Doing Business in Vietnam 2018 Download the Report

MINISTRY OF PLANNING AND INVESTMENT FOREIGN INVESTMENT AGENCY

DOING BUSINESS IN VIETNAM 2018 Investing in Vietnam, Engaging the world Abbreviation 3 II. Customs Duty and Procedures 52 Introduction 5 III. Land Rental Incentives 56 A. Country Profile 6 E. Human Resources and Employment 58 B. Trade and Investment 12 F. Foreign Exchange Control 65 I. Trade Agreement 13 Useful websites 68 II. Foreign Direct Investment 13 Deloitte Vietnam 71 C. Setting up an investment in Vietnam 17 Foreign Investment Agency 72 D. Taxation and Customs 25 I. Taxation 26

2 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world ABBREVIATION

APA Advance Pricing Agreement FTA Free Trade Agreement APEC Asia-Pacific Economic Cooperation GDP Gross Domestic Product ASEAN Association of Southeast Asian GSO General Statistics Office Nations BCC Business Cooperation Contract IMF International Monetary Fund BLT Build-Lease-Transfer IRC Investment Registration Certificate BOO Build-Own-Operate IP Industrial Park BOT Build-Operate-Transfer M&A Mergers and Acquisitions BT Build-Transfer O&M Operate & Manage BTL Build-Transfer-Lease OECD Organization for Economic Cooperation and Development BTO Build-Transfer-Operate PIT Personal Income Tax CIT Corporate Income Tax PPP Public-Private Partnership CPTPP Comprehensive and Progressive RCEP Regional Comprehensive Agreement for Trans-Pacific Economic Partnership Partnership DTA Double Taxation Avoidance SST Special Sales Tax Agreement EPE Export Processing Enterprise USD US Dollar EPZ Export Processing Zone VAS Vietnamese Accounting Standards ERC Enterprise Registration Certificate VAT Value Added Tax EZ Economic Zone VND Vietnamese Dong FCWT Foreign Contractor Withholding Tax WTO World Trade Organization FDI Foreign Direct Investment

3 4 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world INTRODUCTION

n more than 30 years of social- a centralized to a market- oriented economy and its 95 million-strong Vietnam has moved from being population, which features a large Ione of the poorest nations in the world and young workforce as well as to a lower middle-income country an increase in disposable income with a number of convincing social- in recent years. The Vietnamese economic achievements. Joining the Government has done an excellent job Association of Southeast Asian Nations (ASEAN) in 1995 Economic Cooperation (APEC) in 1998 2.6 per cent (2017). and the World Trade Organisation (WTO) in 2007; expanding gross This guidebook was prepared by the domestic product (GDP); improving Foreign Investment Agency of infrastructure; and a steady increase Vietnam in cooperation with Deloitte in foreign direct investment (FDI) Vietnam to provide readers with an suggest that Vietnam has transformed overview of the investment climate, into an attractive investment forms of business organization, destination. taxation, and business and accounting practices in Vietnam. Although we do Vietnam has been enjoying strong our best to ensure that economic growth. Since 1990, information contained in this book is current at the time of writing, the Vietnam’s GDP per capita growth has rapid changes in Vietnam mean that been among the fastest in the world, laws and regulations may change to averaging 6.4 per cent a year in the reflect the new conditions. We hope 2000s. Despite crisis and uncertainties that you find this book useful in your in the global environment, Vietnam’s endeavour to expand your business economy continues to grow, with GDP in Vietnam. reaching 6.81 per cent in 2017, and is expected to continue on this path. Ministry of Planning and Overseas businesses are increasingly Investment of Vietnam attracted by the country’s move from Foreign Investment Agency

5 A COUNTRY PROFILE

COUNTRY PROFILE Vietnam’s economy continues its fast growth driven by free trade agreements (FTAs) with major developed countries and increasingly deregulated business environment.

VIETNAM Strategically located at the centre of Southeast Asia with convenient access to commodity and cultural exchange.

A stable political A youthful and vibrant environment, and an country with digitally-savvy attractive business environment with and well-educated workforce, high incentives for a developing culture of foreign investors. entrepreneurship, and openness to new ideas.

Low and competitive production cost. Fast growing economy with GDP growth projected to be between 6% to 7% during 2016-2018 period.

16 FTAs with major developed markets.

6 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world COUNTRY SNAPSHOT

LOCATION POPULATION AND WORKFORCE Southeast Asia Population: Over 95 million people The country borders with China, Laos, Cambodia, Ranked 15th in the list of most populated countries Pacific Ocean and Gulf of Thailand People of working age in employment: 48.2 million people (50.7% of total population) Unemployment rate: 2.24%

LAND AREA 330,967 sq. km ECONOMY Nominal GDP ( 2017): USD 220.6 billion Annual GDP growth averaging 6.4% since 2014 COASTLINE GDP per capita (2017): USD 2,385 3,260 km

LANGUAGE 5 MUNICIPALITIES & 58 PROVINCES Vietnamese (official language) English (taught widely at school as a second language) North: Hanoi – the capital Centre: Da Nang City South: Ho Chi Minh City – the largest city

BUSINESS HOURS Under the Vietnamese Labor Code, normal working CLIMATE AND WEATHER hours should be 8 hours/day, or 40 - 48 hours/week. The climate varies from North to South with three distinctive climate zones: tropical in the South (rainy season from April to September; dry season from October to March); monsoonal with hot and rainy season in the Centre and North (May to September); cold and damp in the highlands and the North CURRENCY (October to March). It is also blessed with plenty of Vietnamese Dong (VND) sun throughout the year.

Source: General Statistics Office (GSO), Economist Intelligence Unit, Vietnamese Labor Code

7 POLITICAL STRUCTURE Vietnam is a socialist country under the leadership of the Communist Party of Vietnam. The 14th National Assembly of Vietnam (term 2016-2021) has 489 Assembly, which is the highest-level representative body of Vietnamese people, has the power to exercise constitutional and legislative rights and to decide on critical issues of the country.

8 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world 8.0% 7.5% Product tax (net) Agriculture, 7.08% Forestry and 7.0% Fishery 6.81% 6.5% 6.68% 6.0% 5.98% 6.21% 5.5% 5.42%

5.0% Industry & Services Construction 4.5% 4.0% H1 2018

RETAIL SALES (billion USD)

173 6.60% 168 154 140 4.09% 125 3.53% 111 3.29% 2.66%

0.63%

H1 2018

MAIN EXPORT PARTNERS, 2017 (share of total)

214 211

180173 Japan 8% 166 150 162 148 132 131

ASEAN 10%

Source: GSO

9 A COUNTRY PROFILE

REGULATORY REFORM TO IMPROVE INVESTMENT CLIMATE The regulatory framework has been constantly revised to incorporate more favorable regulations for businesses to invest and operate in Vietnam. Since the new Law on Investment and the new Law on Enterprises were passed in 2014, many other laws, decrees and circulars have been put in place to provide guidelines for better market access.

VIETNAMESE GOVERNMENT’S EFFORTS TO IMPROVE INVESTMENT CLIMATE

- Law No. 67/2014/QH13 on Investment - Law No. 68/2014/QH13 on Enterprises - Decree No. 46/2014/ND-CP provides regulations on collection of land rent and water surface rent - Circular No. 78/2014/TT-BTC guides the implementation of the Law on CIT 2014 - Circular No. 103/2014/TT-BTC provides guidelines for fulfillment of tax liability of foreign entities doing business in Vietnam or earning income in Vietnam

- Decree No. 118/2015/ND-CP provides guidelines for some articles of the Law on Investment - Decree No. 96/2015/ND-CP provides guidelines for some articles of the Law on Enterprises - Decree No. 15/2015/ND-CP on investment in the form of public-private partnership

2015 - Circular No. 38/2015/TT-BTC on customs procedures, customs supervision and inspection, export tax, import tax, and tax administration

- Law No. 107/2016/QH13 on Export and Import Duties - Decree No. 134/2016/ND-CP provides guidelines for the Law on Export and Import Duties - Circular No. 83/2016/TT-BTC guides the implementation of investment incentive programs

2016 - Circular No. 130/2016/TT-BTC on guidelines on some articles of the Law on Value Added Tax, and the Law on Special Sales Tax

- Law No. 04/2017/QH14 about provision of assistance for small and medium-sized enterprises (coming into force from January 1st, 2018) - Decree No.32/2017/ND-CP on state investment credit

2017 - Decision No. 3610A/QD-BCT slashes 675 conditions on business and investment under state management

- Drafted Amendment of Law on Tax Administration - Drafted Amendment of Laws on Value Added Tax, Special Sales Tax, Corporate Income Tax, Personal Income Tax, Natural Resources Tax and Export – Import Duties - Decree No. 09/2018/ND-CP on trading activities of foreign investors 2018 - Decree 08/2018/ND-CP on business conditions under State management of the Ministry of Industry and Trade

10 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world RESTRUCTURING AND EQUITISING STATE-OWNED ENTERPRISES The Vietnamese Government upholds its commitments to economic reform. The equitisation of state-owned enterprises (SOEs) in recent years is an example economy forward. The 2016-2020 roadmap for the equitisation of SOEs has been outlined in Decision No. 58/2016/QD-TTg.

