, medical

equipment and orthopedic appliances, engines, iron, metal products, electronic

components

After WTO accession, Vietnam is becoming an emerging and lucrative market in

Asia. As Vietnam is accelerating its industrialization process to become an

industrialized country by 2020, the trend towards sophisticated production

facilities is evident and it is likely to result in increased demand for hi-tech

machinery made in Germany.

InvestmentThere have been over 230 German companies operating and investing in Vietnam,

including many Germanys leading groups such as Siemens, Deutsche Bank,

Mercedes, Metro, Bosch etc. By the end of April 2011, German companies have

invested in 163 projects with registered capital of USD 825 million in Vietnam.

Three fourths of total investment projects and two thirds of investment capital of

Germany mainly concentrate in manufacturing, processing, technique services,

information and communication technology, banking and finance services. Although

German investment projects have been located in 26 locations in Vietnam, most of

them have been implemented in Ho Chi Minh City, Hanoi, Binh Duong and Dong

Nai.

In the upcoming time, the active implementation of mega infrastructure

development and energy projects partially funded by German ODA such as the

metro line No.2 Ben Thanh - An Suong in Ho Chi Minh City (with length of 11 km

and total investment capital of USD 1.25 billion), O Mon IV thermo power, Phu Lac

wind power, Vietnamese Green Line,... will have positive impacts on promoting

German investment flow into Vietnam.

German foreign trade and investment promotion is well positioned in Viet Nam.

German companies and investors can access to supports and advices from AHK

Vietnam, German Business Association (GBA), a correspondent of Germany Tradeand Invest (GTAI) in Vietnam.


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Development cooperation

Vietnam is an important partner of Germany in development cooperation. As one of

the biggest donors among the EU members, Germany has provided Vietnam with

more than EUR 1 billion in ODA since 1990. During 2011 2012, Germany

committed nearly EUR 300 million for Vietnam. This is a clear evidence for strong

support by Germany to the development of Vietnam.German-Vietnamese development cooperation focuses on the three priority areas:

(i) Sustainable economic development and vocational training; (ii) Environmental

policy, conservation and sustainable use of natural resources; (iii) Health.

German development cooperation has been utilizing effectively and contributing

positively to socio-economic development of Vietnam, especially in vocational

training, human resource development, infrastructure, clean energy source.

During the visit of German Chancellor Dr. Angela Merkel to Viet Nam in October

2011, Hanoi Declaration was signed by Prime Minister Nguyen Tan Dung and

Chancellor Dr. Angela Merkel. It is the start of the strategic partnership betweenVietnam and Germany.

Export and import between Vietnam and Germany, 2007-2010

Source: German Federal Statistical Office

0

500

1000

1500

2000

2500

3000

3500

4000

2007 2008 2009 2010

Value(USDmillion)

Year

Export from Vietnam to Germany Import to Vietnam from Germany

0

500

1000

1500

2000

2500

3000

3500

4000

2007 2008 2009 2010

Value(USDmillion)

Year

Export from Vietnam to Germany Import to Vietnam from Germany


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Gernam investment flow into Vietnam by sector, 2010



53.6

Mining, 0.0

Power, water& gas, 29.1


1.0


0.4

Agriculture,5.4

Service, 10.5

Registered capital


46.7

Mining, 0.7

Power, water& gas, 2.0


3.9

Telecom. &

transportation10.5

Agriculture2.0

Service, 34.2

Project number


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LEGAL GUIDE FOR INVESTING AND DOING BUSINESS IN VIETNAM

I: INVESTMENT REGULATIONS

On 1 July 2006, the investment regime comprised of a unified Enterprise Law

(EL), which regulates corporations, and a common Investment Law (IL), which

regulates investment, came into effect. The promulgation of these two importantlegislations is considered a significant watershed for improvement of the legal

environment on investment activities and corporate governance in Vietnam.

1. Overview

To do business under the IL and EL, foreign investors are required to obtain

investment certificates from an appropriate Licensing Authority.

Under the IL, investors may invest in all sectors not prohibited by law. Areas

prohibited by law include:

Investment projects detrimental to national defence, security, and the publicinterest;

Investment projects detrimental to historical and cultural traditions and the

ethics or customs of Vietnam;

Investment projects harming peoples health or destroying natural resources

and the environment; and

Investment projects treating toxic waste imported to Vietnam and investment

projects manufacturing toxic chemicals banned by international law.

2. Licensing

Investors shall follow the licensing and registration steps depending on the size and

the sector of the investment project.

Investment Certification Process


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Investment Registration: Foreign investment projects with a total invested capital of

less than VND 300 billion (US$ 15 million) and not falling in a conditional sector are

subject to investment registration and foreign investors of such projects shall carry

out the procedures for investment registration in order to be granted an investment

certificate. The investment certificate also serves as the business registration of thecorporate entity.

Enterprises can subsequently register additional investment projects without the

need to create a separate entity.

