Investment Law Vietnam

INVESTMENT - VIETNAM LAW

In line with its foreign policy of "being the friend of all countries", as well as its policy of economic integration into the region and the world, the Government of Vietnam encourages and has been adopting policies to expand and boost trade with foreign countries.

Vietnam encourages all economic sectors to produce goods for export and engage themselves in export business. Currently, the government particularly encourages the production and exportation of labor-intensive products including agricultural produce, seafood, textiles and garments, leather goods and footwear, and handicrafts.

In the area of importation, on the one hand, Vietnam gives priority to the importation of materials, equipment, high technology and advanced production processes that are required for industrialization and modernization. On the other hand, the country restricts the importation of goods that are adequately manufactured and supplied by domestic producers. However, as the country's process of economic integration into the region and the world is being accelerated, these restrictions have been rapidly reduced and will continue to be reduced.

FOREIGN INVESTMENT GUIDELINES

Provisions for foreign investment activities in Vietnam are stipulated in the Law on Foreign Investment amended on June 9, 2001and its implementation documents.

To establish a foreign investment project, investors must contact:

  1. Ministry of Planning and Investment (MPI)
  2. Provincial People's Committee of the region where the project is located
  3. Board of Management of industrial zones, export-processing zones, or high-technology zones where the project is located
  4. Vietnamese partners, if applicable

Depending on the nature, scope, and location of the proposal, four authority levels are responsible for decision-making on each project:

  1. The Prime Minister
  2. Ministry of Planning and Investment
  3. Provincial People's Committees
  4. Board of Management of industrial zones, export-processing zones, and high-technology zones

Three levels of authority are required for the issuance of investment licenses:

  1. Ministry of Planning and Investment
  2. Provincial People's Committees
  3. Board of Management of industrial zones, export-processing zones, and high-technology zones

The Government of Vietnam reserves the right to:

  1. Stipulate the regions in which investment is encouraged
  2. Issue a list of encouraged investment projects
  3. Indicate the sectors in which licensing is conditional and those in which it will not be granted

Foreign investments will be accepted in Vietnam in the following forms:

  1. Business cooperation contract
  2. Joint venture enterprise
  3. Enterprise with 100 percent foreign-owned capital
  4. Build-Operate-Transfer contract (BOT)
  5. Build-Transfer-Operate contract (BTO)
  6. Build-Transfer contract (BT)

Forms for foreign-investment projects and investment licenses are issued by the Ministry of Planning and Investment. Turnaround times for investment licenses

  1. Projects under decision by the Prime Minister: within 45 days from the day of receipt of a proper file
  2. Projects under decision by the Ministry of Planning and Investment: within 30 days from the day of receipt of a proper file.
  3. Projects under decision by the Provincial People's Committee: within 30 days from the day of receipt of a proper file
  4. Projects under decision by Board of Management of industrial zones, export-processing zones, high-technology zones: within 15 days from the day of receipt of a proper file.

OPEN TRADING RIGHT

The international trading right is given to following businesses:

  1. Vietnamese business entities of all economic sectors (including private firms) established in accordance with the laws have the right to handle export and import business within their registered business lines.
  2. Branches of Vietnamese companies and firms are allowed to sign foreign trade contracts in accordance with the authorization of the parent companies and within the registered business lines of the parent companies.
  3. Foreign trading companies may establish branches in Vietnam in accordance with Vietnamese laws to handle export and import business within certain licensed business lines.
  4. The Law on Foreign Investment in Vietnam regulates that companies with foreign capital may sign foreign trade contracts to import their own equipment, machinery and materials or parts needed for the construction and operation of their own projects as well as to export their own products. Recently, as an additional measure to encourage export, the government allows companies with foreign capital to export goods not produced by themselves as well.

Those who do not have the right to sign foreign trade contracts may contract to authorize companies who have such right to do so within the scope of the latter's registered or licensed business lines.

By law, companies need no longer apply for international trading business licenses. Instead, they just have to register their export and import code with provincial customs authorities. Vietnamese firms and foreign invested companies are allowed to open representative offices and/or branches abroad to enhance their trade.

