DOING BUSINESS IN VIET NAM - A REFERENCE GUIDE FOR ENTERING THE VIET NAM MARKET - PWC
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This Guide includes information makes no guarantee, representation obtained or derived from a variety of or warranty (expressed or implied) publicly available sources. PwC has as to its accuracy or completeness, not sought to establish the reliability and under no circumstances will of these sources or verified such PwC be liable for any loss caused by information. reliance on any opinion or statement made in this document. Except as The information contained in this specifically indicated, the expressions document is of a general nature only. or opinions are those of PwC only and It is not meant to be comprehensive are subject to change without notice. and does not constitute financial, This document shall not be copied, legal, tax or other professional advice. reproduced, transmitted or further distributed by any recipient. You should not act upon the information contained in this The materials contained in this publication without obtaining document were assembled in August specific professional advice. 2018 and were based on the laws Whilst every care has been taken enforceable and information available in preparing this document, PwC at the time. 2 | Doing Business in Viet Nam
Content Foreword 10 Introduction 12 1. An Overview of Viet Nam 16 2. Types of Business Entities 24 3. Trade 29 4. Taxation 34 5. Accounting and Auditing 64 6. Human Resources and Employment Law 68 7. Banking and Capital Market 72 8. Real Estate Market 76 PwC Vietnam 78 Viet Nam Chamber of Commerce and Industry 84 Contact us 86 PwC Vietnam | 5
Viet Nam - We mean business: Connect and Inno- vate Viet Nam: We mean business 6 | Doing Business in Viet Nam
“ In the context of global economic uncertainties, Viet Nam has always maintained its position among the fastest growing countries in the world. In 2017, Viet Nam recorded a growth of 6.81%, for the first six months of 2018 alone, the economy grew at 7.08% which is the country’s highest growth rate in 10 years since the world economic crisis in 2008. Viet Nam ranked 55th out of 137 countries in the WEF’s Global Competitiveness Index (GCI), 68th among 190 economies in World Bank’s Ease of Doing Business, and 45th out of 127 countries in the Global Innovation Index (GII) of The World Intellectual Property Organisation. The political, social environment and macroeconomic factors in Viet Nam are always considered stable. The country has an abundant work force - the youngest labour force in ASEAN, Viet Nam’s labourers are well-trained, hard- working, skilled and able to learn and quickly absorb new technology advances. Nguyen Xuan Phuc Prime Minister of Viet Nam Viet Nam currently has trade relations with more than 200 countries and territories. Viet Nam is a member of WTO, participating in 12 FTAs, including 6 FTAs between ASEAN and major partners such as China, India, Japan and Korea... The CPTPP is being ratified and the next steps will be the completion of the FTA with the EU and the RCEP. These agreements are giving Viet Nam access to more than 50 economies worldwide, and providing opportunities for the country to connect and engage further in the value chains and global production networks.” Extracts from the Keynote Address by H.E. Prime Minister Nguyen Xuan Phuc at the Viet Nam Business Summit 2018, September 13th, 2018. PwC Vietnam | 9
Foreword It gives us great pleasure to introduce the “Doing Business in Viet Nam” guide for 2018 co-published by the Viet Nam Chamber of Commerce and Industry (VCCI) and PwC Vietnam. 10 | Doing Business in Viet Nam
2018 brings the 7th edition of the It is never too late to invest in a “Doing Business in Viet Nam” guide, country with high potential for which provides insights for investors return on investment like Viet Nam. planning to enter or expand their Its diversified economy and varied presence in Viet Nam. geographical landscape are key drivers shaping the development The objectives of Doing Business are of promising sectors such as Vu Tien Loc as clear as they are ambitious: to Agriculture, Tourism and Hospitality Chairman & President address the initial establishment of and Renewable Energy. Viet Nam Chamber of an entity, to implement appropriate Commerce and Industry legal and tax structures, to ensure These are just a few examples ongoing compliance and to resolve of business and investment operations issues. opportunities that Viet Nam has to offer. More information can be found 2017 saw a number of records for in this publication and other PwC Viet Nam’s economy, such as FDI reports, e.g. Spotlight on Viet Nam. disbursement reaching $17.5 billion, We hope you will find insightful a 10-year high. Similar to FDI, information in this guide for your import-export turnover reached a future endeavours. Our teams at record high of over $400 billion with PwC and VCCI in Viet Nam would a trade surplus of nearly $3 billion. be happy to guide you through your Dinh Thi Quynh Van journey in this economy. General Director Coupled with an “enabling PwC Vietnam Government” and her commitment to support and create the most favourable conditions for foreign businesses, the Comprehensive and Progressive Agreement for Trans- Pacific Partnership (CPTPP) and EU-Viet Nam Free Trade Agreement (EVFTA) will serve as strong levers to boost the country’s growth. PwC Vietnam | 11
Introduction Welcome to our guide to doing business in Viet Nam. In this publication,we provide you with information on the business environment as well as accounting, tax and regulatory laws governing business in Viet Nam. 12 | Doing Business in Viet Nam
Viet Nam’s economy has For years, capital has been poured experienced strong growth, driven into Viet Nam focusing on assembling by international trade and foreign facilities and manufacturing factories investment since the 2000s. to take advantage of cheap labour. Favourable government policies and With positive projections and outlook laws, in combination with Viet Nam’s for the country, Viet Nam will young, educated workforce and certainly see a wave of new entrants other advantages have allowed the from foreign companies. In the next country to develop into an attractive decade, it is expected that Viet Nam’s place to invest in South East Asia. tech start-ups will attract big-name investors from the region, mostly In 1987, the National Assembly from within ASEAN and China. passed the Law on Foreign Investment and today, the country There will be challenges and is reaping the benefits 30 years complexities ahead and foreign later. Foreign investors committed companies seeking to enter to invest $318 billion by the end Viet Nam will need to embrace a of 2017, of which $172 billion was mind-set that no economy is the disbursed. same. Thus, understanding Viet Nam and all the elements that make it a Vietnamese people are widely unique market, will help business to regarded as technologically develop and adapt a bespoke strategy proficient, embracing the mobile for the local context. internet economy as a standard in their daily lives. As per Statista’s More importantly, with adequate data, the number of smartphone information and advice provided by users in 2017 was estimated at 29 professionals, foreign investors will million, meaning that around 29% not only effectively enter the market, of the population currently use a but also enjoy sustained success in smartphone. This figure is predicted this country. to rise to 40% by 2021. In 2017, Viet Nam had 54 million internet This guide outlines fundamentals of users and this is forecasted to grow investing in Viet Nam and highlights to 59 million by 2022. These have some common issues that investors been contributing to a dynamic should be aware of when operating digital economy. in Viet Nam. PwC and VCCI remain available to share our considerable local knowledge. PwC Vietnam | 13
