Indochina Legal - Doing Business in Vietnam

7/24/2019 Indochina Legal - Doing Business in Vietnam

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LEGAL GUIDE TO DOING

BUSINESSIN VIETNAM

Member of

JANUARY


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INTRODUCTIONSHORT

Vietnam with its fast-growing and dynamic economy provides lucrative opportunities for foreign investors willing tounderstand the market. Indochina Legal has prepared this legal guide to assist those interested in investing in Vietnam or

otherwise dealing with generic legal questions in the course of doing business in Vietnam.

This legal guide was initially submitted as Indochina Legals contribution to Legalinks multi-country survey on legal and

business developments in each Members jurisdictions.We intend to provide relevant information on various key areas from

the countrys legal system to its applicable legal regimes for establishment and operation of businesses, employment, tax,

competition, intellectual property, commercial arrangements, e-commerce and consumer protection.

The material contained in this legal guide is intended for information purposes only. This guide is current as at December2013 and covers most but not every Vietnamese regulation scheduled to enter into force on January 2014.

Accordingly, the contents herein should not be treated nor relied upon as legal advice. For further information or clarication

in relation to any matter or legal instrument in this document, kindly contact any of our Vietnam oces or drop us an email

at [email protected].

DISCLAIMER

Eric Le Drau

Managing Partner


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OF CONTENTSTABLE

1. What is the legal system (i.e. common law system, civil law system or both) in Vietnam? 06

2. What are the major law courts in Vietnam? 06

3. What are the sources of laws (such as constitution, statute law and common law) in

Vietnam? 08

4. What is/are the ocial language(s) in Vietnam? 10

5. Are there any restrictions faced by a foreign individual or company intending to invest in

Vietnam? 12

6. Are there any exchange control or currency regulations in Vietnam? 13

7. What grants or incentives are available to a foreign individual or company to encourage

investment in Vietnam? 16

8. What is the most common form of business vehicle used by foreign investors in Vietnam? 18

i. Registration formalities;

ii. Minimum (and maximum) share capital;

iii. Whether shares can be issued for non-cash consideration, such as assets or

services (and any formalities);

iv. Any restrictions on foreign shareholders;

v. Management structure and any restrictions on foreign managers;

vi. Directors liability;

vii. Parent company liability; and

viii. Reporting requirements (including ling of accounts).

9. What are the main laws regulating employment relationships in Vietnam? 26

27

A / LEGAL SYSTEM........................................................................................................06

B / FOREIGN INVESTMENT.............................................................................................12

E / TAX...........................................................................................................................36

C / BUSINESS VEHICLES................................................................................................18

D / EMPLOYMENT..........................................................................................................26

11. Do foreign employees require work permits and/or residency permits if they work in Vietnam?

If so, how long does it take to obtain them? 28

12. Are employees entitled to management representation and/or to be consulted in relation to 30

corporate transactions (such as redundancies and disposals) in Vietnam?

13. Are there any employment protection laws (such as minimum wage law and/or maximum 30

working hours law) in Vietnam?

14. Is there any pension system in Vietnam? Is it on a mandatory or voluntary basis? 31

15. How is the termination of individual employment contracts regulated in Vietnam? Under 32

what circumstances is the dismissal of an employee unlawful?

16. Are redundancies and mass layoffs regulated in Vietnam? 33

17. In relation to employees, what is the basis of taxation (i.e. whether territorial source principle, 36

tax residency principle or other principle is adopted) in Vietnam?

18. Under what circumstances are employees subject to taxation in Vietnam? 36

19. What income tax must be paid by: 36

i. Employees?

ii. Employers, in relation to their employees?

20. In relation to corporations, what is the basis of taxation (i.e. whether territorial source 38

principle, tax residency principle or other principle is adopted) in Vietnam?

21. Under what circumstances are corporations subject to taxation in Vietnam? 39

22. What are the main taxes that potentially apply to a corporation and what are their tax rates? 39

23. Please explain how each of the following is taxed in Vietnam: 43

i. Dividends paid to foreign corporate shareholders?

ii. Dividends received from foreign companies?

iii. Interest paid to foreign corporate shareholders?

iv. Intellectual property (IP) royalties paid to foreign corporate shareholders?

24. Are there any thin capitalization rules (i.e. restrictions on loans from foreign aliates) in

Vietnam? 44

25. Are there any controlled foreign company rules (i.e. the prots of a foreign subsidiary must

be imputed to a local parent company) in Vietnam? 44

26. Are there any transfer pricing rules (i.e. restrictions on the pricing of transaction between

a local entity and a foreign entity) in Vietnam? 44

27. How are imports and exports taxed in Vietnam? 45

Is a written contract of employment required in Vietnam, and if so, must it contain any

particular language? Are any agreements and/or implied terms likely to govern the

employment relationship?

10.


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28. Is there a wide network of double tax treaties and free trade agreements in Vietnam? 46

29. Is there any competition law in Vietnam? 48

30. Are restrictive agreements and practices regulated by competition law in Vietnam? 49

31. Is unilateral (or single-rm) conduct regulated by competition law in Vietnam? 49

32. Are mergers and acquisitions subject to merger control in Vietnam? 50

33. Please outline the main intellectual property rights that are capable of protection in Vietnam.

In each case, please state: 52

i. What is the nature of the right?

ii. How is it protected?

iii. How is it enforced?

iv. How long is it protected?

34. Are marketing agreements regulated in Vietnam? If so, please give brief details in respect

of the following arrangements: 56

i. Agency;

ii. Distribution; and

iii. Franchising.

35. Are there any laws regulating e-commerce (such as electronic signatures and distance

selling) in VIetnam? 58

36. Are there any data protection laws in Vietnam? 60

F / COMPETITION...........................................................................................................46

G / INTELLECTUAL PROPERTY.......................................................................................52

H / MARKETING AGREEMENTS......................................................................................56

I / E-COMMERCE............................................................................................................58

J / DATA PROTECTION...................................................................................................60

37. Are there any laws regulating product liability and product safety in Vietnam? 62

K / PRODUCT LIABILITY..................................................................................................62

OF CONTENTSTABLE

Glossary..........................................................................................................................64


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SYSTEMLEGAL

1. What is the legal system (i.e. common law system, civil law system or both) in Vietnam?

Vietnam has a civil law system, akin to the French legal system.

Being a one-party State under the control of the Communist Party of Vietnam, socialist orientations are often

incorporated into Vietnams legal system, as for instance, the ownership of land and natural resources by the

Vietnamese people (through the State) and the States protectionist stance towards State owned enterprises

(SOEs), Vietnamese owned enterprises and Vietnamese employees.

Under the Amended 2013 Constitution and the Law on Organization of the Peoples Courts, the court hierarchy

of Vietnam (excluding military tribunals, other tribunals provided by law and special tribunals set up by the

National Assembly under special circumstances) generally comprises 3 tiers, at the top of which is t he Supreme

Peoples Court, followed by the Provincial Peoples Courts, and then the District Peoples Courts. The nature and

jurisdiction of each Peoples Court are shown below.

2. What are the major law courts in Vietnam?

Court Nature Jurisdiction

Court Nature Jurisdiction

Supreme Peoples Court Highest judicial body of Vietnam Supervisory and/or review trials of cases

with decisions which have already taken legal

effect but have been protested against; or

Review, in limited cases, of rst-instance

decisions of the immediate lower courts,

which have not yet taken legal effect but have

been appealed or protested against

Provincial

Peoples Court

District Peoples Court1. Mainly an appellate court Court of rst instance Appellate trials of cases where the

rst-instance ruling of lower courts have

not yet taken legal effect but have been

appealed; and

Review of cases where the rulings of lower

courts have already taken legal effect but

have been protested against

Civil, commercial and labor cases within

its competence except when the Provincial

Peoples Courts deem it necessary to exert

jurisdiction over such matter

First instance trials of:

(i) cases where a concerned party to

the dispute is living abroad or the disputed

property is located abroad;

(ii) requests for recognition and

enforcement in Vietnam of foreign court

judgments;

(iii) disputes arising from business

or trade activities in cargo or passenger

transportation by air or sea; purchase and sale

of shares, bonds and other valuable papers;

investment, nancing, banking; insurance;

and exploration and exploitation of resources;

(iv) requests for recognition and

enforcement in Vietnam of foreign arbitral

awards on business or commercial matters,

and requests related to the resolution

of disputes by Vietnamese commercial

arbitrators in accordance with the Commercial

Arbitration Law; and

(v) collective labor disputes, which have

been resolved by labor arbitration boards ofprovinces and centrally-run cities

2. In certain instances, empo-

wered to hold rst-instance

trials of cases according to the

provisions of the Code of Civil

Procedure


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SYSTEMLEGAL

3. What are the sources of laws (such as constitution, statute law and common law) in

Vietnam?

