Investing in Vietnam Redrawing the horizon 2021 and beyond

kpmg.com.vn KPMG was established in Vietnam in 1994, at a time when Vietnam was reopening its doors to investment.

KPMG is the largest professional services firms in Vietnam with offices in Hanoi, Ho Chi Minh City, and Danang. KPMG also has an office in Phnom Penh, the capital of Cambodia. With more than 1,700 staff, KPMG is proud of its ability to deliver international standard professional services encompassing:

– Audit – Consulting – Deals, Tax and Legal

KPMG is recognised by the Ministry of Finance (MOF) and Vietnam Association of Certified Public Accountants (VACPA) as Vietnam’s largest Audit and Advisory firm in terms of revenue, partner numbers, and overall human resources. KPMG has also received awards and accolades from the Vietnamese government for its contribution to the nation’s audit, tax, legal and advisory professions. As a leader in the professional services industry, KPMG regularly advises the Government of Vietnam and international organisations in support of Vietnam’s reform and integration programmes.

1 Investing in Vietnam 2021 Introduction to Vietnam 7

Vietnam economy 9

Integration to global economy 11

Investment climate for FDI 13

Taxation 19

Banking and foreign exchange control 23 Table ofTable contents

Accounting and Reporting 25

Employment 27

Land 29

Intellectual property 31

Investing in Vietnam 2021 2 Vietnam in numbers

Land area Approximately 331,000km2 Capital City Hanoi Provinces & Cities 63

Avg annual 56.0% Income is working age Over US$2,838 Average age 32 Vietnam in numbers Population Total FDI capital 97.6 million (2020) US$28.5 billion (2020) 98.2 million (2021(f)) New FDI projects 2,523 (2020)

Inflation GDP Growth% 3.2% (2020) 2.9% (2020) 2.1% (2021(f)) 5.5% (2021(f))

3 Investing in Vietnam 2021 Vietnam in numbers

GDP US$343 billion (2020) US$373 billion (2021(f))

GDP/capita GDP by sector (2020) US$3,498 (2020) 41.6% Service 33.7% Industry US$3,759 (2021(f)) 14.9% Agriculture

Source: GSO, EIU, IMF, MPI

Investing in Vietnam 2021 4 Landscape Mainly mountainous country, Import ($billion) 2020 with mountains and forests covering Total $262.7 billion USD

75% of the land area Computers, Main cultivated areas Electronics Red River Delta (North) Mekong River Delta (South) 64.0 24.6%

15,000 km2 40,000 km2

Machinery, Climate Instruments Vietnam is located in the tropical monsoon zone South 37.3 1.4% tropical climate with only two major Textiles, seasons: a rainy season from May Leather and to October and a dry season from Footwear November to April North 21.5 10.7% temperate climate with four distinct seasons: spring (from February to April); a hot and humid summer (from Telephones May to July); autumn (from August to October) and a and parts cold and humid winter (from November to January) thereof 16.7 13.9%

Plastics and related products 15.7 0.7%

(year to year growth)

5 Investing in Vietnam 20202021 Export ($billion) 2020 Total $282.7 billion USD

Telephones and parts thereof 51.2 0.4%

Computers, Electronics 44.6 24.1%

Machinery, Instruments 27.2 48.6%

Textiles, Garments 29.8 9.2%

Footwear 16.8 8.3%

(year to year growth)

Investing in Vietnam 20202021 6 Introduction to Vietnam

The Socialist Republic of Vietnam is a Southeast Asian country with a rich history and a long track record of political, civil and commercial achievements. Warrick Cleine Chairman & CEO KPMG in Vietnam and Cambodia A key turning point was Vietnam’s population structure”, which means Vietnam is a multi-nationality country accession to the World Trade for every two people or more working, with 54 ethnic groups, of which 86% Organization (“WTO”) in 2007, followed there is only one dependent person. are Viet (Kinh) and the remaining 14% by its participation in the ASEAN This demographic bonus provides are ethnic minorities, for instance the Economic Community (“AEC”) in 2015. Vietnam with a unique socio-economic Tay, Thai, Hoa (Chinese), Khmer, Hmong development opportunity to take and others. In addition, Vietnam successfully held advantage of the young labour force and APEC in November 2017 has positioned 1.3 Language and Religion push its economic growth. the country to more investment The national language is Vietnamese, opportunities. The average population density is which is widely spoken throughout the about 290 people per square kilometer 1.1 Key Factors country by all ethnic groups. More than in 2019. Approximately 65.6% of the 96% of the Vietnamese population Located in the heart of South East Asia population resides in rural areas, while aged 15 and older is literate, as a result and along the coastline of the Pacific 1/3 of the remaining urban resides in Ho of the Government’s continued efforts Ocean, Vietnam offers numerous Chi Minh City and Hanoi. advantages in providing access to the world’s major trade routes. Population age pyramid 2020 Natural resources and conditions allow Vietnam to develop the fundamental 100 0.0% 0.0% and seasonal structure of agricultural 5- 0.0% 0.1% products and application of different 0-4 0.1% 0.2% cultivation in regions. 85-8 0.2% 0.4% With its rapid economic growth 80-84 Male 0.3% 0.% Female and development, the workforce is 75-7 0.4% 0.7% gradually shifting towards industry 70-74 0.7% 1.0% in manufacturing and services from 5- 1.4% 1.7% agricultural in terms of % of the total employment. 0-4 2.1% 2.4% 55-5 2.% 2.8% The south has been the traditional 50-54 3.0% 3.0% centre of manufacturing and trade, and a major logistics hub. However, 45-4 3.4% 3.4% the northern region has become 40-44 3.% 3.% an increasingly popular destination 35-3 4.0% 4.0% for foreign manufacturers looking 30-34 4.4% 4.3% to diversify their production bases, 25-2 4.5% 4.3% notably for South Korean and Japanese 20-24 3.% 3.4% companies. 15-1 3.5% 3.2% 1.2 Population 10-14 3.8% 3.5% Vietnam’s total population reached 5- 4.1% 3.7% 97.6 million in 2020, increasing 0-4 4.3% 3.8% 1.14% compared to 2019's. Vietnam enjoys what is known as the “golden 10% 8% % 4% 2% 0% 2% 4% % 8% 10% Source: Population Pyramid

7 Investing in Vietnam 2021 Introduction to Vietnam

to prioritise development of a quality national defense, security and foreign This 3,167 km long road will run parallel training and educational system. affairs of the country. to the existing national road No. 1A to connect the North with the South. Other English is the most popular foreign Ministries are responsible for the notable highways linking key economic language and is commonly used in major execution of state power in a certain regions have also been upgraded. urban areas. English study is obligatory industry or sector. The People’s in most schools. Other common foreign Committee (province, district and City are expected to alleviate pressure languages are French, Chinese, and commune) governs management affairs on existing road transportation and Japanese. within its administrative location. boost economic growth. The first metro lines are expected to commence Vietnam’s population practices a The People’s Committee manages, operation in Ha Noi by 2018 and in Ho variety of religions. These include directs and operates daily activities of Chi Minh City by 2021. religions based on popular beliefs, local state bodies, and executes policies religions brought to Vietnam from issued by the relevant People’s Council Airport Infrastructure other countries, and several indigenous and higher state bodies. In recent years, the country has also religious groups. Buddhism is the largest Political Stability witnessed a significant increase in air of the major world religions in Vietnam, transportation. As the economy expands followed by Catholicism, Cao Dai, Hoa Vietnam, as a single-party country, both domestically and internationally, Hao and others. enjoys political stability and certainty the volume of freight and passengers that supports economic growth and 1.4 Government carried by air transport has been development and is a major attraction increasing sharply. The government Vietnam is a one party state. The for foreign investments. According to is expanding and modernising the Politburo and Central Committee of the the Country Watch report, Vietnam airport infrastructure, most notably the Communist Party of Vietnam decide exhibits a high level of political stability construction of Long Thanh airport in on major policy issues, which are then with an average political stability index of the southern province of Dong Nai. Long implemented by the Government 4.5 in 2019. Thanh Airport will become the largest Constitutional and legislative powers are 1.5 Infrastructure airport in Vietnam accommodating up vested in the National Assembly, which to 25 million passengers and 1.2 million is “the highest organ of state power”. The Vietnamese Government tons of cargo a year. recognises the importance of an The National Assembly has the power efficient infrastructure for economic Seaport Infrastructure to approve and revise the Constitution development. Recent years witnessed and Laws, make important decisions Sea transportation remains a significant ambitious plans from the Government on national matters (policies on internal component of the Vietnamese to expand and upgrade the existing and foreign affairs, socio-economic infrastructure system. There are over transportation infrastructure system. factors, political factors, security 100 ports throughout the country, of factors, operations of state bodies) and Road Infrastructure which the major ones are located in Hai supervise all operations of state bodies. Phong, Da Nang and Ho Chi Minh City. In addition to the major national road, In an effort to address the increasing The President, as Head of State, Highway No. 1A, stretching from the demand of exporters, plans to upgrade represents the Socialist Republic border with China in the north to the and expand the existing capacity are of Vietnam in internal and foreign Mekong Delta Provinces in the south underway, most notably the plan to affairs. The Government is the via Ho Chi Minh City and the Trans-Asia develop the mega-port Hon Khoai in Ca highest administrative state body, and highway, the country is also progressing Mau province. Once completed, the port responsible for executing and managing with the completion of Ho Chi Minh will accommodate ships with a capacity political, economic, cultural, social, Road (known as Ho Chi Minh Trail during of up to 250,000DWT. war time).