220 NUMBER OF EQUITISED SOES DURING 2011-2018 175

86

73 55 45

26 14

2011 2012 2013 2014 2015 2016 2017 2018F Note: F=Forecast | Source: Vietnam Government Report on the equitisation of SOEs (2011-2017)

11 TRADE AND INVESTMENT

12 Bilateral agreements - Vietnam - Chile - Vietnam - South Korea - Vietnam - Japan - Vietnam - Israel 2018) - Vietnam - Eurasian Economic Union FTA (concluded negotiation) - Vietnam - European Free Trade Association (on-going negotiation) I. TRADE AGREEMENT Vietnam has established diplomatic Vietnam has been actively engaging relations with 185 countries, expanded in a number of free trade agreements commercial and investment relations to help accelerate the country’s with more than 220 markets and signed integration into global economy in more than 70 Double Tax Avoidance recent years. Key trade pacts include: Agreements.

ASEAN Economic Community (AEC) (launched in December 2015) II. FOREIGN DIRECT INVESTMENT

Comprehensive and Foreign direct capital in 2017 totaled Progressive Agreement for Trans- USD 37.1 billion – the highest recorded

(signed on March 8th, 2018) Law was passed in 1987. The year-on- year increase of 38% in FDI is also the Regional Comprehensive highest increase in many years. Higher Economic Partnership (RCEP) FDI disbursement throughout the years (on-going negotiation) implies the improvement in investors’

Free trade agreements signed as an their commitment to establish long-term ASEAN member country investments in Vietnam. - ASEAN - Japan - ASEAN - South Korea Vietnam is one of the only few countries - ASEAN - India in the region that allows 100% foreign - ASEAN - China ownership for most sectors. 375 SOEs - ASEAN - Hong Kong will be partially or wholly divested - ASEAN - Australia - New Zealand during 2017 -2020 period.

13 B TRADE AND INVESTMENT

INVESTMENT INDUSTRIES Vietnam has become an attractive Real Estate: The investment in real investment destination for various estate sector accounted for 8.37 per sectors, from manufacturing, 2017. Ho real estate, energy, retail, and Chi Minh City stands out as the hub construction, to arts, tourism, to attract most of the large-scale real entertainment, and other services. estate projects.

Manufacturing: With advantages Other sectors: Green energy, in a number of areas such as science & technology, wholesales, competitive labor cost, raw and infrastructure development are materials resources, lower entering a booming period, as the barriers to trade, and many Government has given these sectors designated investment incentives, priorities for development through the manufacturing sector remains incentives and encouragement to attract investors. Investment in these 2017, accounting for around 44.3 sectors is expected to increase in the years to come.

REGISTERED AND DISBURSED FDI (2015-2017) FDI BY SECTOR (2017)

18.80% 40,000 35,602 5.96% 26,891 44.30% 30,000 24,115 8.37%

17,700

Million USD 20,000 15,800 14,500 22.57% 10,000

0 2015 2016 2017 Manufacturing Real Estate Production and distribution Wholesale, Registered FDI Disbursed FDI of electricity, gas, water, Retail & Repair and air conditioners Others

14 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world MAIN EXPORT PARTNERS,

TOP 10 FOREIGN INVESTORS BY REGISTERED CAPITAL (AS OF AUGUST, 2018)

70,000 60,000 50,000 40,000 30,000

(million USD) 20,000 Invesment Capital 10,000 0 ea e Japan Taiwan China Malaysia Thailand Singapor ginIslands Hong Kong

Republic of Kor The Netherlands BritishVir Source: Foreign Investment Agency

Foreign investors usually select industrial parks (IPs)/economic zones densely populated cities with modern (EZs) where the infrastructure and infrastructure and agglomerated transportation are specialized, and convenience (e.g. Hanoi, Ho Chi special investment incentives are Minh City, Da Nang) to implement given. FDI capital invested at IPs and service-related projects. Whereas, EZs accounted for roughly manufacturing and processing 80% of total registered capital in investment projects are often located at manufacturing sector.

17 COASTAL ECONOMIC ZONES

326 INDUSTRIAL PARKS 3 HI-TECH PARKS – Hoa Lac Hi-tech Park – Saigon Hi-tech Park – Da Nang Hi-tech Park

15 B TRADE AND INVESTMENT

CROSS-BORDER MERGERS & ACQUISITIONS Since July 2015, the new Laws on Enterprises and Investment have relaxed foreign h of mergers and acquisitions (M&A) transactions. Vietnam’s M&A market is expected to reach a total deal value of USD 20 billion for the 2015-2018 period. The most active industries for M&A are retail, consumer goods, real estate, and banking.

SIZE OF M&A DEALS IN VIETNAM PERCENTAGE OF M&A DEAL VALUE DURING THE 2016-2017 PERIOD BY INDUSTRIES DURING THE 2016-2017 PERIOD

18% 29% 23% 9% 64% 9% 8% 20%

10% 11%

> 500 USD million 20 - < 100 USD million Consumer Goods Industrials Finance 100 - 500 USD million < 20 USD million Retail Real Estate Others

Source: Vietnam M&A Forum Report 2017

16 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world SETTING UP AN INVESTMENT IN VIETNAM

17 C SETTING UP AN INVESTMENT IN VIETNAM

ESTABLISHING A NEW Some main forms of doing BUSINESS ENTITY business in Vietnam include:

(1) Limited-liability company INVESTMENT VIA M&A with one or more members; (2) Joint-stock company; (3) Partnership; (4) Business OTHER FORMS OF INVESTMENT Cooperation Contract; and (i.e. participating in contractual business (5) Public-Private forms or purchasing stakes of an existing Partnership Contract. enterprise by way of indirect investment)

LIMITED LIABILITY COMPANY A limited liability company is a legal entity established by capital contribution which is treated as equity (or charter capital) from its members. A limited iability Comp liability company is not allowed to issue d L any Established ite m Li by capital shares. The total number of members in contribution a limited liability company is restricted to 50 (applied to form of a limited liability company with more than two members). Maximum of Members of a limited liability company 50 members the limited liability company within the capital contributed – or undertaken to be Members are contributed - to the company. Not allowed liable for the nancial to issue obligations within shares the capital A limited liability company may be contributed established by foreign investors either in one of the two following forms: i. A 100% foreign-owned enterprise (where all members are foreign investors); or ii. A joint-venture enterprise with at least one Vietnamese investor.

18 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world JOINT STOCK COMPANY A joint stock company is a legal entity established by its founding shareholders on the basis of their subscription of shares of the joint stock company. Established by its founding The charter capital of a joint stock company is shareholders on divided into shares and each founding shareholder any the basis of their omp holds a number of shares corresponding to their C subscription of ck o subscribed and paid-up shares in the joint stock t shares S

t company.

n

i

o J At least three shareholders A joint stock company is required to have at least (with no maximum three shareholders (with no maximum number of number of shareholders). A joint stock company may take shareholders) the form of either (i) 100% foreign-owned; or (ii) a joint venture between foreign and domestic investors.

PARTNERSHIP sh Managing rtner ip Pa partners have A partnership may be established between at least unlimited liability for two individual managing partners. The managing all obligations of the partners have unlimited liability for all partnership obligations of the partnership. Besides managing partners, a partnership may have contributing Contributing partners only liable obligations of the partnership up to the value obligations of the partnership up to their of their contributed capital. contributed capital

BUSINESS COOPERATION A Business Cooperation Contract (BCC) is normally CONTRACT signed between foreign investors and Vietnamese Signed between investors in order to carry out certain business foreign investors and activities. Vietnamese investors n Contract tio without the creation of a ra BCC is executed without the creation of a new legal e new legal entity p o entity. Instead, parties to a BCC shall establish a

o

C

s co-ordination board to implement and oversee the

s

e

n

i BCC’s parties BCC. The investors to a BCC mutually agree on s

u B hold unlimited allocation of responsibilities and sharing of liability for the profits/losses arising from a BCC. BCC’s parties hold of the BCC unlimited liability for the financial obligations of the BCC.

19 C SETTING UP AN INVESTMENT IN VIETNAM

PUBLIC-PRIVATE A Public-Private Partnership (PPP) contract is PARTNERSHIP an investment form set up on the basis of a contract between relevant government authorities and project companies to perform certain regulated infrastructure works and artners public services, e.g. transportation system, te P hip va ri Comprise BOT, water supply system, power plants, educational -P ic l BT, BTO, BOO, and healthcare-related infrastructure, etc. b

u BTL, BLT, O&M

P Contracts PPP Contracts comprise Build-Operate-Transfer (BOT), Build-Transfer (BT), Build-Transfer- Set up Operate (BTO), Build-Own-Operate (BOO), on the basis of a contract Build-Transfer-Lease (BTL), Build–Lease- between relevant government authorities and project Transfer (BLT) and Operate-Manage (O&M) companies to perform certain Contracts. regulated infrastructure works and public services After signing PPP contracts with an authorized state agency, foreign investors must establish a project company in the form of a limited liability company or a joint stock company. PPP contracts clearly set out the rights and obligations of foreign investors to such contracts.