Legal Document Subject

Legal Document Subject

Constitution Sets out the fundamental rights of Vietnamese citizens; the fundamental law

of the State

NA laws and resolutions

PM decisions

Resolutions and circulars

Joint Resolutions

Joint Circulars

Local resolutions, decisions and

directions

GSA decisions

Ministerial circulars

Decrees

Presidential orders and decisions

NASC ordinances and resolutions

Laws of the National Assembly (NA), the legislative arm of the State, address

fundamental issues and the rights and obligations of Vietnamese citizens

while NA resolutions reect the NAs decisions on socio-economic

development tasks and the planning, allocation and adjustment of State

budget

Issued by the Prime Minister (PM)to focus on State management relating to

Government operation, the public administrative system and working

regulations of the Governments members and chairmen of peoples

committees of provinces

Resolutions of the Justices Councils of the Supreme Peoples Court lead

courts in applying legal documents in a consistent manner; Circulars of the

Supreme Peoples Courtaim to exercise management of local peoples courts

and military courts; Circulars of the President of the Supreme Peoples

Procuracy provide methods to ensure implementation of the tasks and

authorities of local peoples procuracies and military procuracies

Issued by the NASC or between the Government and central/ socio-political

organizations to create guidelines on how to address issues related to their

respective participations in State management as stipulated by laws

Joint Circulars of the President of the Supreme Peoples Court and Director of

the Supreme Peoples Procuracy provide guidelines for the consistent

application of legal documents relating to judicial operation; Joint Circu-

lars of Ministers or Heads of Ministry-level agencies provide guidelines in the

implementation of the higher-ranking legal documents related to their

respective function

Resolutions of the Peoples Councils & decisions & directions of the Peoples

Committees provide further guidelines in the implementation of higher-

ranking legal documents at the local level of provinces, districts and

communes .

Issued by the General State Auditor (GSA)to prescribe auditing standards and

provide guidelines for detailed auditing procedures and the implementation of

such procedures

Issued by Ministers and Heads of ministry-like agencies to provide detailed

guidelines on the implementation of higher-ranking legal documents,

specify regulations on technical standards and procedures, and set techno-

economic standards of sectors they are in charge of

Issued by the Government to provide detailed guidelines on the

implementation of higher-ranking legal documents; specify tasks, authority

structure and organizational structure of ministries, ministry-like agencies

and government-aliated agencies

Issued by the State President to exercise tasks and competencies dened

in the Constitution and the laws and resolutions of the National Assembly

Ordinances of the NA Standing Committee (NASC) contain regulations on the

tasks assigned by the NA and that are proposed to be developed as laws after a

certain period of implementation; NASC resolutions aim to interpret the

Constitution, NA laws and NASC ordinances

Being a country of civil law tradition, Vietnams source of law is written legislation (or more commonly referred

to as legal documents). Under the Amended 2013 Constitution and the Law on Promulgation of Legal Documents,

Vietnams primary legal documents comprise the Constitution and the laws and resolutions of the National

Assembly, all of which set out general rules and principles. Meanwhile secondary regulations, which are issued by

executive and judicial bodies empowered to promulgate legal documents, provide details for the implementation

of the general rules and principles in the primary legal documents.

An overview of the hierarchy of Vietnams legal documents is set forth below (in descending order of legal

weight).


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SYSTEMLEGAL

In some instances, certain State bodies having competence to decide on particular matters (e.g. tax oces

or business registration oces) issue their ocial opinion to clarify some points or to provide guidelines on the

scope of application or manner of implementation of relevant regulations. Although not recognized as ocial

sources of law, these ocial letters or opinions are deemed binding upon issuance to t he requesting or addressed

parties.

4. What is/are the ocial language(s) in Vietnam?

Vietnamese (ting Vit) is the national and ocial language of Vietnam.


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INVESTMENTFOREIGN

5. Are there any restrictions faced by a foreign individual or company intending to

invest in Vietnam?

6. Are there any exchange control or currency regulations in Vietnam?

As a general matter, foreign investment in Vietnam may be subject to any or a combination of the following

restrictions:

Yes. Vietnams prevailing exchange control regulations (theFX Regulations) require that all transactions,

payments, listings, advertisements, quotations, setting prices and recording prices in contracts and agreements

and other similar forms of both residents and non-residents within the territory of Vietnam be effected in

Vietnamese Dong (VND) subject to certain exceptions permitted by regulations of the State Bank of

Vietnam (SBV), namely:

Is an approval or permit required if a foreign individual or company wants to enter a certain industry?

Yes. Under the 2006 Investment Law, a foreign investor investing in Vietnam for the rst time must have an

investment project which consists of a series of proposals for the expenditure of a determined medium and long-

term capital (equity and debt) in order to carry out investment activities from a specic registered site and for

a specied duration and which is subject to either investment registration or evaluation procedures before the

competent licensing authority in order to be granted an IC. The incorporation of a Vietnamese company by a foreign

investor takes place simultaneously with the licensing of the rst project, and the issued IC will concurrently serve

as the ERC of the newly established foreign invested enterprise (FIE) in Vietnam.

market access restrictions such as maximum percentage of foreign ownership, requirements on

corporate form such as undertaking of certain business lines through a joint venture or business

cooperation contract (BCC) with Vietnamese partner(s);

mandatory screening and evaluation procedures during incorporation and procurement of an

investment certicate (IC) for any rst investment project in Vietnam, which is granted for a limited

operation term and for the registration of the initial project only (as opposed to simpler business

registration procedures in the case of Vietnamese investors establishing wholly Vietnamese owned

companies for the procurement of an enterprise registration certicate ( ERC) containing both the

business and tax registration of the Vietnamese applicant for any proposed line of business, for any

initial and subsequent projects undertaken by the enterprise and usually for an indenite term of

operation (see item 8.i));

Vietnam residency requirement for certain corporate executives;

foreign employment restrictions (see item 8.v and 11); and

de facto restraining measures such as the State authorities sympathy towards SOEs and Vietnameseowned companies and general reluctance in recognizing or enforcing international arbitral awards.

transactions with institutions permitted to provide foreign exchange services;

internal capital transfer between a resident organization and a dependent accounting entity;

contribution of capital by a resident for implementation of a foreign investment project in Vietnam;

receipt of payment by a resident pursuant to an import or export contract or contract entrusting import

or export;

receipt of payment by resident contractors from investors or head contractors in order to make payment

and disbursement transactions to overseas subcontractors or suppliers;

receipt of payment by resident institutions providing business insurance services from insurance

purchasers for all types of goods and services which must be reinsured offshore;

receipt of payment by residents being institutions conducting business in duty free goods or providingservices in separated areas in international bordergates or providing customs bond warehouse services

for the supply of goods and services;

receipt of payment by residents being customs and police oces of international bordergates and

customs bond warehouses from non-residents for all types of taxes and fees for entry/exit visas and

fees for the provision of services;

receipt of salary, bonuses and allowances by non-resident organizations and resident foreigners;

telegraphic transfers by non-residents to other non-residents or in order to make payment to residents

for the export of goods and services; and


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INVESTMENTFOREIGN

other necessary situations after consideration by and permission from the SBV Governor.

economic organisations established and carrying on business activities in Vietnam

diplomatic representative oces, consulate representative oces and representative oces ofinternational organizations of Vietnam in foreign countries (the Diplomatic Ofces);

representative oces in foreign countries of credit and economic institutions established and carrying

on business activities in Vietnam and Vietnamese State bodies (theRepresentative Ofces);