Investing in Vietnam 2021 8 Vietnam economy

2.1 Overview 2.2 Economic growth coupled with a drop in the world’s food and fuel prices after the crisis resulted Vietnam is considered to be one of the Despite the global trade recession in a slower growth rate of CPI of 6.7% fastest and relatively stable-growing and China’s economic growth slowing in 2009. The economy was once again economies in Asia over the past down, which impacted most parts of under great inflation pressure in 2011 years. The country was seen to have Southeast Asia, Vietnam proved to be with an inflation rate at 18.7% before weathered the global financial crisis resilient to the turbulences and still reducing down to 9.1% in 2012, and well with encouraging macro-economic scored a growth rate of 7.1% in 2018, 6.6% in 2013 as various inflation control indicators observed in 2009 and 2010. highest rate in nearly 10 years. measures from the Government came Recent years observed the effort of the 2020 is a year of great difficulties and into effect. The rate further fell to 0.6% Vietnamese Government in boosting challenges for the world economy in in 2015 and 2.7% in 2016 on the back of international economic integration general, including Vietnam. The world the drop in the oil price. through the participation into many free economy is forecasted to be in the The average CPI in 2020 increases by trade agreements/ communities such most serious recession in history, the 3.23% over the previous year, achieving as the World Trade Organization (WTO), growth of major economies is deeply the inflation control target, keeping the Comprehensive and Progressive declined due to the negative influence average CPI in 2020 below 4% set by Agreement for Trans-Pacific Partnership of the Covid-19 epidemic. However, the National Assembly in the context (CPTPP), EU-Vietnam FTA, and UK- the Vietnamese economy maintained of a year with many fluctuations and Vietnam FTA. This led to a significantly its growth rate with an estimated GDP uncertainty. increasing FDI year on year. growth rate of 2.91%. 2.4 Economic structure With a stable political environment, 2.3 Inflation low labour and operating costs, as well Over the years, Vietnam has seen a The consumer price index (CPI) as promising economic prospects, boom in the number businesses in - and increased to a record 23.1% in 2008. Vietnam presents a dynamic market and an increase in the role of - the private The Vietnamese Government had an attractive destination for both foreign sector in the economy, especially since implemented various monetary and and private investors to participate in the promulgation of the Enterprise Law credit tightening measures. This the economy.

GDP, GDP Growth, Inflation 7.1% .8% 7.0% .7% .2% 5.5%

2.% 4.1% 4.0% 3.7% 3.2% 2.7% 2.8% 2.1% 201 221 21 262 0

201 2017 2018 201 2020 2021f 2022f

Nominal GDP (billion USD) Real GDP Growth (%) Inflation (%)

Source: Economist Intelligence Unit ; World Bank

9 Investing in Vietnam 2021 Vietnam economy

and Investment Law in 2005. There The average population of Vietnam in are more than 700,000 businesses 2020 is 97.6 million people. The quality operating in accordance with the of the population has improved, fertility Enterprise Law, 99% of them are has declined sharply over the past three privately run mostly in trade, services, decades and the replacement fertility construction, industry and craft rate has basically been maintained production. Private business sector since 2005. The labor and employment contributes approximately 77% of the situation in the fourth quarter of 2020 country’s GDP. showed many signs of prosperity compared to the previous quarter, The economic structure has seen but due to the impact of the Covid-19 a gradual shift from agriculture to epidemic, the unemployment and industry-services. This transition has underemployment rate for the whole resulted in wealth creation growth year 2020 were higher than in 2019. The and rising consumption which is number of people employed and the a fundamental indicator to attract income of salaried workers is also lower foreign investors to expand business than the previous year. in Vietnam, particularly in the domestic retail market. 2.5 Labour force Labour force remains a key competitive advantage of Vietnam to attract foreign investment as well as sustaining future growth. Vietnam is famous for its young, hard- working, highly a literate and easy- to-train labour force.

Investing in Vietnam 2021 10 Integration to global economy

Vietnam officially became the 3.1 Goods schedule, services a market of 2.2 billion people with a WTO’s 150th member on 11 schedule and Vietnam’s further combined size of US$26.2 trillion or liberalised market 30% of the world’s GDP. January 2007. WTO accession has created both opportunities Under the EU-Vietnam Free Trade 3.2 Moving up the value chain Agreement (EVFTA), both the EU and challenges for Vietnam FTAs also play an important role and Vietnam have pledged to abolish in helping Vietnam move up the to become an attractive over 99% of import duties on a wide value chain in a number of sectors investment destination. In range of goods. Depending on the and supporting high-skilled jobs goods, Vietnam will have 10 years to addition, Vietnam’s participation and knowledge transfer. Vietnam is liberalise its tariff regime, while the EU in the ASEAN Economic expected to have a more significant will liberalise over a 7-year period. The contribution to the global and regional Community (AEC), as well EVFTA will open up Vietnamese markets manufacturing landscape with regards as the Comprehensive and to EU companies and it also could boost to textiles, garments and apparel, as Vietnam’s booming economy. Progressive agreement for Trans- well as hi-tech sectors like electronics. Pacific Partnership (CPTPP) and After 8 years of negotiation, ASEAN Yet, moving up the value chain will the conclusion of several free- Member States, Australia, China, Japan, further increase the sophistication of trade agreements (FTAs) such Republic of Korea and New Zealand production processes, require additional signed the Regional Comprehensive capital investment, cause a growing as the EU-Vietnam FTA (EVFTA) Economic Partnership (RCEP) in demand for high-skilled labour, and an and the UK - Vietnam FTA has November 2020, marking ASEAN’s array of other considerations to take into shown the nation’s efforts to biggest free trade pact to date, covering account such as sourcing. further integrate into the world economy.

FTAs VN MY TH PH ID KH CN AFTA √ √ √ √ √ √ X AFTA-China √ √ √ √ √ √ √ India √ √ √ √ √ √ X Korea √ √ √ √ √ √ √ Japan √ √ √ √ √ √ X CPTPP √ O X X X X X EU √ O O O O X O US X O O X X X O UK √ X X X X X X RCEP √ √ √ √ X √ √

Legend O In negotiations Source: WTO (2020)

11 Investing in Vietnam 2021 European Union will abolish Vietnam will abolish import duties import duties for about 85.6% for about 48.5% of tariff lines, of tariff lines, equivalent to equivalent to 64.5% of the 70.3% of the export turnover import turnover of Vietnam from of Vietnam to European Union European Union

3.3 Regulatory reform through major reform to open up for foreign investment. Under the Policy development will be focused on “ new regulations, foreigners are now EVFTA is a new free trade further economic liberalisation. During allowed to purchase, apartments and preparations for accession to the WTO agreement with high standards, houses and hold a 100% stake in public and other FTAs, Vietnam revamped comprehensive and different companies in most industries. much of its legal system, making from the 12 free trade revisions to major legal frameworks, The new laws on investment and agreements (FTAs) that Vietnam specifically the Labour Code, Land enterprises provide a more business signed previously. More than Law, Competition Law, Enterprise Law, friendly regulatory framework for Investment Law and Tax Laws in order both domestic and foreign players. 99% of Vietnam’s tariff lines of to make the investment environment Although some restrictions remain, export goods will be eliminated more transparent. Indeed, - further the regulatory changes illustrate a after 7 years of validity.” integration into the global economy with progressive approach, which is typical associated challenges relating to MNC’s for developing countries. Tran Tuan Anh market entries has helped revise the Policy is also built around strengthening Vietnamese legal framework toward Minister of Industry and Trade the banking sector, with focus on more transparency to conform with restructuring non-performing loans international standards. (NPLs), transparency in reporting, and Recently, the residential property consolidation of the lenders towards market and the stock market went international standards.