20 MERGERS AND ACQUISITIONS The legal framework for M&A is set out under the Law on Enterprise and Law on Investment and their guiding documents, which cover conditions, procedures and tax consequences of such activities.

The Competition Law also has an effect on M&A activities. Where a merger or acquisition may result in a legal entity with a market share accounting for 30% to 50% of the relevant market, the legal representative of such entity must notify the competition management body before the merger/acquisition is implemented, unless the law provides otherwise. A merger or acquisition that results in a new entity with its market share accounting for more than 50% of the relevant market is prohibited, unless otherwise stipulated in the Competition Law.

Other investment forms All indirect investment activities of foreign investors in Vietnam must be conducted in Vietnamese Dong via an indirectly-invested capital account opened at a permitted bank. Balances in indirectly-invested capital accounts of foreign investors cannot be converted into time deposits, or saving deposits at credit institutions and foreign bank branches.

Below are examples of frequently-conducted indirect investment activities in Vietnam.

Capital contribution, sale/purchase Capital contribution, transfer of of shares or contributed contributed capital in securities capital in Vietnamese enterprises investment funds and fund without directly participating in management enterprises in accordance the enterprise management and with the laws on securities administration

Sale/purchase of other valuable Sale/purchase of bonds and other papers in Vietnamese dong types of stocks in the Vietnamese permitted to issue within Vietnam’s securities market territory by organizational residents

21 C SETTING UP AN INVESTMENT IN VIETNAM SETTING UP A NEW BUSINESS PROCEDURES FOR COMPANY SET-UP In order to legally carry out business activities in Vietnam, foreign investors must register their investment with the appropriate licensing authorities. Under the new Law on Investment and Law on Enterprises, foreign investors now go through two steps:

PROCEDURES FOR NEW COMPANY SET-UP

Step 1 Step 2 Step 3

15 days 3 days 5-7 days

Location IRC ERC Public Selection Application Application Notification

(*) The timeline for setting-up projects prioritized by national or provincial Government shall be shortened. (**) Please note that IRC is required only for investments by foreign investors or deemed-to-be foreign investors (i.e. companies with more than 51% of charter capital held by foreign ownership).

PROCEDURES FOR BRANCH, REPRESENTATIVE OFFICE SET-UP

Step 1 Step 2 Step 3 Step 4

7 days 5-7 days 5-7 days

Location RO/Branch License Seal/Tax ID Public Selection Application Registration Notification

22 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world As part of the set-up procedures, various types of documents will be required depending on the type of company/business activities that is being set up, etc. All legal documents issued by overseas authorities must be translated into Vietnamese and must be validated by the Vietnamese Embassy in the home country of the investor.

RELEVANT LICENSING AUTHORITIES

CERTIFICATE IRC ERC

Projects located INSIDE Provincial Management Board industrial zones, export of Industrial/ Economic Zones processing zones, high-tech zones & economic zones Provincial Department of Planning and Investment Projects located OUTSIDE Provincial Department of industrial zones, export Planning and Investment processing zones, high-tech zones & economic zones

LIQUIDATION AND CLOSING BUSINESS The termination, liquidation, or dissolution, of an enterprise shall occur in the following circumstances:

The operation period in the The dissolution is decided by company’s charter expires owners/ general partners/ board of without a decision on extension members/ shareholders

Failure to maintain minimum required number of members Business Registration for 6 consecutive months without business conversion

23 C SETTING UP AN INVESTMENT IN VIETNAM

The company shall be dissolved only when all debts and liabilities are settled and the company is not involved in any dispute at a court or arbitration body. The liquidation procedures generally take about 6 - 12 months, which normally

Step 1 NOTIFICATION OF DISSOLUTION DECISION Business Registration Tax Authority Authority 7 days

from approval date National Business Employees Registration Portal

Step 2 TAX FINALISATION / TAX AUDIT & TAX CODE CANCELLATION

2-3 months Tax Authority

Step 3 SUBMIT DISSOLUTION DOSSIERS & RETURN IRC/ERC

5 days Business Registration from debt clearance date Authority

24 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world D TAXATION AND CUSTOMS

D TAXATION AND CUSTOMS

25 I. TAXATION

The Vietnamese tax system is comprised of the following:

i. Corporate Income Tax (CIT); ii. Personal Income Tax (PIT); iii. Value Added Tax (VAT); iv. Foreign Contractor Withholding Tax (FCWT); and v. Other taxes (i.e. Special Sales Tax, Import & Export Duties, Natural Resources Tax, Property Tax, Environment Protection Tax, Business License Duty & Registration Fee).

All taxes are levied at the national level. There are no local taxes.

Please refer to the following pages for your further reading.

Type of Tax Page

Corporate Income Tax 28

Personal Income Tax 34

Value Added Tax 39

Foreign Contractor Withholding Tax 44

Other Taxes 51

Special Sales Tax 51

Environment Protection Tax 52

26 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world D TAXATION AND CUSTOMS TAX COMPLIANCE TIMELINE

NO. TAX TYPE/ TIME LIMIT MONTHLY QUARTERLY FINALIZATION 20th day of the following 30th day of 90th day from month the following quarter or calendar year-end date 1 Corporate Income Tax N/A (provisional payment only) 2 Personal Income Tax (*) (calendar year) 3 Value Added Tax (**) N/A 4 Foreign Contractor 10th day following the payment day; or 20th of the month Withholding Tax following the payment month if registering to file FCWT on a monthly basis 5 Compulsory Social/ The last day of the month Health/ Unemployment Insurance 6 Stamp Duty Upon occurrence 7 Export Duty Upon occurrence 8 Import Duty Upon occurrence

50 shall be applicable.

12-month operation within a

50 billion or less, otherwise the monthly basis or quarterly basis.

27 CORPORATE INCOME TAX (CIT) TAXPAYERS

1 2 Foreign Vietnam- enterprises with or incorporated without Permanent enterprises Establishment (PE)

Service Branches/Agents establishment

Plants/ Construction sites Others

TAX CALCULATION CIT PAYABLE = TAX RATE X ASSESSABLE INCOME

Assessable Total Deductible Other Carried Income Revenue Expenses Income Loss

1. (Total revenue – Deductible expenses) is considered an income from main business activities. Such income is entitled to CIT incentives, if any.

2. Normally, other forms of income are not entitled to CIT incentives, and thus, shall be subject to the standard CIT rate of 20 per cent. Other income includes gains from foreign exchange revaluation, income from disposal of fixed assets, interest income, ect. not related to main business.

Tax Rates

From 1 January 2016, the standard CIT rate is 20 per cent. The CIT rate for enterprises operating in exploration and mining of petroleum, gas, and other rare and precious natural resources shall range from 32 per cent to 50 per cent, depending on the project locations and conditions.

28 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world D TAXATION AND CUSTOMS

TAX INCENTIVES COMMENCEMENT RULE

Preferential tax rate Generally, preferential tax rate is applicable from the first revenue-generation year; except high-tech enterprises or projects.

Tax holiday Generally, tax holiday is available from the first profit-making year or the fourth revenue-generation year, where applicable, except high-tech enterprises.

BY LOCATION

CIT INCENTIVES LOCATION PREFERENTIAL TAX RATE TAX HOLIDAY

With especiallly difficult 10% for 15 years • 4 years of tax exemption; socio-economic conditions and • Economic Zones • 50% reduction for the next • High-tech Zones, including 9 years concentrated information technology parks established under the Prime Minister’s decision • With difficult socio-economic 17% for 10 years • 2 years of tax exemption; conditions and • 50% reduction for the next 4 years • Industrial Parks (which are not Not applicable • 2 years of tax exemption; located in the favorable and socio-economic locations) • 50% reduction for the next 4 years

29 BY SECTOR The current incentive scheme is applicable for sectors that are prioritized for investment under the Government’s development policies.

CIT INCENTIVES SECTOR PREFERENTIAL TAX RATE TAX HOLIDAY

• High-tech enterprises (including 10% for 15 years • 4 years of tax science and technology enterprises); exemption; and research, application, and incubation of • 50% reduction for hi- technology projects the next 9 years • Environmental protection • Investment for infrastructure development (water plant, power, road, port, etc.) • Software production • Supporting industries • Socialised projects in regions with 10% for whole project’s • 4 years of tax difficult/especially difficult duration exemption; and socio-economic conditions • 50% reduction for the next 9 years • Socialised project not located in 10% for whole project’s • 4 years of tax duration exemption; and economic regions • 50% reduction for the next 5 years • Farming, husbandry, processing of 10% for whole project’s • Tax exemption and duration reduction under regions; forestry in difficult regions; incentives for location production of plant varieties, animal (if applicable) breeds; production of salt; preservation of agriculture products, aquaculture products and foods, etc.

30 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world D TAXATION AND CUSTOMS

CIT INCENTIVES SECTOR PREFERENTIAL TAX RATE TAX HOLIDAY

• Farming, husbandry, processing of 15% for whole project’s agriculture and aquaculture products duration

• Manufacturing of steel, energy saving 17% for 10 years products, machinery and equipment serving agriculture, forestry, fisheries and salt production, traditional crafts, etc.

