The Ministry of Planning and Investment (MPI) of Vietnam oversees an Investment Promotion Department to facilitate all foreign investments, and most of the provinces and cities also have investment promotion agencies. The agencies provide information, explain regulations, and offer support to investors when requested.
Foreign and domestic private entities can establish and own a business except in prohibited business lines, such as illicit drugs, wildlife trafficking and 243 conditional sectors. Foreign investors must negotiate on a case-by-case basis with the government on market access to sectors that are not explicitly open through a trade or investment agreement. The government occasionally issues investment licenses with time limits to specifically targeted investors.
Related: Registration of foreign invested company in Vietnam
Vietnam has made steady progress in improving its business environment. This can be seen by its higher scores in the World Economic Forum’s Competitiveness Index, where it improved by five places to 55th (out of 137) in the 2017-18 edition, and in the 2019 World Bank’s Ease of Doing Business Index, where it ranks 69th among 190 economies. The Vietnamese government has also invested heavily in power and transport infrastructure to meet rapidly rising demand from the burgeoning manufacturing sector, resulting in a positive feedback loop.
Foreign owners are permitted to acquire full ownership of local companies except when mentioned otherwise in Vietnam’s international and bilateral commitments.
There is a 25% cap on foreign investment in local banks from one foreign entity, and a 30% cap on overall foreign investment in local banks. The government can waive these caps on a case-by-case basis.
Read more: Foreign investment consulting services in Vietnam
In June 2018, the government passed a new Competition Law, replacing the 2004 version of the law. The new law which focuses on competition restraining agreements, market dominance, economic concentration and unfair practices will be in effect from July 1, 2019. The new law has expanded its scope and now includes both Vietnamese and foreign companies and individuals in case their actions have or potentially have a competition restriction impact on the domestic market. Competition restriction impact is the impact which will exclude, reduce or hinder competition in the market. The Vietnamese government will also have authority over offshore activities if there is an impact on the domestic market. The law will apply to foreign entities’ part in competition-restricting agreements, economic concentration, or other unfair activities even if they do not have a subsidiary in Vietnam.
The government revised the anti-corruption law in November 2018, to deal with corruption in the private sector. In addition to the private sector, the revised law also includes the duties of the agencies and organizations involved in controlling corruption. The law will be in effect from July 1, 2019.
Vietnam permits foreign participation in the telecommunications sector, with varying equity limitations depending on the sub-sector (there are five basic and eight value added sub-sectors). Foreign ownership in private networks is permitted up to 70%, while foreign ownership in facility-based basic services (eg, public voice service where the supplier owns its transmission facilities) is generally capped at 49%.
There are no local, state or provincial income taxes in Vietnam.
Vietnam plans to remove restrictions on foreign ownership of state-owned and listed companies by the end of 2019, as Hanoi looks to open its economy further in order to sustain rapid growth. The move would broadly remove the existing foreign ownership cap of 49%, but would exclude companies operating in ‘sensitive and important’ sectors. The draft law is expected to be submitted to lawmakers for approval in 2019 and would take effect in January 2020. However, the limit for banks will remain at 30%, while insurance will be kept at 49%. The new law would pave the way for Vietnamese companies to be included in the MSCI Emerging Markets Index. The move is also expected to breathe new life into the privatization of state-owned companies. Vietnam has around 1,500 public companies, including about 740 listed on the two main stock exchanges in Hanoi and Ho Chi Minh City. More than 780 public companies are listed on a second-tier market or remained unlisted.
Tax incentives are granted based on regulated encouraged sectors, encouraged locations and size of the projects. The sectors that are encouraged by the Vietnamese government include education, healthcare, sport, culture, high technology, environmental protection, scientific research and technology development, infrastructural development, processing of agricultural and aquatic products, software production and renewable energy.
The encouraged locations include qualifying economic and high-tech zones, certain industrial zones and difficult socioeconomic areas. Large manufacturing projects with investment capital of more than VND6 trillion disbursed within three years of being licensed can also qualify for corporate income tax (CIT) incentives if:
- The minimum revenue is VND10 trillion per annum by the fourth year of operations at the latest,
- The minimum headcount is 3,000 by the fourth year of operations at the latest.
The preferential incentive rate applied for large manufacturing projects can be extended for a maximum additional 15 years if the project manufactures goods having ‘international competitiveness’ whose revenue exceeds VND20 trillion per annum within five years from the first year of revenue generation, or whose average head count exceeds 6,000.
Further, new investment projects engaging in manufacturing industrial products prioritised for development will be entitled to income tax incentives if the products support:
- The high technology sector;
- The garment, textile and footwear, information technology, automobiles assembly or mechanics sector and were not produced domestically as of January 1, 2015, or, if produced domestically, they meet the quality standards of the EU or equivalent.
Business expansion projects are now entitled to corporate income tax incentives if any of the following criteria are met:
- Additional fixed assets costing at least VND20 billion (or VND10 billion if the projects are in certain specified regions with difficult socioeconomic conditions) are invested.
- There is at least a 20% increase in the value of fixed assets compared with the period before expansion.
- There is at least a 20% increase in the designed capacity compared with the period before expansion.
Additional tax reductions may be available for engaging in manufacturing, construction and transportation activities that employ several female staff or ethnic minorities.
Business entities in Vietnam are allowed to set up a tax-deductible research and development fund. Enterprises can appropriate up to 10% of annual profits before tax to the fund. Various conditions apply.
Foreign investors generally pay rental fees for land use rights. The range of rates is wide depending on the location, infrastructure and the industrial sector in which the business is operating. In addition, owners of houses and apartments have to pay land tax under the law on non-agricultural land use. The tax is charged on the specific land area used, based on the prescribed price per square metre at progressive tax rates ranging from 0.03% to 0.15%.
Natural resources tax (NRT) is payable by industries exploiting Vietnam’s natural resources, including petroleum, minerals, natural gas, forest products, natural seafood, natural bird’s nests and natural water. Natural water used for agriculture, forestry, fisheries, salt industries and sea water for cooling purposes may be exempt from NRT, provided that certain conditions are satisfied. The tax rates vary depending on the natural resource being exploited, ranging from 1% to 40%, and are applied to the production output at a specified taxable value per unit. Various methods are available for the calculation of the taxable value of the resources, including cases where the commercial value of the resources cannot be determined. Crude oil, natural gas and coal gas are taxed at progressive tax rates depending on the daily average production output.
Environment protection tax is an indirect tax that is applicable to the production and importation of certain goods deemed detrimental to the environment, the most significant of which are petroleum and coal. The tax is calculated as an absolute amount on the quantity of the goods.
At the end of September 2018, the government announced the imposition of higher taxes on petroleum products, aimed at boosting revenue collection and environmental protection. The policy came into effect on January 1, 2019.
Sources: WTO – Trade Policy Review, ITA, US Department of Commerce, National Sources, Fitch Solutions