Investing in Vietnam 2021 12 Newly registered FDI by sector (2020)

Industrial Manufacturing $7,191 million of total capital, 800 new projects 49%

Energy & Natural resources $5,081 million of total capital, 20 new projects 35%

Real Estate $987 million of total capital, 70 new projects 7%

Retail & Automotive $431 million of total capital, 704 new projects 3% Building & Construction $237 million of total capital, 79 new projects 2% US$14.65 billion US$14.65

Others 5%

13 Investing in Vietnam 2021 Newly registered FDI by sector (2020) Newly registered FDI by nationality (2020)

42% 11% 10% Singapore China Taiwan

9% 8% 20% Hong Kong South Korea Others

Japanese Desk Chinese Desk Taninaka Yasuhisa (Ho Chi Minh City) Chang Hung Chun (Hanoi - Ho Chi Minh City) E: [email protected] E: [email protected] Ryosuke Okado (Hanoi) Brian Chen (Hanoi - Ho Chi Minh City) E: [email protected] E: [email protected] Toboku Takanori (Danang) E: [email protected] Thai Desk Kaewsrion Punnika (Hanoi - Ho Chi Minh City) Korean Desk E: [email protected] Lee Jun Seok (Ho Chi Minh City) Phakkhanit Ua-Amornwanit (Ho Chi Minh City) E: [email protected] E: [email protected] Lee Chi Hyun (Hanoi) E: [email protected]

Investing in Vietnam 2021 14 Investment climate for foreign direct investment

4.1 Investment climate adjusted registered capital and value of to investment incentives. Investment capital contribution and share purchase incentives on industrial parks have Vietnam is one of the leading investment of foreign investors reached 28.5 billion been restored. The adjusted tax rate of destinations in Southeast Asia. With USD, down 25% compared to 2019. In Corporate Income Tax has been reduced the advantages of geography, natural which, there are 2,523 newly licensed to 20%, effective st1 January 2016. resources, and an affordable labour projects with the registered capital force, Vietnam attracts a large amount of The role of the private sector and of 14.6 billion USD, down 35% in the capital each year. Vietnam has a number foreign investors in the Vietnamese number of projects and 12.5% in the of unexplored sectors and a growing economy has increasingly been registered capital compared to the last consumer market. emphasized. “Business forum” year. meetings and dialogues between the Similar to all countries around the world, Vietnam’s success in attracting FDI Government and the private sector and Vietnam is significantly impacted by should be measured not only by the foreign investors are frequently held, the Covid-19 epidemic, which limits the amount of registered capital or and provide great opportunities for movement of investors, and reduces the disbursements but also by the efforts to businesses - especially in the foreign attraction of new foreign investment. improve the investment climate. sector - to make themselves heard on However, in the last 12 months, there important legislative issues. are some highlights in attracting foreign Vietnam’s Government has issued investment in a number of industries as many resolution as well as action plans well as in some localities in Bac Lieu, Ho in order to realise the commitment to Chi Minh City, Hanoi, etc. improve the investment climate and business community for investors. A Total foreign direct investment (FDI) revised Law on Corporate Income Tax in Vietnam as of 20 December 2020, has been included in the terms of the including newly registered capital, expansion project that are also entitled

Foreign Direct Investment in Vietnam 38.0 35. 10%

28.5 71% 24.4 23.0 70% 22.1 22.0 5% 1% 3% 20.4 20.0 55% 1.1 20.0 51% 17.5 18.0 55% 15.7 17.1 15.8 14.5 54% 12.1 4% 11.0 11.1 10.5 11.3

2010 2011 2012 2013 2014 2015 201 2017 2018 201 2020 Registered capital (SD billion) Disbursement capital (SD billion) % Disbursement

Source: Economist Intelligence Unit ; World Bank

15 Investing in Vietnam 2021 Investment climate for foreign direct investment

4.2 Forms of investment Foreign investors may carry out the following forms of investment in Vietnam:

Direct investment Indirect investment – Establishment of a new legal entity; – Purchase of shares, share certificates, bonds and other valuable – Capital contribution/acquisition in existing legal entities: and papers traded on the stock exchanges; – Business Cooperation Contracts (BCC) signed with other local or – By way of securities investment funds; and foreign investors. – Investment through other intermediary financial institutions.

4.3 Forms of commercial presence The forms of commercial presence that foreign investors are allowed to take in Vietnam are the following: Representative Office (RO) RO is a common form of early or initial establishment for foreign organisations looking to invest or to do business in Vietnam. From legal perspective, the RO is a dependent unit of a foreign business entity, and allowed to survey the market and undertake a number of commercial promotion activities permitted by the laws of Vietnam. The key limitation of the scope of activities of the RO is that it’s not allowed to engage in any “direct profit-making” activities. Branch Technically speaking, a branch of a foreign business entity in Vietnam is a dependent unit of the foreign business entity, established and conducting commercial activities in Vietnam in accordance with the law of Vietnam or an international treaty to which Vietnam is a member. However, in practice a branch is not a common form of presence in Vietnam because it is only open for foreign investors in certain sectors like banking, financial and construction services. Legal entity Depending on the business industry, the number of investors, and whether there is any intention to list the entity, a foreign entity may establish its presence in Vietnam as a limited-liability company, a joint-stock company, or a partnership.

Feature Limited liability company (LLC) Joint stock company (JSC) Part Required number One (for single member LLC); At least three shareholders; – Unlimited liability partners: At least two of members/ Two or more members, but not no restriction on maximum general partners (individuals) shareholders exceeding fifty members (for multi- number of shareholders – Limited liability partners (optional): member LLC) (organizations or individuals) Liability of Limited to the extent of the Limited to the extent of the – Unlimited liability partners: Unlimited members/ registered capital contributions into registered capital contributions – Limited liability partners: Limited to the shareholders the company into the company extent of the registered capital contributions into the company Issuing bonds Allowed Allowed Not allowed Issuing shares Not allowed Allowed Not allowed Listing on stock Not allowed Allowed Not allowed exchange

Investing in Vietnam 2021 16 4.4 Conditional business lines the penalties imposed by the state in the manufacture of support industry bodies and unfavorable tax treatment products. The new Law on Investment, which to expenses incurred from these came into effect on 1 January 2021, Investment incentives granted to businesses. provides a consolidated and unified qualified investment projects include: list of 227 conditional business 4.5 Investment incentives Corporate income tax (CIT) incentives: lines, amongst which there are ones Investment incentives are granted Preferential CIT rate (i.e. lower CIT rate especially conditional for foreign to investment projects based on the in comparison with the standard CIT investors such as trading/distribution, following criteria: rate of 20%) for a definite period or for logistics services. This list, together the entire duration of the investment with the business conditions thereof Location: investment projects located in project; exemption from CIT and are publicly posted in the National Portal areas with difficult or especially difficult reduction of CIT for a definite period on Business Registration at https:// socio-economic conditions or special (see table below); dangkykinhdoanh.gov.vn/ and https:// purpose zones; dautunuocngoai.gov.vn/ Import duty incentives: Exemption Business industry: investment projects from import duty in respect of goods Companies doing business in engaged in encouraged business imported to form fixed assets, conditional business industries are activities such as high- tech businesses, raw materials and components for required to fully satisfy the applicable socialised businesses (e.g. education, implementation of an investment conditions (i.e. minimum capital, foreign medical), infrastructure development project; and ownership limitation, requirement businesses, etc.; on facilities and personnel, operation Incentive relating to land rental and land Others: investment projects with license, etc.). Failure to comply with use tax: Exemption or reduction of land large investment capital or engaging these requirements will result in rental and land use tax.