Vietnamese citizens residing in Vietnam; Vietnamese citizens residing overseas for a duration of less

than 12 months; and Vietnamese citizens working for any Diplomatic Oce or Representative Oce

and the individuals accompanying such citizens;

foreigners permitted to reside in Vietnam for a duration of 12 months or more; and in the case of

foreigners in Vietnam for study, medical treatment, tourism, or work for Diplomatic Oces, such duration

shall exclude any period of ineligibility as a resident; and

representative oces or branches in Vietnam of foreign economic institutions, permanent establishments

of foreign parties participating in investment or other commercial activities in Vietnam, and operating

oces of foreign contractors in Vietnam.

direct investment activities (such as receipt of capital monetary contributions and capital for

implementation of direct investment; receipt of medium or long-term foreign loan capital registered

with the local-level SBV; disbursement outside Vietnam of the principal, interest and fees on such SBV-

registered foreign medium or long-term; and remittance of dividends abroad) can be made in foreign

currency but only through a direct investment capital foreign currency account opened at 1 authorized

credit institution in Vietnam by foreign investors or parties of FIEs and BCCs in Vietnam; and

indirect investment activities (such as receipt from assignment of capital contribution and shareholding

or from the sale of securities; disbursement being a capital contribution or purchase of securities; and

disbursement for payment of expenses arising in Vietnam) shall be conducted in VND through an indirect

investment VND account opened by non-resident foreign investors at an authorized credit institution in

Vietnam.

Residents, for purposes of exchange control in Vietnam, include organizations and individuals in the following

categories (non exhaustive):

Any individual or entity not otherwise in any of the above categories shall be considered a non-resident in

Vietnam under the FX Regulations.

As a general matter, the inow of foreign currency into Vietnam and the transfer of foreign currency out

of Vietnam are subject to comprehensive FX Regulations. Revenue and disbursement transactions relating to

investment activities in Vietnam fall under one of the 2 following categories:

payment for imported goods and services;

overseas remittance by foreign investors of (i) invested and reinvested capital, (ii) prots and dividends

earned from investment activities in Vietnam, (iii) revenue from transfer of technology and (iv) principal

and interest of offshore loans;

capital transfer by a Vietnamese enterprise for an offshore investment project licensed by the Ministryof Planning and Investment (MPI); and

overseas remittance of salaries and other legal incomes of foreign employees.

Subject to submission of the relevant documentation to the bank concerned and fulllment of the nancial

obligations to the State, the outow of foreign currency from Vietnam to overseas is authorized for the purpose of

legitimate payments, including the following:


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INVESTMENTFOREIGN

investment sector: whether in any of the preferential investment sectors (e.g. bio-technology

development, environmental protection, manufacture of composite or light construction materials, etc.);

purpose of investment: whether for expansion of scale, raising output capacity or business capability,

renovation of technology or raising product quality, or reducing environmental pollution; and

labor employment requirements: whether employing more than 3,000 employees.

preferential corporate income tax (CIT) rates of (i) 10% or 20% for the entire duration of the project

of enterprises in certain sectors or (ii) from 10% to 20% from 10-15 years for enterprises engaged in

encouraged investment projects or with projects in socio-economically disadvantaged locations;

CIT exemptions or holidays for a maximum of 2 to 4 years from the rst year the business has taxableincome;

50% CIT reduction for a maximum of 4 to 9 subsequent years following the CIT exemption or holiday

period;

land rent, land use fee or land use tax exemption or reduction;

accelerated depreciation of xed assets; and

assistance with costs of site clearance, relocation and auxiliary infrastructure construction for investors

in public private partnership projects.

purchase of foreign currency to meet requirements for current, capital, and other permitted transactions

in accordance with FX Regulations;

compensation at market conditions in cases of nationalization or conscation of assets or capital by

administrative measures;

overseas remittance of prots, payments received from the provision of technology and services

and from intellectual property, foreign loan principal and interest, invested capital and proceeds from

liquidation of investments, and other monies and assets lawfully owned by the investor in accordance

with FX Regulations;

use of assets as collateral or mortgage of land use rights and assets attached to land with credit

institutions authorized to operate in Vietnam; and

access and use of public services. Investment incentives range from or may be a combination of the following and are stated in the qualied

FIEs IC:

Meanwhile, State investment guarantees are generally enjoyed by both Vietnamese owned companies and

FIEs, including the following rights:

location of the project: whether in a preferential geographical area or in an industrial park, export

processing zone, economic zone or high-tech zone.

Both qualied Vietnamese companies and FIEs may be entitled to certain investment incentives depending

on, inter alia, the following considerations:

7. What grants or incentives are available to a foreign individual or company to encourage

investment in Vietnam?


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VEHICLESBUSINESS

8. What is the most common form of business vehicle used by foreign investors in

Vietnam?

ii. Minimum (and maximum) share capital;

The most common form of business vehicle used by foreign investors is a limited liability company (LLC) (cng

ty trch nhim hu hn), which can be set up by 1-50 investors or members (i.e. 1 member in the case of single

member LLCs (SLLCs) or 2 or more members in the case of multiple member LCCs (MLLCs)) and which can either

be a 100% FIE or a joint venture between local and foreign investors.

Foreign investors ( like local investors) intending to issue, list or trade shares are required under Vietnamese

law to be in the form of a shareholding company or joint stock company (JSC) (cng ty c phn), with at least 3

shareholders with no limit on their maximum number.

A JSC in Vietnam can either be private or public. As dened under the Amended Securities Law, a public

company is a JSC that has (i) made a public offer of shares, or (ii) shares listed on the stock exchange or a

securities trading center, or (iii) shares owned by at least 100 investors excluding professional securities investors,

and a paid-up charter capital of VND 10 billion or approximately USD 474,000 or more.

Generally, there are no minimum and maximum capital requirements for an FIE; it must, however, have enough

capital resources to successfully implement its investment project and realize its business goals for the licensing

authority to issue an IC. The capital structure of the company, including its total investment amount or charter

capital, is then stated in the IC.

In certain sectors, certain capital thresholds (or legal capital) are required to be satised in order for the

company to be able to do business. For instance, the following amounts are required as minimum capital for thefollowing sectors:

The total amount of capital contributed or undertaken to be contributed by members or shareholders in a

certain period as stipulated in the enterprises charter (i.e. the Vietnamese equivalent of articles of association in

other jurisdictions) is referred to as the charter capital of an enterprise in Vietnam, and may either be:

divided into shares, in the case of JSCs; or

based on the total amount of the capital contributions made by the members, in the case of LLCs (i.e.

LLCs not being allowed by law to issue shares).

By law, an IC shall be issued within 15 working days (in case of investment registration) or 45 days (in

case of investment evaluation). In practice, however, the licensing procedure may take longer, with the licensing

authorities often seeking the opinions of certain central or local authorities and requesting further clarication

or supporting documentation. In contrast, an ERC for wholly Vietnamese owned companies is issued within 5

business days.

Please provide details on:

i. Registration formalities;

A foreign investor having a new investment project in Vietnam must perform either investment registration

procedures for projects under VND 300 billion or approximately USD 14.3 miliion and not in conditional business

sectors or investment evaluationprocedures for projects over VND 300 billion or in any of the conditional business

sectors.

Such FIEs business registration will be carried out at the same time as its investment registration or

evaluation formalities before the competent licensing authority for the latters issuance of an IC.Sector Minimum Legal Capital

Real estate businessVND 6 billion or approximately USD 287,000

Real estate developmentNot less than 15%-20% (depending on the land area usage of the project)

of the total investment capital of the approved project for infrastructure

projects (being urban, residential or industrial zones developments)


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Sector Minimum Legal Capital

Form Other restrictions

Aviation

SLLC

Education

MLLC

JSC

Depending on (i) whether for international or domestic air transportation

business or general aviation business for commercial purposes and (ii) the

number of aircrafts operated, from VND 100 to 1,300 billion or approximately

USD 4.75 to 61.73 million

A company owner may withdraw capital only by way of assignment of a part or all of the charter

capital to other organizations and individuals; and the company must then register for conversion into

a MLLC if the company becomes owned by 2 or more organizations and/or individuals as a result of

such assignment.