BY BUSINESS SCALE Investment incentives are granted to large manufacturing projects (excluding those in product manufacture subject to special sales tax or those in mineral resources exploitation) having either: 1. Total capital of VND 6,000 billion or more, disbursed within 3 years since being licensed with: - Minimum annual revenue of VND 10,000 billion by the 4th year of revenue generation at the latest; or - Regularly employing more than 3,000 employees by the 4th year of operation at the latest. 2. Total capital of VND 12,000 billion or more, disbursed within 5 years since being licensed and using technologies being evaluated under the Law on Hi-technology, and the Law on Science and Technology.

CIT INCENTIVES BUSINESS SCALE PREFERENTIAL TAX RATE TAX HOLIDAY

• VND 6,000 billion capital project (1) 10% for 15 years • 4 years of tax exemption; and • 50% reduction in tax • VND 12,000 billion capital project (2) for the next 9 years

31 DEDUCTIBLE EXPENSES

An expense might be deductible for CIT purpose if the following conditions are met:

Actually incurred and Supported by proper relevant to the company’s documents 1 business activities 2

Payments above VND 20 Not in the list of million must be supported non-deductible expenses by bank payment vouchers 4 3 or deemed as made via banks

In addition, payments above VND 20 cap of one-month average monthly salary; million must be supported by bank • Costs of raw materials, supplies, payment vouchers (or deemed as fuel, power and goods exceeding the made via bank) to be deductible. reasonable consumption levels as stipulated by the Government; NON-DEDUCTIBLE EXPENSES • Interest on loans from non-economic Below are notable examples of and non-credit organizations exceeding non-deductible expenses: 1.5 times of the interest rate announced • Depreciation expenses of fixed by the State Bank of Vietnam; assets not in accordance with • Interest expenses exceeding 20% prevailing regulations, i.e. (i) not for EBITDA for enterprises having related- business purpose; (ii) not supported by proper documentation; and (iii) party transactions; exceeding the regulated depreciation • Interests on loans corresponding to rates; the portion of charter capital not yet • Labor expenses recorded but not contributed in accordance with registered actually paid or not stipulated with contribution schedule; clear conditions and amounts under • Periodical accrued expenses not paid or labor contracts, collective labor not fully paid at the end of the period; agreements or company’s financial policies; losses, inventory devaluation, bad debts, product warranties or

32 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world D TAXATION AND CUSTOMS construction works, vocational risks activities. Losses from the transfer not in accordance with the prevailing of real estate, investment projects, regulations; rights to participate in investment • Unrealized foreign exchange losses projects (except for mineral due to the year-end revaluation of foreign exploitation and exploration currency items other than account payables; from other business activities. • Overhead costs allocated to the Permanent Establishment (PE) by foreign TAX DECLARATION AND PAYMENT companies exceeding the amount Enterprises are not required to determined based on the revenue-based submit the quarterly CIT declaration allocation ratio; returns. However, provisional • Contributions to voluntary pension payments are still compulsory and funds and purchase of voluntary pension will be calculated and settled based insurance, life insurance for employees on best estimation. In case the exceeding VND 3 million/person/month; payment interests, etc.; the sum of provisional CIT payments • Donations other than certain donation is more than 20 per cent of the CIT contributions for education, health care, natural disaster or building charitable excess of 20 per cent shall be subject homes, etc.; to late tax payment interest. • Certain expenses related to the issuance, purchase and sale of shares. prepared and submitted to the tax authorities within 90 days from the LOSSES Tax loss is carried forward within tax liabilities arising from the tax a maximum period of 5 years after the loss-making year. The tax loss payments made quarterly shall generated from January 2009 be settled within 90 days from the must be carried forward consecutively end of fiscal year. even during the tax exemption period. The standard tax year is the calendar Carry-back of tax loss is not allowed. year. However, enterprises are able to Losses from incentive business adopt a tax year, i.e. fiscal year, which is different from the celendar year income from non- incentive upon notification to tax authorities.

33 PERSONAL INCOME TAX (PIT) OVERVIEW

TAXPAYER TAX RESIDENT TAX NON-RESIDENT

Taxable Worldwide income Vietnam-sourced income income Tax rate on Progressive rate (5~35%) Flat rate (20%) employment income Tax calculation Assessable Income = Taxable Income Assessable Income = Taxable - Deductions Income Deduction Personal deduction No deduction is claimed Dependent deduction Compulsory and (capped) voluntary insurance contribution Charitable or humanitarian donation Tax relief Foreign tax credit is allowed on the foreign- Tax treaty exemption may be sourced income applicable if conditions are met

TAX RESIDENCY An individual is a tax resident if he/she meets one of the following conditions: • Residing in Vietnam for 183 days or more in 12 consecutive months from Present in the first arrival date or in a calendar Vietnam for year; 183 days or • Having a registered permanent more residence in Vietnam as recorded by a temporary/permanent residence card; • Having rented a house in Vietnam House lease Permanent/ contract of 183 Temporary with a term of 183 days or more days or more residence card within a tax year. Note: An individual having registered address or rented house over 183 days but residing less than 183 days in Vietnam may still be a tax resident if being unable to prove residency of another country.

34 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world D TAXATION AND CUSTOMS

Tax residents are subject to PIT in remuneration and fringe benefits Vietnam on their world-wide income whether in cash or in kind. However, regardless of where such income is certain income items are not subject to paid, earned or charged. Worldwide tax, typically: employment income is subject to tax at • Once-off relocation allowances for progressive tax rates ranging from 5 example, paid to foreigners first time per cent to 35 per cent depending on comes to work in Vietnam; or Vietnamese income level. citizens residing overseas return to Individuals who do not satisfy any of work in Vietnam; the above condition are classified as • Transportation allowance: from non-residents and subject to tax only home to work and vice versa under the on Vietnam-sourced income. The rate Company’s policy; applicable to tax non-residents’ • Wedding and funeral allowances Vietnam- sourced employment income under the Company’s policy and being is currently fixed at 20 per cent. capped at one-month average monthly Both residents and non-residents are salary; also subject to PIT in Vietnam on • Airfare in kind one round trip per incomes of non-employment nature year for employee to travel back to which are taxed at different flat rates. home country; • Tuition fee in kind for children to TAX YEAR study from nursery to high school level The Vietnamese standard PIT reporting at host country; period is the calendar year. For foreign • Insurance premium: voluntary individual, the fist tax year will be the non-accumulative insurance for health 12-consecutive-month-period from the & death; first arrival date in Vietnam in case the • Membership/ healthcare/ entertainment individual is present in Vietnam for in kind & non-identified beneficiary; less than 183 days during the first • Supports for cure of fatal diseases to calendar year. From the second year, employees (and close family members); the tax year will be the calendar year. • Per-diem: Fully exempted if paid under the Company’s policy; EMPLOYMENT INCOME • Housing allowance: In excess of 15 Employment income includes per cent of total taxable income; salaries and wages, and all forms of

35 • Uniform allowance in cash below TAX RELIEF VND 5 million/year or in kind; FOREIGN TAX CREDIT • Overtime in excess of the normal rate. A tax resident is entitled to claim for Foreign Tax Credit (i.e. the NON-EMPLOYMENT INCOME amount of tax paid overseas Non-employment income includes according to overseas regulations) income from business, capital against their Vietnamese PIT on the investment, inheritance, gifts, foreign-sourced income; however, the prize winnings, transfer of capital, creditable amount shall not exceed the transfer of real estate, sale of shares/ Vietnamese PIT payable according to securities, royalties, franchising, copyrights, etc. which are subject to income arising overseas.

TAX TREATY RELIEF TAX DEDUCTIONS A tax non-resident may enjoy PIT Tax residents of Vietnam are entitled to exemption in Vietnam via tax treaty the following deductions from taxable application if certain conditions income: under the treaty are met. To enjoy • A personal deduction of VND 9 million per month; are required.

spouse, children and other eligible persons including parents in the amount TAX RATES of VND 3.6 million per dependent per Employment Income month (provided that certain conditions are met); MONTHLY TAX RATE ASSESSABLE • Eligible charitable or humanitarian NON- INCOME RESIDENTS donations; (million VND) RESIDENTS • Compulsory social insurance, Up to 5 5% health insurance and unemployment Over 5 to 10 10% insurance paid by employees; and Over 10 to 18 15% • Contribution to private pension 20% Over 18 to 32 20% fund made by the employer and the Over 32 to 52 25% employee capped at VND 1 million Over 52 to 80 30% per month pursuant to the Ministry of Finance’s guidance. Over 80 35%

36 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world Non-Employment Income (applicable to both residents & non-residents)

NON-EMPLOYMENT TAX RATE INCOME 1% - 5% on revenue Business Income *Depending on type of business Capital investment, i.e. interest, dividends 5% (except for bank interest) 20% on net gains for tax resident; 0.1% on Capital transfer sales proceeds for non-resident Securities / JSC share 0.1% on sales transfer proceeds Real estate transfer 2% on sales proceeds Income from winning prizes (in excess of 10% VND 10 million) Income from copyright (in excess of VND 10 5% million) Income from royalty/ franchising (in excess 5% of VND 10 million) Income from gifts / inheritances 10% (in excess of VND 10 million)

37 TAX DECLARATION AND PAYMENT Each individual taxpayer must register for a personal tax code prior to the time limit for his first PIT filing. In case the employer makes tax registration for employees earning income from salaries or wages and tax registration for employees’ dependents, the registration deadline shall be within 10 working days before the submission of annual PIT finalization return.