No. Condition CIT incentive 1 – Projects in specially difficult locations specified by Government; – Tax rate of 10% for 15 years or for whole – Hi-tech; biotech, specific supporting industries; life for special projects – Important infrastructure projects, socialized projects in education,sporting, health care. – CIT Exemption: 4 years – Large manufacturing projects (e.g. investmnt capital of VND6,000 billion and number – 50% CIT Reduction: 5 to 9 years of labor 3000, capital of VND12,000 billion). – Projects of manufacturing or processing agricultural products in difficult locations. – Software production, environment protection 2 Projects in difficult locations, manufacturing of agricultural machinery and equipment, – Tax rate of 17% for 10 years high quality steel – Exemption: 2 years – Reduction: 4 years 3 Projects of manufacturing or processing agricultural products in normal locations – Tax rate of 15% for whole life 4 Investment projects located in industrial zones (except for those located in areas having – Exemption: 2 years favorable socio economy conditions) – Reduction: 4 years – No preferential tax rate is given

17 Investing in Vietnam 2021 4.6 Investment procedures The investment procedures vary, depending on each investment form:

No. Investment Investment Licensing Statutory Note form procedure authority timeframe(*)

1 Establishment (i) Application for an – Investment Registration 15 days The In-principle approval of the National of a legal Investment Registration Division of provincial Assembly, Prime Minister, or provincial entity Certificate (IRC) Department of Planning People’s Committee before the issuance of and Investment (DPI); or IRC shall be required in case of investment – Management Board of projects which make significant economic- special purpose zones social impacts as stipulated at law. (ii) Application for an Business Registration 3 working Enterprise Registration Division of provincial DPI days Certificate (“ERC”) 2 Capital (i) Application for Investment Registration 15 working This step is required if the share/capital contribution/ approval for capital Division of provincial DPI days acquisition results in the increase of foreign acquisition in contribution/ acquisition ownership ratio in the target company, and existing legal (i) the target company operates in conditional entities business industries applied to foreign investors; OR (ii) the foreign ownership ratio after the share/capital acquisition is 50% or more. (ii) Application for Investment Registration 3 working updating the new Division of provincial DPI; days shareholding members or Management Board of special purpose zones (iii) Application for Investment Registration 3 working updating the new Division of provincial DPI; days investor or Management Board of special purpose zones 3 BCC signed (i) Application for an IRC Investment Registration 15 days The In-principle approval of the National with other Division of provincial DPI; Assembly, Prime Minister, or provincial local or or People’s Committee before the issuance of foreign IRC shall be required in case of investment Management Board of investors projects which make significant economic- special purpose zones social impacts as stipulated at law. (ii) Application for a Business Registration 15 days Certificate of Operation Division of provincial DPI Registration (“COR”) for the project offices

(*)Where the investment projects are subject to the In-principle approval of the National Assembly, Prime Minister or provincial People’s Committee; and/or subject to evaluation by various competent authorities, the above timeline will be longer

Investing in Vietnam 2021 18 Taxation

Investors should consider conducting a comprehensive risk assessment and readiness analysis for the regulatory change related to domestic and international tax treaties. Ta Hong Thai Partner, Head of Energy & Natural Resources KPMG in Vietnam 5.1 Overview of whether they have a permanent five years to taxable income of those establishment in Vietnam or not. activities in the following years. The Vietnamese taxation system has undergone (and is expected to continue 5.2.1 Tax Year Losses of prior years may be rolled over undergoing) many major transformations and offset against provisional quarterly A Corporate Tax-payer can elect to that include major changes in Corporate taxable income of the subsequent year, adopt a calendar year, or a fiscal year Income Tax, Value Added Tax, Foreign subject to year-end reconciliation. ending on a quarter of a calendar year, Contractor Tax and Personal Income as the basis for the tax year. Carry-back of losses is not permitted Tax. The changes generally occur and there is no provision for transfer of frequently, however, the enforcement 5.2.2 Taxable Income losses within the group. mechanism as well as the ruling process Taxable income is defined as income is often limited in capacity. 5.2.5 Tax Rates derived from production, operation, trade The main categories of tax imposed in of goods and services and other sources The corporate tax rates are classified Vietnam are as follows: from all business sectors and industries. into the following three categories: – Corporate Income Tax (CIT) 5.2.3 Deductions From 1 January 2016 – Value Added Tax (VAT) In general, deductible expenses for Standard tax rate 20% – Personal Income Tax (PIT) corporate income tax purposes are Preferential tax 17%, 15% or 10% – Foreign Contractor Tax (FCT) reasonable expenses actually incurred rates – Special Sales Tax (SST) and that relate to the activities of production and business of the enterprise and are Other tax rates – Import and Export Duties (IED). accompanied by legal and complete (e.g. oil & gas operations, Furthermore, other taxes may apply to invoices and vouchers as required by law. 32% - 50% natural resources certain businesses: 5.2.4 Losses Carried Forward industry) – Natural Resources Tax Tax losses may be carried forward for – Property Tax and 5.2.6 Tax Incentives a maximum of five (5) consecutive – Environmental Protection Tax. years. Ordinary losses may be offset Preferential tax treatments such as All taxes are national taxes and against income that does not enjoy tax exemption, tax reduction, and administered locally. There are no local, tax incentives and vice versa. Losses preferential rates (17%, 15% or 10%) municipal or provincial taxes in Vietnam. from transfer of real estate, transfer are limited to: of investment projects and transfer of – Encouraged sectors such as: 5.2 Corporate Income Tax the right to participate in investment healthcare, education, training, The Law on CIT applies to all domestic projects can be offset against profits sports, art activities, environment, and foreign entities that invest in from the main business activities. scientific research, high-tech, Vietnam. The Law expands the taxpayer After offsetting, any losses from such infrastructure development and pool to include all foreign enterprises that activities will be consecutively carried software. have income from Vietnam, regardless forward for a maximum period of

19 Investing in Vietnam 2021 Taxation

– Economic zones, industrial zones – Income of an enterprise from 5.4 Special Sales Tax (SST) without favourable conditions performing a new investment Special Sales Tax is imposed on a or locations with difficult socio- projects in the areas with difficult selected number of goods and services, economic conditions. socio-economic conditions. either at the stage of production, In particular, CIT rate of 10% for 15 – Income of an enterprise from provision of services or import. Export years will be applied to: performing a new investment project products are exempted from SST. in production of equipment, high- – Income of enterprise from The tax is calculated based on the quality steel and other products. performance of new investment selling price at the place of production project in the area with extremely Tax exemption for 2 years and a 50% excluding this tax and VAT. difficult socio-economic conditions. reduction of tax payable for the 4 Imported goods liable to SST shall also – Income of enterprise from performing subsequent years will be applied in be subject to SST upon importation new investment project in the high such cases. from overseas and sales to the technology field. 5.3 Value Added Tax (VAT) domestic market, accordingly: – Income of enterprises from – SST taxable price at the import The VAT system in Vietnam applies to performing new investment stage = taxable price for import duty goods and services used for production, projects in the field of environmental calculation + import duty business and consumption in Vietnam. protection. Two methods can be used to calculate – SST Selling Environmental – High-tech enterprises and agricultural VAT payable. Taxpayers meeting the taxable price protection tax enterprises applying high-tech. requirements can apply the credit price _ exclusive (if any) % The income of an enterprise from the method. VAT payable under the credit at the of VAT implementation of a new investment method is calculated on the difference trading = project in production if the conditions on between output VAT (VAT collected stage 1+ SST rate scale of investment, disbursement time for sales) and input VAT (VAT paid on Taxpayers producing SST goods from and total annual revenue or labour usage purchases). Taxpayers that do not SST inputs are entitled to claim a credit are satisfied. qualify for the credit method can apply the direct method. Under the direct for the amount of SST paid on the Enterprises currently applying a CIT method, the taxpayer will pay VAT by materials imported or purchased from rate of 20% as mentioned above will applying a deemed rate on the added local suppliers. apply a CIT rate of 17% from 1 January value of the transaction. A Corporate 5.5 Personal Income Tax (PIT) 2016. Tax exemption for 4 years and Tax-payer is required to file and pay VAT Both foreigners working in Vietnam a 50% reduction of tax payable for 9 on a monthly basis, or on a quarterly and Vietnamese citizens are subject subsequent years will also be applied in basis if relevant conditions are met. The to PIT. For tax residents, a progressive such cases. standard VAT rate is 10%, but the rates taxing system, where the marginal rate are classified into four groups: exempt, And, a CIT rate of 20% for 10 years will ranges from 5% to 35%, is applied to 0%, 5% and 10%. be applied to: worldwide income.