The investor should submit application documents for investment registration to the

Licensing Authority. The Licensing Authority shall check the documents and issue

the investment certificate to the investors within 15 working days of receiving the

valid application.

Investment Evaluation: Any investment project with a total invested capital of VND

300 billion (US$ 15 million) or more or investment projects falling in conditionalsectors shall undergo an investment evaluation by the Licensing Authority and

other relevant authorities. There are two different types of evaluation:

evaluation for investment projects regardless of total invested capital falling

into conditional sectors; and

evaluation for investment projects with total invested capital of VND300 billion

or more that do not fall into conditional sectors.

For the evaluation of investment projects with total invested capital of VND 300

billion or more, along with the application documents, the applicant must alsosubmit an economic - technical explanation of the investment project to the

Licensing Authority. This covers the economic technical explanatory statement,

Conditional sectors: Investment projects in conditional sectors shall satisfy certainconditions in order to be licensed. Conditional sectors include:

Broadcasting and television; Production, publishing and distribution of cultural products; Exploration and exploitation of minerals; Establishment of infrastructure for telecommunications network, transmission

and provision of internet and telecommunications services; Establishment of public postal network and provision of postal services and

express services; Construction and operation of river ports, sea ports, terminals and airports; Transportation of goods and passengers by railway, airway, roadway and

sea and inland waterways; Catching of aquaculture;

Production of tobacco; Real estate business; Import, export and distribution business;

Education and training; Hospitals and clinics; and Other investment sectors in international treaties of which Vietnam is a

member and which restrict the opening of the market to foreign investors.


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objectives, scale, location, investment capital, implementation schedule, land use

needs, and technological and environmental solutions of the investment project.

For the evaluation of investment projects falling in conditional sectors, in addition to

the application documents, the investor shall also demonstrate compliance with

requirements specific to that conditional sector.

When assessing the application documents, the Licensing Authority may liaise withother relevant Ministries and authorities in evaluating the proposed investment

project. Items to be evaluated shall comprise:

compliance with master planning/zoning for technical infrastructure, master

planning/zoning for land use, master planning for construction, master

planning for utilization of minerals and other natural resources;

land use requirements;

project implementation schedule;

environmental solutions.

The time-limit for evaluation of investment shall not exceed thirty (30) days from the

date of receipt of a complete and valid file. In necessary cases, the above time-limit

may be extended, but not beyond forty five (45) days.

To-Do List for Investors

InvestmentCertificate

Filing for Investment

Certificate

Applying for the approvalof Report on environment

effects evaluation

Applying for ConstructionLicense

Evaluating preliminarytechnical design

Environmental protectioncommitment

Agreement onland/building/office renting

Land/building/office rentingcontract

ProjectssubjecttoReporton

environmentaleffectsevaluation

Projectssubjectto

environmentalprotection

commitment

Projec

tssubjectto

constru

ctionlicense


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3. Licensing Authority

Licensing Authority

3.1 The Board of Management (BOM) of industrial zones (IZs), export

processing zones (EPZs), high-tech zones (HTZs), and economic zones

(EZs) are responsible for licensing foreign investments within their zones.

3.2 National important BOT projects and PPP projects are licensed by the

Ministry of Planning and Investment (MPI). Oil and gas projects, credit

institutions, insurance projects and law firms are licensed by Ministry of

Trade and Industry, State Bank of Vietnam, Ministry of Finance and Ministry

of Justice respectively.3.3 The Provincial Peoples Committee is the authority responsible for all other

foreign investments.

Licensing applications shall be submitted to these bodies, who will consult with

other relevant governmental authorities (where so required) before issuing final

approval.

3.4 The Prime Minister will approve the following investment projects (unless

they are not included in the approved master plan):

(a) The following investment projects, irrespective of the source of investment

capital and scale of investment:

- construction and commercial operation of airports; air transportation;

- construction and commercial operation of national sea ports;

- exploration, mining and processing of petroleum; exploration and mining of

minerals;

- radio and television broadcasting;

- commercial operation of casinos;

- production of cigarettes;

- establishment of university training establishments; and


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- establishment of IZs, EPZs, HTZs and EZs.

(b) The following investment projects, irrespective of the source of investment

capital but with a total invested capital of VND 1,500 billion or more in the

following sectors:

- business in electricity, processing of minerals, metallurgy;

- construction of railway, road and internal waterway infrastructure; and

- production and business of alcohol, beer;

(c) The following projects with foreign-invested capital in the following sectors:

- commercial operation of sea transportation;

- construction of networks for and supply of postal and delivery,

telecommunications and internet services, construction of wave transmission

networks;

- printing and distributing newspapers and printed matter, publishing; and- establishment of independent scientific research establishments.

4. Forms of Investment and Enterprise

Under the Law on Investment and the Law on Enterprises foreign investors may

choose the following forms of investment in Viet Nam:

Investment forms:

- Invest in business development;

- Establish economic organizations (100% capital of foreign investors or joint-venture);

- Purchase shares or contribute capital to participate in management ofinvestment activities;

- Invest in contractual forms of BBC, BO, BTO, BT, PPP; and

- M&A of enterprises.