From VND 30 million to 150 million minimum investment cost per student

depending on the level of course/training provided (e.g. nursery, secondary

education, short-term training, vocational, professional education, and higher

education)

Part of the contributed capital may be returned to members in proportion to their respective shares of

contributed capital if: (i) business operation has been carried out continuously for more than 2 years

from the date of business registration; and (ii) the enterprise is able to pay in full all its debts and other

property obligations after returning part of the contributed capital to members.

Within 3 years from the date of issuance of the IC, the shares of founding shareholders cannot be sold

except to other founding shareholders unless the sale is approved by the remaining shareholders.

iii. Whether shares can be issued for non-cash consideration, such as assets or services (and any formalities);

iv. Any restrictions on foreign shareholders;

Under the Amended 2013 Enterprise Law, members of LLCs and shareholders of JSCs can make a capital

contribution or pay for shares respectively in any of the following forms (in addition to cash in VND) as valued in

VND by either the members or shareholders or by professional valuation organizations depending on the asset/s

concerned:

Depending on their corporate form, enterprises (both Foreign and Vietnamese owned) may be subject to

certain lock-up periods or other restrictions to the transfer of equity as follows:

Under prevailing regulations, foreign entities and individuals may either set up an enterprise in Vietnam or

contribute capital and purchase shareholding in a Vietnamese enterprise subject to the following restrictions:

cash in a freely convertible foreign currency;

gold;

land use rights;

intellectual property rights;

technology or technical know-how; and

other assets as recorded in the charter of the company as forming the capital of the company.

49% foreign ownership cap in publicly listed companies (currently proposed to be increased to 60%) ;

relevant foreign ownership ratio in the banking, petroleum, civil aviation, publishing, press, education,

securities, and insurance sectors;

relevant foreign ownership ratio in SOEs undergoing equitization or otherwise converting into another

form; and

relevant foreign ownership ratio for sectors set out in Vietnams commitments to the World Trade

Organization (WTO).

VEHICLESBUSINESS

Banking VND 3,000 billion or approximately USD 143 million

Insurance VND 300 billion or approximately USD 14.3 million for a non-life insurance

company; VND 4 billion or approximately USD 190,000 for an insurance

brokerage company


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Form Management structure

Form Management structure

SLLC

MLLC

If the owner appoints only 1 AR:

chairman being the AR

general director or director

1 to 3 inspectors or controllers

Chairman of the enterprise or GD (as stated in the

charter) serves as Legal Rep.

If the owner appoints 2 or more ARs:

members council and chairman of the

members council

general director or director

1 to 3 inspectors or controllers

Chairman of the members council or GD (as

stated in the charter) serves as Legal Rep.

Members council

General director or director

3 to 5 inspectors or controllers for MLLCs having more than 11 members (optional for MLLCs

with 2-11 mem bers, depending on its corporate administration requirements)

Chairman of the members council or GD (as stated in the charter) serves as Legal Rep. An individual

may concurrently be an AR, t he chairman of the enterprise or of the members council, GD, and Legal

Rep, unless otherwise stated in the charter.

An individual may concurrently be an AR, the chairman of the enterprise or the members council, GD,

and Legal Rep, unless stated otherwise in the charter.

Vietnams current policy on the recruitment and employment of foreigners generally allows the hiring or

transfer into Vietnam of foreign directors, executive directors or m anagers subject to the following requirements

and restrictions (in addition to the work permit requirement as discussed in item 11):

Employers, excluding contractors in Vietnam, must le an annual plan, for submission to and approval

by the chairman of the peoples committee in the locality of the head oce (the PC Chairman), explaining

the need to employ foreigners for each working position. Employers are also required to report to the P C

Chairman any change in their need to employ foreigners.

Only the managers listed in item 11 are exempted from the work permit requirement in Vietnam.

The Legal Rep of an enterprise must reside in Vietnam, and if absent from Vietnam for more than 30

days then he must provide a written authorization to another person who will perform the rights and

obligations of the Legal Rep.

VEHICLESBUSINESS

v. Management structure and any restriction s on foreign managers;

The management structure of an enterprise in Vietnam generally comprises the (i) authorized representatives

(AR) of the owner (for SLLCs), members (for MLLCs) or shareholders (for JSCs), who all comprise the members

council or general meeting of shareholders, the highest decision-making body of a LLC and JSC respectively; (ii)

general director (GD) or director, who serves as the chief executive ocer of the enterprise; and (iii) inspectors

or controllers, who oversee the running and management of the enterprise. In the case of JSCs, the board of

management serves as the JSCs management body. The chairman of the enterprise or the members council or

the board of management or the GD (as the case may be) is stated in the charter to be the legal representative

of the enterprise (the Legal Rep), who is the person authorized to represent, sign for, and bind the enterprise. The

table below sets forth the management structure of an enterprise in Vietnam according to its corporate form:

vi. Directors liability;

The Amended 2013 Enterprise Law provides the general duciary obligations of the managers of an enterprise,

who as dened under the same law include the chairman of the enterprise or of the members council, members of

the board of management, GD and other managerial positions as stipulated in the charter. Also, board members

of listed and unlisted public companies have f urther specic obligations provided by other regulations.

JSC General meeting of shareholders

Board of management, comprising 2-11 members, unless otherwise stated in the charter

GD or director

3-5 inspectors or controllers if the JSC has more than 11 individual shareholders or has corporate

shareholders owning more than 50% of the total shares of the enterprise.

Chairman of the board of management or GD (as stated in the charter) serves as Legal Rep; and

unless otherwise stated in the charter, an individual may concurrently be an AR, the chairman or a

member of the board of management, the GD, and Legal Rep, except that the GD of a JSC may not

currently be a GD of another enterprise.


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breach of law;

conduct of business or other transactions not in the interests of the subsidiary and causing damage to

other persons; and

nancial and accounting matters such as submission of audited annual nancial statements within 90

days from the closing of the nancial year, registration under the Vietnamese Accounting System (VAS)

with the Ministry of Finance (MOF), MOF approval to use an accounting system other than VAS or a

foreign currency as currency accounting unit; and

labor and related employment matters such as registration of labor use and labor books, report on the

changes in the labor contracts of employees, FIEs report on foreign employees, registration of written

internal labor regulations, and submission of social insurance participation dossier and quarterly

reconciliation of social insurance.

vii. Parent company liability; and

As a general rule, a parent company is only accountable for the debts, liabilities and property obligations of its

subsidiary to the extent of its capital contribution to the subsidiary. The Amended 2013 Enterprise Law, however,

provides for the lifting of the corporate veil and for liability to be directly imputed to the parent company when the

parent company performs the following acts in the name of its subsidiary:

VEHICLESBUSINESS

In case of a managers breach of his duties, he may be held personally liable under the law and the companys

charter for any resulting loss. Depending on the nature and gravity of the breach, an offender may be subject to

administrative, civil and even criminal liability.

The Amended 2013 Enterprise Law also provides instances where legal proceedings can be instituted by

(i) a LLC member, in its own or in the companys name, against the chairman of a members council and/or GD,

and (ii) a shareholder or group of shareholders holding at least 1% of the total number of ordinary shares for

a consecutive period of 6 months, in its/their own or in the companys name, against a member of a board of

management and the GD.

premature payment of debts in c ases where the company is likely to be in nancial danger.

general post-licensing matterssuch as publication of announcement on establishment, registration of

commencement of operation, registration with the Police Department of the ocial seal of the enterprise,

setting up of the register of members (for MLLCs) and register of shareholders (for JSCs), and tax code

registration;

organizational and business registration matters such as registration of additions and changes to the

enterprises lines of business, head oce, name, charter capital or capital contribution ratio, founding

shareholders (for JSCs), members (for MLLCs), ARs, and Legal Rep, any of which require the amendment

of the IC or ERC;

viii. Reporting requirements (including ling of accounts).

Reporting requirements of enterprises in Vietnam generally relate to any of the following matters and are to

be completed according to the specic time frame provided by law:


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27

Vietnamese and foreign employees, trainees and apprentices working in Vietnam;

employers (whether Vietnamese owned or an FIE) in Vietnam; and

other agencies, organizations and individuals directly related to the labor relationship. an indenite term labor contract with no xed term or time of t ermination;

a denite term labor contract for a period between 12-36 months; and

a seasonal or specic job labor contract with a duration of less than 12 months.Vietnamese workers sent by their Vietnamese employers to work abroad must comply with Vietnamese

law and the law of the foreign country concerned, unless an international treaty of which Vietnam is a

member contains some other provision.

