Redrawing the horizon - Investing in Vietnam 2018 and beyond - KPMG International
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Investing in Vietnam Redrawing the horizon 2018 and beyond kpmg.com.vn
KPMG was established in Vietnam in 1994, at a time when Vietnam was reopening its doors to investment. KPMG is the largest professional services firm in Vietnam with offices in Hanoi, Ho Chi Minh City, Da Nang, and Thanh Hoa. KPMG also has an office in Cambodia’s capital city Phnom Penh. With more than 1200 professionals in Vietnam, KPMG is proud of its ability to deliver international standard professional services encompassing: • Audit • Tax & Legal • Consulting • Deal Advisory KPMG is recognised by the Ministry of Finance (MOF) and Vietnam Association of Certified Public Accountants (VACPA) as Vietnam’s largest Audit and Advisory firm in terms of revenue, partner numbers, and overall human resources. KPMG has also received awards and accolades from the Vietnamese government for its contribution to the nation’s audit, tax, legal and advisory professions. As a leader in the professional services industry, KPMG regularly advises the Government of Vietnam and international organisations in support of Vietnam’s reform and integration programmes.
Table of contents
Introduction Vietnam Integration
to vietnam economy to global
economy
05 08 10
Investment Taxation Banking
climate for and foreign
foreign direct exchange
investment 12 16
control 20
Accounting Employment Land
and reporting
22 24 28
Intellectual
property
30
30
Climate
Vietnam is located in the tropical monsoon zone
Major cities
North
Hanoi, temperate climate with four distinct seasons:
spring (from February to April); a hot and humid
Ho Chi Minh City, summer (from May to July); autumn (from
August to October) and a cold and humid winter
Land area Hai Phong, (from November to January)
Approximately Da Nang, South
330,000 Can Tho tropical climate with only two major seasons:
a rainy season from May to October and a dry
square kilometer season from November to April
Landscape
Provinces & Cities
Mainly mountainous country, with
63 mountains and forests covering
75% of the land area
Capital
Hanoi
Main cultivated areas
Red River Delta (North)
Coastline
15,000 square kilometer
Approximately
Mekong River Delta (South)
3,400 km 40,000 square kilometer
along the Pacific Ocean
Neighboring countries
China, Laos,
Cambodia
(Source: General Statistic Office)
04 Investing in VietnamIntroduction to Vietnam
A key turning point was Vietnam’s an increasingly popular destination
accession to the World Trade for foreign manufacturers looking
Organization (“WTO”) in 2007, followed to diversify their production bases,
The Socialist Republic of
by its participation in the ASEAN notably for South Korean and Japanese
Economic Community (“AEC”) in 2015. companies.
Vietnam is a Southeast In addition, Vietnam successfully held
APEC in November 2017 has positioned
1.2 Population
Vietnam’s total population reached
Asian country with a the country to more investment
opportunities.
93.7 million in 2017 and is estimated to
increase to 98 million by 2020. Vietnam
rich history and a long 1.1 Key Factors enjoys what is known as the “golden
population structure”, which means for
track record of political, Located in the heart of South East Asia
and along the coastline of the Pacific every two people or more working,
there is only one dependent person.
civil and commercial Ocean, Vietnam offers numerous
advantages in providing access to the This demographic bonus provides
Vietnam with a unique socio-economic
achievements. world’s major trade routes.
Natural resources and conditions allow
development opportunity to take
advantage of the young labour force and
Vietnam to develop the fundamental push its economic growth.
and seasonal structure of agricultural
Warrick Cleine products and application of different The average population density is about
Chairman & CEO cultivation in regions. 308 people per square kilometer in 2017.
KPMG in Vietnam and Cambodia Approximately 65.3% of the population
With its rapid economic growth resides in rural areas, while 1/3 of the
and development , the workforce is remaining urban resides in Ho Chi Minh
gradually shifting towards industry City and Hanoi.
in manufacturing and services from
agricultural in terms of % of the total Vietnam is a multi-nationality country
employment. with 54 ethnic groups, of which 86%
are Viet (Kinh) and the remaining 14%
The south has been the traditional are ethnic minorities, for instance the
centre of manufacturing and trade, Tay, Thai, Hoa (Chinese), Khmer, Hmong
and a major logistics hub. However, and others.
the northern region has become
100+ 0.0% 0.0%
95-99 0.0% 0.1%
90-94 0.1% 0.2%
85-89 0.2% 0.4%
POPULATION AGE PYRAMID 2017
80-84 0.3% 0.7%
75-79 0.4% 0.7% Source: Population Pyramid
70-74 0.6% 0.9%
65-69 1.0% 1.4%
60-64 1.8% 2.2%
55-59 2.5% 2.7%
50-54 2.9% 3.0%
45-49 3.2% 3.3%
40-44 3.5% 3.6% Working Class 69.9%
35-39 3.9% 3.9%
30-34 4.3% 4.3%
25-29 4.7% 4.6%
20-24 4.3% 4.2%
15-19 3.6% 3.4%
10-14 3.7% 3.4%
5-9 4.1% 3.7%
0-4 4.3% 3.8%
10% 8% 6% 4% 2% 0% 2% 4% 6% 8% 10%
Male Female
Investing in Vietnam 051.3 Language and Religion The People’s Committee manages, City are expected to alleviate pressure
The national language is Vietnamese, directs and operates daily activities of on existing road transportation and
which is widely spoken throughout local state bodies, and executes policies boost economic growth. The first
the country by all ethnic groups. More issued by the relevant People’s Council metro lines are expected to commence
than 76% of the Vietnamese population and higher state bodies. operation in Ha Noi by 2018 and in Ho
aged 15 and older is literate, as a result Chi Minh City by 2020.