While foreign investors are allowed to buy shares in many domestic companies

without limitation, there are ownership limitations for certain companies listed on

the Vietnam stock exchange and financial sectors. Foreign ownership cannotexceed 49 percent of listed companies and 30 percent of listed companies in the

financial sector.

Forms of enterprises:

- Limited liability company (with one member or more than one member);

- Share holding company/Joint stock company;

- Private company/Sole proprietorship;

- Partnership; and- Corporate group.


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5. Investment assistance and Incentives

Incentives to encourage investment in Vietnam come in varying forms, including:

preferential corporate income tax rates;

exemption from, or reduction of, corporate income tax;

import duty exemptions;

exemption from taxes on royalties;

exemption from, or reduction of, land use or land rental fees; and

privileges awarded to BOT, BTO, BT and PPP projects and projects in

economic zones or high tech zones.

Investments in geographical areas of Vietnam that face difficult socio-economic

conditions are more likely to qualify for some of the above investment incentives.

Investment incentives are available for projects that focus on the following

activities:

Production of new materials or new energy; Production of high-tech, bio-technology or info-technology products;

Production of manufactured mechanical products;

Cultivation and processing of agricultural, forestry and aquatic products;

Production of man made strains, new seeds and breeds of animals;

Use of, or research and development on, high technology or modern

technology;

Protection of ecological environment;

Employment of large numbers of employees;

Construction and development on infrastructure or important projects; Development of facilities in educational, training, medical, gymnastic and

sports sectors; and

Development of traditional trades.

In addition, Government support is available for investments that deliver the

following economic benefits:

Technology transfer;

Training support;

Investment supporting services (i.e. consultancies, training, market research,

design and testing centres); and Construction of infrastructure outside zones.

Investment guarantees include:

No nationalization or confiscation of investors assets;

Protection of intellectual property rights;

Opening markets and investments related to trade;

Remittance of capital and assets abroad; and

Investment guarantees in the event of changes in law or policies.


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Performance requirements

Requirement

Purchase or use of domestic goods or services None

Export requirements of goods or services None

Domestic content requirements for intermediateinputs

None

Self balance of foreign currency None

Domestic R&D content requirements None

Price rates for goods and fees and charges forservices controlled by the State

Uniform application

II: TRADE REGULATIONS

1. Introduction

A new Trade Law took effect on 1 January 2006. It covers fundamental trade

principles, foreign business undertaking trade activities in Vietnam, general

provisions applicable to purchase and sales of goods, rights and obligations of

parties to contracts for purchase and sale of goods, sale and purchase of goods via

commodity exchange, general provisions applicable to provision of services, rights

and obligations of parties to service contracts, promotion, advertising, display and

introduction of goods and services, fairs and exhibition, intermediary trade

activities, representation of business, trade brokerage, sale and purchase of goodsby authorized dealers, trade agency, manufacturing for trade, auction and bidding,

logistic services, inspection, leasing, franchising and remedies and settlement of

trade disputes.

2. Trading and Distribution Rights

As a result of the trade liberalization, Vietnamese individuals and enterprises have

long been granted full trading rights, with exception of certain products required to

be imported through specific enterprises. These products include cigarettes, cigars,

crude oil and petroleum products, cultural products affecting social morals

(newspapers, journals, periodicals, records, tapes and other recorded media...),aircrafts and spare parts.

In compliance with WTO commitments by Vietnam, currently all foreign individuals

and companies (including foreign-invested companies in Vietnam) are granted full

trading rights, with exception of certain products required to be imported through

specific enterprises as mentioned above. Foreign individuals and enterprises

without commercial presence in Vietnam are also allowed to register as importers

and exporters of record. But they are not automatically allowed to participate in the

distribution system in the country.

Foreign invested enterprises in Vietnam may directly distribute or set up adistribution network to sell the products they manufacture in Vietnam.


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3. Representative Office

To promote and facilitate trade with Vietnam, a foreign trader can establish its

representative office (RO) in Vietnam. It is intended to promote business

opportunities for its head office and to supervise or speed up the performance of

contracts that the head office has entered into with Vietnamese parties.

An RO is not regarded as an investment in Vietnam since such an office cannotconduct any revenue-generating activities. A foreign company can open more than

one RO in Vietnam.

The establishment and operation of ROs of credit institutions, education

establishments, and insurance companies are subject to different regulations.

3.1. Establishment Conditions

A foreign company that wants to set up an RO in Vietnam must, in general, satisfy

the following requirements:

it must have obtained a certificate of incorporation in the relevant foreigncountry where its head office is situated;

the ROs parent company must have been in operation for at least 01 year

after its lawful establishment or business registration in its country prior to an

application for an RO licence; and

its proposed operating activities in Vietnam are not be prohibited by the laws

of Vietnam.