Investing in Vietnam 2021 20 For tax non-residents, a flat rate of 20% from import duty in respect of certain of houses and apartments are required is applied to the income derived from imported goods which form part of their to pay land tax charged on a square Vietnam. In general, a tax resident is a fixed assets. metre basis at progressive rates from person: Most exports are duty-free, except for a 0.03% to 0.15%. – Present in Vietnam for at least 183 certain natural resources such as sand, 5.10 Environment Protection Tax days in a tax year; or chalk, marble, granite, ore, crude oil, Effective from 1 January 2012, Vietnam forest products and scrap metal. – Having a regular place of abode in introduced Environment Protection Tax Vietnam, i.e. an individual rents 5.7 Foreign Contractor Tax (“EPT”) which is aimed to impose tax – A house in Vietnam according Foreign organisations and individuals on goods that may cause damage to the to legislation on housing under a carrying out permitted businesses environment. contract that lasts 183 days or longer in Vietnam without a legal entity are EPT is in effect an indirect tax applicable in the tax year; or subject to Foreign Contractors Tax to the production and importation of – Not a tax resident of another country (“FCT”) comprising VAT and CIT. certain goods such as petroleum, coal, (subject to applicable double tax Applicable tax rates vary depending on plastic bags and restricted chemicals. agreement). whether a foreign contractor registers to 5.11 Relief from tax If an individual has a regular place of use the Vietnamese Accounting System Vietnam has now signed DTAs with 80 abode in Vietnam, but is actually only (“VAS”) or not. countries, out of which 75 DTAs are present in Vietnam for less than 183 5.8 Natural Resources Tax currently in force. Generally, these DTAs days in the tax year and fails to prove follow the basic principles contained in their residence in any other country, that Natural Resources Tax (also known the OECD Model Convention. individual will be considered to be a tax as royalty tax) is imposed on the resident of Vietnam. exploitation of Vietnam’s natural For a country which has a DTA with resources including petroleum, mineral Vietnam, a foreign tax credit is also 5.6 Import and Export Duties resources, forest products, seafood and available to resident taxpayers in All goods entering Vietnam are generally natural water. Tax rates vary depending respect of foreign taxes paid. subject to import duty. Import duty on the specific classification of natural Under current regulations, if a taxpayer rates vary depending on the nature of resource and are applied to the fails to submit the DTA notification goods involved and origin of the goods. production output at a specified taxable dossier within 3 years from the tax There are three import duty rates value per unit. payment deadline, the DTA entitlements applicable (ordinary, preferential and 5.9 Property Tax will be forfeited. especially preferential), based on the Generally, provisions of DTAs prevail trading relationship between Vietnam Property Tax in Vietnam is levied in over the domestic tax laws. The amount and the exporting country. the form of a “land use fee” or “land rental”. A foreign investor requiring land of credit given is the lower of the tax A partial or full exemption from import for an investment project may apply suffered in the foreign country and duty may be granted on application. to the land management authority by Vietnamese CIT attributable to the Raw materials and components way of an allotment and paying the foreign income. There is no provision imported into Vietnam for the land use fee or by way of lease and in Vietnamese tax law allowing excess manufacture of goods for export are paying the land rental. The land rental foreign tax credits to be carried forward. usually exempt from import duty. rates vary depending on the location, The application of a DTA clause is not Enterprises with foreign-invested infrastructure and industrial sector automatic. An official approval for tax capital and parties to a BCC in especially where the business operates. relief must be obtained from the tax encouraged projects are exempt Effective from 1 January 2012, owners authorities.

21 Investing in Vietnam 2021 We set the standard in industry

International Tax Review, st 2020 1 Tier 1 Tax Firm of the year

Global M&A Professionals, st 2018 1 Global M&A Professionals in 2018

st Asia Risk, 2020 1 Consulting Firm of the Year

Vietnam Ministry of Planning st and Investment, 2019-2020 1 M&A Advisory firm of the Year

International Tax Review, st 2018 1 Tier 1 Transfer Pricing firm

Investing in Vietnam 2021 22 Banking and foreign exchange control

Foreign banks can immediately take advantage of the local bank’s network, operating systems, and existing customer portfolio. Tran Dinh Vinh Partner, Head of Financial Services KPMG in Vietnam 6.1 Bank accounts foreign currency bank accounts subject All monetary transactions in Vietnam to approval by the State Bank of must be made in Vietnamese Dong, 6.1.1 Direct investment Vietnam (SBV). except for a limited number of Foreign invested enterprises and transactions allowed by law to be made 6.1.2 Indirect investment foreign parties to business co-operation in foreign currencies (i.e. salary payment contract must open a direct investment Non-resident foreign investor must to foreign employees). capital account (DICA) at an authorised open an Indirect Investment Capital Foreign invested enterprises may, credit institution to undertake the Account (IICA) in Vietnamese Dong subject to certain conditions, buy following transactions: at an authorised credit institution foreign currency from banks to carry to conduct indirect investment in – Receipt of capital contributions, out a number of obligations in foreign Vietnam. Investment capital in a funds from assignment of capital currencies from their transactions. contribution, and receipt of foreign foreign currency must be converted to loan; Vietnamese Dong before the indirect Generally speaking, the flow of investment is carried out. foreign currencies into Vietnam is less – Disbursement outside Vietnam constrained by the SBV compared to of principal, interest and fees on a An IICA will be used to implement carry the outflow, which has been restricted foreign medium or long-term loan; out the following transactions: to certain transactions such as payment – Disbursement outside Vietnam of – Receipt of funds from the assignment for imports of goods and services, capital, profit and other legal revenue of capital contribution, from the sale repayment of loans contracted abroad of a foreign investor; and of securities, dividends and other and payment of interest accrued thereon. – Other revenue and disbursement items of revenue arising from indirect Only banks, non-bank credit institutions transactions relating to foreign direct investment activities; and other authorised institutions are investment activities. – Disbursement of, for purchase of eligible to provide foreign exchange capital contribution of securities or Of note, capital transfer transactions services. payment of other expenses relating to between resident (local) and non- indirect investment activities; 6.3 Foreign currencies and exchange resident (foreign/offshore) investors rate must be routed via DICAs, whereas – Other revenue and disbursement those amongst non-resident investors transactions relating to indirect The VND is the country’s official or amongst resident investors shall not investment in Vietnam. currency; foreign currencies may be routed via DICAs. 6.2 Foreign exchange control be chosen as a means of payment and remittance in the following Foreign invested enterprises may The Vietnamese Dong is not freely circumstances. open current accounts and transaction convertible and the market is still heavily – Payment and remittance of money accounts in foreign currency and dependent on foreign currencies, relating to import and export of goods Vietnamese Dong at authorised banks especially the U.S. dollar. in Vietnam for their daily business and services; transactions. The Government has implemented – Income generated from direct and measures to gradually reduce its indirect investments; In addition, foreign invested enterprises reliance on the dollar. may be permitted to open offshore

23 Investing in Vietnam 2021 – Money transfers when the decrease All foreign loan transactions that a of direct investment capital is foreign invested firm undertakes permitted; must be conducted via the DICAs or – Payments of interest on and a bank account for taking and paying installment repayments of principal of foreign loans if the foreign loans are in foreign loans; currencies other than that of DICAs. – One-way payments for consumption 6.5 Profit Remittance Regulations purposes; and Lawful revenue in VND derived from – Other similar transactions. foreign direct investment as well as Residents and non-residents who foreign indirect investment will be would like to transact in foreign permitted to be converted into foreign currencies in Vietnam will be currency for the remittance abroad via responsible for presenting supporting authorised credit institutions. There is documents to the authorized credit no tax imposed on profit remittance. institutions. Individuals are allowed to Under the current regulations, profit buy foreign currencies from banks to remittances can be made as follows: settle current transactions and other – Annual remittance of all profits at the permitted transactions only if relevant end of financial year provided that the documents proving their demand for foreign invested enterprises do not foreign currencies are fully submitted. have any accumulated losses and are From early 2016 onwards, the SBV has able to pay the due debts after profit announced a central exchange rate remittance; and every day for the VND/USD, which – Profit remittance upon termination would be used by financial institutions of business activities and investment authorised to trade in foreign currencies projects in Vietnam. with margin limit at +/-3%. A foreign investor is required to submit This regime has facilitated stronger a notification of profit remittance abroad performance in the foreign currency to tax authority at least 7 working days derivatives market, meeting the prior to the date of profit remittance. requirements for risk prevention in exchange rates and increase liquidity Accordingly, the foreign investor may go in the market. to its banks in Vietnam and buy foreign currency to repatriate the profits. Please 6.4 Capital transactions of foreign note that although it has a right to buy investors in Vietnam foreign currency, the bank does not Foreign investors are now permitted to have an obligation to sell. The availability open non-resident payment accounts of foreign currency would depend on in a foreign currency at an authorised the market liquidity from time to time. bank in Vietnam. Through this account, Having a good relationship with a bank foreign investors will transfer money is therefore important and this is an to Vietnam in order to conduct pre- issue that should be negotiated when investment activities before the selecting which bank to use in Vietnam. issuance of an investment certificate. Offshore borrowings may now be used to finance the investment project in Vietnam and only offshore medium or long term loans are required to be registered with the SBV.

