06 Nov Foreign Investment In Vietnam – What you need to know
With a stable political environment, low labour and operating costs, as well as promising economic prospects, Vietnam presents a dynamic market and an attractive destination for both foreign and private investors to participate in the economy.
However, when making an investment in Vietnam, foreign investors must study the feasibility of the project based on various factors. One of them is that the investor must make sure if the business sectors they plan to operate in are permitted by the laws of Vietnam or satisfy regulatory conditions and requirements.
Here are some keys note with highlight info that will be useful for you before entry the local market:
Foreign investment types in Vietnam:
There are four different types of investment:
1. 100% Foreign-owned entity: The minimum shareholder is one, but no more than 50. Foreign-owned entity can export and conduct domestic sales.
2. Joint Venture entity: With majority foreign-owned capital (51%), it requires at least 2 shareholders. The foreign investor could hold up to 99% shares.
3. Contractual Arrangement: This form of investment does not set up a new legal entity. The investors in a Business Cooperation Contract (BCC) share the revenues and/or products arising from a BCC. It is a cooperation agreement between foreign investors and at least one Vietnamese partner in order to carry out specific business activities.
4. Representative Office (RO): It is not a separate legal entity under the laws of Vietnam. The activities of a RO are limited to business promotion; identification and accelerating the trade opportunities; and supervising the implementation of contracts signed between its parent/ represented company(ies) and local partners.
How to set up:
Vietnam government passed the new law on Investment No. 67/2014/QH13 (New LOI) in 2014, and the new law on Enterprises No. 68/2014/QH13 (New LOE), which replace the previous laws as from July 1, 2015. Certain notable provisions of the new laws are asbelow.
1. Minimum Registered Capital: There is no requirements on foreign investment amount and registered capital in Vietnam. But registered capital can not less than 30% of total investment amount. The registered capital of encouraged / large investment project can be reduced to 20%. It is suggested that the minimum registered capital should be no less than USD100,000.
2. Paid-up Time and Methods: The new LOE provides the timeline for capital contribution is 90 days from the date of issuance of the enterprise registration certificate (ERC). After such 90 day timeline, the entity will have 60 days to amend the registered capital and/or the ration of capital contribution if a member fails to contribute in full his portion as committed. The capital can be contributed by cash, machine, patent..etc.
Foreign investors (company / individual) can adopt one among following three structures when setting up company / factory in Vietnam:
- Direct investment by foreign company / individual;
- Indirect Investment through one holding company (single holding );
- Indirect investment through two holding companies (double holding ).
The 2nd and/or 3rd structure is widely used. There are some advantages through holding company:
- Unlimited deferred offshore profits which can be used for re-investment;
- Limited liability on overseas lawsuits (civil and criminal ), and financial liabilities against parent company.
The disadvantages of the single holding structure will occur when selling foreign assets, the parent company will be taxed for the profits. The parent company/individual will be exposed to unpredictable foreign risks and faces double-taxation problems. Therefore, the third structure – double holding is recommended.
- Setting up offshore holding company;
- Collecting holding company documents;
- Documents translation/ embassy notarization;
- Checking proposed Vietnam company name;
- Prepare the M&A and application form;
- Evaluation of investment project by related authorities;
- Issuance of the enterprise registration certificate;
- Publish in newspaper gazette;
- Seal registration, open bank account;
- Tax, customs, and environmental protection registration.
|CIT||standard||20||Jan 1, 2016|
|Export goods / service
Essential goods / service
All other goods / service
|5-35||50% discount in economic zone|
|Special Sales Tax||/||0-75||Cigarettes/beer/karaoke/casinos.. etc.
|Social Security||/||10.5 / 22||Employee / Employer|
|0% for export except: crude oil, forest products..etc
|/||3-35||Petrol / natural gas / wood / aquatic product
|Land Tax||㎡/ Year||0.03-|
|Pay by leaser|
|Business License Tax (VND)||≦2 billion|
|Based on registered capital / year|
The new Corporate Income Tax law-CIT (32-2013-QH13) passed on 19 June 2013 and was implemented on 1 January 2014. The new law reduce CIT form 22% to 20% from 2016. A 17% preferential Tax Rates applies for enterprises with revenue of less than VND20 billion in the preceding year.
Preferential CIT rate is available for the followings:
- Business location in high-tech zones, certain industrial zones and difficult socio economic areas – 10% for 15year;
- Encouraged business sectors include high technology, environmental protection, software production and renewable energy… etc. 10% for 15year;
- Newly established business enjoys tax exemption for 2 years and 50% reduction for the following 4 years. Business locates in difficult socio-economic areas could further extend to 4 years exempt, and 9 years 50% reduction.
- Taxpayers may carry forward tax losses fully and consecutively for a maximum of five years.
- Dividends paid by Vietnam business from after tax profits are not subjected to withholding tax.
Wholly foreign owned enterprise in Vietnam can’t buy land, yet is allowed to rent land / factory not exceed 50 years. The rental fee is about US$2-4.5 /㎡. Investors can mortgage its equipments & land to Vietnam banks. The major land use incentives are as below:
- The duration of land use shall not exceed 50 years, but projects with large amount of invested capital and a slow rate of capital recovery projects, in difficult socio-economic conditions can extend to 70 years.
- Projects in incentive sectors and geographical areas shall be entitled to an exemption from payment of or a reduction of land rent and land use fees in accordance with the law on land and tax.
Machinery and equipment:
Pursuant to the Government’s Circular No. 23/2015/TT-BKHCN dated November 13, 2015 of the Ministry of Science and Technology on import of used machinery, equipment and technological lines.
Imported used equipment must satisfy safety, energy saving, and environmental protection requirements prescribed by applicable law. A piece of used equipment may be imported if it satisfies the following criteria:
- Its age does not exceed 10 years;
- It is manufactured in accordance with a National Technical Regulation (QCVN) or Vietnam’s Standard (TCVN) or Standards of G7 countries with regard to safety, energy saving, and environmental protection.
Inspecting bodies that issue inspection certificates mentioned in Clause 1 of this Article include:
- Vietnamese inspecting bodies that are registered under the Law on Commerce and licensed to inspect machinery and equipment
- Foreign inspecting bodies that are registered under regulations of law of their home countries and licensed to inspect machinery and equipment.
Oridinance No 06/2013/UBTVQH13 on foreign exchange controls was passed on March 18, 2013. The new Ordinance takes effect from Jan. 1,2014. Pursuant to the new Ordinance, and consistent with the Law on Investment, foreign investment into Vietnam is divided into direct investment and indirect investment. Foreign direct investment (FDI) refers to foreign investor investing capital and participating in the management of investment activities in Vietnam. A FDI must open a foreign direct investment capital account for: capital contributions.
- receiving capital contributions from investors;
- receiving drawdown, and making repayment, of foreign loans;
- remitting profits, and other lawful income, to foreign investors;
- receiving, and then remitting, money in payment of the value of an assignment of investment capital and of an investment project.
A non-residents being a foreign investor must open a bank in VND, and all indirect investment capital being foreign currency must be converted into VND though this account. Indirect investment activities includes: buying, selling bonds and other securities on the stock market of Vietnam.
With more than 10 years of delivering business consultation for more than 1000 company and foreign representative offices in Viet Nam, Viva Business Consulting is capable to consult and implement any query you have in the most practical way. We prevent your business from any potential risks in advance so you can manage foreign employees in the most simple and cost effective way.