Political Stability
of the Government’s continued efforts
Vietnam, as a single-party country, Airport Infrastructure
to prioritise development of a quality
training and educational system. enjoys political stability and certainty In recent years, the country has also
that supports economic growth and witnessed a significant increase in air
English is the most popular foreign development and is a major attraction transportation. As the economy expands
language and is commonly used in for foreign investments. According both domestically and internationally,
major urban areas. English study is to the Country Watch report, Vietnam the volume of freight and passengers
obligatory in most schools. Other exhibits a high level of political stability carried by air transport has been
common foreign languages are French, with an average political stability index increasing sharply. The government
Chinese, and Japanese. of 4.5 in 2017, relatively high compared is expanding and modernising the
Vietnam’s population practices a to other Asian countries such as airport infrastructure, most notably the
variety of religions. These include Thailand (6), India (7), Philippines (6), construction of Long Thanh airport in the
religions based on popular beliefs, Indonesia(8), and China (7). southern province of Dong Nai when
religions brought to Vietnam from other completed. When completed, Long
countries, and several indigenous 1.5 Infrastructure Thanh Airport will become the largest
religious groups. Buddhism is the The Vietnamese Government airport in Vietnam accommodating up
largest of the major world religions in recognises the importance of an to 25 million passengers and 1.2 million
Vietnam, followed by Catholicism, Cao efficient infrastructure for economic tons of cargo a year.
Dai, Hoa Hao and others. development. Recent years witnessed
ambitious plans from the Government Seaport Infrastructure
1.4 Government to expand and upgrade the existing Sea transportation remains a significant
Vietnam is a one party state. The transportation infrastructure system. component of the Vietnamese
Politburo and Central Committee of the infrastructure system. There are over
Communist Party of Vietnam decide Road Infrastructure 100 ports throughout the country, of
on major policy issues, which are then In addition to the major national road, which the major ones are located in Hai
implemented by the Government. Highway No. 1A, stretching from the Phong, Da Nang and Ho Chi Minh City.
Constitutional and legislative powers are border with China in the north to the In an effort to address the increasing
vested in the National Assembly, which Mekong Delta Provinces in the south demand of exporters, plans to upgrade
is “the highest organ of state power”. via Ho Chi Minh City and the Trans-Asia and expand the existing capacity are
The National Assembly has the power highway, the country is also progressing underway, most notably the plan to
to approve and revise the Constitution with the completion of Ho Chi Minh develop the mega-port Hon Khoai in Ca
and Laws, make important decisions Road (known as Ho Chi Minh Trail during Mau province, which is expected to be
on national matters (policies on internal war time). completed by 2020. Once completed,
and foreign affairs, socio-economic the port will accommodate ships with a
This 3,167 km long road will run parallel
factors, political factors, security capacity of up to 250,000DWT.
to the existing national road No. 1A to
factors, operations of state bodies) and
connect the North with the South. Other
supervise all operations of state bodies.
notable highways linking key economic
The President, as Head of State, regions have also been upgraded.
represents the Socialist Republic
of Vietnam in internal and foreign Railway Infrastructure
affairs. The Government is the highest Vietnam’s railway is 2,600 km long, 60%
administrative state body, and of which is in the Northern provinces.
responsible for executing and managing The rail network includes 15 main routes
political, economic, cultural, social, and branches connecting 35 provinces
national defense, security and foreign and cities, of which the North-South
affairs of the country. route is the longest and most important
Ministries are responsible for the route. In addition, several railway lines
execution of state power in a certain have been proposed for construction
industry or sector. The People’s in recent years, notably the high speed
Committee (province, district and North-South Express Railway.
commune) governs management affairs The Metro systems which are under
within its administrative location. construction in Hanoi and Ho Chi Minh
06 Investing in VietnamInvesting in Vietnam 07
Vietnam economy
2.1 Overview 2.2 Economic growth 2.3 Inflation
Vietnam is considered to be one of the Vietnam’s real GDP achieved an The consumer price index (CPI)
fastest and relatively stable-growing average growth rate of 7.3% in period increased to a record 22.9% in
economies in Asia over the past of 2005-2009 before it declined 2008 due to the effects of the global
years. The country was seen to have to 5.3% in 2009 due to the global financial crash and internal imbalances.
weathered the global financial crisis financial crisis which started in 2008. The Vietnamese Government had
well with encouraging macro-economic Recovery began in 2012, with GDP implemented various monetary and
indicators observed in 2009 and 2010. growth gradually increasing and credit tightening measures. This
Recent years observed the effort reaching 6% in 2014. Despite the coupled with a drop in the world’s food
of the Vietnamese Government in global trade recession and China’s and fuel prices after the crisis resulted
boosting international economic economic growth slowing down, which in a slower growth rate of CPI of 7.4%
integration through the participation impacted most parts of Southeast Asia, in 2009. The economy was once again
into many free trade agreements/ Vietnam proved to be resilient to the under great inflation pressure in 2011
communities such as the World Trade turbulences and still scored a growth with an inflation rate at 18.1% before
Organization (WTO), the Eurasian rate of 6.8% in 2017, highest rate in reducing down to 6.8% in 2012, and
Economic Union, the European Union, nearly 10 years. 6.6% in 2013 as various inflation control
and the ASEAN Economic Community Vietnam’s economic growth prospects measures from the Government came
(AEC). This led to a significantly are forecast to remain positive in the into effect. The rate further fell to 0.6%
increasing FDI year on year. forthcoming years. According to the EIU in 2015 and 2.7% in 2016 on the back of
report, the growth rate is forecast to the drop in the oil price.
With a stable political environment,
low labour and operating costs, as well accelerate at a rate between 6.4% and However, the rapid increase in demand
as promising economic prospects, 6.5% during the period of 2018-2019. for goods and services, increasing
Vietnam presents a dynamic market The country’s economic growth will be credit issuance and investment from
and an attractive destination for underpinned by rising consumption, the country’s economic growth pushed
both foreign and private investors to increased foreign direct investment, up inflation rate to 4.1% in 2017.
participate in the economy. robust export performance, deeper According to the forecast, the average
integration into global economy and rate of price rises between 2016-2020
improvements of the regulation system.
300 GDP, GDP GROWTH, INFLATION 20.0%
18.1%
18.0%
250
250 235 16.0%
221
205 14.0%
200 193
186
171 12.0%
156
150 9.2% 136 10.0%
116 8.0%
106 6.8%
6.7% 6.4% 6.5%
100 6.0% 5.9% 6.2%
6.9% 6.8% 6.8% 6.0%
5.4% 5.9% 4.1% 4.0% 4.0%
5.4%
5.0% 4.0%
50 2.7%
1.8%
2.0%
0.6%
0 0.0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f2 019f
20
GDP (USD Billion) GDP Growth (%) Inflation (%)
Source: Economist Intelligence Unit ; World Bank (2017)
08 Investing in Vietnamwill be estimated to remain modest at
4% which is well below the figure of
7% in 2011-2015.