3.2. Application Procedures

To establish an RO in Vietnam, foreign companies are required to file the followingdocuments with the relevant licensing authority:

Application form for issuance of a license for establishment of a RO;

Copy of the certificate of business registration of the foreign entity;

Audited financial statements or other data of equivalent validity proving

the actual existence and operations of the foreign business entity

throughout the preceding financial year;

Copy of the operational charter of the foreign business entity, if it is an

economic organization;

Lease contract of address of head office of RO;

Notarized copy of passport / identity card of the Chief of RO.

Non-Vietnamese documents must be legalized in accordance with the law of

Vietnam and translated into Vietnamese whereby such translation must be certified.

3.3. Licensing Authority

The Department of Industry and Trade is responsible for issuing licences for ROs.

For specific business sectors (Banking, Tourism etc.) other authorities are

responsible.


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3.4. Time Limit for Licensing and Licensing Fee

Within 15 days after the date of receipt of all documents, a licence for the

establishment of an RO is issued by the relevant licensing agency. In the event that

the application is not made in compliance with the law, the relevant licensing

authority will give a written notice to the applicant within 03 working days after the

date of receipt of the application.The licensing fee for establishment of an RO is currently VND1,000,000 (approx.

USD50).

3.5. Operation

The operating duration of an RO in Vietnam is 05 years, which is extendable.

Within forty-five 45 days of issuance of the ROs licence, the RO must register its

operation by way of a written notice to the relevant licensing authority indicating its

office address, number of Vietnamese staff and foreign staff working at the RO and

its chief representative, and obtain an acknowledgement from the relevant licensing

authority.

For the purpose of the above registration, the relevant licensing authority may require

a copy of the lease agreement of the RO in Vietnam. Following the registration, and

on the basis of a letter of introduction issued by the provincial Department of Industry

and Trade, the RO will register its seal with the provincial Police Department.

During the term of the RO licence, any change in (i) the name or nationality of the

parent company, or the name of the RO, (ii) the number of staff, (iii) the content of the

ROs activities, or (iv) the ROs address, shall be reported to the relevant licensing

authority.

3.6. Permitted Activities

The RO is permitted to carry out the activities specified in its licence. Such

permitted activities include non-revenue generating activities such as market

research, customer support, and marketing or feasibility studies for investment

projects.

Foreign companies are not permitted to use the RO as a vehicle to carry on actual

business in Vietnam. For example, the RO cannot be used to conclude or execute

commercial contracts. However, the chief representative of the RO may be

authorised by the parent company to negotiate and to sign contracts on its behalf,under a power of attorney on a case-by-case basis, provided that such contracts

may only be performed by the parent company itself. It should be noted that there

may be a tax implications for authorizing a representative in Vietnam to sign a

contract on behalf of the parent company.

ROs may (i) lease an office, residential accommodation and other facilities necessary

for its activities (but no sublease by the ROs is permitted), (ii) import equipment and

facilities necessary for its operation and (iii) employ Vietnamese and expatriates. It

may also open a bank account in foreign and Vietnamese currency at a bank in

Vietnam, but any conversion or remittance of currencies must comply with the foreign

exchange laws of Vietnam. The purpose of this account is to pay for the expenses of

a representative office and should not be used for the receipt of payments from other

companies.


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ROs may be required to obtain a tax code for the purpose of deducting and paying

personal income tax on behalf of its employees.

4. Branch of Foreign Company

Branch of foreign company has the right to conduct business activities for its own

account, execute contracts in its own name and carry out all other commercial

activities in respect of restricted goods and services will only be available asscheduled in Vietnams international undertakings.

The Ministry of Trade and Industry is authorised to grant, amend or withdraw

licence for branch of foreign company that engage in trading activities and most

other services.

5. Franchise

The franchising model, which allows people with limited access to capital to enter

an established business, is well-suited to a developing economy like Vietnam.

Meanwhile, rising incomes and an emerging middle class are generating growth inconsumer-driven sectors such as retail, entertainment, food and beverage, and

lifestyle-oriented businesses. As a result, the Vietnam franchising market has

surged in the past few years, growing at approximately 30 percent last year.

Although far from saturated, the market is still relatively small and competition is

heating up as more brands enter the market. However, growth prospects are bright

as local investors become more familiar with franchising and are increasingly

exposed to successful franchise concepts. In addition to interest among local

companies and individuals, a number of foreign-invested retail and distribution

groups have made investments in well-known foreign franchise brands with plans

to expand throughout the country.

Franchising was legally recognized in Vietnam with the new Trade Law, which took

effect on January 1, 2006. The law provides for a legal and regulatory climate

conducive to the development of the sector. This specifically legitimized franchising

services, and therefore marked an important change in the Governments

perspective towards the development of the franchise sector in Vietnam.

One of the biggest challenges is identifying and conducting due diligence on

partners to determine suitability and financial viability. Because franchising is

relatively new to Vietnam, establishing good communication, setting clear

expectations and achieving mutual understanding should not be taken for granted.Many local companies may not have a full understanding of brand value and/or

legal regulations relating to franchising.