Viet Nam in 2018 and looking ahead PwC’s economists predict that Viet Nam will become the 20th largest economy by 2050, fueled by sustainable economic reforms, the strengthening of macroeconomic fundamentals, public institutions and crucially, mass education. Fastest growing #68th economy in ASEAN in Doing Business index 7.1% GDP growth in 2018 14 places from 2016 ADB’s Asian Development Outlook, 2018 Administrative World Bank’s Doing Business Report, 2018 reform A wave of bank 670 Investment and business conditions listing under the management of the A key FDI destination Ministry of Industry and Trade 9 commercial banks were loosened Viet Nam is one of the most consider listing in 2018, frequently recommended expected to spur interest in Ministry of Industry and Trade, 2017 investment destinations. Viet Nam’s stock market AmCham’s ASEAN Business Outlook Survey 2018 >5,000 US$3 billion 2017 total FDI inflows reached foreign deals trade surplus US$36 billion, a record over the past 10 years and is set to look brighter 45.1% increase in foreign while exports topped US$214 in 2018 capital inflow into Vietnamese billion, a 21% increase from Foreign Investment Agency, 2018 businesses compared to 2016 2016 Foreign Investment Agency, 2017 General Department of Viet Nam Customs, 2017 Next steps for investing in Beware of the See how Viet Nam Viet Nam changing business fits into your environment strategy 1 2 3 4 Understand the Build strategy opportunities in execution plans Viet Nam 14 | Doing Business in Viet Nam
Three major growth engines drive opportunities for investors in Viet Nam Young and competitive workforce Competitive economy, Stable government committed to A growing educated workforce, with beyond low cost growth an ideal population structure, where Viet Nam has a cost-competitive, 55 million people are aged 15 and Viet Nam’s Prime Minister Nguyen educated and increasingly skilled Xuan Phuc is committed to building above, accounting for 59% of the labour force. This offers greater total population. Viet Nam has a an enabling, working, and serving value and serves as an ideal government. Several measures and labour market efficiency of around production base for companies 4% compared to 4.4% for the region. actions taken by his government thinking of shifting or diversifying and local administrations have Manpower’s Total Workforce Index, 2017 out of larger economies such as proven to be effective. China. Vietnamese consumers are among the most optimistic, ranked 7th in the world*, riding on the back of * According to Conference Board Global Consumer Confidence Survey For more info, read our special report at pwc.com/vn/spotlight-on-Viet Nam a 7% growth in GDP per capita in 2017. Invest in Viet Nam's Apply competencies and international Share the people standards rewards 5 6 7 8 9 Invest in Expand the relationships business to support regional growth PwC Vietnam | 15
1 An Overview of Viet Nam This guide, Doing Business in Viet Nam, provides a high level overview of the practical aspects of doing business in Viet Nam, including the common types of business entities used by local and foreign investors, and the taxation and regulatory environment in Viet Nam. The guide also covers some practical issues faced by investors when entering Viet Nam. 16 | Doing Business in Viet Nam
“ Viet Nam’s enabling government, continuous Geography Viet Nam is conveniently located in the centre of South East Asia and is bordered by China to the north, and Laos and Cambodia to the west. institutional reforms The total area of Viet Nam is over 330,900 kilometres and its geography includes mountains and plains. Viet Nam’s population is spread throughout and competitive the country. workforce provide Total population by end of 2017 was estimated at over 94 million people. excellent conditions Viet Nam represents a huge pool of both potential customers and employees for many investors. for investors to Hanoi in the north is the capital of Viet Nam and Ho Chi Minh City in the conduct long-term south is the largest commercial city. Da Nang, in central Viet Nam, is the third business.” largest city and an important seaport. Dinh Thi Quynh Van Language Capital city Vietnamese General Director Hanoi PwC Vietnam International dialling code +84 Currency dong 3rd largest city, important seaport: Da Nang Business & 63 municipalities & provinces banking hours 8am - 5 pm Area & population: Monday to Friday over 330,900 square kilometres, over 94 million (median age: 30.5) Stock exchange Ho Chi Minh City 47.4 million Hanoi People of working age in employment $2,385 Average annual income Largest city: Ho Chi Minh City PwC Vietnam | 17
Economic Environment GDP growth was 6.8% in 2017, an increase from 6.2% in 2016 and is targeted to hit 6.7% in 2018 by the Government. Over the last 20 years from 1997 to 2017, GDP growth has averaged approximately 6.4%. Despite facing numerous challenges, 2017 still marked a successful year for trade with export turnover reaching $214 billion, up 21% compared to 2016 - the highest ever year-on-year increase. Textiles and garments, electronic components and mobile phones made significant contributions to Viet Nam’s export economy. Surprisingly, vegetable and fruit exports were also positive, achieving a 43% year-on-year increase. Foreign invested business achieved a trade surplus of $29 billion, contributing substantially to the total national trade surplus. Import activities were well managed which resulted in a trade surplus of nearly $3 billion. Viet Nam’s imports largely comprised raw materials and mechanical spare parts for manufacturing and production purposes as well as for projects in power and energy. GDP growth rate 7.1% 7.1% 6.8% 6.8% 6.7% 6.7% 6.2% 6.2% 6% 6% 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 (forecast) (forecast) Inflation 4% 4% 3.7% 3.5% 3.7% 3.5% 2.7% 2.7% 0.6% 0.6% 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 (forecast) 18 | Doing Business in Viet Nam
Key Sectors and Trading Partners In terms of economic structure, services still accounted for the largest part of GDP, approximately 41.3%, followed by manufacturing and construction at 33.3%. The agriculture, forestry and fishing sector made up 15.4% of GDP in 2017. The EU and ASEAN have continually been long-term trading partners of Viet Nam with total import-export turnover in 2017 hitting $50.4 billion and $49.5 billion respectively. Four other import markets for Viet Nam, with turnover of over $14 billion were: USA ($41.6 billion); China ($35.5 billion); Japan ($16.8 billion) and South Korea ($14.8 billion). For more information on FTAs and trade statistics, please refer to the ‘Trade’ section of this guide. GDP by sector 15% Services 41% Manufacturing & Constructing Agriculture, Forestry & Fishing 33% Major export partners EU Korea US 18% 7% 8% 19% China Japan 17% 10% ASEAN Others 21% PwC Vietnam | 19