2.4 Economic structure
Over the years, Vietnam has seen
a boom in the number businesses
in - and an increase in the role of -
the private sector in the economy, especially
since the promulgation of the Enterprise
Law and Investment Law in 2005. There are
more than 535,000 businesses operating
in accordance with the Enterprise Law,
96% of them are privately run mostly in
trade, services, construction, industry and
craft production. Private business sector
contributes approximately 40% of the
country’s GDP.
The economic structure has seen
a gradual shift from agriculture to
industry-services. This transition has
resulted in wealth creation growth
and rising consumption which is a
fundamental indicator to attract foreign
investors to expand business in Vietnam,
particularly in the domestic retail market.
2.5 Labour force
Labour force remains a key competitive
advantage of Vietnam to attract foreign
investment as well as sustaining future
growth. Vietnam is famous for its young,
hard- working, highly a literate and easy-
to-train labour force.
In 2017, Vietnam’s work force were
approximately 65 million people
representing 69.9% of total population.
Better quality training provided by
professional experts is required for
Vietnamese workers to meet increasingly
sophisticated requirements of investors.
Investing in Vietnam 09Integration to global economy
Vietnam officially became the 3.1 Goods schedule, services 3.2 Moving up the value chain
WTO’s 150th member schedule and Vietnam’s further FTAs also play an important role
on 11 January 2007. WTO liberalised market in helping Vietnam move up the
accession has created both Even without the US, CPTPP will still value chain in a number of sectors and
contribute to the Vietnam’s economy supporting high-skilled jobs
opportunities and challenges
and trade and lead to numerous and knowledge transfer. Vietnam is
for Vietnam to become institutional reforms such as labor expected to have a more significant
an attractive investment reforms , improving regulations, contribution to the global and regional
destination. In addition, introducing administrative reforms. manufacturing landscape with regards
Vietnam’s participation In addition, Vietnam will have access to to textiles, garments and apparel, as
in the ASEAN Economic markets including Canada, Mexico, and well as hi-tech sectors like electronics.
Yet, moving up the value chain will
Community (AEC), as well Peru which Vietnam has not signed any
trade agreements with. further increase the sophistication
as the Comprehensive and of production processes, require
Progressive agreement for Under the EU-Vietnam Free Trade additional capital investment, cause a
Trans-Pacific Partnership Agreement (EVFTA) , both the EU and growing demand for high-skilled labour,
Vietnam have pledged to abolish over
(CPTPP) and the conclusion of and an array of other considerations to
99% of import duties on a wide range take into account such as sourcing.
several free-trade agreements of goods. Depending on the goods,
(FTAs) such as the EU- Vietnam will have 10 years to liberalise its
Vietnam FTA (EVFTA) and tariff regime, while the EU will liberalise
the Vietnam – Korea FTA has over a 7-year period. The EVFTA will open
shown the nation’s efforts up Vietnamese markets to EU companies
and it also could boost Vietnam’s
to further integrate into the
booming economy.
world economy.
FTAs in negotiations
RCEP (ASEAN+6) Vietnam - Ireland
ASEAN - EU Vietnam - Isreal
FTAs in consideration
ASEAN - Canada
FTAs concluded
2017 2016 2015 2011
ASEAN - Hong Kong ASEAN - AEC Vietnam - Korea Vietnam - Chile
CP TPP* Vietnam - EU
2009 2008
ASEAN - Australia/ New Zealand ASEAN - Japan
Vietnam - Japan
2003 2002 1995
ASEAN - India ASEAN - China ASEAN
ASEAN - Korea
* Countries remaining in the CP TPP are exploring ways to
move the trade deal forward after the U.S. formal withdrawal.
10 Investing in VietnamCANADA VIETNAM JAPAN
BRUNEI
MEXICO
MALAYSIA SINGAPORE
PERU
CHILE AUSTRALIA
NEW ZEALAND
11 members of CPTPP
3.3 Regulatory reform
Policy development will be focused on Recently, the residential property Policy is also built around strengthening
further economic liberalisation. During market and the stock market went the banking sector, with focus on
preparations for accession to the WTO through major reform to open up for restructuring non-performing loans
and other FTAs, Vietnam revamped foreign investment. Under the new (NPLs), transparency in reporting, and
much of its legal system, making regulations, foreigners are now allowed consolidation of the lenders towards
revisions to major legal frameworks, to purchase rights in land, apartments international standards in reporting,
specifically the Labour Code, Land and houses and hold a 100% stake in and consolidation of the lenders
Law, Competition Law, Enterprise Law, public companies in most industries. towards international standards.
Investment Law and Tax Laws in order The new laws on investment and
to make the investment environment enterprises provide a more business
more transparent. Indeed, - further friendly regulatory framework for
integration into the global economy both domestic and foreign players.
with associated challenges relating Although some restrictions remain,
to MNC’s market entries has helped the regulatory changes illustrate a
revise the Vietnamese legal framework progressive approach, which is typical
toward more transparency to conform for developing countries.
with international standards.
Investing in Vietnam 11Investment climate for foreign
direct investment
4.1 Investment climate Following the decline in 2012, FDI in Vietnam’s Goverment has issued many
Vietnam is one of the leading Vietnam increased again from 2013 and resolution as well as action plans in
investment destinations in Southeast reached US$22.8 billion in 2015. In 2017, order to realise the commitment to
Asia. With the advantages of FDI sector contributed 40% of GDP of improve the investment climate and
geography, natural resources, and Vietnam. In 2017, there were over 2,500 business community for investors.
an affordable labour force, Vietnam new investment projects with a total A revised Law on Corporate Income Tax
attracts a large amount of capital registered capital of US$21.3 billion. has been included in the terms
each year. Vietnam has a number of Japan and South Korea were the most of the expansion project that are also
unexplored sectors and a growing remarkable investors into Vietnam. entitled to investment incentives.
consumer market. Energy and Natural resources accounts Investment incentives on industrial
for 46% among sectors invested. parks have been restored. The adjusted
In 2007, Vietnam’s FDI increased to tax rate of Corporate Income Tax has
more than US$21 billion from US$12 The Vietnamese Government has
been reduced to 20%, effective 1st
billion in 2006. The country’s FDI hit made considerable efforts to improve
January 2016.