Investing in Vietnam 2021 24 Accounting and Reporting

Enterprises need to establish an effective internal control system to ensure its assets are safeguarded and protected.

Chong Kwang Puay Managing Partner KPMG in Vietnam 7.1 Accounting requirements – VND is the default currency unit parent companies or use the same in accounting. An FIE is permitted management software with the 7.1.1 Vietnamese accounting to use a “foreign currency” as the parent companies, are allowed to use standards & system and the Law on currency unit in their accounting the comma (,) as the digit grouping Accounting 2015 (the Law) records if certain criteria are met. symbol and the dot mark (.) as the Enterprises with foreign-owned capital, However, in such cases the financial decimal symbol. However, for those foreign parties to business co-operation statements submitted to local financial statements to be submitted contracts and foreign contractors authorities must be converted into to the tax authority, statistical that have a resident base in Vietnam VND and must be audited. authority and government agency, (collectively “FIE”) are required to adopt – Electronic vouchers and accounting the dot mark (.) must be used as the Vietnamese Accounting Standards, books are not required to be digit grouping symbol and the comma the Vietnamese Accounting System printed out for retention. However, (,) must be used as the decimal for enterprises and their interpretive enterprises must ensure information symbol. guidance (VAS). security and ensure data is accessible – The prescribed VAS chart of accounts The Vietnamese Accounting System during the retention period; The and forms of financial statements for enterprises is issued by the Ministry enterprises shall print the electronic must be complied with. accounting documents and of Finance (MOF) in the form of a There are some industry-specific VAS have them signed and stamped bookkeeping manual that provides a besides the general one for enterprises by the legal representative or standard chart of accounts, financial such as those for credit institutions, chief accountant (or acting chief statements template, accounting insurance companies, securities accountant) whenever a competent books and voucher templates as well companies, fund managers and authority requests them for as detailed guidance on accounting investment funds. double entries for each specific inspection or audit purposes. account. The requirements of VAS – Accounting documents and 7.1.2 Fiscal year and the Law include: accounting books of an FIE must The fiscal year applicable to FIEs – If a foreign language is used on be stored at the enterprise‘s in Vietnam is normally 12 months, an accounting voucher, both premises in Vietnam or in an external commencing on 1 January and ending the Vietnamese language and archive facilities in Vietnam over its on 31 December. FIEs with specific foreign language should be used operating period specified in its IRC operation characteristics may adopt simultaneously in the preparation registration, etc. When the enterprise their own 12-month fiscal year, of accounting records and financial ceases its operation in Vietnam, commencing from the first day of a statements. its legal representative will decide solar calendar quarter and ending on the the place where the accounting – And minimum content of accounting last day of the previous solar calendar documents are stored, unless voucher should be translated into quarter in the following year and have otherwise prescribed by law. Vietnamese, but not mandatory to to inform the local tax authority of the translate all supporting documents – Companies, and branches of foreign adoption of such a fiscal year. companies that are required to except for specific request from a Where the first fiscal year is of submit financial statements to competent authority; shorter duration than 90 days, it will

25 Investing in Vietnam 2021 be permitted to add this period to the by a qualified independent auditor. following fiscal year in order to make up operating in export processing zones one fiscal year. (EPZs) or industrial zones (IZs), Annual Financial Statements may be required to 7.1.3 Appointment of Chief be filed with the management board of Accountant or person in charge of the respective EPZs or IZs. accounting 7.1.5 Retention of accounting The enterprise is required to appoint records and supporting documents a Chief Accountant who must satisfy the criteria and conditions stipulated Types of accounting documents are by the Law on Accounting and guiding accounting vouchers, sub-ledgers, regulation (or if not ready, a person general ledgers, financial statements. in charge of accounting, but only for a Accounting documents archived should period not exceeding 12 months). be original except for copied accounting documents specified in the Law. A very small enterprise may appoint a person in charge of accounting instead Retention duration depends on the type of a Chief Accountant. of documents with minimum periods of five and ten years. And certain Foreigners may be appointed to act as types of documents must be retained the Chief Accountant of the enterprise, perpetually. provided that they have a certificate of accounting expertise or an accounting/ 7.1.6 Internal control system auditing certificate issued by a foreign The enterprise must establish an professional body recognised by internal control system to ensure its the MOF; or an accounting/auditing assets are safeguarded and protected professional practicing certificate issued from inappropriate and inefficient by the MOF; or a Chief Accountant use; and transactions are approved by certificate obtained after having authorised persons and completely passed the chief accountant’s training recorded to serve as the basis for course as prescribed in regulations preparation and presentation of the of the MOF; and they must have at financial statements that give a true and least 2 years’ working experience in fair view. practicing accounting with at least 1 year experience in practicing accounting in Vietnam. The Law prohibits any individual responsible for direction and management of the entity to assume the role as accountant, storekeeper, cashier or the responsibility for purchasing and sales. 7.1.4 Annual Financial Statements Within 90 days following the close of the fiscal year, enterprises operating in Vietnam are required to prepare and file Annual Financial Statements to relevant local authorities. FIEs and certain types of entities (such as credit institutions) are required to have the Annual Financial Statements audited

Investing in Vietnam 2021 26 Employment

Andrea Goffrey Partner, Head of Global Mobility Services KPMG in Vietnam 8.1 Recruitment or other force majeure reasons as For heavy, noxious or dangerous jobs, prescribed by law; working hours will be 6 hours per day. Under the Labour Code, an FIE may either directly recruit Vietnamese – The employee failed to attend the Overtime hours will not exceed 50% of employees or recruit via an authorised workplace within 15 days from expiry the normal working hours or 40 hours labour agency. The FIE is then of temporary suspension of the per month or 200 hours per year. In required to register the list of recruited labour contract; case a company wishes to extend the employees with the local labour – The employee reaches the retirement amount of overtime to more than 200 department and submit reports on the age; hours (but not exceeding 300 hours) a utilisation of and changes to staff to the – The employee fails to go to work year, it must notify the local Department labour department on a periodic basis. without acceptable reasons 05 of Labour, Invalids and Social Affairs (“DOLISA”). 8.2 Labour contract consecutive working days or more; – The employee fails to provide truthful 8.2.3 Wage Rates According to the Vietnamese Labour information during the conclusion of Code, labour contracts signed by and The wage costs in Vietnam are the employment contract in a manner between employer and employee must generally low. However, the cost of that affects the recruitment. be made in one of the following forms: Personal Income Tax (PIT) and other – Labour contract with an indefinite When unilaterally terminating the. mandatory contributions such as term; labour contracts, employers must Social Insurance, Health Insurance and inform the employees in advance: Unemployment Insurance as mentioned – Labour contract with a definite term below may significantly increase total (of no more than 36 months); and – At least 45 days in the case of an indefinite term labour contract; labour costs. An employer will be entitled to sign – At least 30 days in the case of a In respect of expatriates, these costs maximum two definite-term labour definite term contract with term from depend on the residency status contracts with an employee. After that, 12 to 36 months; if that employee continues to work and the remuneration structure of for the employer, an indefinite labour – At least 3 working days in case the the expatriates. There are other contract must be signed. employee is ill or injured and remains administrative costs associated with unable to work for a long time, or the employment of expatriate staff such 8.2.1 Notice for termination in the case of a labour contract with as work permits, residency registration Employers will be entitled to unilaterally term of less than 12 months; and and insurance. terminate labour contracts in the – For employees holding managerial The minimum wage of Vietnamese following cases: positions as prescribed by law and employees working for FIEs or the company charter, the advance – The employee repeatedly failed to other foreign organisations will notice period shall be at least 120 perform the work in accordance with vary depending on different zone days or a quarter of the contract the terms of the labour contract and classifications set forth by the duration, depending on the type and the performance management policy Government. issued by the employer; term of the labour contract. 8.2.4 Annual Leave – The employee is ill or injured and 8.2.2 Working Hours remains unable to work after having In addition to having time off on public Normal working hours are eight hours received treatment for a certain holidays with full pay, an employee per day (or 40 hours per week based on period as prescribed by law; working for a full 12 months under a five-day working week). Employers normal conditions is entitled to 12 days – The employer has to narrow are entitled to schedule working hours of annual leave with full pay, with one production and reduce the number on an hourly or daily or weekly basis. of jobs due to natural disasters, fire additional day for every five years of service. Employees working in certain