Foreign Direct Investment For the past 30 years, Viet Nam As part of its administrative Similar to previous years, has opened the door to welcome reform efforts, the Ministry of Viet Nam continues to attract investors. Viet Nam has become one Planning and Investment (MPI) foreign investments mostly from of the most sought-after investment with support from the World Bank Asian countries, where Japan, destinations thanks to its politico- has developed a draft strategy on Korea and Singapore are ranked as economic stability, stable foreign attracting FDI in 2018-2023 to suit top investors. In 2017, among 115 exchange, inflation and interest new circumstances. The new draft foreign investors in Viet Nam, Japan rates, and notably, its success in strategy targets quality rather than and Korea account for almost half hosting APEC in 2017. quantity, with a focus on high-tech, of the total registered FDI. Most of environmentally friendly, low-energy Japan investments are poured into In line with the commitment to consuming and renewable energy two BOT thermopower projects in create favourable conditions for projects, in addition to enhancing Thanh Hoa and Khanh Hoa, with investors, the Government has made connectivity between FDI businesses total value up to US$ 5.4 billion. In tremendous efforts to accelerate and domestic companies. 2017, China surprisingly climbed to the equitisation and divestment of the fourth position with investments SOEs, which helps to create more Viet Nam joined the World Trade worth US$ 2.1 billion. opportunities for foreign investors. Organisation (‘WTO’) in 2007. Under For instance, Saigon Beer Alcohol its accession commitments, Viet Nam Manufacturing and processing and Beverage Corp (Sabeco) opened up various business sectors continue to be favourite sectors for successfully raised $6 billion from to foreign investment, in some cases foreign investors, reaching US$15.9 sales of shares last year. Similarly, under a phased approach. These billion in 2017, accounting for 44.2% Jardine C&C acquired 5.5% shares of commitments are generally referred of the total FDI. Power production Viet Nam Dairy JSC (Vinamilk) for to when assessing whether foreign and distribution follow with the $616 million in cash. investment in a particular sector is total investment capital of US$8.37 allowed. billion, accounting for 23.3%. Real estate secured the third place at US$3.05 billion, or 8.5%. FDI capital inflow Key FDI sectors 2017 Key FDI sources 2017 $15.9b $8.4b $3.1b $2.4b $1.2b (44.2%) (23.3%) (8.5%) (6.8%) (3.6%) 2016 44.4% 25.4% 23.7% 14.8% 6% 4.6% 2017 $36 billion Highest since 2009 s Disbursed FDI Japan Korea Singapore China British 10.8% Virgin Manufacturing-processing Islands Power production & distribution $17.5 billion Real estate Retail Mining 2016 2017 20 | Doing Business in Viet Nam
Investment incentives: Investment incentives are granted to investment projects based on location, sector and other factors such as the size of the project. High technology, software, new energy, waste recycling and education are among business areas eligible for investment incentives. The full list could be retrieved from the Foreign Investment Agency’s website. Those incentives are provided in the following forms: • Lower tax rates for the whole duration of the investment term or part thereof; exemption from and reduction of tax rates; • Import duty exemption for fixed assets; and • Reduction/exemption of land rental Further details on tax incentives could be found under the Corporate Income Tax section of this guide. PwC Vietnam | 21
Legal and Regulatory Regime 1/ Political structure: Viet Nam is a socialist country operating under the single-party leadership of the Communist Party. A nationwide congress (‘National Congress’) of the Communist Party of Viet Nam is held every five years, with the most recent being in early 2016, to determine the country’s orientation and strategies and adopt its key policies on policies for socio-economic development. The National Congress elects the Central Committee, which in turn elects the Politburo. 2/ Hierarchy of regulations: National Assembly Government Ministries Various other authorities Circulars A plethora of other legal Laws Decrees instruments/ guidelines As the only party in the political arena, the role and influence of the Communist Party is unique. Viet Nam’s legal powers are centralised in one supreme body, and then delegated to lower bodies located in Viet Nam’s 63 municipalities and provinces. The National Assembly is the only body with the power to amend the Constitution and pass laws but the implementation and administration of such laws is decentralised. It is said that 2018 will be a key milestone to ensure the completion of the 2016–2020 Socio-Economic Development Plan. One of the Government’s priorities is to enhance the legal system, which will result in a more business-friendly regulatory environment. Consequently, in 2018, numerous laws are coming into effect, largely focusing on sectors such as banking, technology transfer and trade. Among them, the most significant ones are the Law on Support for Small and Medium - Sized Enterprises, the Law on Amending and Supplementing a Number of Articles of the Law on Credit Institutions, and the Law on Foreign Trade Management. 2018 is going to be a busy year for lawmakers in Viet Nam as the National Assembly plans to pass six draft laws and a dozen draft resolutions, as well as debate nine draft laws. Amongst those, the draft Law on Special Administrative- Economic Zones has received a large amount of public attention since it is expected to greatly contribute to the GDP of the country. In late 2017, the Government issued a new decree on transformation of SOEs into joint-stock companies. This new Decree aims to remove obstacles to SOE equitisation and boost the restructuring of State corporations. 22 | Doing Business in Viet Nam
Law on Investment and property rights; and rights in plant imports of goods and services from Enterprises varieties. Currently, Viet Nam and abroad, repayment of loans and the the EU are finalising preparations payment of interest accrued thereon, In late 2014, the National Assembly to sign the EU-Viet Nam Free Trade transfers of profits and dividends and passed the Law on Investment (LOI) Agreement (EVFTA). Viet Nam’s for transfer of technology/ royalties. and Law on Enterprises (LOE), both participation in both the EVFTA and of which came into effect on 1 July the CPTPP Agreement requires Foreign investors and foreigners 2015. A series of implementing Viet Nam to meet high standards of working in Viet Nam are permitted regulations were issued in late 2015 IPR protection. to transfer abroad profits and (including Decree 78/2015/ND- income earned in Viet Nam, and any CP guiding enterprise registration, Viet Nam has taken steps to improve remaining invested capital upon the Decree 96/ND-CP guiding the its IP framework to the same level liquidation of an investment project. implementation of the LOE, and as other South East Asian countries, Decree 118/2015/ND-CP guiding the according to the sixth annual US Business Etiquette and implementation of the