Vietnamese citizens working in FIEs in Vietnam, in foreign agencies and organizations or in

international bodies in Vietnam, or working for individuals being foreign nationals in Vietnam, must

comply with and shall be protected by Vietnamese law.

Foreign nationals working in Vietnam must comply with Vietnamese labor law unless an international

treaty of which Vietnam is a member contains some other provision, and they shall be protected by

Vietnamese law. This means that mandatory rules and requirements under Vietnamese labor law mayapply regardless of the choice of law in the employment contract.

As a general matter, the parties to a labor contract may only stipulate that a foreign law shall govern a

labor contract to the extent that it is not contrary to Vietnamese labor law.

9. What are the main laws regulating employment relationships in Vietnam? 10. Is a written contract of employment required in Vietnam, and if so, must it

contain any particular language? Are any agreements and/or implied terms likely to

govern the employment relationship?The Labor Code of June 18, 2012 (the 2012 Labor Code) serves as the main law governing employment

relationships in Vietnam, and applies to:

A contract of employment in Vietnam shall be entered into in writing (in 2 copies) except for temporary work of

less than 3 months, and is generally made in accordance with the standard form of the Ministry of Labor, Invalids

and Social Affairs (MOLISA).

Under Vietnamese labor law, a labor contract is classied based on its t erm, as follows:

Any labor contract for employment relations in Vietnam must be consistent with Vietnamese labor law and

cannot grant to employees fewer benets than due under Vietnamese labor law. Thus, mandatory rules and

requirements under Vietnamese labor law may apply to foreign nationals working in Vietnam regardless of the

choice of law in the labor contract (see item 9).

In addition to the labor contract, certain aspects of the employment relationship are also covered by the

following agreements:

As to the governing law of employment relationships, the 2012 Labor Code provides (see also item 10):

IN VIETNAMEMPLOYMENT

Employers employing more than 10 employees must establish internal labor regulations, which determine,

among other matters, working hours and breaks, labor safety rules, protection of assets and businesssecret and disciplinary labor procedure, and is subject to (i) prior consultation with the Executive

Committee of the Grassroots Trade Union (ECGTU) within the concerned enterprise or its direct superior

level, (ii) registration with the provincial DOLISA and (iii) posting or display within the company premises.

Also, a collective labor agreement can be signed between the ECGTU and the employer. This agreement

sets out working conditions and employee benets, which must be at least equal to or greater than

those stipulated by law, and must meet these conditions: (i) all matters subject to collective negotiation

have been agreed and recorded in the minutes of the collective negotiation sessions executed by the

ECGTU and the employer and (ii) 50% of the employees have voted in favor of the negotiated matters. The

agreement, when signed, is required to be publicly announced to all employees for information purposes.


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a foreigner issued with an operational license in the information and press sector in Vietnam by the

Ministry of Foreign Affairs;

a teacher in a foreign agency or organization who is appointed by the competent authority of a foreign

country to come to Vietnam to teach in an international school managed by a foreign diplomatic oce

or international organization in Vietnam;

a foreign volunteer working in Vietnam without entitlement to a salary in order to implement an

international treaty of which Vietnam is a member;

a foreigner with a masters degree or higher or similar qualication providing consultancy, teaching, or

conducting scientic research at a university or vocational college for a period not exceeding 30 days;

a foreigner conrmed to be coming to Vietnam to implement an international agreement by a central or

provincial State agency or a central socio-political organization; and

a foreigner covered by other cases as decided by the P rime Minister on a proposal from MOLISA.

The employer must lodge an application le requesting issuance of a work permit with the DOLISA where

the foreign employee will work on a regular basis or where the employer has its head oce, at least 20 days prior

to the date on which it is proposed that the foreigner will commence working in Vietnam. By law, the DOLISA shall,

unless there are valid grounds for refusal, issue a work permit within 10 working days from submission of a valid

application le. In practice, however, the process may take longer.

Work permits currently have a shorter maximum duration of 2 years (compared to the previous maximum

duration of 36 months), but may be renewed for further term(s) subject to certain conditions. Foreigners working

in Vietnam without a work permit may be penalized (e.g. by way of administrative nes) or, if unable to meet work

permit requirements, deported back to their home countries.

In the case of foreign employees who are not required to obtain a work permit, Decree 102 now requires

employers to submit, at least 7 days before the date on which a f oreign employee will commence work in Vietnam,

a request to the local DOLISA to conrm that such foreign employee is not required to procure a work permit to

work in Vietnam.


an intra-corporate transferee in any of the following 11 service sectors under Vietnams WTOcommitments: business, communications, construction, distribution, education, environment, nance,

health, tourism, recreational culture, and transport services, in accordance with provisions of an

international treaty of which Vietnam is a member;

a capital contributing member of a MLLC or the owner of a SLLC;

a member of the board of management of a JSC;

the head of a representative oce or of a project of an international organization or non-governmental

organization in Vietnam;

a foreigner entering Vietnam for a period under 3 months to resolve an incident breakdown or technically

or technologically complex situation arising and affecting, or with the risk of affecting production or

business with which Vietnamese experts or foreign experts currently in Vietnam are unable to deal;

a foreign lawyer issued with a foreign lawyer practicing certicate in Vietnam;

a foreigner exempted from procuring a work permit in accordance with the provisions of an international

treaty of which Vietnam is a member;

a foreigner studying in Vietnam but the employer must provide a 7 days advance notice to the Department

of Labor, Invalids and Social Affairs (DOLISA);

a foreigner coming to Vietnam to provide expert and technical consultancy services or to undertake

other tasks in the research, formulation, evaluation, monitoring and assessment, management and

implementation of a program or a project using ocial development aid ( ODA) in accordance with the

provisions of the relevant ODA agreement;

11. Do foreign employees require work permits and/or residency permits if they work in

Vietnam? If so, how long does it take to obtain them?

Yes. Under the 2012 Labor Code and Decree No. 102/2013/ND-CP dated September 5, 2013 and effective

November 1, 2013 (Decree 102), any foreigner working in Vietnam must obtain a work permit, unless such f oreigner is

any of the following:


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Yes. In general, an employer must hold discussions at the workplace once every 3 months or on one-off

occasions at the request of one of the parties. In particular, the 2012 Labor Code requires an employer to

notify in advance and seek the opinion of its employees or the organization representing the labor collective of its

employees in the following cases:

Article 104.1 of the 2012 Labor Code meanwhile requires normal working hours not to exceed 8 hours in a

day and 48 hours in a week except for workers who perform extremely heavy, toxic or dangerous work whose work

hours shall not exceed 6 hours in a day. Where work is agreed to be stipulated on a weekly basis, Article 104.2

of the 2012 Labor Code provides that working hours must not exceed 10 hours in a day and 48 hours in a week.

Overtime working hours shall not exceed 50% of the normal working hours in one day except for the following

cases: (i) manufacturing or processing of export textiles, leather, footwear, agricultural, forestry and aquatic

and (iii) other cases where urgent work must be resolved. However, in such cases the maximum overtime working

hours may not exceed 300 hours per year.

Yes. Employers and employees in Vietnam are by law required to participate in social, health, and unemployment

or job loss insurance at the following rates:

Social and unemployment insurance contributions do not apply to foreign expatriates but only to Vietnamese

employees; however, as from 1 October 200 9, a foreign expatriate who signs an employment contract for 3 months

or more with an entity in Vietnam shall be subject to the statutory health insurance payments at the same rates

applicable to Vietnamese employees.

The compulsory social insurance contributions are based on the employees salary and wages as stated in the

labor contract, subject to a cap of 20 times the minimum salary or wage as declared by the Government. These

income tax purposes (see enumerated deductions in item 19.i).