Monthly TYPE OF INCOME DEADLINE

Employment income received from Vietnamese employers 20th day of the following month ′s return) Quarterly Employment income received from Vietnamese employers 30th day of the following quarter ′s return) Employment income received

via Company′s return) 10th day from the date of Non-employment income arising income

TAX FINALIZATION Tax residents are required to file the PIT finalization return and settle outstanding PIT liabilities within 90 days from the end of the tax year.

Residents foreign expatriates terminating their Vietnam assignment must file PIT finalization dossiers prior to their departure dates (or within 45 days from departure dates in case of authorization following a recent specific guidance)

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VALUE ADDED TAX (VAT)

SCOPE OF APPLICATION VAT is imposed on goods and services used for production, trading and consumption in Vietnam (including those purchased from overseas organizations and individuals).

TAX RATES There are three types of VAT treatment: non-taxable items; items not required to declare VAT and taxable items (at 0 per cent, 5 per cent and 10 per cent VAT rate). Below are some notable cases:

NON-TAXABLE • Land use rights; • Insurance related to human; • Loan, credit services; • Education and vocational training according to prevailing regulations; • Medical services; • Machinery and equipment not locally produced, imported for some specific purpose; • Temporarily imported goods; • Capital transfer transactions between non-tariff zones and overseas; • Intellectual property rights, software (except exported software); • Unprocessed or semi-processed products of cultivation, agriculture, aquaculture; animal breeding stock, seedlings, salt products, etc.;

• Imported goods/services for humanitarian aid; • Exported products directly processed from main materials being natural resources and/ or minerals whose total value plus energy cost makes up at least 51% of the prime cost.

39 DECLARATION NOT REQUIRED • Compensation, financial income;

• Project transfer; • Transfer of assets within a company and dependent units; • Capital contribution by assets; • Commission for some agent services.

TAXABLE

Export goods and services; International transportation; 0% Aviation and maritime services provided either directly for foreign entities or through agents

Clean water, pesticide, services for digging, embanking, dredging of canals, agricultural machinery and equipment, 5% sugar and by-products, medical equipment, teaching aids, artistic, sports activities, etc.

Standard VAT rate, applicable to goods and services other 10% than those mentioned above

40 D TAXATION AND CUSTOMS

TAX CALCULATION CREDIT METHOD For general business activities, VAT The credit method is adopted by liabilities must be paid to local tax enterprises maintaining complete authorities where general business books of accounts, invoices and activities take place while for documents in accordance with imported goods, VAT liabilities will relevant regulations, including: be collected by customs authorities • Enterprises with annual revenue upon importation. subject to VAT of more than VND 1 billion; There are two methods for VAT • Enterprises in other cases who declaration: Credit method and voluntarily register for VAT declaration Direct method. under credit method. • Credit method: VAT liabilities are calculated by offsetting input VAT VAT calculation under credit method: with output VAT; • Direct method: VAT liabilities for VAT OUTPUT INPUT specific goods and services are PAYABLE VAT VAT calculated by using the deemed VAT rates.

OF WHICH Output VAT shall be equal to the total VAT on goods or services sold as stated in the VAT invoice. Input VAT shall be: - VAT amount as recorded in all VAT invoices for the purchase of goods or services; - VAT amount stated on receipts for VAT payment on imported goods; - VAT amount stated on receipts for VAT payment on behalf of foreign contractors. In order to claim deductible input VAT, taxpayers must obtain the following documents for each type of goods/services purchased:

GOODS/SERVICES PAYMENTS ON IMPORTED LOCALLY BEHALF OF FOREIGN GOODS PURCHASED CONTRACTORS VAT invoice

VAT payment receipt (*) Non-cash payment voucher Customs returns

(*) Non-cash payment vouchers are only required for payments of VND 20 million or more (inclusive of VAT).

41 In case the credit method is applied, taxpayers should note the following principles regarding credits:

VAT OUTPUT CORRESPONDING INPUT

Non-taxable Nil Not eligible for credit Declaration not required Nil May be credited Taxable (0%) Nil May be credited Taxable (5%, 10%) Yes May be credited

If goods/services/fixed assets are used for the production/trading of both taxable good/services and non-taxable goods/services, then only the input VAT of goods/services/fixed assets used for the production/trading of taxable goods may be used for credit. Taxpayers must separate the credit-eligible input VAT from non-credit-eligible inputs. Otherwise, the input VAT shall be credited based on the ratio of the revenue of goods/services subject to VAT and not required for VAT declaration to the total revenue from sales of goods/services. DIRECT METHOD The direct method is adopted in the following cases: • Enterprises with annual revenue subject to VAT of less than VND 1 billion unless they voluntarily register for credit method; • Enterprises not maintaining proper books of accounts and foreign organizations/ individuals carrying out business activities not regulated under the Law on Investment; • Business individuals and households; • Enterprises engaging in trading in gold, silver and precious stones. VAT calculation under direct method:

VAT PAYABLE REVENUE VAT RATE

OF WHICH, THE • 1% Distribution; supply of goods APPLICABLE VAT RATES • 5% Services; construction excluding supply of materials SHALL BE: • 3% Manufacturing; transportation; services attached to the supply of goods; construction, including supply of materials • 2% Other cases

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For those enterprises engaging in the business of gold, silver and precious stones, VAT payable shall be calculated as 10% of the added value. The value added of gold, silver, and precious stones equals their selling price minus their purchase price which are recorded by proper VAT invoices or payment receipts/ vouchers. TAX DECLARATION AND PAYMENT Monthly VAT declaration shall be applied in most cases and is to be filed by the 20th day of the following month. Quarterly VAT declaration is applicable to taxpayers with total turnover from sales of goods/ services of the preceding year not exceeding VND 50 billion. The deadline for quarterly VAT filing is by the 30th of the following quarter. Where the taxpayer are eligible for quaterly VAT declaration wish to instead file VAT monthly, they shall submit a notification to tax authorities not later than the deadline for VAT declaration in the fist month of the tax year. VAT finalization is not required.

TAX REFUND From 1 July 2016, taxpayers can only claim VAT refund from tax authorities in the following common cases: • New projects of taxpayers who adopt the VAT-deduction method that are in the pre-operation investment period, and with a total accumulated input VAT exceeding VND 300 million (some exceptions may apply); f local sales) with an amount exceeding VND 300 million (but capped at 10% of export revenue), except: goods imported then re-exported;

Customs Law.

From 1 February 2018 146/2017/ND-CP in addition to the above, business establishments importing and then exporting goods into

VAT exceeding VND 300 million are re-allowed to enjoy VAT refund.

43 FOREIGN CONTRACTOR WITHHOLDING TAX (FCWT)

TAXPAYERS FCWT is applicable to foreign organizations/individuals who conduct business or earn income in Vietnam on the basis of a contract/agreement with (i) a Vietnamese party (as a main foreign contractor); or (ii) another foreign contractor to implement part of the contractual scope of works (as a foreign sub-contractor). FCWT is a tax collection mechanism that normally comprises both CIT and VAT, but may also include PIT for payments to foreign individuals.

SCOPE OF APPLICATION

SUBJECT TO FCWT NOT SUBJECT TO FCWT

Services provided or consumed Services provided and consumed Services inside Vietnam outside Vietnam

Supply of goods accompanied by Supply of goods not accompanied by services services and the delivery point Goods Supply of goods in which the delivery is overseas or outside border gate of point is inside Vietnam Vietnam Construction & installation Interest Royalties Others Trademarks Penalty/compensation Income from transportation activities Security transfer IMPORTANT NOTE There is no dividend withholding tax in Vietnam on corporate shareholders.

TAX DECLARATION There are three methods for FCWT declaration including: (i) Deemed method; (ii) Hybrid method; and (iii) Declaration method. While the Deemed method can be applied by foreign contractors without any specific conditions (and is the most common method, which can be applied), the Hybrid method and Declaration method require foreign contractors to satisfy the

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following conditions: • Maintaining a contract duration of 183 days or more;

• Applying the Vietnamese Accounting System.