LOI). These Chamber International IP Index, Culture laws govern the establishment and which analyses the IP climate in operation of companies in Viet Nam. 50 world economies, released in Many Vietnamese are more February 2018 by the US Chamber of comfortable using their native In 2016, a number of regulations Commerce Global Innovation Policy language rather than English. were issued or came into effect in Center (GIPC). However, many English speakers can relation to the Law on Investment, be found in Viet Nam, especially in including Decree 135/2015/ND-CP Foreign Exchange Controls the larger cities. on overseas indirect investment, Circular 16/2015/TT-BKHDT The Vietnamese dong is not freely Presenting business cards is an on templates for investment convertible and cannot be remitted important ritual in the Vietnamese registration, Decree 50/2016/ overseas. The Government has been business world. Cards are exchanged ND-CP on administrative fines for implementing measures to gradually at the beginning of a meeting using violation of planning and investment reduce the country’s dependency on both hands. Translating written regulations, and Circular 83/2016/ the US dollar. materials into Vietnamese shows TT-BTC on investment incentives. respect for Vietnamese colleagues Decree 50/2016/ND-CP above is also All buying, selling, lending and and business partners. applied for enterprises. transfer of foreign currency must be made through banks and other Face to face business meetings Intellectual Property (“IP”) financial institutions authorised are important in Viet Nam and an by the SBV. As a general rule, all appropriate level of respect must As a member of the WTO, monetary transactions in Viet Nam be shown according to rank and Viet Nam must conform with the must be undertaken in Vietnamese seniority. WTO’s requirements on Intellectual dong. Payments, contracts, Property. The Law on Intellectual quotations, etc. within Viet Nam Property Rights (“IPR”) was passed must generally be in Vietnamese in 2005, which was amended and dong. supplemented in 2009. According to the Law on IPR, three major IP rights The outflow of foreign currency by are protected in Viet Nam: copyright transfer is only authorised for certain and related rights; industrial transactions such as payments for PwC Vietnam | 23
2 Types of Business Entities A foreign entity may establish its presence in Viet Nam as a limited-liability company with one or more members, a joint- stock company, a partnership, a branch, a business cooperation contract or a representative office. Foreign investors may also buy an interest in an existing domestic enterprise, subject in some cases to ownership limitations which vary depending on the industry sector. The choice of investment vehicle will depend on factors such as the number of investors, industry, size of the project and whether there is any intention to list. 24 | Doing Business in Viet Nam
“ The government has introduced a range of open policies and Forms of business Limited-liability Company stock company is divided into shares and each founding shareholder clearer guidance A limited-liability company is a legal holds shares corresponding to the amount of capital the shareholder supporting investors to entity established by its “members” (i.e. owners) through capital has contributed to the company. establish a commercial contributions to the company. The A joint-stock company is required capital contribution of each member presence in Viet Nam. is treated as equity (charter capital). to have at least three shareholders. The members of a limited-liability There is no limit on the maximum Licensing procedures company are liable for the financial number of shareholders in such have become less obligations of the company to the extent of their charter capital companies. cumbersome during contributions. The governance of a joint-stock company includes the general the recent years.” The management structure of a meeting of shareholders, the board limited-liability company would of management, the chairman of Phan Thi Thuy Duong normally consist of the “members’ the board of management, the council”, the chairman of the general director and a board of members’ council, the general supervisors (not compulsory if the Director director and a controller (or board joint stock company has less than PwC Legal Vietnam of supervisors where the limited- 11 shareholders, or if a corporate liability company has more than 11 shareholder holds less than 50% members). of the shares of the joint-stock company). A limited-liability company established by foreign investors may A joint-stock company may either be take the form of either: 100% foreign-owned or may take the • A 100% foreign-owned form of a joint venture between both enterprise (where all members foreign and domestic investors. are foreign investors); or • A foreign-invested joint-venture Partnership enterprise between foreign investors and at least one A partnership is a very rare form of domestic investor. investment. It may be established between two individual general partners. The general partner has Joint-stock Company unlimited liability for the operations of the partnership. A joint-stock company is a limited liability legal entity established through a subscription for shares in Branch the company. This is not a common form of foreign direct investment and is only permitted Under Vietnamese law, this is the in a few sectors (e.g. banking and only type of company that can issue foreign law firms). A branch is not an shares. The charter capital of a joint- independent legal entity. PwC Vietnam | 25
Branches of foreign companies are Business Cooperation different from representative offices Contract (“BCC”) in that a branch is permitted to conduct commercial activities in A BCC is a cooperation agreement Viet Nam. between foreign investors and at least one Vietnamese partner in Representative Office order to carry out specific business activities. Foreign companies with business relations or investment projects This form of investment does not in Viet Nam may apply to open constitute the creation of a new representative offices in Viet Nam. legal entity. The investors in a BCC generally share the revenues and/ A representative office may not or products arising from a BCC and conduct commercial or revenue- have unlimited liability for the debts generating activities (i.e. the of the BCC. execution of contracts, receipt of income, sale or purchase of goods, or provision of services). Public and Private Partnership Contract A representative office is only (“PPP”) permitted to: • Act as a liaison office; A Public and Private Partnership • Conduct market research; and (“PPP”) contract is an investment • Promote its head office’s form carried out based on a business and investment contract between the government opportunities. authorities and project companies for infrastructure projects and public This is a very common form of services. registered legal presence in Viet Nam, particularly for those PPP contracts include Build- in the first stage of a market entry Operate-Transfer, Build-Transfer, strategy. 26 | Doing Business in Viet Nam