With respect to pension, employees who have paid social insurance contributions for 20 years or more and

being of retirement age (in general, 60 years old for men and 55 years for women) shall be entitled to a monthly

Yes. The wage rate of private employees must not be lower than the minimum wage rates stipulated by the

areas and industries and determined according to minimum living conditions of employees and family households,

socio-economic conditions and wage rates on the labor market. MOLISA has set the current minimum wage levels

for the private sector effective January 1, 2014 from VND 1,900,000 to 2,700,000 (equivalent to US$ 90 to 128),

depending on the region where the employer is located and/or operates from.

retrenchment of employees in cases of restructuring, change of technology, or changes for economic

reasons;

formulation of wage scales, wage tables and labor rates; and promulgation of rules on payment of bo-

nuses;

drafting or amending internal labor rules;

dealing with a breach of labor discipline including temporary suspension of an employee;

formulation and implementation of occupational safety and hygiene plans;

decisions on matters relevant to the rights and interests of women or disabled employees; and

issuing other regulations relevant to the rights and obligations of employees.

13. Are there any employment protection laws (such as minimum wage law and/or

maximum working hours law) in Vietnam?

14. Is there any pension system in Vietnam? Is it on a mandatory or voluntary

basis?


12. Are employees entitled to management representation and/or to be consulted

in relation to corporate transactions (such as redundancies and disposals) in Vietnam?

Employee

Social

Insurance

Health

Insurance

Unemployment

Insurance

Trade Union

Fee

Employer

8%

18%

1.5%

3%

1%

1%

N/A

2%


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33

the employees repeated failure to perform work in accordance with his labor contract;

the employees inability to work after having been ill or injured and treated for 1 2 consecutive months (for

indenite term labor contracts), 6 consecutive months (for denite term labor contracts) or more than

half the duration of the contract (for seasonal or specic job labor contracts of less than 12 months);

the employers need to narrow production and reduce the number of jobs as a result of a natural disaster

or force majeure;

the employees failure to work at the workplace on the 15th day from expiry of the term of suspension

of performance of his labor contract; and

the employers retrenchment of employees as a result of restructuring, change of technology, for

economic reasons, or due to merger, consolidation or separation of the enterprise (see item 16).


Termination of employment is strictly regulated under Vietnamese labor law. An employer can only unilaterally

terminate an individual labor contract under the following specic circumstances provided by the 2012 Labor

Code:

15. How is the termination of individual employment contracts regulated in Vietnam?

Under what circumstances is the dismissal of an employee unlawful?

salary on which social insurance premiums are based, corresponding to 15 years of having paid social insurance

premiums, plus an additional 2% for men or 3% for women for each further year of having paid social insurance

premiums; with the maximum rate equaling 75% and the lowest monthly retirement pension being equal to the

general minimum salary or wage.

Employees who have paid social insurance premiums for more than 30 years in the case of men and 25 years in

the case of women shall also, upon retirement, be entitled to a lump sum allowance in addition to t heir retirement

pension. This lump sum social insurance benet shall be calculated on the number of years of the period of

having paid social insurance premiums, for each year of which period, employees shall be entitled to 1.5 times the

average monthly salary or remuneration on which social insurance premiums are based.

An employer that unilaterally terminates a labor contract must provide advance notice to the employee

according to the prescribed period under the law (from 3 to 45 days depending on the term of the labor contract

and the circumstances under which the labor contract is terminated).

In case of an illegal unilateral termination by an employer (i.e. termination other than according to the

abovementioned grounds), the employer must:

The employer must formulate and implement a labor usage plan and if new jobs are created, then the

employer must prioritize retraining for employees in order to continue to employ them.

receive the employee back to work in accordance with the signed labor contract;

pay wages, social insurance and health insurance for the period during which the employee did

not work, plus at least 2 months wages (the prescribed amount);

in addition to the prescribed amount, pay an allowance equal to 1/2 of 1 months wage for each year of

employment (if the employee has regularly worked for 12 months or more) or at least 2 months wages

(if so agreed by the parties in order to terminate the labor contract) in case the employer does not wish

to continue to work (the allowance);

pay the prescribed amount and amend or supplement the labor contract of the employee concerned in

case there is no longer the working position or job for which the labor contract was signed and the

employee wishes to continue to work; and

in addition to the prescribed amount and the allowance, pay the employee an amount equivalent to his

wage for the period during which advance notice was not provided in accordance with the prescribed

period.

16. Are redundancies and mass layoffs regulated in Vietnam?

Yes. Employers can only make redundancies and layoffs as a result of restructuring, change of technology,

for economic reasons, or due to merger, consolidation or separation of the enterprise.

In case of retrenchment due to restructuring, change of technology, or economic reasons:


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If the employer is unable to provide new jobs but must retrench employees, then t he employer may only

retrench employees after (i) discussion with the organization representing the labor collective at the

grassroots level, (ii) 30 working days advance notice of its planned retrenchment to the DOLISA, and (iii)

payment of allowance for job loss to employees equivalent to 1 months wages for each working year

but at least 2 months salary.


The succeeding employer shall be responsible to continue to e mploy the current number of employees

and to amend their labor contracts.

When the succeeding employer is unable to employ all current employees, then such employer

must prepare and implement a labor usage plan.

On transfer of ownership or right to use assets of an enterprise, the previous employer must prepare a

labor usage plan.

In case of retrenchment of employees, the employer must pay allowance for job loss equivalent 1

months wages for each working year but at least 2 months salary.

In case of merger, consolidation, division or separation of an enterprise:


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IN VIETNAMTAX

17. In relation to employees, what is the basis of taxation (i.e. whether territorial source

principle, tax residency principle or other principle is adopted) in Vietnam?

18. Under what circumstances are employees subject to taxation in Vietnam?

19. What income tax must be paid by:

i. Employees?

Personal income tax (PIT) is paid on an individuals taxable income, comprising:

Employees who are considered as tax residents of Vietnam are taxed on their worldwide income (subject

to the provisions of any double tax treaty (DTA) entered into by Vietnam with the relevant country) while non-tax

resident employees are only taxed on their Vietnam-source income.

A non-tax resident is an individual who does not meet the abovementioned criteria for tax residency in

Vietnam. However, if an individual has a permanent living place available for more than 183 days but has actually

been present in Vietnam for less than 183 days, and can prove to be a tax resident of another country, he shall be

considered as a non-tax resident in Vietnam for such tax assessment year.

An individual is considered to be a Vietnamese tax resident and thus taxable on his worldwide income if he:

spends 183 days or more in the aggregate in Vietnam as calculated within 1 calendar year or within 12

consecutive months starting from the date of his arrival in Vietnam;

maintains a residence in Vietnam (e.g. has been granted a permanent or tem porary residence card); or

has leased a residential housing in Vietnam for a total term of 1 83 days or more.

income from activities of production and business in goods and services and independent professional

practice (the business income);

income from salaries, wages, and most employment benets, whether in cash or in kind (the employment

income); and

For both employment income and business income, progressive rates (see table of rates below) ranging from

5% to 35% apply to tax residents (i.e. both Vietnamese and expatriate resident employees). In the case of non-tax

residents, their Vietnam-sourced employment income is subject to a at rate of 20%. While their business icome

is treated as non-employment income that is subject to the 1% to 5% rate. Non-employment income meanwhile

is taxed (depending on whether the individual is a resident or non-resident of Vietnam for tax purposes) at ratesranging from 0.1% to 25%.

income from capital investment, capital and real property transfers, royalties and franchising, winnings

prizes, and inheritances and gifts (the non-employment income).

Residents employment income and business income:

Vietnams PIT Law allows, among other tax deductions:

Annual taxable income (million VND) Monthly taxable income (million VND) Tax rate

Up to 60

Over 60 up to 120

Over 216 up to 384

Over 624 up to 960

Over 120 up to 216

Over 384 up to 624

Over 960

Up to 5

Over 5 up to 10

Over 18 up to 32

Over 52 up to 80

Over 10 up to 18

Over 32 up to 52

Over 80

5%

10%

20%

30%

15%

25%

35%

contributions to mandatory social, health and unemployment insurance schemes;

up to VND 1 million or approximately USD 50 for monthly contributions to voluntary pension schemes

set up in accordance with the guidance of the MOF;

contributions to certain approved charities;

personal tax allowance of VND 9 million or approximately USD 450 per month effective July 1, 2013;


21/35

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IN VIETNAMTAX

dependent tax allowance of VND 3.6 million or approximately USD 180 per month per dependent

effective July 1, 2013, subject to the registration by the taxpayer of, and procurement of a tax code for,

such qualied dependent(s) with the relevant tax authority; and

for foreigners working in Vietnam: a one-off relocation allowance for moving to Vietnam as determined

based on the terms of the labor contract, cost of 1 return air ticket paid by the employer for a foreign

employee to return home for holiday once a year, and school fees in Vietnam paid by the employer for

the children of a foreign employee from primary school up to high school level. Accommodation of a

foreign employee that is paid by the employer is taxable based on the actual rental but not exceeding

15% of total other taxable income.

