Tips for doing business in vietnam

With more than 80 million hard-working and talented people, land rich in natural resources, and a country located in the center of a dynamic economic growth region, Vietnam is an attractive investment environment from the standpoint of foreign investors. The Socialist Republic of Vietnam (SRVN) has promulgated the Law on Foreign Investment in Vietnam with the view to expand its foreign economic cooperation, develop the national economy, promote export on the basis of efficient exploitation of natural resources, labor force and other potentials of the country and implementation of its "open-door" policy with respect to the world community. Vietnam has guaranteed that the investors should receive "fair and equitable treatment" and that the assets of foreign investors will not be nationalized, requisitioned or expropriated without voluntary consent. Finally, the Socialist Republic of Vietnam welcomes and advocates all foreign organizations and individuals to invest capital and technology in Vietnam.
Vietnamese Government uniformly carries out state management of foreign investment in Vietnam. The Ministry of Planning and Investment (MPI) is the body in charge of state management of foreign investment and has responsibility to assist the government in managing foreign investment activities in Vietnam. MPI acts as a coordinating body to deal with problems arising during the formation, commencement and implementation of foreign investment projects; supervises the implementation of foreign investment activities in Vietnam in accordance with the law. For more information about MPI and its publications, please visit Website: http://www.vir.com.vn
The Law on Foreign Investment in Vietnam allows three basic forms of investment, as follow: business co-operation on the basis of a business co-operation contract (BCCs); joint venture enterprise (JVs); enterprise with one hundred per cent foreign owned capital. For more details please visit http://www.hcminvest.gov.vn/html/law2.html
A Business Cooperation Contract: (BCC) is a basis on which two or more parties (foreign investors and Vietnamese partners) may enter into a business cooperation, such as profit sharing production, product sharing cooperation, or other business cooperation. The BCCs create no legal entity and are more easily amended and more flexible than JVs or 100% foreign-owned projects. Parties agree to implement a project, to produce certain goods or to provide certain services within the duration of the relationship defining in the contract. There seems to be no limitations on management structure or repatriation of profits under BCCs.
The application file for an investment license in the form of a business cooperation contract shall include:
1.
The application form for an investment license.
2.
The business cooperation contract.
3.
Statements certifying the legal status and financial capacity of the parties
4.
The economic-technical explanatory statement.
5.
Other files (stipulated in the Law).
Parties of BCCs must submit the contract to MPI to be approved.
In spite of advantages mentioned above, the BCC form up until now, accounted for a rather small amount of the total foreign investment capital in Vietnam.
A Joint Venture Enterprise: (JV) is an enterprise established in Vietnam on the basis of a joint venture contract signed by one or more Vietnamese parties (including existing JVs) and one or more foreign parties in order to invest and carry on business in Vietnam.
A joint venture enterprise shall be established in the form of a limited liability company and shall be a legal entity in accordance with the law of Vietnam. Each JV party shall be responsible to the other party and to the JV to the extent of its contribution to the legal capital.
The legal capital of the JV must not be less than thirty (30) per cent of the invested capital; in respect of infrastructure construction projects in regions with difficult economic and social conditions… this ratio may be reduced to twenty (20) per cent after obtaining the approval of the investment license issuing body.
The capital contribution of a foreign party or foreign parties shall be agreed by the joint venture parties but shall not be less than 30% of the legal capital of the JV.
The management board shall be the body in charge of the JV and it comprises a chairman, a vice chairman and members. The general director and deputy general directors shall be appointed by the management board and at least one of them must be a Vietnamese citizen representing the Vietnamese party in the JV.
The foreign entity's capital contribution can take the form of foreign currency or Vietnamese currency originating from investment in Vietnam's machinery; equipment; or patent; technical know-how and other technical services. The Vietnamese partner's contribution can take any form as stated above or even the value of the right to use land; natural resources; existing buildings or plants, etc.
The application file for an investment license in respect to a JV shall include:
1.
The application form for an investment license.
2.
The joint venture contract.
3.
The charter of the joint venture enterprise.
4.
Statements certifying the legal status and financial capacity of the joint venture parties.
5.
The economic-technical explanatory statement.
6.
Other files (stipulated in the Law).
Joint ventures are so far the most popular form of investment in Vietnam.
An enterprise with one hundred per cent (100%) foreign owned capital: is an enterprise owned and established in Vietnam by a foreign investor who self-manages the enterprise and takes full responsibility for its business results. The 100% foreign-owned enterprise is a legal entity under Vietnamese law, with limited liability, distinct from the parent company.
As in a joint venture, the prescribed capital of 100% foreign-owned enterprise should be equivalent to at least 30% of the total investment capital, unless specifically exempted by MPI. A 100% foreign-owned enterprise is not allowed to reduce its prescribed capital during the course of its operations. Following approval, the enterprise must submit an accounting report to MPI on an annual basis.
The application file for an investment license in respect to an enterprise with one hundred per cent foreign owned capital shall include:
1.
The application form for an investment license.
2.
The charter of the enterprise.
3.
Statements certifying the legal status and financial capacity of foreign investor.
4.
The economic-technical explanatory statement.
5.
Other files (stipulated in the law)..
The management structure of the entity may take any form, but must be described in a charter presented to MPI as part of the license application. Any changes in the charter must be approved by MPI. In terms of liability and tax treatment, the 100% foreign-owned project is effectively the same as a joint venture.
The duration of an enterprise with foreign-owned capital and the duration of a business cooperation contract shall be stated in the investment license for each project in accordance with regulations of the government, but shall not exceed fifty years. In special cases, the government may grant an extension, but the duration then shall not be longer than seventy years.