Any goods or services may be franchised if they are not included in the list of goods

and services prohibited from trade or may be traded under certain conditions,

franchise can only be carried out if the franchisee is granted with a certificate to

trade such goods or services.

There are several factors that will contribute to the growth of foreign franchises in

Vietnam and that will attract foreign franchisors to participate in this market,

including:


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- Per capita GDP and per capita incomes are on the rise, and incomes in the

urban areas (such as Ho Chi Minh City, Ha Noi, Da Nang and Can Tho)

have seen significant growth;

- An emerging middle-class with disposable income is driving demand for

high-quality food and beverages, entertainment and lifestyle oriented

products and services;

- High-end, well-known premium brands are in demand, although recent

research by Nielson suggests a slight shift toward value and increasing price

sensitivity among urban consumers. Vietnamese consumers often associate

Western brands with quality and reliability;

- Consumer patterns vary throughout the country: between urban and rural

areas, and especially between the regions of Hanoi and the north, Da Nang

and the Central Coast, and Ho Chi Minh City and the Mekong Delta region in

the south.

Franchiser: A trader who wishes to franchise its trading rights must satisfy all of the

following conditions:

- The business system to be franchised has been operating for at least one

year. If a Vietnamese master franchisee wishes to sub-franchise the trading

rights than it has received from a foreign franchiser, the Vietnamese master

franchisee must have been operating the franchising business in Vietnam for

at least one year;

- Having registered its franchising business with the Ministry of Industry and

Trade or the provincial Department of Industry and Trade;

- The goods or services are allowed to be franchised.

Franchise agreement for trading rights in Vietnam must be made in Vietnamese

language and may include essential contents such as: trading rights, rights and

obligations of franchiser and franchisee, price or periodical fees and method of

payment, duration of agreement and extension, termination and disputes

settlement. If intellectual property rights are transferred along with the franchise of

trading rights, the franchise agreement may include a separate part dealing with the

transfer, which is subject to the Law on Intellectual Property.

The contracting parties may agree upon the duration of a franchise agreement

without any minimum or maximum time limitation. The law allows either the

franchiser or the franchisee to unilaterally terminate the franchise agreement prior

to its expiry.

Franchiser has the right to unilaterally terminate the agreement in the following

cases:

- The franchisee no longer has a business certificate or equivalent papers that

are required by law for the franchisee to carry out the franchise business;

- The franchisee is liquidated or bankrupted in accordance with Vietnamese

law;

- The franchisee has seriously violated the law which may cause significantdamages to the prestige of the franchise system; or


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- The franchisee fails to remedy its minors breaches of the agreement within a

reasonable period of time after receiving a written request from the

franchiser for such remedies

- The franchisee may unilaterally terminate the agreement if the franchiser

violates or fails to perform one of its obligations as stipulated in the Trade

law as follow: To provide the franchise manual

To provide initial training and regular technical assistance

To design and layout the goods and services sales outlet at the cost

of franchisee

To ensure the intellectual property rights in respect of the objects set

out in the franchise agreement or

To accord equal treatment to franchisees in the franchise system.

Registration of Franchise business:The current law does not require a franchising

agreement to be registered. However, a Vietnamese or foreign trader who wishesto franchise its trading rights must register its franchise activities with either Ministry

of Industry and Trade (in case of franchise being undertaken between a

Vietnamese and a foreign trader) or the provincial Department of Industry and

Trade (in case of franchise being undertaken between Vietnamese traders).

The following documents are required for registration of franchise activities:

- A standard application form;

- The manual on franchise system (in the standard form);

- Documents in respect of legal status of the franchiser and certificates of the

intellectual property registered in Vietnam or abroad if the franchiser plans tolicense such intellectual property;

The registration of franchise activities may be revoked if the franchiser ceases or

changes its business activities, or if its business registration certificate or

investment license is withdrawn.

Under Vietnams WTO commitments, foreign investors may now set up a joint

venture with a Vietnamese partner(s) with no limitation of foreign capital share or

even 100% foreign owned companies to engage in franchising services. After 1

January 2010, foreign invested companies engaged in franchising services may

branch out in the country. The chief of branches has to be resident in Vietnam.

III: TAXATION

The following taxes may affect foreign-invested projects and foreigners working in

Vietnam:

Corporate Income Tax;

Capital Transfer Tax;

Value-Added Tax; and

Personal Income Tax.


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1. Corporate Income Tax

1.1 CIT rates

The new Law on CIT has introduced a standard CIT rate of 25% for FICs, including

foreign parties to BCCs since 1 January 2009. FICs and foreign parties to BCCs

which obtained investment licences or certificates before 1 January 2009 will

continue to enjoy the preferential tax incentives as stipulated in their investmentlicence or certificate.