In respect of tax residents who have overseas income, PIT paid in a foreign country is creditable.

As a general matter, employers must withhold the relevant percentage of income tax from income paid to its

employees and remit the tax withheld from such employment income to the State Treasury no later than the 20th

of the following month.

Personal income tax returns are due by 30 March in the year following the assessment year. E mployers

nalize PIT on behalf of its employees, provided that the employees have income only from the same employer

and authorize such employer to nalize tax on their behalf.

In addition, employers must make the social security contributions for its employees (see discussion in item

14).

ii. Employers, in relation to their employees?

In relation to business vehicles, taxation is based on the principle of tax residence in Vietnam. Residence is

not dened under Vietnamese tax regulations but a corporation is generally considered to be a resident if it is

incorporated in Vietnam, or if it is incorporated under foreign law but has a permanent establishment in Vietnam

and/or if it conducts production and business activities that generate taxable income in Vietnam.

A permanent establishment of a foreign enterprise in Vietnam means a place for production and/or the entitys

business activities, which can be in the form of:

20. In relation to corporations, what is the basis of taxation (i.e. whether territorial

source principle, tax residency principle or other principle is adopted) in Vietnam?

branches, operational oces, plants, workshops, mines, gas elds, other locations in Vietnam where

natural resources are mined;

construction sites;

establishments providing services, including consultancy services;

agents of foreign enterprises; and

representatives in Vietnam that either have the authority to sign contracts in the name of the foreign

enterprise or regularly deliver goods or provide services in Vietnam.

21. Under what circumstances are incorporations subject to taxation in Vietnam?

An enterprise established under the law of Vietnam must pay tax on its worldwide income. Foreign-source

income derived by residents is subject to tax in the same way as Vietnamese-source income, and is creditable in

Vietnam if already paid in the relevant foreign country.

A foreign enterprise with a permanent establishment in Vietnam must pay tax on all income arising in Vietnam

(including income not relating to the operation of the resident establishment but arising in Vietnam) and on foreign

income that relates to the permanent establishment.

A foreign enterprise without a permanent establishment in Vietnam must pay tax only on income arising in

Vietnam.

A permanent establishment of a foreign enterprise in Vietnam means a place for production and/or the entitys

business activities, which can be in the form of:


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IN VIETNAMTAX

Tax Nature Rate

Special sales

tax (SST)

Capital

assignment

prots

tax (CAPT)

A form of excise tax applicable to the

production or import of certain goods such

as cigarettes, cigars, spirits, beer, certain

automobiles, assorted types of petrol, air

conditioners; and the provision of certain

services such as dance halls, massage

parlors, casinos, golf clubs and lotteries

Imposed on gains from transfers of interests

and securities

Ranges from 10% to 70% depending on the type

of goods or services

Transfers of interests in a FIE or Vietnamese

enterprise: 22% CIT with the target enterprise

being required to withhold the tax due and

account for this to the tax authorities within 10

days from the approval of sale

Transfers of securities (bonds, shares of both

listed and unlisted JSCs pursuant to Circular

No. 111/2013/TT-BTC dated August 15, 2013):

CIT on a deemed basis at 0.1% of the total

disposal proceeds or 20% on the net gain

Tax Nature Rate

Corporate

ncome

ax (CIT)

Imposed on the companys prots, which

include prots of aliates and branches

(dependent units); taxable revenue includes

income from the sale of products, provision of

services, leasing or sale of assets, transfer of

property or shares, business or joint venture

operations with other economic entities and

nancial operation

Standard rate: 22% effective as from January 1,

2014 then 20% by January 1, 2016

Rate for enterprises with total annual turnover

not exceeding VND 20 billion or approximately

USD 1 million: 20% by January 1, 201 4

Oil & gas/natural resources: 32% to 50%,

depending on the project

Preferential tax rates: (i) 10% or 20% for the

entire duration of the project of enterprises in

certain sectors or (ii) 10% for 15 years or 20 % for

10 years for taxpayers engaged in encouraged

investment projects or with projects in socio-

economically disadvantaged locations

Value added tax

VAT)

Applies to goods and services used for

production, trading and consumption in

Vietnam (including goods and services

purchased from abroad), and on the duty paid

value of imported goods

0%: exported goods/services, goods processed

for export

5%: applies generally to areas of the economy

concerned with the provision of essential goods

and services

10%: the standard rate to activities not

specied as not subject to VAT, VAT-exempt, or

subject to 0% or 5% VAT

Foreign

contractor

withholding tax

(FCWT)

A system of withholding tax (CIT and VAT)

applicable to foreign entities carrying

on business in Vietnam or engaging in a

transaction with a Vietnamese contracting

party but not having any legal entity or

licensed presence in Vietnam

Total combined CIT and VAT rate from 0.1% to

15%

Stamp duty or

registration fee

Applies on the required registration of

ownership of certain assets, including land,

buildings, transportation vehicles and guns;

there is no registration fee on transfer of

shares

Rates vary between 0.5% and 20%

22. What are the main taxes that potentially apply to a corporation and what are their

tax rates?

A tax resident corporation will be subject to the following taxes:


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IN VIETNAMTAX

Tax Nature Rate

Natural

resources tax

NRT) or

production

royalty tax

Land use fee to those allocated land by the

State for long term stable use to develop

infrastructure for sales or lease

Land rental to those leasing land from the

State, which is settled either through one offpayment or annually

Non-agricultural land use tax on residential

land and non-agricultural land used for

business purposes

Imposed on the exploitation and use of

natural resources including metallic or non-

metal lic minerals, crude oil, natural gas, coal

gas, natural forest products, natural marine

products, natural water, and other natural

resources

Rates vary from 1% to 35% depending on the

specic classication of natural resources and/or

production

Tax Nature Rate

Business

icense tax

BLT)

Based on the registered capital of the

enterprise in its IC or ERC and is payable upon

registration of the business for tax purpose

and subsequently on an annual basis

Rates vary from VND 1 million to VND 3 million

per year based on the amount of registered

capital of the enterprise

Land use fees rates vary depending on the

location of the land.

Land rental rates vary depending upon the

location, value of the land, infrastructure andsector in which the business is operating.

Non-agricultural land use tax is charged on a

square meter basis with progressive tax rates

ranging from 0.03% to 0.15%

Environmental

protection

ax (EPT) and

environmental

protection fee

EPF)

EPT is an indirect tax applicable to the

production and importation of certain goods,

which may cause damage to the environment,

such as gasoline, oil and grease, coal and

certain chemicals.

EPF is aimed at businesses engaging in

mining natural resources including crude oil,

natural gas, coal gas, and both metallic and

non-metallic minerals.

Rates vary as follows depending on the type of

mineral or resource:

Goods Unit VND

Petro,diesel, grease litre/kg 300 - 1,000

Coal ton 10,000 - 20,000

HCFCs kg 4,000

Plastic bags kg 40,000

Resticted use kg 500 - 1,000

chemical

Import and

export duties

Applicable to goods imported to and exported

from Vietnam.

Duty rates vary depending on the category of

goods and any applicable international treaty

or agreement (see item 27).

23. Please explain how each of the following is taxed in Vietnam:

i. Dividends paid to foreign corporate shareholders?

ii. Dividends received from foreign companies?

iii. Interest paid to foreign corporate shareholders?

Dividends paid by a company in Vietnam to its foreign corporate shareholders are not subject to tax, provided

that the paying entity has fullled all its tax obligations before payment.

Gross dividends (before tax) received by a company in Vietnam from a foreign company are treated as taxable

income of the company in Vietnam. Any foreign tax amount that has been paid overseas (i.e. on the worldwide

revenue of the foreign company before distribution of the dividends) will be deductible against the CIT of the

company in Vietnam.