Build-Transfer-Operate, Build-Own- technology zone, information Operate, Build-Transfer-Lease, Build- technology application; Lease-Transfer and Operate-Manage • Infrastructure for agriculture contracts. and rural development, services for enhancing the correlation Both public and private investors of agricultural production with are encouraged to participate in PPP processing and consumption of contracts. The rights and obligations agricultural products; and of the foreign investor will be • Other sectors according to the regulated by the signed PPP contracts Prime Minister’s decisions. and the applicable regulations governing such contracts. Investment sectors include: • Transportation infrastructure and relevant services; • Lighting systems, clean water supply systems, water drainage Liquidation and Bankruptcy systems, water/waste collection and treatment systems, social/ resettlement houses, cemeteries; • Power plants and power A company can only be voluntarily liquidated if it is solvent transmission lines; and all creditors can be paid. The process generally takes 12 • Infrastructure for healthcare, months or more and requires a final tax audit. educational and training, cultural, sport and relevant The Bankruptcy Law came into effect on 1 January 2015 services, offices for government setting out, inter alia, which parties can instigate bankruptcy authorities; proceeding, procedures for the appointment of a liquidator, • Infrastructure for commerce, organisation of creditors meetings and priority of creditor science and technology, payments. hydrometeorology, economic zone, industrial zone, high- tech zone, centralised information PwC Vietnam | 27
Setting Up a Business Limited-liability company/Joint-stock company/Partnership The provincial department of planning and OR The provincial industrial zone management 15 days Investment authority or economic zone Registration investment management authority In practice, it usually takes Certificate (For projects located inside longer. (For projects located outside of industrial zones, export processing industrial zones, export processing zones, high-tech zones and zones, high-tech zones and economic zones) economic zones) Step 2 The provincial 3 days Enterprise department of Registration planning and Certificate investment In practice, it usually takes longer. Note: Investment in “conditional” sector activities is subject to more cumbersome licensing procedures. These may require an approval in principle, or the licence application to be reviewed also at the central government ministry level in Hanoi. Representative office The provincial department of OR The provincial industrial zone management 7 working days industry and trade authority or economic zone Representative management authority Office (For representative office located (For representative office located In practice, it usually takes Licence longer. outside of industrial zones, export inside industrial zones, export processing zones, high-tech zones processing zones, high-tech zones and economic zones) and economic zones) Public-Private Partnership (PPP) project (such as BOT/BTO/BT project) Investment agreement is signed with an “Authorised State Authority” (“ASA”) The Ministry of Planning and Investment Project contract is signed with Investment Registration the relevant state body and the Certificate project company is set up in the form of a limited liability company or a joint stock company. 28 | Doing Business in Viet Nam
3 Trade PwC Vietnam | 29
Trade Statistics “ Viet Nam’s Export & Import Growth (2012 - 2017) participation in new- generation FTAs like the CPTPP and EVFTA 21.2% will help diversify 18.2% 21% trade opportunities 15.4% 15.4% and create a more 13.7% 12.1% transparent business 12% environment and 7.9% 9% 6.6% prepare for Industry 5.2% 4.0 ” Grant Dennis 2012 2013 2014 2015 2016 2017 General Director PricewaterhouseCoopers Key traders (2017) Consulting Vietnam ASEAN 28 21.5 Korea 46.7 Export 14.8 Import 16.6 Japan 16.8 China 58.2 35.5 12.1 EU 38.3 9.2 US 41.6 40.2 Others 45.5 Unit: US$ Billion 30 | Doing Business in Viet Nam
10 Key export commodities Phones and their parts Textiles $45.3 billion $26 billion Computers, electrical products Footwear $26 billion $14.7 billion Machinery, instruments, accessories Seafood $12.8 billion $8.3 billion Wood and wooden products Vehicles and their parts $7.7 billion $7 billion Cameras, video cameras and their parts Textile fiber, fabric & yarn $3.8 billion $3.6 billion 10 Key import commodities Machinery, instruments, accessories Computers, electrical products $37.7 billion $33.7 billion Phones and their parts Textiles, fabrics $16.3 billion $11.4 billion Iron, steel Plastic materials $9 billion $7.3 billion Petroleum oil, refined Other base metals $7 billion $5.4 billion Textile, leather and Plastic products footwear materials $5.4 billion $5.4 billion Source: GSO, Foreign Investment Agency and Custom Department PwC Vietnam | 31
Free Trade Agreements Viet Nam has entered into, or being progressed as the CPTPP The ASEAN-Hong Kong FTA was completed, the negotiation of a (Comprehensive and Progressive signed in late 2017 and will come number of Free Trade Agreements Agreement for Trans-Pacific into force in the first quarter of 2019. (FTAs), including both collective Partnership), Viet Nam continues The EU - Viet Nam FTA is expected FTAs, as a member of ASEAN, and to be increasingly integrated into to be the next major milestone for bilateral FTAs, (such as FTAs with the global economy, through these Viet Nam from a trade perspective. the EU, Japan, Chile and Eurasian bilateral and collaborative FTAs. The It should be effective for Viet Nam Economic Union). CPTPP maintains most of the terms by 2018; and this FTA is expected to of the TPP, allowing the remaining liberalise 90% of imports from both While the original TPP agreement TPP11 to continue implementation sides, in a 10 to 15 year time frame. has been put on hold, instead of the FTA. FTAs 10 Signed and AFTA 3 End of EU - Viet Nam effective negotiation/ ASEAN - China Signed but ASEAN - Hong Kong not yet effective TPP - CPTPP ASEAN - Korea ASEAN - India ASEAN - Japan 3 Under Regional Comprehensive Economic Partnership (RCEP) Negotiation ASEAN - Australia/ New Zealand Viet Nam - EFTA Viet Nam - Chile Viet Nam - Israel Viet Nam - Japan Viet Nam - Korea Viet Nam - Eurasian Economic Union 32 | Doing Business in Viet Nam