1.2 Preferential rates

Other than the standard rate, preferential rates of 10% (for 15 years or the whole

operation period) and 20% (for 10 years) apply to a number of investment projects

which satisfy certain conditions such as investment in certain fields of business

and/or encouraged geographical locations. In addition to preferential CIT rates,

FICs and foreign parties to BCCs may enjoy CIT exemption between 02 to 04 years

and a 50% reduction in CIT between 04 to 09 years subsequently.

CIT preferential rates, exemptions and reductions

CITRate

CriteriaPeriod

applicableCIT

exemption*

50% CIT reductionwhen CIT

exemption periodexpired*

10%

Newly established enterprises in:

Locations: with specially difficult socio-

economic conditions; Economic Zones, High

Tech Zone established under PMs decision

Sectors: high technology, scientific researchand technology development, investment in

development of specially important

infrastructure facilities of the State; production

of software products.

15 years from the

first year of revenue

generation

15 years from thefirst year of revenue

generation

(maximum 30 years

at PMs approval)

4 years

9 years

(5 years for newly-

established

enterprises in thesocialization

sectors operating in

areas other than

areas with difficult

or specially difficult

socio-economic

conditions)Enterprise operating in the field of socialization

(education training, occupational training,

health care, culture, sport and the

environment)

During the whole

operation period

20% Newly established enterprise in areas ofdifficult socio-economic conditions

10 years from the

first year of revenuegeneration

2 years 4 years

25%

Standard rate for all projects except for

projects in the field of oil and gas or rare and

precious mineral exploitation, which are subject

to 32-50% CIT rates

N/A N/A N/A

Certain expenditures of enterprises in manufacturing, construction and transportation for female or ethnic

minority labor are deducted from CIT

* The application of tax exemption/ reduction from the first profitable year. 3 year limit is introduced.


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1.3 Carried-forward losses

During the operation, any losses incurred by FICs or foreign parties to BCCs in any

tax year may be carried over to the following years and such losses are deductible

from taxable income. Losses may be carried forward for a maximum period of 05

consecutive years as from the year following the year in which the loss arose.

Carrying-back of losses is not permitted.1.4 Profit remittance tax

From 01 January 2004, profits derived from foreign investments in Vietnam have

not been subject to profit remittance tax when remitted out of Vietnam.

2. Capital Transfer Tax

The tax rate applied to capital transfer is 25% and 20% of the assessable income

with respect to corporations and individual tax residents, respectively, and 0.1% of

the transfer price with respect to individual non-tax residents.

Upon obtaining the amendment to the investment certificate, the transferor isrequired to register the transfer of capital with the tax authority.

3. Value-Added Tax

Value-Added Tax (VAT) applies to the supply of goods and services for use in

production, business or consumption in Vietnam. VAT is calculated on the

sale/purchase price of the relevant goods or service before the addition of VAT.

The applicable VAT rates are 0%, 5% and 10%, of which the normal rate of 10% is

applicable to most goods and services; 5% for a number of encouraged goods and

services; and 0% for exported ones and international transportation. Certain goods

and services are exempt from VAT, e.g., unprocessed agricultural products sold by

the producer, certain insurance services and certain imported equipment. The

difference between being subject to VAT at 0% and being exempt from VAT is that,

in the former case, the input VAT can be claimed from the tax authority.

VAT exemptions

Foreign-invested projects shall be exempt from VAT with respect to the following

imported items:

(a) machinery, equipment and materials which are not yet able to be produced

domestically and which are required to be imported for direct use in scientificresearch and technological development activities;

(b) machinery, equipment, replacement parts, specialised means of

transportation and materials which are not yet able to be produced

domestically and which are required to be imported to carry out prospecting,

exploration and development of petroleum and natural gas field; and

(c) aircraft, drilling platforms and watercraft which are not yet able to be

produced domestically and which are required to be imported to form fixed

assets of enterprises or which are leased from foreign parties for use in

production and business and in order to be sub-leased.


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4. Personal Income Tax

4.1 Taxpayers

Under the new Law on Personal Income Tax, taxpayers include tax residents and

non-tax residents.

A tax resident who (a) stayed in Vietnam for 183 days or more within acalendar year or within a consecutive 12 month period from his/her arrival in

Vietnam or (b) has a registered permanent residence in Vietnam or has a

house rented in Vietnam under a lease contract of 90 days or more in a tax

year, is subject to PIT on worldwide-sourced income (regardless of where the

income is paid) and Vietnam-sourced income.

A non-tax resident who does not fall under the category of tax resident above

is subject to PIT on income sourced in Vietnam.

4.2 Exempt income and allowable deductions

Exempt income:

The following incomes, among others, are not subject to PIT:

Income from the transfer of immovable properties between spouses; parents

and children; adoptive parents and adopted children; parents-in-law and

children-in-law; grandparents and grandchildren; and between siblings;

Income from the transfer of residential houses, residential land use right and

properties attached thereto in case the house or the land is the only place for

accommodation of the transferor;

Income being receipt of an inheritance or gift of real property as betweenhusband and wife; as between parents and children, including foster parents

and adopted children; as between parents-in-law and children-in-law; as

between grandparents and grandchildren; and as between siblings;

Interest income from deposits or savings in credit institutions/banks and

interest from life insurance policies;

Income from overseas remittances from Vietnamese relatives;

Salary for night-shifts and excessive amount of overtime income;

Pension paid by the Social Insurance;

Income from the scholarships granted by the State budget or by national and

international organizations;

Insurance compensation payments under life insurance policies, non-life

insurance policies, compensations for accidents at work;

Income earned from charity (non-profit) funds; and

Income from governmental or non-governmental foreign aids for charity and

humanitarian purpose.