NO. CRITERIA DEEMED METHOD DECLARATION METHOD HYBRID METHOD

1 Filing • Vietnamese Party • Foreign Contractor • Foreign Contractor responsibility 2 Compliance timeline VAT declaration • 10 days from • Monthly • Monthly payment date; or • Monthly CIT declaration • 10 days from • Quarterly • 10 days from payment date; or payment date; or • Monthly • Monthly Finalization • 45 days from • 90 days from the end of • 45 days from contract termination contract termination date • 45 days from contract date, applied for CIT termination date 3 Tax calculation VAT • VAT = Taxable • VAT = Output VAT – • VAT = Output VAT – income x deemed Input VAT Input VAT rate CIT • CIT = Taxable • CIT = Taxable income x • CIT = Taxable income x deemed CIT rate income x deemed rate rate 4 Auditing • No • Not compulsory • Not compulsory

• Tax liability would Revenue/ • No detailed requirements to 5 be withheld before requirement remittance before remittance

45 TAX RATES In case of the deemed method, the following rates shall be applied for some notable cases:

ACTIVITIES VAT RATE CIT RATE

Supply of goods in Vietnam or Exempt 1% associated with services rendered in Vietnam (including in-country export- import, distribution of goods in Vietnam or delivery of goods where the seller bears risk relating to the goods in Vietnam)

Services 5% 5% Supply of goods attached to services where the value is separated: Goods portion Exempt (for goods) 1% (for goods) Services portion 5% (for services) 5% (for services) Supply of goods and some 3% 2% services where value is not separated (*) Construction 3% or 5% 2% Loan interest Exempt 5% Income from royalties Risk of being taxed at 5% 10% Other cases where value is not Highest rate applicable Highest rate applicable separated

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DOUBLE TAXATION AVOIDANCE AGREEMENT Vietnam has a solid tax treaty language and notarized, along with network, with most treaties following various Vietnamese Government the OECD - model treaty. Treaties forms. In the case the statutory generally provide for relief from deadline above is missed, taxpayers double taxation on all types of can still retain their right to claim tax income, limit the taxation by one treaty benefits as long as the notification country of companies’ residents in the is submitted within 3 year from the other and protect companies’ tax payment due date. residents in one country from The documentation can be submitted discriminatory taxation in the other. before the payment is made and Vietnam’s treaties generally contain Vietnamese tax is withheld, or OECD-compliant exchange of alternatively, after tax has been information provisions. withheld, in which case, the applicant Tax relief under Double Taxation would be seeking a tax refund. Avoidance Agreement (DTA) As of March 2018, Vietnam has signed application is not automatically DTA agreements with 77 countries and granted. Instead, foreign taxpayers territories around the world. The table are required to submit certain below contains the withholding tax notification dossiers to Vietnamese rates that apply to dividend, interest tax authorities within 15 days prior to and royalty payments by Vietnamese the tax payment deadline. companies to non-residents under Notification dossiers normally include tax residence confirmation, which a number of countries. must be translated into the Vietnamese

47 WITHHOLDING TAX RATES UNDER VIETNAM’S TAX TREATIES Treaty Partner Dividends Interest Royalties Algeria (*) 15 15 15 Australia 10 10 10 Austria 5/10/15 10 7.5/10 Azerbaijan 10 10 10 Bangladesh 15 15 15 Belarus 15 10 15 Belgium (*) 5/10/15 10 5/10/15 Brunei Darussalam 10 10 10 Bulgaria 15 10 15 Canada 5/10/15 10 7.5/10 China 10 10 10 Cuba 5/10/15 10 10 Czech Republic 10 10 10 Denmark 5/10/15 10 5/15 Eastern Uruguay 5/10 10 10 Estonia (*) (**) (**) (**) Egypt (*) 15 15 15 Finland 5/10/15 10 10 France 7/10/15 0 10 Germany 5/10/15 10 7.5/10 Hong Kong 10 10 7/10 Hungary 10 10 10 Iceland 10/15 10 10 India (*) 10 10 10 Indonesia 15 15 15 Iran 10 10 8/10 Ireland 5/10 10 5/7.5/10/15 Israel 10 10 5/7.5/15 Italy 5/10/15 10 7.5/10 Japan 10 10 10

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WITHHOLDING TAX RATES UNDER VIETNAM’S TAX TREATIES Treaty Partner Dividends Interest Royalties Kazakhstan 5/15 10 10/15 Korea (North) 10 10 10 Korea (South) 10 10 5/15 Kuwait 10/15 15 20 Laos 10 10 10 Luxembourg 5/10/15 10 10 Macedonia (*) (**) (**) (**) Malaysia 10 10 10 Malta 5/15 10 5/7.5/10/15 Mongolia 10 10 10 Myanmar 10 10 10 Morocco 10 10 10 Mozambique 10 10 10 Netherlands 5/10/15 10 5/10/15 New Zealand 5/15 10 10 Norway 5/10/15 10 10 Oman 5/10/15 10 10 Panama 5/7/12.5 10 10 Pakistan 15 15 15 Palestine 10 10 10 Philippines 10/15 15 15 Poland 10/15 10 10/15 Portugal (*) 5/10/15 10 7.5/10 Qatar 5/12.5 10 5/7.5/10 Romania 15 10 15 Russia 10/15 10 15 San Marino 10/15 10/15 10/15 Saudi Arabia 5/12.5 10 7.5/10 Serbia 10/15 10 10

49 WITHHOLDING TAX RATES UNDER VIETNAM’S TAX TREATIES Treaty Partner Dividends Interest Royalties Seychelles 10 10 10 Singapore 5/7/12.5 10 5/10 Slovakia 5/10 10 5/7.5/10/15 Spain 7/10/15 10 10 Sri Lanka 10 10 15 Sweden 5/10/15 10 5/15 Switzerland 7/10/15 10 10 Taiwan 15 10 15 Thailand 15 10/15 15 Tunisia 10 10 10 Turkey 5 10 10 United Arab Emirates 5/15 10 10 Ukraine 10 10 10 United Kingdom 7/10/15 10 10 United States (*) 5/15 10 5/10 Uzbekistan 15 10 15 Venezuela 5/10 10 10

Notes: (*) These DTAs and the protocols for DTAs have been not yet in force. (**) The content of some new DTAs were not available at the time this Investment Guide was prepared.

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OTHER TAXES

SPECIAL SALES TAX Special Sales Tax (SST) taxpayers include producers and importers of goods and providers of services that are subject to SST. SST rates are presented in the table below:

GOODS/SERVICES TAX RATES (%)

Cigarettes, other products derived from tobacco plants • From 1 January 2016 to 31 December 2018 70 • From 1 January 2019 75 Spirit/Wine a) Spirit/Wine with ABV ≥ 20° • From 1 January 2018 65 b) Spirit/Wine with ABV < 20° • From 1 January 2018 35

Beer • From 1 January 2018 65 Automobiles having fewer than 24 seats 5~150 Motorcycles with cylinder capacity above 125cm3 20 Aircraft/Yacht 30 Gasoline 7~10 Playing cards 40 Votive papers 70 Dancing club business 40 Massage, karaoke business, betting business 30 Casino business, electronic casino game business 35 Golf course business 20 Lottery business 15

51 ENVIRONMENT PROTECTION TAX Environment protection taxpayers are organizations, households and individuals producing and/or importing goods that are subject to the environment protection tax. The tax rates are presented in the table below:

TAX RATE (VND/ GOODS UNIT UNIT) Petrol, oil and grease Liter/kg 300-1,000 Coal ton 10,000-20,000 HCFC solution kg 4,000 Taxable plastic bags kg 40,000 Herbicides restricted from use kg 500 Termiticides restricted from use kg 1,000 Forest product preservatives restricted from use kg 1,000 Storehouse disinfectants restricted from use kg 1,000

REGISTRATION FEE Organizations and individuals having properties subject to registration fee must pay the registration fee when registering the ownership and usage rights

previously called registration tax.

II. CUSTOMS DUTY AND PROCEDURES EXPORT DUTY Exports are the factor that drives the growth of the Vietnamese economy; therefore, most of common goods are not subject to export duty. Export duty is applicable to only

the duty rates ranging up to 40 per cent.

IMPORT DUTY Import duty is generally applied to goods physically crossing or “considered as crossing” duty rates, which are determined based on HS codes and the origins of the goods. Goods originating

categorized as follow:

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IMPORT DUTY RATE Special Imports from countries that have an FTA with Vietnam. For example: preferential rates Korea, Japan, China, Chile, India, the ASEAN members, New Zealand, Russia, and the EU. Imports from countries that maintain the Most Favored Nation (MFN) status with Vietnam. The MFN rates are in accordance with Vietnam’s WTO MFN rates commitments and are applicable to goods imported from other member countries of the WTO. Imports from countries that neither maintain the MFN status with Ordinary Vietnam nor have an FTA with Vietnam. Ordinary rates are generally 50% rates higher than MFN rates.

of Origin (“C/O”) accompanying the imported goods.

es, including not only domestic customs regulations but also guidance issued by the World Customs Organization

DUTIABLE VALUE EXEMPTION The dutiable value is determined by six Import duty exemption might be valuation methods in accordance with applicable for certain cases including the WTO Valuation Agreement, in which but not limited to the followings: transaction value (i.e. the price paid or • Raw materials, supplies and payable for the imported goods, and where components imported for the appropriate, adjusted for certain dutiable processing of goods for export and finished products for use in the processed goods; priority. Only when the transaction value is • Materials, supplies, components imported for the manufacturing of methods for customs valuation be used. goods for export; Besides import duty, imported goods • Machinery & equipment, specialized might also be subject to import VAT, SST means of transportation and and environment protection tax – all are construction materials (which cannot declared and paid at the importation be produced locally) imported to form stage.