a record high in 2008, trebling 2007’s the business and investment climate
figure, reaching almost US$72 billion in Vietnam, for example by issuing The role of the private sector and
in registered capital. Due to the global favourable laws and regulations. foreign investors in the Vietnamese
financial crisis, the FDI registered in the Combined with the accession to the economy has increasingly been
2009 – 2012 period decreased, yet the WTO in January 2007 these efforts emphasised. “Business forum”
disbursement - both in terms of value have significantly paved the way for FDI meetings and dialogues between the
and percentage - improved compared in the country. Government and the private sector and
to 2007, indicating the continued foreign investors are frequently held,
Vietnam’s success in attracting FDI
confidence of foreign investors in and provide great opportunities for
should be measured not only by
Vietnam. Vietnam experienced a businesses - especially in the foreign
the amount of registered capital or
decline in FDI in 2012. sector - to make themselves heard on
disbursements but also by the efforts
important legislative issues.
to improve the investment climate.
FOREIGN DIRECT INVESTMENT IN VIETNAM (2005 – 2017)
71.9
70%
65%
63% 58%
61%
55% 55%
51%
49%
45%
39%
37%
35.9
23 24.4
23 22.1 22.0
21.9 20
17.1 17.5
15.7 15.8
16% 10.5 14.5
12.5 11.5 11 11.1 11.3 12.1
10.3
7.3 8.4
4.6
3.5
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total registered capital (USD billion) Disbursement capital (USD billion) %Disbursement
Source: Ministry of Planning and Investment
12 Investing in Vietnam4.2 Forms of investment
Foreign investors may carry out the following forms of investment in Vietnam:
Direct investment Indirect investment
–– Establishment of a new legal entity; –– Purchase of shares, share certificates, bonds and other
–– Investment by way of contractual arrangement: valuable papers traded on the stock exchanges;
–– Business Cooperation Contracts (BCC) signed with other –– By way of securities investment funds; and
local or foreign investors; –– Investment through other intermediary financial
–– Public Private Partnership (PPP) contracts with institutions.
Vietnamese state bodies (e.g. Build Operate Transfer
(BOT), Build Transfer Operate (BTO) and Build Transfer (BT)
Agreements); and
–– Invest by way of share/capital acquisition of
an existing entity
4.3 Forms of commercial presence permitted by the laws of Vietnam. The a branch is not a common form of
The forms of commercial presence that key limitation of the scope of activities of presence in Vietnam because it is only
foreign investors are allowed to take in the RO is that it’s not allowed to engage open for foreign investors in certain
Vietnam are the following: in any “direct profit-making” activities. sectors like banking, financial and
construction services.
Representative Office (RO) Branch
RO is a common form of early or initial Techinically speaking, a branch of a Legal entity
establishment for foreign organisations foreign business entity in Vietnam is a Depending on the business industry,
looking to invest or to do business in dependent unit of the foreign business the number of investors, and
Vietnam. From legal perspective, the entity, established and conducting whether there is any intention to
RO is a dependent unit of a foreign commercial activities in Vietnam in list the entity, a foreign entity may
business entity, and allowed to survey accordance with the law of Vietnam or establish its presence in Vietnam as a
the market and undertake a number an international treaty to which Vietnam limited-liability company, a joint-stock
of commercial promotion activities is a member. However, in practice company, or a partnership.
Feature Limited liability company (LLC) Joint stock company (JSC) Partnership
Required number of One (for single member LLC); At least three shareholders; –– Unlimited liability
members/ shareholders Two or more members, but not no restriction on maximum partners: At least two
exceeding fifty members (for number of shareholders general partners
multi-member LLC) (individuals)
–– Limited liability
partners (optional):
(organizations or
individuals)
Liability of members/ Limited to the extent of the Limited to the extent of the –– Unlimited liability
shareholders registered capital contributions registered capital contributions partners: Unlimited
into the company into the company –– Limited liability
partners: Limited to the
extent of the registered
capital contributions
into the company
Issuing bonds Allowed Allowed Not allowed
Issuing shares Not allowed Allowed Not allowed
Listing on stock Not allowed Allowed Not allowed
exchange
Investing in Vietnam 134.4 Conditional business lines result in the penalties imposed by in the manufacture of support
The new Law on Investment, which the state bodies and unfavorable tax industry products.
came into effect on 1 July 2015, as treatment to expenses incurred from Investment incentives granted to
amended on 22 November 2016, these businesses. qualified investment projects include:
provides a consolidated and unified list
4.5 Investment incentives Corporate income tax (CIT) incentives:
of 243 conditional business
Investment incentives are granted Preferential CIT rate (i.e. lower CIT rate
lines, amongst which there are ones
to investment projects based on the in comparison with the standard CIT
especially conditional for foreign
following criteria: rate of 20%) for a definite period or for
investors such as trading/distribution,
the entire duration of the investment
logistics services. This list, together –– Location: investment projects
project; exemption from CIT and
with the business conditions thereof located in areas with difficult or
reduction of CIT for a definite period
are publicly posted in the National Portal especially difficult socio-economic
(see table below);
on Business Registration at https:// conditions or special purpose zones;
dangkykinhdoanh.gov.vn/ and https:// Import duty incentives: Exemption
–– Business industry: investment
dautunuocngoai.gov.vn/ from import duty in respect of goods
projects engaged in encouraged
imported to form fixed assets,
Companies doing business in business activities such as high-
raw materials and components for
conditional business industries tech businesses, socialised
implementation of an investment
are required to fully satisfy the businesses (e.g. education,
project; and
applicable conditions (i.e. minimum medical), infrastructure development
capital, foreign ownership limitation, businesses, etc.; Incentive relating to land rental and
requirement on facilities and personnel, land use tax: Exemption or reduction of
–– Others: investment projects with
operation license, etc.). Failure to land rental and land use tax.
large investment capital or engaging
comply with these requirements will
No. Condition CIT incentive
1. –– Projects in specially difficult locations specified by Government; –– Tax rate of 10% for 15 years
–– Hi-tech; biotech, specific supporting industries; or for whole life for special
projects
–– Important infrastructure projects, socialized projects in
education,sporting, health care. –– CIT Exemption: 4 years
–– Large manufacturing projects (e.g. investmnt capital of VND6,000 billion and –– 50% CIT Reduction: 5 to 9
number of labor 3000, capital of VND12,000 billion). years
–– Projects of manufacturing or processing agricultural products in difficult
locations.