27 Investing in Vietnam 2021 Employment

areas, of a certain age or who have been to make statutory HI contribution. Vietnamese entry visa for stays of with an enterprise for a certain time, Expatriates having work permits specified periods in accordance with may be eligible for longer periods. or practising licences-issued by the bilateral treaties signed between a Vietnamese State authority and Vietnam and such countries. 8.2.5 Severance Allowance employed under labour contract with Foreigners who temporarily reside From 1 January 2009, the Law on term of 01 year or more will be required in Vietnam for employment with a Social Insurance has introduced the to make SI contribution. valid work permit are able to apply unemployment insurance scheme to Contribution rates: for temporary residence cards (TRC) replace severance payments. which will be issued by the Immigration Contributed by SI HI UI The company is required to make a Division of the Department of Public severance payment to an employee at For local employees Security (“DOPS”). The duration of the time of termination of employment Employee 8% 1.5% 1% each temporary residence card will if an employee has worked for the follow validity of the work permit Employer 17.5% 3% 1% company for twelve (12) months (maximum 2 years). A foreigner who or more and is not covered by the For expatriates has a temporary residence card will be unemployment insurance scheme From 01 Dec 2018 exempted from applying for a visa when (including working periods before 31 Employee 0% 1.5% 0% entering and leaving Vietnam during December 2008). the period of validity of the temporary Employer 3.5% 3% 0% residence card. Severance allowance paid by the From 01 Jan 2022 employer will not be less than 50% of 8.3.4 Work Permits the average monthly salary during the Employee 8% 1.5% 0% Foreigners working for business 6 months prior to termination for each Employer 17.5% 3% 0% entities and organisations in year of employment. Vietnam must have a work permit Salary basis for SHUI contribution: 8.3 Other issues either under the classification of – The basis for calculating statutory “expert”, “management/executive” 8.3.1 Trade Unions UI contribution is contractual salary or “technician”, except for limited Employees have the right to establish and is capped at 20 times of the exempted cases specific cases and participate in Trade Unions or regional statutory minimum monthly stipulated by the law. other organisations which represent salary which is adjusted from time to Enterprises which will recruit foreigners and protect their legitimate rights. All time (currently the highest cap being must explain their need to recruit acts of obstructing the establishment VND83,600,000 applied in big cities an expatriate for each job position and operation of trade unions or other like Hanoi, Ho Chi Minh City). before applying for work permit for the employee representing organisations at – Statutory SI, HI and UI contributions foreigners at least 30 days before the enterprises are strictly forbidden. shall be deducted, withheld and paid foreigners commence work in Vietnam. to the local social insurance authority All enterprises, regardless if they are on a monthly basis by the employer. After obtaining the approval on the domestic or foreign invested and have recruitment of foreigners, enterprises Trade Unions established or not, have 8.3.3 Visa/Temporary Residence can apply for work permit for the to submit a remittance of 2% of their Card foreigners at least 15 working days salary fund, the one is used as the To visit Vietnam, foreigners, except for before the foreigners commence work basis for social insurance payment those from exempted countries like in Vietnam. The application for work for employees. Enterprises can keep ASEAN, require visas which must be permit must include amongst other or claim back 70% of the fund for the obtained in advance from an overseas documents, qualifications, experience activities of the trade unions or for the Vietnamese embassy or consulate. certificate, criminal record, health employees’ benefits. check. The work permit remains Visas are only issued at the border gate 8.3.2 Statutory Insurance on entry to the country in exceptional valid for up to 2 years and may be Regulations state that both employers circumstances, such as for funerals renewed once for a another 2-year term. in Vietnam and Vietnamese employees of relatives, for visits to seriously ill Thereafter, foreigners may be required with a labour contract of one month relatives, urgent technical support to start a fresh work permit application for specific programmes, projects or to continue working in Vietnam. or more are required to make statutory departure from a country that does not Social Insurance (“SI”), Health Also, in case an expatriate is exempt have a Vietnamese Consulate or any Insurance (“HI”) and Unemployment from having to apply for a work permit, diplomatic representatives. Insurance (“UI”) contributions. the employer is still required to notify There are certain countries whose the local DOLISA for administrative Expatriates contractually employed for citizens are not required to obtain a management purposes. 3 (three) months or more are required

Investing in Vietnam 2021 28 Land

Ninh Van Hien Partner, Head of KPMG Vietnam M&A Tax and Real Estate Practice KPMG in Vietnam

The Vietnamese Constitution stipulates an administrative body of the State for 9.1.1 Allocation from the State for that land in Vietnam belongs to the land management, and the Ministry investment purpose people with the State acting as the of Construction, an administrative Under current prevailing regulations representative owner and exerting its body of the State for construction the allocation of land by the State control over the land in practice on the activities; and, at local level by the to an FIE is limited. An FIE can be people’s behalf. People’s Committees, supported by allocated land for the construction of their administrative bodies such as the Although private ownership of land residential housing for sale or lease Department of Natural Resources and is technically not permitted, legal according with its granted investment Environment and the Department of ownership can in essence be derived registration certificate. In this case, the Construction. through the right to use land (i.e. the maximum term of the allocated land is land use right (“LUR”)). The State may 9.1 Foreign investor ownership of 50 years, but limited by the duration of allocate or lease LURs to individuals, Land and Assets attached to land corresponding investment project. The households and organizations to use FIE has the right to assign, lease, donate In order to be a “land user” and be land for a defined or undefined term. and mortgage the allocated land as well allocated, leased or recognized to hold as contribute its rights as capital into a Vietnam’s legal framework for the LUR, the foreign investor must establish JVC. management and administration of a “foreign invested enterprise” or “FIE” LURs is composed of: various key in Vietnam, which may be granted 9.1.2 Lease from the State laws and in particular the Land Law ownership and quasi-ownership Both Vietnamese local company’s and which was amended in 2014 for interests in respect of land and assets FIE’s can lease land from the State for some important reforms relevant to attached to land. An FIE can be a wholly agriculture, production and business Foreign Invested Enterprises (FIE’s); owned subsidiary, a joint venture purposes, which includes infrastructure supplementing laws including the Civil company (JVC) or a majority stake construction, manufacturing facilities, Code which provide clarity on areas not acquired in a Vietnamese company. hotels and resorts, mining and specifically addressed in the key laws The choice of FIE will depend on the residential housing for lease. The land and including areas relating to foreign investment being considered. is leased for a definite period up to a investment; and, auxiliary rules and maximum of 50 years (70 years for regulation. An FIE may obtain LUR’s as follows: projects of national importance), but The ownership of LUR and other assets – Allocation of land from the State for limited to the duration of the relevant attached to land is evidenced by the investment purposes investment project. The lessees Certificate of Land Use Right, – Lease of land from the State can seek extensions on the term of the lease. However, the term of the Ownership of House and Other Assets – Lease of land from specified lessors extension will be capped at the original Attached to Land (the “LURC”). This (including local or FIE developers term. LURC sets out fundamental information licensed to engage in infrastructure on the land use, including the term and development for sub-lease) The lessee is required to pay rental fee purpose of the land use, and the assets – Assignment of the LUR by way of for the leased land. The rental fee will be attached to the land (if any). capital contribution to a JVC by the structured either as an annual payment local Vietnam partner or a lump sum payment determined The State’s power over land from the lease commencement date. construction activities is exercised by – Acquisition of the LUR as part of the the following government bodies: at purchase of an entire Real estate project A lump sum payment gives much more the national level, by the Ministry of or project encompassing an LUR. flexibility to the lessee of the LUR. The Natural Resources and Environment,