Viet Nam has continued on the path • EU - Viet Nam FTA (EVFTA) – reforms, continued domestic of economic liberalisation since its This agreement is in the final investment and improvements in admission to the WTO in 2007. stages of negotiation and is due manufacturing and labour standards to be signed this year. The EU are necessary to fully realise While conceding some delays, key is Viet Nam’s second largest benefits from these and other trade FTAs have been signed and have export market and this FTA will agreements. progressed. The three main FTAs expand opportunities; notably, are: for increased investment and trade between Viet Nam and EU • Comprehensive and member states. Viet Nam has Progressive Trans-Pacific already become a key market Partnership (CPTPP), – the in ASEAN for exports to the EU original TPP has been amended, due to the withdrawal of the USA. However, the remaining and this trend will continue, pending the approval and implementation of this FTA. 11 11 TPP signatories have TPP signatories have continued to move towards full • ASEAN-Hong Kong FTA continued to move towards implementation of the original (AHKFTA)– Signed in late 2017, full implementation of the TPP terms, with some minor this key FTA will come into force original TPP terms. modifications. This agreement in early 2019. Key benefits of the still includes circa 14% of global AHKFTA include: increased ease GDP and should continue to of investment, ownership and foster the attractiveness of financial transactions between Malaysia Viet Nam as an investment Hong Kong and ASEAN. Canada destination and bode well for Viet Nam is Hong Kong’s largest future economic growth. As export market within ASEAN Peru one of the least-developed and tariff reductions, reduced economies of the CPTPP group, trade restrictions and investment Mexico Viet Nam still needs to continue protection should increase to make large strides, in order to the depth of this economic Japan reach the standards outlined in relationship. Additionally, Australia the agreement, but also stands to onward investment through achieve some of the largest gains Hong Kong to ASEAN will be Singapore among the group. Viet Nam’s streamlined. agricultural and manufacturing New Singapore Zealand sectors are in an especially These three key FTAs as well as Brunei good position to take advantage other recent liberalisation actions Darussalam of more open trading terms. (FTAs, SOE equitisation, market Chile In addition to gains in trade, liberalisation policies) show that the FTA should also stimulate the Viet Nam Government is Viet Nam advancements in regulatory committed to expanding market processes, transparency, labour access and opportunities in trade standards, IP, market access, and investment to foreign investors. disputes and other issues. However, additional regulatory PwC Vietnam | 33
4 Taxation 34 | Doing Business in Viet Nam
“ The local tax system is undergoing modernisation to become more in line with international practices, and reduce tax compliance costs and time. ” Nguyen Thanh Trung Partner General Overview PwC Vietnam Most business activities and investments in Viet Nam will be affected by the following taxes: • Corporate income tax; • Various withholding taxes; • Capital assignment profits tax; • Value added tax; • Import duties; • Personal income tax of Vietnamese and expatriate employees; • Social insurance, unemployment insurance and health insurance contributions. There are various other taxes that may affect certain specific activities, including: • Special sales tax; • Natural resources tax; • Property taxes; • Export duties; • Environment protection tax. All these taxes are imposed at the national level. There are no local, state or provincial taxes. PwC Vietnam | 35
Tax Rates Corporate Income Tax (“CIT”) 20% Capital Assignment Profits Tax (“CAPT”) 20% 5% Value added tax 10% 0% (“VAT”) Standard for essential goods and for exported goods/ services services Withholding taxes 5% 5% (Excluding VAT) Levied on certain pay- 10% 1% ments to foreign parties, rates depend on the Royalties General Interest Goods nature of activities, e.g. services Personal Income Tax • PIT rates depend on residency status and nature of income. (“PIT”) • Tax residents are taxed on their world-wide taxable income, tax non-residents on their Viet Nam sourced income only. • Employment income: for residents, progressive tax rates from 5-35% apply, for non-residents, 20% applies on the Viet Nam sourced income. • Other income: tax rates vary from 0.1% to 10%. Social insurance Employer (“SI”), Health 3% insurance (“HI”) and Unemployment 17.5% 1% insurance (“UI”) SI HI UI Employee 8% 1.5% 1% SI HI UI 36 | Doing Business in Viet Nam
Tax incentives based on applicable for Inter alia education, health care, sport/ Preferential CIT rates are 10% and culture, high technology (including 20% for 15 years and 10 years, in agricultural sector), environmental respectively. From 1 January 2016, Sector protection, scientific research, enterprises previously entitled to infrastructural development, clean energy the preferential CIT rate of 20% will and computer software manufacturing. enjoy a rate of 17% instead. When the preferential rate expires, the CIT rate reverts to the standard rate. Certain Inter alia qualifying economic and high- socialised sectors (e.g. education, tech zones, certain industrial zones, and health) enjoy a 10% rate for the entire Location difficult socio-economic areas. life of the project. Tax holidays with a complete Large manufacturing projects meeting exemption from CIT for a certain requirements regarding investment capital, period generally beginning after the Scale minimum revenue, minimum headcount. enterprise first makes profits, followed by a period where tax is charged at 50% of the applicable rate: Manufacturing of industrial products • 4 years of tax exemption and prioritised for development if they meet 9 subsequent years of 50% one of the following conditions: reduction, • The products support the high • 4 years of tax exemption and Industrial technology sector; or 5 subsequent years of 50% products • The products support the garment, reduction, manufacturing textile and footwear, IT, automobiles assembly or mechanics sector and • 2 years of tax exemption and are not produced domestically as 4 subsequent years of 50% at 1 January 2015, or if produced reduction. domestically, they do not meet the quality standards of the EU or equivalent. PwC Vietnam | 37
Types of Tax Page Corporate Income Tax (“CIT”) 39 Transfer Pricing 42 Foreign Contractor Withholding Tax (“FCT”) 43 Capital Assignment Profits Tax (“CAPT”) 47 Value Added Tax (“VAT”) 47 Special Sales Tax (“SST”) 52 Natural Resources Tax (“NRT”) 54 Property Tax 54 Environment Protection Tax 54 Import and Export Duties 55 Personal Income Tax (“PIT”) 57 Social, Health and Unemployment Insurance Contributions 61 Other Taxes 61 38 | Doing Business in Viet Nam
Tax year end sport/culture, high technology, environmental protection, • Projects with total capital of VND12,000 billion or more, scientific research and technology disbursed within 5 years of The tax year end in Viet Nam is development, infrastructural being licensed and using generally 31 December, but financial development, processing of technologies appraised in year end 31 March, 30 June, 30 agricultural and aquatic products, accordance with relevant laws. September are also possible. software production and renewable energy. The two common preferential rates Corporate Income New investment or expansion of 10% and 20% are available for 15 years and 10 years respectively, Tax (“CIT”) projects engaged in manufacturing industrial products prioritised for starting from the commencement of generating revenue from development are entitled to CIT the incentivised activities. The Tax Rates incentives if they meet one of the duration of application of the following conditions: preferential tax rate can be Enterprises (generally companies) • the products support the high extended in certain cases. From 1 are subject to the tax rates imposed technology sector; or January 2016, enterprises having under the CIT Law. The standard CIT • the products support the projects previously entitled to the rate is 20%. Companies operating in garment, textile, footwear, preferential CIT rate of 20% now the oil and gas industry are subject electronic spare