Family deductions:

Under the new PIT regime, sums called as family deductions may be deducted


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from the taxable business incomes and employment incomes of tax residents prior

to the assessment of tax. Family deductions include:

Personal deduction of VND4 million/month (approx. USD200/month); and

Dependent deduction of VND1.6 million (approx. USD80/dependent/month).

A dependent means a person that a taxpayer has obligations to feed up or support,including (a) infant or offspring being handicapped or incapable to work, and (b)

individuals having no income or having incomes not exceeding VND500,000/month

(approx. USD25/month) including offspring studying in universities, colleges, high

schools or technical and vocational schools; spouse who is incapable of working;

parents over the working age or incapable of working; and other persons directly

reared or cared for by taxpayers who are over the working age, or within the

working age but is disabled, with no residence.

There is no limit on the number of dependent reported by each taxpayer but each

dependent must be reported once by taxpayers.

Other deductions:

Taxpayers can claim deductions from their business incomes and employment

incomes for the compulsory contributions of Social Insurance, Health Insurance,

professional indemnity insurances, and other statutory insurances.

Furthermore, donations to licensed charity organizations including humanitarian

funds and study encouragement funds may also be deducted from business

incomes and employment incomes of taxpayers.

4.3 PIT rates applicable to tax residents

(a) The scale of progressive tax rates on each portion of income that applies to

business income and employment income are as follows:

Exchange rate: USD1=approx. VND20,000

Tax

Bracket

Portion of Annual

Assessable Income

(million VND)

Portion of Annual

Assessable Income

(million VND)

Tax Rate

(%)

1 Up to 60 Up to 5 5

2 Over 60 to 120 Over 5 to 10 10

3 Over 120 to 216 Over 10 to 18 15

4 Over 216 to 384 Over 18 to 32 20

5 Over 384 to 624 Over 32 to 52 25

6 Over 624 to 960 Over 52 to 80 30

7 Over 960 Over 80 35


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(b) Flat tax rates for other taxable income

Assessable IncomeTax Rate

(%)Capital investment, royalties 5

Franchise, interests and dividends 5

Inheritances 10

Winning or prizes, gifts 10

Capital transfer 20

Gains transfer of securities

Value transfer of securities (Gains are unable to be determined)

20

0.1Gains on transfer of immovable properties

Value transfer of immovable properties (Gains are unable to be

determined)

25

2

4.4 PIT rates applicable to non-tax residents

Flat tax rates are applicable to non-tax residents as follows:

Income ItemsTax Rate

(%)

1. Business income (on turnover arising from provision of goods &

services):

(a) For trading activities 1

(b) For services 5

(c) For production, construction, transportation and other business

activities2

2. Employment income (irrespective of where the income is paid or

received)

20

3. Capital investment (on total amount receivable from the

investment)

5

4. Capital transfer (on transfer price) 0.1

5. Transfer of immovable properties (on transfer price) 2

6. Royalty and franchise (on the portion of income exceeding VND10

million)

5

7. Prizes, inheritances and gifts (on the portion of income exceedingVND10 million)

10


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5. Import and Export Duties

5.1 Tax rates

Export duties are charged on a few items, primarily agricultural products (e.g. rice,

forest products and fish) and natural minerals. Rates vary between 0% and 50% ofthe FOB price of exported goods. Petroleum oil is subject to an export duty rate

between 0% and 8%.

Import duty rates are now classified into three categories as follows:

preferential rates vary between 0% and 150% of the CIF price of imported

goods. Preferential rates are applied to goods imported from countries

including Germany which have MFN status with Vietnam;

special preferential rates apply to goods imported from countries which have

a special preferential agreement with Vietnam, e.g. the ASEAN member

countries, Japan and with China, Korea, Japan Australia and New Zealandas part of ASEAN.

ordinary rates apply to goods imported from other countries. These are up to

70% above the preferential rates applicable to MFN countries;

To be eligible for the preferential rates or special preferential rates, the imported

goods must be accompanied by an appropriate Certificate of Origin.