53 PRIORITY ENTERPRISE STATUS Businesses that are granted priority areas or encouraged sectors); enterprise status are entitled to various • Certain imports serving petroleum- privileges, waivers or exceptions of related activities; customs administrative requirements, • Goods temporarily imported within a including: • Waiver of certain document purposes. requirements during customs clearance, Import duty exemption is also applicable customs inspection, etc.; to import transactions of an Export • Exemption from the requirement of Processing Enterprise (EPE). An EPE is customs audit at customs offices • The customs authority may conduct considered as an EPE, a company must post-clearance audit at the enterprise′s commit to export all of its products. office only once every three years, on All of the purchases in relation to the the basis of risk management, except for manufacture/processing of exported signs of violations of the legislation on

assets) are exempted from import duty customs. & import VAT. To apply for priority enterprise scheme, taxpayers must meet several conditions, REFUND some of which are as follows: A refund of import duties might be • Full compliance: No tax offence in two granted in certain cases, including but not consecutive years before the application. limited to the followings: • Annual export/import turnover: At • Goods for which import duties have been least USD 100 million in total; or USD 40 paid but which are not actually physically million for goods manufactured in imported; Vietnam; or USD 30 million for exported • Imported raw materials that are agriculture and sea foods manufactured not used and must be re-exported; or grown in Vietnam. • Imported materials serving the Once accredited with priority enterprise production of products to be sold in the status, the status is valid for three years. domestic market, but actually used for t he production of products to be exported (either exported abroad or into the Export Processing Zone (EPZ)).

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CUSTOMS AUDIT

For different business models, different typical customs risks might be triggered.

MANUFACTURING/ TRADING & TYPICAL RISKS PROCESSING FOR EPE DISTRIBUTION EXPORT Inventory reconciliation N/A

N/A N/A

Customs valuation N/A

Certificate of Origin N/A

The above risks might be exposed before, during, or after the customs declaration are carried out. Typically, a customs audit shall be conducted if there is any signal that there may be acts of taxpayers that violate legal requirements, or in accordane with a specific inspection plan of the customs authorities. The audit might be performed either at the customs authority offices or at the taxpayer′s premises.

55 III. LAND RENTAL INCENTIVES Land rental incentives are mostly governed by the Land Law 2013, and implementing regulations (including Decree No. 46/2014/ND-CP, Decree No. 123/2017/ND-CP, List of encouraged field & sectors in Decree No. 118/2015/ND-CP and other specific regulations).

LAND RENTAL PROJECT CONDITION EXEMPTION PERIOD 1. PROJECT ENJOYING EXEMPTION OF LAND RENTAL FEE FOR WHOLE RENTAL PERIOD • Project invest in specially encouraged investment sectors and in The whole rental specially difficult socio-economic condition locations period • Mega-projects having total capital of at least VND 6,000 billion(*) in specially encouraged investment sectors

2. PROJECT ENJOYING EXEMPTION OF LAND RENTAL FEE FOR DEFINITE PERIOD During the fundamental construction period of projects approved Up to 3 years in by the competent authorities. the fundamental After this 03-year-exemption time, subject to certain conditions, the construction period investment project could enjoy the land rental fee exemption for further period as below:

• Project invest in encouraged investment sectors 3 years • Project invest in difficult socio-economic condition locations 7 years • Labor-intensive projects in rural areas using at least 500 labors(*) • Project invest in: 11 years Specially encouraged sectors; or Specially difficult socio-economic condition locations; or Encouraged sectors in difficult socio-economic locations • Labor-intensive projects in rural areas using at least 500 labors(*) in encouraged investment sectors • Mega-projects having total capital of at least VND6,000 billion(**)

• Project invest in: 15 years Specially encouraged sectors in difficult socio-economic locations; or Encouraged sectors in specially difficult socio-economic locations • Labor-intensive projects in rural areas using at least 500 labors(*) in specially encouraged investment sectors • Mega-projects having total capital of at least VND6,000 billion(**) in encouraged investment sectors

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3. OTHER SPECIFIC PROJECTS • Projects located in economic zones and hi-tech zones Government or the Prime Minister (***) requested Minister The Prime Minister Ministers ministerial shall consider and Governmental agencies and Presidents of the People’s Committees of decide to grant the provinces land rent exemption

(*) Labor-intensive projects located in the rural areas using at least 500 full-time employees signing labor contract of more than one year since official operation (excluding those doing commercial housing business, or those manufacturing products subject to special sales tax (except automotive) or those exploiting mineral resources). (**) Mega-projects (excluding those doing commercial housing business, or those manufacturing products subject to special sales tax (except automotive) or those exploiting mineral resources), having total capital of VND 6,000 billion or more, disbursed within 3 years since being licensed. (***) Of note, the land rental fee exemption period for the projects located in economic zones and hi-tech zones could be 11 years, 13 years, 15 years, 17 years, 19 years or the whole rental period, which is regulated separately by Decree No. 35/2017/ND-CP dated 03 April 2017 of the Government (effective from 20 June 2017).

57 HUMAN RESOURCES AND EMPLOYMENT

58 E HUMAN RESOURCES AND EMPLOYMENT

HUMAN RESOURCES AND EMPLOYMENT

Vietnam is well-known for a disciplined, hard-working, and fast- learning population. Traditions emphasizing learning and respect for authority, as well as low wages and a high adult literacy rate, are often cited by investors as among the most attractive aspects of the country’s investment environment.

EMPLOYEES’ RIGHTS AND REMUNERATION

The legal framework for employment The wage and salary minimum pay relationships are currently set out rates schedules are applied, which vary under the Labor Code, which was by region. Regulations apply to enacted in 2012. The stated aims of overtime, leave and working week. the Labor Code and relevant guiding regulations are to create social An employee may be employed in any equality, to improve protection for geographical location not prohibited employees and employers, and to meet by law. An individual may be hired the country’s demand for regional and directly by an enterprise or via an international integration. employment service organization.

Workers generally must be at least directly in the local market. All 15 years old (except for apprentices enterprises must report biannually to working in approved trade training the provincial department of labor on centers, who must be at least 13). their employment levels and projected employment needs.

59 WORKING TIME

Weekly hours: Daily break: Overtime payment must be at least 40 – 48 1 hour 150% of regular wages on normal work days, at least 200% on weekends Overtime: and at least 300% on public holidays Daily hours: 200 hours/year 8 and paid leave days. (300 hours in special cases) WAGES AND BENEFITS The common minimum monthly rate is VND 1,390,000 from 1 July 2018. The maximum salary rate for social-health insurance and trade union contribution would be VND 27,800,000/month from 1 July 2018.

According to No. 141/2017/ND-CP, the region-based minimum monthly wages applied from 1 January 2018 are as follows:

Region I VND 3,980,000 Region II VND 3,530,000 Region III VND 3,090,000 Region IV VND 2,760,000

OF WHICH • Region I includes urban Hanoi, • Region III includes small-sized Hai Phong, Ho Chi Minh City, cities and towns Dong Nai, Binh Duong and Ba Ria • Region IV includes the – Vung Tau remaining less developed areas • Region II includes rural Hanoi, of Vietnam Hai Phong, Ho Chi Minh City and medium- sized cities and towns

60 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world E HUMAN RESOURCES AND EMPLOYMENT

SOCIAL INSURANCE (SI), HEALTH INSURANCE (HI) AND UNEMPLOYMENT INSURANCE (UI) The Vietnamese compulsory SIHIUI scheme is applicable to Vietnamese national 3 months or above. Foreign employees, however, shall only be subject to the mandatory Vietnamese HI scheme in the same manner as Vietnamese national employees. Currently, the SIHIUI contributions for eligible employees are based on the following prescribed rates:

EMPLOYEE EMPLOYER TYPE OF INSURANCE TOTAL CONTRIBUTION CONTRIBUTION SI 8% 17.5% 25.5% HI 1.5% 3% 4.5% UI 1% 1% 2% TOTAL 10.5% 21.5% 32%

1 July 2018, the common minimum salary being the basis for the SIHI contribution is VND 1,390,000. The SIHI contribution then is computed at the lower of the contracted gross income or 20 times the monthly common minimum salary, currently capped at VND 27,800,000. The cap of UI is 20 times of the common regional salary, e.g. VND 79,600,000 for Region I.

61 TERMINATION OF EMPLOYMENT Pursuant to the current Labor Code, a labor by a court as to have lost civil act contract is terminated in the following cases: capacity, be missing or dead. 1. The labor contract expires. 7. The individual employer dies or is 2. The work stated in the labor declared by a court to have lost contract has been completed. civil act capacity, be missing or 3. Both parties agree to terminate the dead; the institutional employer labor contract. terminates operation. 4. The employee fully meets the 8. The employee is dismissed on requirements on the time of the disciplinary grounds. social insurance contributions and 9. The employee unilaterally the retirement age (60 for males terminates the labor contract. and 55 for females). 10. The employer unilaterally 5. The employee is sentenced to terminates the labor contract; the imprisonment or death, or is employer lays off the employee prohibited from performing the due to structural or technological job stated in the labor contract changes or economic reasons, under a legally effective judgment merger, consolidation or division or ruling a court. of the enterprise or cooperative. 6. The employee dies or is declared

The Labor Code also specifies certain cases where employer and employee may unilaterally terminate the labor contract, for example: employee’s failure to perform the contracted work; reduction in employer’s business scale due to force majeure events; employee’s inability to continue working due to illness, accidents or breach of discipline; etc.