parts, enjoy a rate of 17% instead. When to CIT rates ranging from 32% to automobile assembly, or the preferential rate expires, the 50% (depending on the location mechanical sectors and were CIT rate reverts to the standard rate. and specific project conditions). not produced domestically as at Companies engaging in prospecting, 1 January 2015, or if produced The preferential rate of 15% will exploration and exploitation of domestically, they meet the apply for the entire project life in mineral resources (e.g. silver, gold, quality standards of the EU or certain cases. Certain socialised gemstones) are subject to CIT rates equivalent. sectors (e.g. education, health) of 40% or 50%, depending on the enjoy the 10% rate for the entire life project’s location. Locations which are encouraged of the project. include qualifying economic and Tax Incentives high- tech zones, certain industrial Taxpayers may be eligible for zones and difficult socio-economic tax holidays and reductions. Tax incentives are granted to areas. The holidays take the form of an new investment projects based exemption from CIT for a certain on regulated encouraged sectors, Large manufacturing projects period beginning immediately after encouraged locations and the size (excluding those related to the the enterprise first makes profits of the project. Business expansion manufacture of products subject to from the incentivised activities, projects (including expansion special sales tax or those exploiting followed by a period where tax is projects licensed or implemented mineral resources): charged at 50% of the applicable during the period from 2009 to 2013 • Projects with total capital of rate. However, where the enterprise which were not entitled to any CIT VND6,000 billion or more, has not derived taxable profits incentives previously) which meet disbursed within 3 years of being within 3 years of the commencement certain conditions are also entitled licensed, if they meet either of of generating revenue from the to CIT incentives. New investment the following criteria: incentivised activities, the tax projects and business expansion 1. minimum revenue of holiday/tax reduction will start from projects do not include projects VND10,000 billion/annum the fourth year of operation. Criteria established as a result of certain by the 4th year of operation for eligibility for these holidays and acquisitions or reorganisations. at the latest; or reductions are set out in the CIT 2. head count of more than regulations. Sectors which are encouraged 3,000 by the 4th year of include education, health care, operation at the latest. PwC Vietnam | 39
Additional tax reductions may be non-deductible. Examples of non- • Certain interest expenses available for companies engaging deductible expenses include: exceeding the cap of 20% of in manufacturing, construction EBITDA; and transportation activities which • Depreciation of fixed assets • Provisions for stock devaluation, employ many female staffs or employ which is not in accordance with bad debts, financial investment ethnic minorities. the prevailing regulations; losses, product warranties or • Employee remuneration construction work which are not From 1 January 2018, certain expenses which are not actually made in accordance with the incentives, including a lower CIT rate paid, or are not stated in a prevailing regulations; are granted to small and medium labour contract, collective labour • Unrealised foreign exchange enterprises (“SMEs”) (various criteria agreement or the company losses due to the year-end apply in order to be considered as an policies; revaluation of foreign currency SME). • Staff welfare (including certain items other than account benefits provided to family payables; Tax incentives which are available members of staff) exceeding • Donations except certain for investment in encouraged sectors a cap of one month’s average donations for education, health do not apply to other income (except salary. Non-compulsory care, natural disaster or building for income which directly relates to medical and accident insurance charitable homes for the poor; the incentivised activities such as is considered a form of staff • Administrative penalties, fines, disposal of scrap), which is broadly welfare; late payment interest; defined. • Contributions to voluntary • Certain expenses directly related pension funds exceeding VND 1 to the issuance, purchase or sale Calculation of Taxable Profits million per month per person; of shares; • Reserves for research and • Creditable input value added Taxable profit is calculated as the development not made in tax, corporate income tax and difference between total revenue, accordance with the prevailing personal income tax. whether domestic or foreign sourced, regulations; • Service fees paid to related and deductible expenses, plus other • Provisions for severance parties that do not meet certain assessable income. allowance and payments of conditions. severance allowance in excess of Taxpayers are required to prepare an the prescribed amount per the For certain businesses such as annual CIT return which includes a Labour Code; insurance companies, securities section for making adjustments to • Overhead expenses allocated trading and lotteries, the Ministry of accounting profit to arrive at taxable to a permanent establishment Finance provides specific guidance on profit. (“PE”) in Viet Nam by the foreign deductible expenses for CIT purposes. company’s head office exceeding the amount under a prescribed Business entities in Viet Nam are revenue-based allocation allowed to set up a tax deductible Non-deductible Expenses formula; research and development fund to • Interest on loans corresponding which they can appropriate up to Expenses are tax deductible if they to the portion of charter capital 10% of annual profits before tax. relate to the generation of revenue, not yet contributed; Various conditions apply. are properly supported by suitable • Interest on loans from non- documentation (including bank economic and non-credit transfer vouchers where the invoice Losses organisations exceeding 1.5 value is VND20 million or above) and times the interest rate set by the are not specifically identified as being Taxpayers may carry forward tax State Bank of Viet Nam; losses fully and consecutively for a 40 | Doing Business in Viet Nam