5.2 Import duty exemptions

FICs and parties to BCCs shall be exempted from import duty with respect to the

following goods, provided that: (a) they are implementing a project in anencouraged field of business set out in Appendix I, or in a geographical location set

out in Appendix II and (b) such goods are imported to form the fixed assets of the

enterprise:

i. equipment and machinery;

ii. specialized means of transport of a production line which are not yet able be

produced domestically and means of transport to be used for carrying

workers (automobiles having 24 seats or more, and watercraft);

iii. components, details, detachable parts, spare parts, accessories, moulds and

supplements pertaining to or accompanying the equipment and machinery,and specialized means of transport as specified above;

iv. raw materials and materials which are not yet able be produced domestically

for the manufacturing of the equipment and machinery which are parts of the

production line or the manufacturing of components, parts, detached

devices, spare parts, installations, moulds and accessories which

accompany the equipment and machinery; and

v. construction materials which cannot be manufactured domestically.

The above exemption of import duty is also applicable in the case of a project'sexpansion or replacement or renovation of technology.


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Investment projects in the specially encouraged sectors or in areas with specially

difficult socio-economic conditions shall be exempt from import duties on goods

imported for their own use and which can not be produced domestically for a

duration of 5 years from the date of commencement of production, including raw

materials, materials and component parts. This 5-year tax exemption does not

apply to projects producing and assembling automobiles, motorcycles, air

conditioners, refrigerators and other items as identified by the Prime Minister.

In addition, goods and products imported in a number of circumstances also enjoy

import duty exemption i.e. export processing, petroleum, software, ship building,...

Based on the investment certificate, the feasibility study and the technical design of

a project, FICs and parties to BCCs shall register the list of import duty exempted

goods with local custom office.

IV: CUSTOMS REGULATIONS

Documents required for export include:

- Customs declaration form for export goods (original);

- Detailed packing list (original);

- Export permit for goods requiring export permit (original);

- Purchase and sale contract or equivalent documents (copy);

- Other documents as stipulated by law for specific items (copy).

Documents required for import include:

- Customs declaration form for import goods (original);

- Commercial invoice;- Purchase and sale contract or equivalent documents (copy);

- Import permit for goods requiring import permit (original);

- Bill of lading (copy);

- Detailed packing list (original);

- Certificate of origin (original). It is requited to be eligible for the preferential or

special preferential rates, the import goods must be accompanied by an

appropriate C/O certifying that they are sourced from preferential treatment

countries, otherwise C/O is not required.

- Certificate of registration for quality inspection issued by an inspection

organization or note on exemption from state quality control issued by thecompetent authority and other documents as stipulated by law.

Procedures

Customs procedures are completed at customs offices established at international

seaports, international river ports, international civil airports, international railway

stations, international post offices, or land border gates or at customs offices

established elsewhere under the decision of the Minister of Finance.

Examination

The head of the customs office that receives customs declaration shall determinewhether to examine the merchandise or the extent of examination. Vietnam has

adopted a system of minimum customs inspection. Under the newly amended Law


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on Customs, whether a consignment of goods is examined or not depends on the

result of analysis of information, records of compliance with law by the owner, and

the level of risk of breach of the customs law. Instead of actual customs

examination before clearance of goods, the customs now relies more on post-entry

auditing to enforce the law.

Examination Exemption:The actual customs inspection is exempted for:- Goods being imported or exported by owners with good observance of the law;

- Export goods, except those produced from imported materials and those subject

to conditional export;

- Import goods which are machinery and equipment to form fixed assets and

which are tax exempt as part of an investment project;

- Goods imported into free trade zones, transit ports and customs bond

warehouses, goods in transit, emergency relief goods, specialized goods

directly servicing national defense and security, humanitarian aid goods and

goods temporarily imported for re-exported within a specified time;

- Goods in other special cases as may be decided by the Prime Minister;

- Goods other than the above mentioned may be exempted from actual customs

examination if the analysis of information from various sources and from a

reconnaissance by Customs establishes that there is no possibility of a breach

of the law of customs.

Random examinationof no more than 5% of merchandise may be conducted by

the customs to assess the goods owners compliance with the customs law.

WholeLot Examination shall be applied to goods whose owners have bad

customs records or where customs violation is suspected.

Clearance

In general, goods are released after customs procedures have been completed and

taxes have been paid. However, there are some exceptions to this rule. For

example, where there is an appropriate reason, declarers may be allowed to submit

certain documents in delay. Deferred tax payment may also be applicable to certain

type of merchandise such as inputs imported for export manufacturing etc. Goods

imported in emergency cases are released immediately without waiting for the

completion of customs procedures or paying taxes.

For import or export goods which must be appraised in order to as certain if theyare permitted to be imported or exported, if the goods owner requests to hold the

goods for preservation, the customs office shall accept such request only in the

case where all conditions for customs control have been satisfied.

For goods which are permitted to be imported or exported but their value must be

verified or they must be appraised, analyzed and classified in order to determine

the amount of duty payable, such goods shall be cleared by Customs only after the

goods owner has discharged the obligation to pay duty on the basis of a self

declaration and assessment of duty and has provides sufficient guarantee in the

form of a surety, a deposit or some other appropriate instrument, covering the

ultimate payment of customs duties for which the goods may be liable as the


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results of the verification of t

Business and Investment Guide in Vietnam

Documents

Transcript of Business and Investment Guide in Vietnam