If the recipient foreign corporate shareholder is not a tax resident or does not have a permanent e stablishment

or a licensed presence in Vietnam, a withholding tax on CIT of 5% shall apply unless the rate is reduced under a

tax treaty. There is no withholding tax on VAT on such paid interest.

Property taxes

iv. Intellectual property (IP) royalties paid to foreign corporate shareholders?

If the recipient foreign corporate shareholder is not a tax resident or does not have a permanent establishment

or a licensed presence in Vietnam, a 10% royalty withholding tax shall apply unless the rate is reduced under a tax

treaty.


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IN VIETNAMTAX

24. Are there any thin capitalization rules (i.e. restrictions on loans from foreign al-

iates) in Vietnam?

25. Are there any controlled foreign company rules (i.e. the prots of a foreign subsidiary

must be imputed to a local parent company) in Vietnam?

26. Are there any transfer pricing rules (i.e. restrictions on the pricing of transaction

between a local entity and a foreign entity) in Vietnam?

27. How are imports and exports taxed in Vietnam?

Currently, there are no specic tax-driven thin capitalization rules in Vietnam. However, certain restrictions to

that effect are provided on foreign loans and CIT (e.g. permitted borrowing capacity and excessive interest rates)

and apply to some sectors (e.g. in the power industry, the leverage ratio for power plants must be at least 70:30

debt-to-equity for the investment project to be issued with an IC).

Yes. Vietnams transfer pricing regulations outline various situations where transactions will be considered

as being between related parties, and the mechanism for determining the market arms length transaction value

(e.g. comparable uncontrolled price, cost plus, resale price, comparable prots and prot split).

Under the wide ranging denition of related parties, the control threshold is lower than in many other countries

(20%) (i.e. one party holds directly or indirectly at least 20% of the investment capital in the other party, or the

two parties hold at least 20% of the investment capital of a third party). The denition also extends to certain

signicant supplier, customer and funding relationships between otherwise unrelated parties.

Compliance requirements include an annual declaration of related party transactions and transfer pricing

methodologies used, which is required to be led together with the annual CIT return. Companies with related

party transactions must also prepare and maintain contemporaneous transfer pricing documentation. Where

companies fail to do so, the tax authorities have the right to impose deemed pricing, prots or tax.

There are currently no controlled foreign company rules in Vietnam.

Except for goods stipulated by the Government as non-taxable, goods imported to or exported from Vietnam

are subject to import or export duties, including:

goods which are imported or exported across the bordergates of Vietnam;

goods which pass between the domestic market and a non-tariff zone (e.g. export processing zones

and enterprises, bonded warehouses or warehouse zones, special economic or commercial-industrial or

other economic zones) and vice versa; and

other goods purchased, sold or exchanged which are deemed to be imported or exported goods.

Import duty rates are classied into the following 3 categories:

Category Description Rate

Ordinary rate Applicable to imported goods that are not

subject to preferential or special preferential

rates or to imported goods not accompanied

by an appropriate Certicate of Origin (C/O).

Based on the Most Favored Nation (MFN)

(or Normal Trade Relations) rate plus a 50%

surcharge.

Preferential

rate

Special

preferential rate

Applicable to imported goods from countries

that have MFN status with Vietnam or from

other countries of the WTO.

Applicable to imported goods from

countries that have a special preferential

trade agreement with Vietnam (e.g. ASEAN

members, Japan, China, India, Australia and

New Zealand).

Based on rates in accordance with Vietnams

WTO commitments.

Based on rates in accordance with the relevant

treaty or trade agreement entered into by

Vietnam.

In principle, Vietnam follows the WTO Valuation Agreement with certain variations. The taxable value of

imported goods is typically based on the transaction value (i.e. the price paid or payable for t he imported goods,

and where appropriate, adjusted for certain taxable or non-taxable elements). Where the transaction value is not

applied, alternative methodologies for the calculation of the customs value will be used.


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IN VIETNAMTAX

machinery and equipment, specialized means of transportation and materials (which cannot be produced

in Vietnam) comprising the xed assets of certain projects or imported to use for oil and gas activities;

Export duties meanwhile are charged only on a few items, basically natural resources such as sand, chalk,

marble, granite, ore, crude oil and forest products, among others. Rates range from 0% to 40% based on the free

on board (FOB) price (i.e. the selling price of goods at the port of departure as stated in the contract), excluding

freight and insurance costs.

Yes. As of the end of 2013, there are 58 double tax treaties signed by Vietnam with various countries and

territories, including most of its signicant trading partners (except for the US) that are in force.

To date, Vietnam is party to 8 bilateral and multilateral FTAs that are in force, namely: Asean FTA, Asean

- Australia-New Zeland FTA, Asean - India Comprehensive Economic Cooperation Agreement, Asean - Japan

Comprehensive Agreement Economic Partnership, Asean - Korea Comprehensive Economic Cooperation

Agreement, Asean - China Comprehensive Economic Cooperation Agreement, Vietnam -Chile FTA and Vietnam -

Japan Economic Partnership Agreement.

Vietnam is presently in the process of negotiating 7 bilateral and multilateral FTAs, namely: Trans-Pacic

Partnership (TPP), Asean - EU FTA, Vietnam - Korea FTA, Regional Comprehensive Economic Partnership, Vietnam

- EU FTA, Vietnam - EU Free Trade Associations Trade Agreement and Vietnam - Customs Union of Russia, Belarus

and Kazakhstan FTA.

raw materials, spare parts, accessories, other supplies, samples, machinery and equipment imported for

the processing of goods for export and nished products for use in the processed goods; and

movable assets.

28. Is there a wide network of double tax treaties (DTA) or Free Trade Agreements

(FTA) in Vietnam?

Import duty exemptions are provided for projects which are listed as encouraged sectors and goods imported

in certain circumstances, including:


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Yes. Vietnams Competition Law establishes 2 broad categories of prohibited conduct, namely, practices

in restraint of competition and unfair business practices; and creates 2 competition authorities namely, the

Vietnam Competition Administration Department (VCAD) and the Vietnam Competition Council to administer the

Competition Law.

Vietnams Competition Law denespractices in restrain of competitionas practices of enterprises which reduce,

distort or hinder competition in t he market, including:

Unfair business practices meanwhile comprise the following practices which are contrary to general standards

of business ethics and cause or may cause damage to the interests of the State or to the legitimate rights and

interests of other enterprises or of consumers:

29. Is there any competition law in Vietnam?

agreements in restraint of competition,

abuse of dominant market position and m onopoly position, and

economic concentration.

misleading instruction,

infringement of business secrets,

coercion in business,

defamation of another enterprise,

causing disruption to the business activities of another enterprise,

advertisement aimed at unfair competition,

promotion aimed at unfair competition,

discrimination by an association,

Yes. The Competition Law of Vietnam prohibits the following agreements or collusion irrespective of the

market share of the relevant parties:

illegal multi-level selling of goods, and

other unfair competitive practices determined in accordance with certain criteria stipulated under the

competition laws.

30. Are restrictive agreements and practices regulated by competition law in Vietnam?

to prevent or impede other enterprises to participate in the market or develop business;

to exclude from the market other enterprises which are not parties to the agreement; and

to win a tender for supply of goods and services.

directly or indirectly x the price of goods and services;

divide consumption markets or sources of supply of goods and services;

restrict the amount and quantity of goods and services produced, purchased or sold;

restrain technical or technological developments or investment; and

impose on other enterprises conditions for signing contracts for the purchase and sale of goods or

services or to force other enterprises to accept unrelated conditions and obligations (third line forcing).

Meanwhile parties having a combined market share of 30% or more of the relevant market cannot make

agreements to, among other things:


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The test for a dominant market position is based on market share (of 30% or more in the relevant market for

an individual enterprise, 50% or more in the relevant market for 2 enterprises together, 65% or more in the relevant

market for 3 enterprises and 75% or more in the relevant market for 4 enterprises) and, in the case of individual

enterprises, the ability to restrain competition.

Yes. Vietnams Competition Law also regulates econom

Indochina Legal - Doing Business in Vietnam

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