–– Software production, environment protection
2. Projects in difficult locations, manufacturing of agricultural machinery and –– Tax rate of 17% for 10 years
equipment, high quality steel –– Exemption: 2 years
–– Reduction: 4 years
3. Projects of manufacturing or processing agricultural products in normal locations –– Tax rate of 15% for whole life
4. Investment projects located in industrial zones (except for those located in areas –– Exemption: 2 years
having favorable socio economy conditions) –– Reduction: 4 years
–– No preferential tax rate is given
4.6 Investment procedures
Foreign investors who invest in Vietnam for the first time must have investment projects. The investment procedures vary,
depending on each investment form:
14 Investing in VietnamNo. Investment form Investment procedure Licensing authority Statutory Note
timeframe(*)
1 Establishment of (i) Application for an –– Investment Registration 15 days The In-principle approval of the
a legal entity Investment Registration Division of provincial National Assembly, Prime Minister,
Certificate (IRC) Department of Planning or provincial People’s Committee
and Investment (DPI); or before the issuance of IRC shall
be required in case of investment
–– Management Board of projects which make significant
special purpose zones economic-social impacts as
stipulated at law.
(ii) Application for an Business Registration Division 3 working
Enterprise Registration of provincial DPI days
Certificate (“ERC”)
2 Investment by
way of contractual
arrangement
BCC (i) Application for an IRC Investment Registration 15 days The In-principle approval of the
Division of provincial DPI; or National Assembly, Prime Minister,
Management Board of special or provincial People’s Committee
purpose zones before the issuance of IRC shall
be required in case of investment
projects which make significant
economic-social impacts as
stipulated at law.
(ii) Application for a Business Registration Division 15 days
Certificate of Operation of provincial DPI
Registration
(“COR”) for the foreign
investors’ project offices
PPP (i) Approval of project –– Ministry / provincial People’s 30 days
proposal Committee
(ii) Assessment of Assessment Committee of 30 - 90 days
feasibility study the State, or as assigned
by a Minister or Chairman
of a provincial People’s
Committee
(iii) Application for an Ministry of Planning and 25 days
IRC Investment; or Provincial
People’s Committee
(iv) Application for an (iv) Application for an ERC 3 working
ERC days
3 Investment by (i) Application for Investment Registration 15 working This step is required in the following
way of share/ approval for share/ Division of provincial DPI days cases:
capital acquisition capital acquisition (i) The target company operates
in conditional business for foreign
investors; OR
(ii) As a result of the share transfer,
the foreign ownership ratio in the
target increases to 51% or more
(ii) Application for Business Registration Division 3 working
updating the new of provincial DPI days
shareholding members
(iii) Application for Investment Registration 3 working
updating the new Division of provincial DPI days
investor
(*)Where the investment projects are subject to the In-principle approval of the National Assembly, Prime Minister or provincial People’s
Committee; and/or subject to evaluation by various competent authorities, the above timeline will be longer
Investing in Vietnam 15Taxation
5.1 Overview 5.2.1 Tax Year
The Vietnamese taxation system A Corporate Tax-payer can elect to
has undergone (and is expected to adopt a calendar year, or a fiscal year
Investors should continue undergoing) many major
transformatio ns that include major
ending on a quarter of a calendar year,
as the basis for the tax year.
consider conducting changes in Corporate Income Tax,
Value Added Tax, Foreign Contractor 5.2.2 Taxable Income
a comprehensive Tax and Personal Income Tax. The
changes generally occur frequently,
Taxable income is defined as income
derived from production, operation, trade
risk assessment and however, the enforcement mechanism
as well as the ruling process is often
of goods and services and other sources
from all business sectors and industries.
readiness analysis for limited in capacity.
The main categories of tax imposed in
5.2.3 Deductions
the regulatory change Vietnam are as follows: In general, deductible expenses
for corporate income tax purposes are
related to domestic and –– Corporate Income Tax (“CIT”);
–– Value Added Tax (“VAT”);
reasonable expenses actually incurred
that relate to the activities
international tax treaties. –– Personal Income Tax (“PIT”);
of production and business of the
enterprise and are accompanied
–– Foreign Contractor Tax (“FCT”); by legal and complete invoices and
vouchers as required by law.
–– Special Sales Tax (“SST”); and
Do Thi Thu Ha –– Import and Export Duties (“IED”).
5.2.4 Losses Carried Forward
Senior Partner, Head of Hanoi office Tax losses may be carried forward for
KPMG in Vietnam Furthermore, other taxes may apply to a maximum of five (5) consecutive
certain businesses: years. Ordinary losses may be offset
against income that does not enjoy
–– Natural Resources Tax; tax incentives and vice versa. Losses
–– Property Tax; and from transfer of real estate, transfer
of investment projects and transfer of
–– Environmental Protection Tax. the right to participate in investment
All taxes are national taxes and projects can be offset against profits
administered locally. There are no from the main business activities.
local, municipal or provincial taxes After offsetting, any losses from such
in Vietnam. activities will be consecutively carried
forward for a maximum period of
5.2 Corporate Income Tax five years to taxable income of those
The Law on CIT applies to all domestic activities in the following years.
and foreign entities that invest in
Losses of prior years may be rolled over
Vietnam. The Law expands the
and offset against provisional quarterly
taxpayer pool to include all foreign
taxable income of the subsequent year,
enterprises that have income from
subject to year-end reconciliation.
Vietnam, regardless of whether they
have a permanent establishment in Carry-back of losses is not permitted
Vietnam or not. and there is no provision for transfer of
losses within the group.