maximum of five years. The standard tax year is the calendar Losses arising from incentivised year. Companies are required to activities can be offset against profits notify the tax authorities in cases from non-incentivised activities, and where they use a tax year (i.e. fiscal vice versa. Losses from the transfer year) other than the calendar year. of real estate and the transfer of investment projects can be offset Profit Remittance against profits from other business activities. Carry-back of losses is not Foreign investors are permitted to permitted. There is no provision for remit their profits annually at the any form of consolidated filing or end of the financial year or upon group loss relief. termination of the investment in the annual CIT return Viet Nam. Foreign investors are not must be filed and Administration permitted to remit profits if the submitted not later than 90 investee company has accumulated CIT taxpayers are required to losses. make quarterly provisional CIT days payments based on estimates. If the The foreign investors or the investee from the fiscal year end provisional quarterly CIT payments company are required to notify the account for less than 80% of the tax authorities of the plan to remit final CIT liability, any shortfall in profits at least 7 working days prior excess of 20% is subject to late to the scheduled remittance. payment interest (currently as high as 11% per annum), applying from the deadline for payment of the Quarter 4 CIT liability. Final CIT returns are filed annually. The annual CIT return must be filed and submitted not later than 90 days from the fiscal year end. The outstanding tax payable must be paid at the same time. Where a taxpayer has a dependent accounting unit (e.g. branch) in a different province, a single CIT return is required. However, manufacturing companies are required to allocate tax payments to the various provincial tax authorities in the locations where they have dependent manufacturing establishments. The basis for allocation is the proportion of expenditure incurred by each manufacturing establishment over the total expenditure of the company. PwC Vietnam | 41
Transfer Pricing Related Party Definition i.e. comparable uncontrolled price, resale price, cost plus, profit split and (“TP”) The ownership threshold required to be a “related party” under Decree comparable profits methods. Decree 20/2017/ND-CP (“Decree 20 is 25%, higher than the previous TP Documentation 20”) dated 24 February 2017 came 20% under Circular 66. In addition, into effect on 1 May 2017. Guiding Decree 20 removes from the related Compliance requirements include Circular 41/2017/TT-BTC dated 28 party definition of Circular 66 two an annual declaration of related April 2017 also came into effect on 1 entities having transactions between party transactions and transfer May 2017. them accounting for more than pricing methodologies used, and a 50% of their sales or purchases. taxpayer confirmation of the arm’s Decree 20 is based loosely on the Viet Nam’s transfer pricing rules length value of their transactions (or previous Circular 66/2010/TT-BTC, also apply to domestic related party otherwise the making of voluntary but extends the interpretation of transactions. adjustments), which is required to existing provisions and introduces be filed together with the annual CIT additional concepts and principles TP Methodologies return. from the Transfer Pricing Guidelines of the Organisation for Economic The acceptable methodologies for Decree 20 requires that the TP Cooperation and Development determining arm’s length pricing method applied must ensure that (OECD) and BEPS Action Plan. are analogous to those espoused there is no loss of tax revenue to by OECD in the Transfer Pricing the state budget, which could imply Guidelines for Multinational that no downward adjustments are Enterprises and Tax Administrations, allowed. Decree 20 also introduced a new TP declaration form which requires disclosure of more detailed information, including segmentation of profit and loss by related party and third party transactions. Decree 20 gives the tax authorities the power to use internal databases for TP assessment purposes in cases where a taxpayer is deemed noncompliant with the requirements of the Decree. Taxpayers engaged in related party transactions solely with domestic related parties could be exempt from the requirements to disclose information on such transactions in the new TP declaration form, where both parties have the same tax rate and neither party enjoys tax incentives. 42 | Doing Business in Viet Nam
Companies which have related party transactions must also prepare and in November 2015, local Transfer Pricing Audit departments were Foreign maintain contemporaneous transfer pricing documentation. Decree also established in the Hanoi, Binh Duong, Dong Nai, and Ho Chi Minh Contractor Tax 20 introduces a three-tiered TP documentation approach to collect City tax authorities. In July 2016, the GDT announced the establishment (“FCT”) more tax-related information on of a BEPS Working Group which Scope of Application multinational companies’ business is responsible for preparing action operations, specifically, master file, plans to implement the OECD Foreign contractor tax is levied on a local file and country-by-country BEPS Initiatives and overseeing the payments to foreign organisations reporting. The three-tiered TP implementation process. and individuals undertaking documentation has to be prepared businesses or earning income before the submission date of the As of early 2018, the GDT is in sourced from Viet Nam. FCT is annual tax return, which gives negotiations with the competent not a separate tax and is merely a taxpayers just 90 days (from the authorities (“CA”) of various collection mechanism for VAT and fiscal year end date) to complete the overseas tax jurisdictions to conclude CIT, or PIT for income of foreign year’s TP documentation. the first Bilateral APAs for several individuals. Payments subject to FCT taxpayers. include interest, royalties, service A taxpayer is exempt from preparing fees, leases, insurance, transportation, TP documentation (but not all other Substance over form transfers of securities, and goods aspects of the Decree) if one of the principle supplied within Viet Nam or following conditions is met: associated with services rendered in • has revenue below VND 50 Decree 20 emphasises the need Viet Nam. billion and total value of related for closer scrutiny of all related party transactions below VND 30 party transactions to ensure that The application of FCT is subject to billion in a tax period; or value creation is actually generated the application of a relevant Double • concludes APA and submits from intra-group transactions. The Tax Agreement. annual APA report(s); or substance over form principle is • has revenue below VND 200 especially relevant to CIT deductibility Certain distribution arrangements billion, performs simple and transfer pricing documentation where foreign entities are directly functions and achieves at must support for such related party or indirectly involved in the least the following ratios transactions. distribution of goods or provision of of earnings before interest services in Viet Nam are subject to and tax to revenue on the FCT - e.g. where the foreign entity following business: distribution Interest cap retains ownership of the goods, (5%), manufacturing (10%), bears distribution, advertising or processing (15%). Decree 20 introduces a 20% EBITDA cap on the tax deductibility of total marketing costs, is responsible for interest expenses. Whilst Decree 20 is the quality of goods or services, 2015 to 2017 saw significant making pricing decisions, or developments in transfer pricing the guiding tax regulation applicable to associated enterprises, it appears authorises/hires Vietnamese entities initiated by the tax authorities. to carry out part of the distribution In July 2015, a Transfer Pricing that the 20% EBITDA cap could be applied to both related party and third of goods/provision of services in Viet Audit Department was established Nam. within the General Department of party loans. Taxation (“GDT”). Soon afterwards, PwC Vietnam | 43
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