In addition, branch offices and representative offices are often set up by foreign investors such as banking, auditing, law and insurance companies to make money in Vietnam. Application for branch offices is legally similar to 100% foreign-owned enterprises. Applications for representative offices are submitted to the People Committee of the City/Province where the representative office to be set up, for approval. Banks submit their applications to establish a representative office to the State Bank.
Foreign Investment Related Taxation
1. Profit Tax
The standard profit tax rate for enterprises with foreign-owned capital and foreign parties to business cooperation contracts is 25%, except for companies operating in sectors involving exploration for and exploitation of petroleum and other rare and precious resources, for whom profit tax rate is subject to the provisions of the Law on Petroleum and other relevant legislation.
The profit tax rates applicable to cases where investment is encouraged shall be 20%, 15%, 10%; depending on the criteria such as: percentage of exported products, number of employees, field of investment and areas of investment.
In an effort to attract foreign investment, the government has granted lower tax rates, tax reductions and temporary tax holidays to some new projects. Exemptions from profit tax is applied for 1 to 4 years commencing from the time when the operations start to earn profit and reduction of tax is 50% for several subsequent years. If foreign investors reinvest their distributed profits, they will be entitled to a refund of any profit tax already paid in respect to the amount of profit reinvested.
2. Remittance Tax
Remittance tax has to be paid when profits earned from investment in Vietnam (including profit tax refunded for any reinvestment and profit earned from assignment of capital) is transferred abroad or retained outside Vietnam. Remittance tax is applied at the rate of 5%, 7%, 10% of profit transferred abroad, the more capital the foreign investor contributes to the legal capital or capital of a business cooperation, the lower the tax rate is applied. Remittance tax is collected each time profits are transferred.
3. Capital Assignment Profit Tax
Any party to a joint venture has the right to assign its contributed capital in the joint venture enterprise; also an enterprise with 100% foreign-owned capital may assign its capital. When profits arise from the assignment, the assignor must pay profit tax at a rate of 25% on that profit, which is equal to the assigned value of the capital, less the original value, less any assignment expenses. However, foreign investors will be exempted from the tax when capital is assigned to a Vietnamese state-owned enterprise or an enterprise in which the state holds a controlling share, and be levied at the rate of 10% when capital is assigned to other Vietnamese enterprises.
4. Import and Export Tariff
In general, all imported and exported goods are subject to the provisions of the Law on Import and Export Tariff. However, an enterprise with foreign-owned capital and business cooperation parties are exempt from import duties when importing the following categories of goods:
a. Machinery, spare parts, business and production equipment (including means of transportation) and materials imported as part of the fixed assets of the enterprises or as fixed assets to implement business cooperation contracts.
b. Raw materials, spare parts, accessories and other supplies imported for the production of goods for export. Import duties must be paid for these goods when they enter the country, but will be refunded proportionately when exporting the finished product.
c. Patents, technical know-how, technology processes and technical services to be used as capital contribution to the legal capital of the enterprises or as initial capital to execute business cooperation contracts.
Foreign investors should also refer to other taxes when doing business in Vietnam, such as: value added tax, natural resource tax, personal income tax, etc., that are described in detail on the Website http://www.hcminvest.gov.vn/html/bus6.html.
List of projects in which investment is especially encouraged:
Projects for export of 100% of products;
Projects for production of new breeds or cross-breeds of high quality and international standard and high economic efficiency;
Projects for processing of agricultural, forestry and aquatic products for export from domestic material sources creating high added value and employing a high number of laborers;
Projects included in the list of projects where investment is encouraged;
Projects for production of new or rare and precious materials; projects for application of new biological technology; electronic technology; new technology for manufacturing; communications and telecommunications equipment; informatics technology;
Export processing enterprises and high-tech industrial enterprises in industrial zones, export processing zones and high-tech zones;
Projects for treatment of environmental pollution and protection and treatment and processing of waste;
Investment projects under BOT, BTO and BT contracts.
List of projects in which investment is encouraged:
Agricultural, forestry and fishery sectors:
Processing of agricultural, forestry and aquatic products for export. . Technology of preservation of food; preservation of post-harvest agricultural products; and application of biotechnology and biotechnological measures in agriculture, forestry and fishery Production of materials for insecticides which are of high effectiveness and safe for human beings, domestic animals and the environment
Production of materials for insecticides which are of high effectiveness and safe for human beings, domestic animals and the environment. Manufacture of equipment, spare parts and agricultural machinery.
List of sectors in which licensing of investment is conditional
1. Investment in the form of a joint venture enterprise or a business cooperation contract:
Construction and operation of international telecommunication networks and local telecommunication networks (under a business cooperation contract only). Exploitation and processing of oil and gas and precious and rare resources. Construction and operation of infrastructure facilities of industrial zones, export processing zones and high-tech zones. Construction business. Air, railway and sea transportation; public passenger transportation; construction of sea ports and airports (BOT, BTO and BT projects shall be subject to separate regulations). Production of cement, steel and iron. Production of industrial explosives. A forestation and planting of perennial industrial crops. Travel, tourism. Culture, sport and entertainment.
2. Investment projects which are required to export at least 80% of products:
Industrial products, the requirements for which are satisfied by domestic production in terms of quantity and quality, shall be published by the Ministry of Planning and Investment from time to time.
3. Investment projects which must be in conjunction with development of raw material sources:
Dairy production and processing. Production of vegetable oil and cane sugar. Processing of wood.
List of sectors in which investment will not be licensed
1. Projects which are prejudicial to national security, defense and public interest.
2. Projects which are detrimental to historical and cultural relics, fine customs and traditions of Vietnam;
3. Projects which are prejudicial to the ecological environment; projects for treatment of toxic waste imported from foreign countries to Vietnam;
4. Projects for production of toxic chemicals or utilization of toxic agents which are prohibited in accordance with an international treaty