16 Investing in Vietnam5.2.5 Tax Rates The income of an enterprise from the to calculate VAT payable. Taxpayers
The corporate tax rates are classified into implementation of a new investment meeting the requirements can apply
the following three categories: project in production if the conditions the credit method. VAT payable under
on scale of investment, disbursement the credit method is calculated on the
From 1 January 2016 time and total annual revenue or labour difference between output VAT (VAT
Standard tax rate 20% usage are satisfied. collected for sales) and input VAT (VAT
Enterprises currently applying a CIT paid on purchases). Taxpayers that do
Preferential tax rates 17%, 15% or 10% not qualify for the credit method can
rate of 20% as mentioned above will
apply a CIT rate of 17% from 1 January apply the direct method. Under the
Other tax rates
2016. Tax exemption for 4 years and direct method, the taxpayer will pay
(e.g. oil & gas 32% - 50%
a 50% reduction of tax payable for 9 VAT by applying a deemed rate on
operations, natural
subsequent years will also be applied in the added value of the transaction. A
resources industry)
such cases. Corporate Tax-payer is required to file
and pay VAT on a monthly basis, or on a
5.2.6 Tax Incentives And, a CIT rate of 20% for 10 years will quarterly basis if relevant conditions are
Preferential tax treatments such as be applied to: met. The standard VAT rate is 10%, but
tax exemption, tax reduction, and –– Income of an enterprise from the rates are classified into four groups:
preferential rates (17%, 15% or 10%) performing a new investment exempt, 0%, 5% and 10%.
are limited to: projects in the areas with difficult
–– Encouraged sectors such as: socio-economic conditions. 5.4 Special Sales Tax (“SST”)
healthcare, education, training, Special Sales Tax is imposed on
–– Income of an enterprise from
sports, art activities, environment, a selected number of goods and
performing a new investment project
scientific research, high-tech, services, either at the stage of
in production of equipment, high-
infrastructure development and production, provision of services or
quality steel and other products.
software. import. Export products are exempted
Tax exemption for 2 years and a 0% from SST. The tax is calculated based
–– Economic zones, industrial zones reduction of tax payable for the 4 on the selling price at the place of
without favourable conditions subsequent years will be applied in production excluding this tax and VAT.
or locations with difficult socio- such cases.
economic conditions. Imported goods liable to SST shall also
Effective from 1 January 2012, be subject to SST upon importation
In particular, CIT rate of 10% for 15 following Vietnam’s WTO from overseas and sales to the
years will be applied to: commitments, export-based tax domestic market, accordingly:
–– Income of enterprise from incentives are no longer available to
–– SST taxable price at the import
performance of new investment exporters. Exporters who have lost
stage = taxable price for import duty
project in the area with extremely export-based tax incentives may elect
calculation + import duty
difficult socio-economic conditions. an alternative tax incentive scheme
–– Income of enterprise from (if eligible) and must notify the tax Selling Environmental
performing new investment project authorities of the election. The taxpayer –– SST price - protection tax
must self-assess the applicable taxable exclusive (if any)
in the high technology field. price of VAT
incentives in accordance with the
–– Income of enterprises from at the =
current tax regulations. trading
performing new investment projects 1+ SST rate
stage
in the field of environmental 5.3 Value Added Tax
protection. The VAT system in Vietnam applies Taxpayers producing SST goods from SST
–– High-tech enterprises and agricultural to goods and services used for inputs are entitled to claim a credit for
enterprises applying high-tech. production, business and consumption the amount of SST paid on the materials
in Vietnam. Two methods can be used imported or purchased from local suppliers.
Investing in Vietnam 175.5 Personal Income Tax (“PIT”) 5.7 Foreign Contractor Tax 5.11 Relief from tax
Both foreigners working in Vietnam Foreign organisations and individuals Vietnam has now signed DTAs with
and Vietnamese citizens are subject carrying out permitted businesses 73 countries, out of which 61 DTAs
to PIT. For tax residents, a progressive in Vietnam without a legal entity are are currently in force. Generally, these
taxing system, where the marginal rate subject to Foreign Contractors Tax DTAs follow the basic principles
ranges from 5% to 35%, is applied to (“FCT”) comprising VAT and CIT. contained in the OECD Model
worldwide income. Applicable tax rates vary depending on Convention.
For tax non-residents, a flat rate of 20% whether a foreign contractor registers For a country which has a DTA with
is applied to the income derived from to use the Vietnamese Accounting Vietnam, a foreign tax credit is also
Vietnam. In general, a tax resident is a System (“VAS”) or not. The standard available to resident taxpayers in
person: FCT rate is 10% but different rates can respect of foreign taxes paid.
–– Present in Vietnam for at least 183 apply depending on the transactions Under current regulations, if a taxpayer
days in a tax year; or and taxpayer’s tax filing status. fails to submit the DTA notification
–– Having a regular place of abode in 5.8 Natural Resources Tax dossier within 3 years from the
Vietnam, i.e. an individual rents tax payment deadline, the DTA
Natural Resources Tax (also known
a house in Vietnam according to entitlements will be forfeited.
as royalty tax) is imposed on the
legislation on housing under a exploitation of Vietnam’s natural Generally, provisions of DTAs prevail
contract that lasts 183 days or longer resources including petroleum, mineral over the domestic tax laws. The
in the tax year; or resources, forest products, seafood amount of credit given is the lower of
–– Not a tax resident of another country and natural water. Tax rates vary the tax suffered in the foreign country
(subject to applicable double tax depending on the specific classification and Vietnamese CIT attributable
agreement). of natural resource and are applied to to the foreign income. There is no
the production output at a specified provision in Vietnamese tax law
If an individual has a regular place of allowing excess foreign tax credits to
taxable value per unit.
abode in Vietnam, but is actually only be carried forward.
present in Vietnam for less than 183 5.9 Property Tax
days in the tax year and fails to prove The application of a DTA clause is not
Property Tax in Vietnam is levied in automatic. An official approval for tax
their residence in any other country, the form of a “land use fee” or “land
that individual will be considered to be relief must be obtained from the tax
rental”. A foreign investor requiring land authorities.
a tax resident of Vietnam. for an investment project may apply
5.6 Import and Export Duties to the land management authority by
way of an allotment and paying the
All goods entering Vietnam are
land use fee or by way of lease and
generally subject to import duty. Import
paying the land rental. The land rental
duty rates vary depending on the
rates vary depending on the location,
nature of goods involved and origin of
infrastructure and industrial sector
the goods.There are three import duty
where the business operates.
rates applicable (ordinary, preferential
and especially preferential), based Effective from 1 January 2012, owners
on the trading relationship between of houses and apartments are required
Vietnam and the exporting country. to pay land tax charged on a square
metre basis at progressive rates from
A partial or full exemption from import
0.03% to 0.15%.
duty may be granted on application.