LESS GOVERNMENT CONTROL

Government control on export and import business has greatly relaxed. Companies are now free to select partners and agree on terms and conditions of the deal including prices. The approval of foreign trade contracts is no longer required. Permits for lot shipments have been abolished. Customs procedures have been simplified including the setting up of green lanes. The list of goods that are subject to quota or licenses has been substantially shortened. For example, there is no longer export quota except for products that are controlled by quota imposed by importing countries.

FINANCIAL INCENTIVES

Export and import taxes are the major tools to manage foreign trade. Most of export goods now enjoy export tax rate of 0%. Currently, there remain only 12 export products which are subject to export tax ranging from 0% to 5%.

Consumer goods, especially luxury items and goods which can be supplied locally are normally subject to high import duties, while capital goods and materials, particularly those are not yet being produced in Vietnam, enjoy lower or even zero rates. Materials and supplies imported for production of exports and goods in transit through Vietnam are exempt from import duty. Goods for use in scientific research or study and humanitarian goods may also be imported tax free. In general, import tax has been substantially reduced and will continue to be reduced. The highest rate is now 60% (for very few items) instead of 200% several years ago. About 52% of tariff lines are now between 0% and 5%.

Other preferential taxes and/or tax reduction or exemption may be granted to companies producing exports and/or export goods. For example, export goods are subject 0% rate of VAT. Businesses may defer the payment of value added tax on materials and supplies imported for the production of export goods within the time limit for the deferment of import tax payment prescribed by the Law on Export Tax and Import Duty.

Vietnamese companies (including private firms) producing exports may find it easier to access land-use rights and may be given a 50-70% reduction of land rent or enjoy the exemption of land rent for 3 to 6 years. Export oriented companies may enjoy a corporate income tax rate of 25% (as compared with standard rate of 32%) and are exempt from extra corporate income tax (if any). They may also enjoy exemption of other taxes.

Foreign invested companies producing exports may enjoy preferential corporate income tax rates which are as low as 10% for the whole life of investment plus tax holidays of up to 4 years and a 50% reduction for another 4 years or even 8 years in special cases. They may also enjoy preferential land rent rates. In addition, an export-oriented project with foreign capital may need only registration for licensing, which means it is automatically licensed within 15 days from the date of complete and valid registration.

The exchange rate has been frequently adjusted in conformity with its market value to encourage exports. Companies producing exports are given priority in buying foreign exchange, as well as in loans from state owned banks for importing and buying materials and supplies for export production.

The Export Support Fund was established by the government in 1999 to Provide full or partial support for interest on banks? loans for the purchase of agricultural products when world market prices fall, adversely affecting domestic production and for the reserve of agricultural products for export;

Provide definite financial support for a number of export goods categories that suffer losses due to their low competitiveness of objective risks;

Reward the search for and expansion of new export markets, new export items, export goods with high quality recognized and certified by international organizations, high and efficient export value.

The Export Award Fund has been set up under the management of the Ministry of Trade to provide financial incentives to exporters who succeed in exporting new products and/or to new markets and/or in big volume. The export quota award system has also been put into place to encourage successful exporters.

CAPITAL CONTRIBUTION

Level of capital contribution and purchase of shares by foreign investors in Vietnamese enterprises:

The maximum level of capital contribution and purchase of shares by foreign investors in a Vietnamese enterprise shall be thirty (30) per cent of the charter capital of the Vietnamese enterprise.

Where foreign investors purchase shares in the initial share issue of an equitized enterprise, the capital level shall not exceed thirty (30) per cent of the proposed charter capital in the equitization plan approved by the minister or the head of the ministerial equivalent body (applicable to enterprises under central management) or by the chairman of the people's committee of a province or city under central authority (applicable to enterprises under local management).

Where a number of foreign investors register to contribute capital or purchase shares at a value higher than thirty (30) per cent of the charter capital of an enterprise, a decision may be made by the enterprise based on the actual situation to select the party(ies) either with or without an auction (the enterprise may itself hold an auction or do so via an intermediary financial organization).

Where only one foreign investor contributes capital or purchases shares in a Vietnamese enterprise, the maximum level of thirty (30) per cent of the charter capital of the enterprise shall still apply.