Redrawing the horizon - Investing in Vietnam 2018 and beyond - KPMG International

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Redrawing the horizon - Investing in Vietnam 2018 and beyond - KPMG International
Investing in Vietnam

Redrawing
the horizon
2018 and beyond

kpmg.com.vn
Redrawing the horizon - Investing in Vietnam 2018 and beyond - KPMG International
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.
Redrawing the horizon - Investing in Vietnam 2018 and beyond - KPMG International
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
Redrawing the horizon - Investing in Vietnam 2018 and beyond - KPMG International
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 Vietnam
Introduction 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   05
1.3 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 Vietnam
Investing 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 Vietnam
will 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   09
Integration 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 Vietnam
CANADA                                      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   11
Investment 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 Vietnam
4.2 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      13
4.4 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 Vietnam
No. 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      15
Taxation
                                       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 Vietnam
5.2.5 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   17
5.5 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 Vietnam
We set the standard
in the industry
                                      International Tax
                                      Review, 2017
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                                      Global M&A
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                                      Vietnam Ministry
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                                      International Tax
                                      Review, 2017
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                                                            Investing in Vietnam   19
Banking 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 Vietnam
Generally 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    21
Accounting 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 Vietnam
companies, 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   23
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