Raw materials and components 5.10 Environment Protection Tax
imported into Vietnam for the Effective from 1 January 2012, Vietnam
manufacture of goods for export are introduced Environment Protection Tax
usually exempt from import duty (“EPT”) which is aimed to impose tax
provided that the goods are actually on goods that may cause damage to
exported within 275 days. the environment.
Enterprises with foreign-invested EPT is in effect an indirect tax
capital and parties to a BCC in applicable to the production and
especially encouraged projects are importation of certain goods such
exempt from import duty in respect of as petroleum, coal, plastic bags and
certain imported goods which form part restricted chemicals.
of their fixed assets.
Most exports are duty-free, except for a
certain natural resources such as sand,
chalk, marble, granite, ore, crude oil,
forest products and scrap metal.
18 Investing in VietnamWe set the standard
in the industry
International Tax
Review, 2017
1 Tax Advisory firm
Tier
Global M&A
Professionals, 2017
&A Professionals in
bal M 201
Glo 7
Global Sourcing
Association, 2017
isory Firm of the Year
Adv
Vietnam Ministry
of Planning and
M&
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International Tax
Review, 2017
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Investing in Vietnam 19Banking and foreign
exchange control
6.1 Bank accounts Account (IICA) in Vietnamese Dong
at an authorised credit institution to
6.1.1 Direct investment
conduct indirect investment in Vietnam.
Foreign invested enterprises and
Foreign banks can foreign parties to business co-operation
contract must open a direct investment
Investment capital in a foreign currency
must be converted to Vietnamese
immediately take capital account (DICA) at an authorised
credit institution to undertake the
Dong before the indirect investment is
carried out.
advantage of the local following transactions: An IICA will be used to implement carry
out the following transactions:
bank’s network, operating –– Receipt of capital contributions,
funds from assignment of capital –– Receipt of funds from the
assignment of capital contribution,
systems, and existing contribution, and receipt of foreign
loan; from the sale of securities, dividends
and other items of revenue arising
customer portfolio. –– Disbursement outside Vietnam of
principle, interest and fees on a
from indirect investment activities;
–– Disbursement of, for purchase of
foreign medium or long-term loan;
capital contribution of securities or
Tran Dinh Vinh –– Disbursement outside Vietnam of
capital, profit and other legal revenue
payment of other expenses relating
Partner, Head of Financial Service to indirect investment activities;
of a foreign investor; and
KPMG in Vietnam –– Other revenue and disbursement
–– Other revenue and disbursement transactions relating to indirect
transactions relating to foreign direct investment in Vietnam.
investment activities.
Of note, all transfer of capital for a 6.2 Foreign exchange control
direct investment project in Vietnam The Vietnamese Dong is not freely
and to other countries must be convertible and the market is still
conducted via such DICA opened at an heavily dependent on foreign
authorised credit institution. currencies, especially the U.S. dollar.
Foreign invested enterprises may The Government has implemented
open current accounts and transaction measures to gradually reduce its
accounts in foreign currency and reliance on the dollar.
Vietnamese Dong at authorised banks All monetary transactions in Vietnam
in Vietnam for their daily business must be made in Vietnamese Dong,
transactions. except for a limited number of
In addition, foreign invested enterprises transactions allowed by law to be
may be permitted to open offshore made in foreign currencies (i.e. salary
foreign currency bank accounts subject payment to foreign employees).
to approval by the State Bank of Foreign invested enterprises may,
Vietnam (“SBV”). subject to certain conditions, buy
foreign currency
6.1.2 Indirect investment from banks to carry out a number of
Non-resident foreign investor must obligations in foreign currencies from
open an Indirect Investment Capital their transactions.
20 Investing in VietnamGenerally speaking, the flow of buy foreign currencies from banks to All medium and long term foreign loan
foreign currencies into Vietnam is less settle current transactions and other transactions that a foreign invested
constrained by the SBV compared to permitted transactions only if relevant firm undertakes must be conducted via
the outflow, which has been restricted documents proving their demand for the DICAs.
to certain transactions such as payment foreign currencies are fully submitted.
for imports of goods and services, 6.5 Profit Remittance Regulations
From early 2016 onwards, the SBV has
repayment of loans contracted abroad announced a central exchange rate Lawful revenue in VND derived from
and payment of interest accrued every day for the VND/USD, which foreign direct investment as well as
thereon. would be used by financial institutions foreign indirect investment will be
Only banks, non-bank credit institutions authorised to trade in foreign currencies permitted to be converted into foreign
and other authorised institutions are with margin limit at +/-3%. currency for the remittance abroad via
eligible to provide foreign exchange authorised credit institutions. There is
This regime has facilitated stronger
services. no tax imposed on profit remittance.
performance in the foreign currency
derivatives market, meeting the Under the current regulations, profit
6.3 Foreign currencies and
requirements for risk prevention in remittances can be made as follows:
exchange rate
exchange rates and increase liquidity in –– Annual remittance of all profits at the
The VND is the country’s official
the market. end of financial year provided that
currency; foreign currencies may
be chosen as a means of payment the foreign invested enterprises do
6.4 Capital transactions of foreign
and remittance in the following not have any accumulated losses and
investors in Vietnam
circumstances. are able to pay the due debts after
Foreign invested enterprises are profit remittance; and
–– Payment and remittance of money required to open DICAs in VND or
relating to import and export of foreign currencies, at banks permitted –– Profit remittance upon termination
goods and services; to operate in Vietnam or foreign banks of business activities and
with the approval of the SBV, which is a investment projects in Vietnam.
–– Income generated from direct and
indirect investments; bank account used for all transactions A foreign investor is required to submit
in regard to capital transactions, foreign a notification of profit remittance abroad
–– Money transfers when the loans, profits and other legitimate to tax authority at least 7 working days
decrease of direct investment types of income of foreign investment. prior to the date of profit remittance.
capital is permitted; Accordingly, the foreign investor may go
Foreign investors are now permitted to
–– Payments of interest on and open non-resident payment accounts to its banks in Vietnam and buy foreign
installment repayments of principal in a foreign currency at an authorised currency to repatriate the profits. Please
of foreign loans; bank in Vietnam. Through this account, note that although it has a right to buy
–– One-way payments for foreign investors will transfer money foreign currency, the bank does not
consumption purposes; and to Vietnam in order to conduct pre- have an obligation to sell. The availability
investment activities before the of foreign currency would depend on
–– Other similar transactions. the market liquidity from time to time.
issuance of an investment certificate.