62 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world E HUMAN RESOURCES AND EMPLOYMENT

In case of unilateral termination, the employer is required to give 3 days’ under 12 months; 30 45 days’ for an apply to employees dismissed on disciplinary grounds.

EMPLOYMENT TERMINATION ALLOWANCE Severance allowance Except for cases of dismissal on disciplinary grounds, the employee with working period of 12 months or above shall be entitled to severance allowance upon termination of a labor contract at the rate of half of one month’s salary for each working year.

Job-loss allowance company allowance” instead of “severance allowance” from the employer if the employee has been employed for at least 12 company, each year of service and not less than two full months’ pay in total.

• Calculation of severance and job-loss allowance

Severance Time basis Salary basis 1/2 allowance

Job-loss Time basis Salary basis allowance

OF WHICH • Salary basis is the average of the working time of the employee monthly salary under the labor minus the time of UI contribution contract within the six consecutive and the time of being paid with months preceding the time of severance allowance from the contract termination. employer measured by the • Time basis is the total actual number of years.

63 E HUMAN RESOURCES AND EMPLOYMENT

For employees being recruited after 1 January 2009 and having fully contributed to the compulsory UI scheme, the State Unemployment Agency shall be responsible for paying severance/job-loss allowance which is also referred to as unemployment allowance to these employees upon termination of labor contract.

EMPLOYMENT OF FOREIGNERS To be employed in Vietnam, foreigners must meet the following requirements: • Be at least 18 years old; • Be in good health condition necessary to satisfy the job requirements; • Be in possession of high technical skills or considerable professional experience in production operation/management; • Be a manager, an executive director or an expert; and • Have no criminal convictions, civil record or pending criminal proceedings in Vietnam or abroad.

WORK PERMIT & VISA APPLICATION Foreigners must obtain a valid possess at least 3 years of working work permit from the local Labor experience in relevant positions. Department before working in The maximum term of a work permit Vietnam, except for some special is 2 years. Renewal of a work permit cases, including “foreigners entering is required prior to its expiry if the Vietnam to hold the positions of foreign employee is still under the experts, managers, chief executive assignment term. In addition, a business visa is under 30 days and an accumulated statutorily required prior to a working period of under 90 days foreigner’s entry into Vietnam. Upon per year” as per the recently issued the expiry of the initial business visa regulations. This new provision opens (normally 3 months), applying for up new opportunities for expatriates either visa extension or a temporary working in Vietnam for a short-term residency card (TRC) is required. Since duration (i.e. less than 90 days) to the duration for visa extension is only be exempted from work permit less than 12 months, the TRC with a application. Yet, in order to enjoy such current limited period of up to 3 years exemption, the foreign experts must should be considered in case of long-term hold a Bachelor degree or above, and assignment.

64 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world FOREIGN EXCHANGE CONTROL

65 F SFOREIGN EXCHANGE CONTROL

Foreign currency capital for indirect foreign investment must be exchanged

currency for remittance abroad.

similar forms (e.g. conversion/adjustment of prices of goods/services or value of contracts and agreements) are not allowed to be conducted in foreign currency. However, foreigners working in Vietnam shall still be allowed to receive salaries, bonuses and allowances in foreign currency and may deposit these earnings in interest-bearing foreign currency accounts in Vietnam. Also, the restrictions on foreign currency earnings, payments and exchange transactions do not apply to companies operating in EPZs.

Residents and non-residents may purchase, transfer and take foreign currency out of Vietnam for the purpose of payment and money transfer with respect to current transactions. The cap on foreign currency that may be brought out of Vietnam by individuals is USD 5,000 (or the equivalent in another currency) and VND 15 million in local currency. Individuals must provide supporting documents as requested by the credit organizations. It is not necessary to present documentation to the Vietnamese authorities that

Foreign currency trading on the foreign currency interbank market is permitted.

66 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world Foreign investors may purchase bank account can be used for this foreign currency at prescribed banks purpose, but permission is required in Vietnam without a permit from the from the State Bank. State Bank. Ordinary foreign currency accounts may be used to service current account transactions and regulatory approval is not required. However, a special, separate foreign currency bank engage in BOT projects with special account is needed to conduct certain requirements.

Nonresident indirect (portfolio) investors must open indirect capital accounts in Vietnamese dong at term loan repayments; and foreign authorized banks for all transactions currency withdrawals and deposits. related to the implementation of their investment in the country. Resident Another special account, known as organizations and individuals may a foreign currency deposit account, may be opened to receive foreign loan although this is subject to meeting capital, repay foreign loans or at the requirements imposed by the State Bank.

67 F SFOREIGN EXCHANGE CONTROL

USEFUL WEBSITES

• Ministry of Planning and Investment: http://www.mpi.gov.vn • Foreign Investment Agency – Ministry of Planning and Investment

• Ministry of Industry and Trade: http://www.moit.gov.vn • Ministry of Finance: http://www.mof.gov.vn • State Bank of Vietnam: http://www.sbv.gov.vn • Vietnam Chamber of Commerce and Industry: http://www.vcci.com.vn • General Department of Taxation: http://www.gdt.gov.vn/wps/portal • General Department of Customs: http://www.customs.gov.vn • State Securities Commission of Vietnam: http://www.ssc.gov.vn http://www.gso.gov.vn

68 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world 69 This publication contains general information obtained or derived from a variety of publicly available sources and was assembled in September 2018 based on the law enforceable at the time. None of the Foreign Investment Agency of Vietnam, Deloitte Touche Tohmatsu Limited and its member firms, or their related entities (collectively, the “Deloitte network”) is, by means of this publication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Foreign Investment Agency of Vietnam, or Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this publication.

70 Doing business in Vietnam 2018. Investing in Vietnam, Engaging the world Deloitte Vietnam delivers high quality services by combining the best local and international experts to help clients succeed.

Deloitte Vietnam, a pioneer in the Advisory and Audit industry with over 27 years of experience in the Vietnam market, is part of the global Deloitte network, one of the Four largest professional services organisations in the world. Our clients are served by over 900 dedicated staff located in our offices in Hanoi and Ho Chi Minh City, combining in-depth understanding of Vietnam regulations and business environment with the full strength of Deloitte Global and Deloitte Southeast Asia members. Through our extensive network, Deloitte Vietnam delivers value-added services in Tax, Financial Advisory, Risk Advisory, Audit & Assurance, and Professional Training Services to businesses across a wide range of industries.

Contacts Hanoi Office Ho Chi Minh City Office 15th Floor, Vinaconex Tower 18th Floor, Times Square Building, 34 Lang Ha Street, Lang Ha Ward, 57-69F Dong Khoi Street, Ben Nghe Ward, Dong Da District, Hanoi, Vietnam Distric 1, Ho Chi Minh City, Vietnam Tel: +84 24 6288 3568 Tel: +84 28 3910 0751 Fax: +84 24 6288 5678 Fax: +84 28 3910 0750 Visit us at www.deloitte.com/vn Email: [email protected]

© 2018 Deloitte Vietnam. All rights reserved. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/vn/about to learn more about our global network of member firms.

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71 Foreign Investment Agency (FIA) Ministry of Planning and Investment of Vietnam

Foreign Investment Agency (FIA), an organization belonging to the Ministry of Planning and Investment of Vietnam, is commissioned to advise to the Minister of Planning and Investment to implement state management function related to foreign direct investment activities in Vietnam and Vietnam direct investment activities abroad.

Divisions under Foreign Investment Agency include:

• Administration Office • Statistics and General information Division • Foreign Investment Division • Outward Investment Division • Investment Promotion Division

Address: 6B Hoang Dieu, Ba Dinh District, Hanoi, Vietnam Tel: +84 80 48461 Fax: +84 24 3734 3769 Email: [email protected] Website: http://fia.mpi.gov.vn

Investment Promotion Center Investment Promotion Center Investment Promotion Center - Northern Vietnam - Central Vietnam - Southern Vietnam

65 Van Mieu, Hanoi 103 Le Sat, Da Nang 178 Nguyen Dinh Chieu, Ho Chi Minh City Tel: +84 24 3747 5998 Tel: +84 236 3797 669/~689/738/699 Tel: +84 28 3930 6671 Fax: +84 24 3843 7927 Fax: +84 236 379 7679 Fax: +84 28 3930 5413 E-mail: [email protected] Email: [email protected] Email: [email protected] Website: http://ipcn.mpi.gov.vn Website: http://centralinvest.mpi.gov.vn Website: http://ipcs.vn/en/

© 2018 Deloitte Vietnam. All rights reserved.