Residents and non-residents who Having a good relationship with a bank
would like to transact in foreign Offshore borrowings may now be used is therefore important and this is an
currencies in Vietnam will be to finance the investment project in issue that should be negotiated when
responsible for presenting supporting Vietnam and only offshore medium selecting which bank to use in Vietnam.
documents to the authorized credit or long term loans are required to be
institutions. Individuals are allowed to registered with the SBV.
Investing in Vietnam 21Accounting and reporting
7.1 Accounting requirements However, enterprises must ensure
information security and ensure
7.1.1 Vietnamese accounting data is accessible during the
standards & system and the Law on
Enterprises need Accounting 2015 (“the Law”)
Enterprises with foreign-owned
retention period; The enterprises
shall print the electronic accounting
to establish an capital, foreign parties to business
co-operation contracts and foreign
documents and have them
signed and stamped by the legal
effective internal contractors that have a resident base in
Vietnam (collectively “FIE’) are required
representative or chief accountant
(or acting chief accountant)
control system to to adopt Vietnamese Accounting
Standards, the Vietnamese Accounting
whenever a competent authority
requests them for inspection or
ensure its assets System for enterprises and their
interpretive guidance (“VAS”).
audit purposes.
–– Accounting documents and
are safeguarded and The Vietnamese Accounting System for
accounting books of an FIE must be
stored at the enterprise‘s premises
protected. enterprises is issued by the Ministry
of Finance (“MOF”) in the form of a
in Vietnam or in an external archive
faulty in Vietnam over its operating
bookkeeping manual that provides a period specified in its certificate
standard chart of accounts, financial of investment, certificate of
Chong Kwang Puay statements template, accounting enterprise registration, etc. When
Managing Partner books and voucher templates as well the enterprise ceases its operation
KPMG in Vietnam as detailed guidance on accounting in Vietnam, its legal representative
double entries for each specific will decide the place where the
account. The requirements of VAS and accounting documents are stored,
the Law include: unless otherwise prescribed by law.
–– If a foreign language is used on –– Companies, and branches of foreign
an accounting voucher, both companies that are required to
the Vietnamese language and submit financial statements to
foreign language should be used parent companies or use the same
simultaneously in the preparation management software with the
of accounting records and financial parent companies, are allowed
statements. And minimum content to use the comma (,) as the digit
of accounting voucher should be grouping symbol and the dot mark (.)
translated into Vietnamese, but not as the decimal symbol. However, for
mandatory to translate all supporting those financial statements to
documents except for specific be submitted to the tax authority,
request from a competent authority; statistical authority and government
–– VND is the default currency unit agency, the dot mark (.) must be
in accounting. An FIE is permitted used as the digit grouping symbol
to use a “foreign currency” as the and the comma (,) must be used as
currency unit in their accounting the decimal symbol.
records if certain criteria are met. –– The prescribed VAS chart of accounts
However, in such cases the financial and forms of financial statements
statements submitted to local must be complied with.
authorities must be converted into
There are some industry-specific VAS
VND and must be audited.
besides the general one for enterprises
–– Electronic vouchers and such as those for credit institutions,
accounting books are not required insurance companies, securities
to be printed out for retention.
22 Investing in Vietnamcompanies, fund managers and must have at least 2 years’ working
investment funds. experience in practicing accounting
with at least 1 year experience in
7.1.2 Fiscal year practicing accounting in Vietnam.
The fiscal year applicable to FIEs The Law prohibits any individual
in Vietnam is normally 12 months, responsible for direction and
commencing on 1 January and ending management of the entity to assume
on 31 December. FIEs with specific the role as accountant, storekeeper,
operation characteristics may adopt cashier or the responsibility for
their own 12-month fiscal year, purchasing and sales.
commencing from the first day of
a solar calendar quarter and ending 7.1.4 Annual Financial Statements
on the last day of the previous solar Within 90 days following the close of
calendar quarter in the following the fiscal year, enterprises operating
year and have to inform the local tax in Vietnam are required to prepare and
authority of the adoption of such a file Annual Financial Statements to
fiscal year. relevant local authorities.
Where the first fiscal year is of For those enterprises operating in
shorter duration than 90 days, it will export processing zones (EPZs) or
be permitted to add this period to the industrial zones (IZs), Annual Financial
following fiscal year in order to make up Statements may be required to be filed
one fiscal year. with the management board of the
respective EPZs or IZs.
7.1.3 Appointment of Chief
Accountant or person in charge of 7.1.5 Retention of accounting
accounting records and supporting documents
The enterprise is required to appoint Types of accounting documents are
a Chief Accountant who must satisfy accounting vouchers, sub-ledgers,
the criteria and conditions stipulated general ledgers, financial statements.
by the Law on Accounting and guiding Accounting documents archived should
regulation (or if not ready, a person in be original except for copied accounting
charge of accounting, but only for a documents specified in the Law.
period not exceeding 12 months).
Retention duration depends on the
A very small enterprise may appoint a type of documents with minimum
person in charge of accounting instead periods of five and ten years. And
of a Chief Accountant. certain types of documents must be
Foreigners may be appointed to act as retained perpetually.
the Chief Accountant of the enterprise,
provided that they have a certificate of 7.1.6 Internal control system
accounting expertise or an accounting/ The enterprise must establish an
auditing certificate issued by a foreign internal control system to ensure its
professional body recognised by assets are safeguarded and protected
the MOF; or an accounting/auditing from inappropriate and inefficient
professional practicing certificate use; and transactions are approved by
issued by the MOF; or a Chief authorised persons and completely
Accountant certificate obtained after recorded to serve as the basis for
having passed the chief accountant’s preparation and presentation of the
training course as prescribed in financial statements that give a true
regulations of the MOF; and they and fair view.
Investing in Vietnam 23You can also read