29 Investing in Vietnam 2021 Land

lessee who has paid the rental fee as 9.1.5. As part of the purchase of an a lump sum payment has the right to Real estate project or an investment assign, lease, donate and mortgage the project with an LUR encompassed LUR as well as contribute the LUR as as part of the project capital into a JVC. By contrast, a lessee An FIE who receives an LUR by way who makes an annual payment for of acquisition of a Real Estate project the rental fee does not have the same or an investment project with an LUR rights other than to potentially assign, encompassed within the project will lease, mortgage and contribute assets reserve the same rights as those held attached to the land, not the LUR itself. by the person/ organisation initiating 9.1.3 Lease from the specified lessors the transfer. Of note, the land use form of the LUR must be “land leased by An FIE is also able to sub-lease from the State with collection of one-off rent licensed local or FIE developers of payment for the entire lease term”. specific zones for development, i.e. industrial, export-processing or high- 9.2. Purchase of residential property tech zones. As above, the sub-lessees by foreigners can pay the land rental fee in either Since the effective date of Law on annual payment or one-off lump sum Housing 2014, 1 July 2015, the new payment to the developers that pay land regulations have eased the restrictions rental fee on a lump sum basis. on the purchase of residential houses by For the developers making land rental the foreigners. payment annually, the same payment A foreign individual may now purchase method, i.e. annually, is required and own a house in Vietnam, provided to apply to the sub-lessees. The that he is allowed entry into Vietnam. sub-lessees may be also subject to other fees including management or Foreigners should be aware the infrastructure fees in accordance with regulatory limit on housing purchase as their lease contract. They are entitled to follows: be issued with an LURC. 30% of the total units within one 9.1.4. Assignment by way of capital condominium complex; contribution 10% of the total separate landed homes Vietnamese laws allow a Vietnamese within one residential compound; or entity, which is established and 250 homes within an administrative unit incorporated under Vietnam Law equivalent to a ward. on Enterprise, to make a capital contribution in the form of the value of Generally, the foreign owners have the LUR in the following circumstances: the same rights as the owners who directly allocated land from the State, It has obtained the land under the including the rights to sell, mortgage, allocation regime and the land use fee is lease, donate, or contribute as capital. fully paid; or Foreign individuals are limited to own It has obtained the land under the lease their house for a maximum duration of regime including the LUR transfer from 50 years unless they are married to a another organisation and fully paid the Vietnamese citizen. land rental for the entire lease term. Three months prior to the expiry Once contributed, the JVC has the of ownership duration, foreign same rights as the land users who homeowners can apply for tenure were allocated or leased directly from renewal which must not exceed fifty that State with full payment of land use (50) years. They can also sell or bequest fee or rental fee. The JVC may assign, their property. If the foreign homeowner lease, donate, mortgage or contribute fails to do so before the expiry date, his as capital the LUR to a JVC. property will be converted into State property.

Investing in Vietnam 2021 30 Intellectual property

To become integrated into the world economy, Vietnam has taken many steps to modernize legal systems with the help of international donors. Richard Arthur Mark Stapley-Oh Partner, Head of Legal Services KPMG in Vietnam

10.1 Protection of intellectual – Accordingly, each member country Copyrights to cinematographic works, property shall ensure that criminal liability for photographic works, applied art works aiding and abetting is available under and anonymous works will have a term 10.1.1 Types of intellectual Property its law. of protection of 75 years from the date it Right to be protected in Vietnam – Geographical indications may be was first published. If a cinematographic Under the Law on Intellectual Property, protected through a trademark or Sui work, photographic work or applied art “Intellectual Property Rights” (“IPRs”) generis system or other legal means. work has not been published within 25 means the rights of an organisation years from the date of its formulation, – Member nations must establish or individual (either a Vietnamese or the term of protection will be 100 policies on monitoring Internet foreign organisation/ individual who years calculated from the date of its service providers to prevent IPRs satisfies the conditions stipulated by formulation. infringement transmitted through the laws) to possess intellectual assets network Copyright to any works not subject comprising copyright and copyright to the above mentioned list will be related rights, industrial property rights – Reduction/simplification of protected during its author’s life plus and rights to plant varieties. Intellectual administrative procedures and 50 years after their death. In case property that is protected under the conditions for registration of IPRs. the works have been created by joint prevailing Vietnamese laws include: 10.1.2 Term of protection on a authors, the term of protection will – Copyright in literary, artistic and number of typical IPRs expire in the 50 years after the death of scientific works, and derivative (I) Patent the last surviving co-author. works; copyright-related rights in performances, audio and visual Patent means a technical solution in Works whose term of protection has recordings, broadcasting programs, the form of a product or process which expired shall belong to the public. satellite signals carrying encrypted is intended to solve a problem by All organisations and individuals shall programs. application of natural laws. The patent have the right to use such works with – Industrial property including will be protected for 20 years respect to moral rights of the author. inventions, industrial designs, commencing from the date of (III) Trade name layout-designs of semi-conductor submitting application but such integrated circuits, business secrets, protection period will not be extended. Trade name means the designation trademarks, trade names and of an organisation or individual used geographical indications. (II) Copyright in business activities in order to – Rights to plant varieties including Copyright means rights to the works distinguish the business entity bearing reproductive and harvested materials. created or owned by an organisation or the trade name from other business an individual. “Works” means a creation entities in the same business sector and The protection of IPRs is further of the mind in the literary, artistic or geographical area. Industrial property reinforced under the CPTPP Agreement scientific sector, expressed in any mode right to trade name is established on including the following obligations: or form. the practice usage responding to the – In addition to civil and administrative business territory and area without remedies, the CPTPP insists the Copyright will comprise moral rights registration procedures. The trade name application of criminal procedures and and economic rights. The copyright will protection is for the duration of use of penalties to protect IPRs. enjoy the following terms of protection: said trade name.

31 Investing in Vietnam 2021 Intellectual property

(IV) Mark For other IPRs, the holders are only protected on their IPRs by law upon Mark means any sign used to having been granted the protection distinguish goods or services of certificate for the same, as a result different organisations or individuals. of regulatory formal and substantial A certificate of registered mark will be examination on their proper filing to valid from the grant date until 10 years respective licensing authorities. In after the filing date and may be renewed Vietnam, the Ministry of Science and for an unlimited number of consecutive Technology, via the National Office of terms, each of 10 years. For well- Intellectual Property, will be responsible known marks, the industrial property before the Government to carry out right is established based on the actual State administration of Industrial widespread use of such a mark without Property, the Ministry of Culture and having gone through. Sports and Tourism will - within the (V) Industrial design scope of its duties and powers - carry out State administration of copyright Industrial design means the outward and related rights and the Ministry of appearance of a product embodied Agriculture and Rural Development will in three dimensional configurations, be responsible for plant varieties. lines, colours or a combination of such elements. An industrial design patent will be valid for 5 years from the date of filling the application dossier for registration of such a design and may be renewed for two consecutive terms, each of 5 years. Under the prevailing laws, each type of intellectual property protected under the laws of Vietnam, must satisfy the appropriate conditions provided by the laws. 10.2 Registration of IPRs in Vietnam To be protected against IPRs infringement, it is mandatory for the IPR holders to register their IPRs, except for copyright, with the competent authorities. Copyright will be protected under the principle of automatic protection. This means that copyright will arise the moment a piece of work is created and presented in a particular material form regardless of its content, quality or format, and whether or not it has been published or registered. However, to protect a piece of work effectively, it is highly recommended that authors or copyright owners register the works at the relevant Department of Copyright under the Ministry of Culture Sports and Tourism, or Department of Culture, Sports and Tourism.

Investing in Vietnam 2021 32 Meet our experts

Consumer & Retail Infrastructure & Chong Kwang Puay State-owned enterprise Managing Partner Do Thi Thu Ha E: [email protected] Office Senior Partner E: [email protected]

Real Estate National Corporates Ninh Van Hien Lam Thi Ngoc Hao Partner Partner E: [email protected] E: [email protected]

Financial Services Energy & Natural resources Tran Dinh Vinh Ta Hong Thai Partner Partner E: [email protected] E: [email protected]

Automotive International Corporates Hoang Thuy Duong Auvarin Phor Partner Partner E: [email protected] E: [email protected]

Healthcare Treloar Luke Director E: [email protected]

33 Investing in Vietnam 2021 Meet our experts Contact us

Warrick Cleine Chairman & CEO KPMG in Vietnam and Cambodia

Dr. Nguyen Cong Ai Office Senior Partner Head of Ho Chi Minh City

Do Thi Thu Ha Office Senior Partner Head of Hanoi

Hoang Thuy Duong Partner Head of Danang

Investing in Vietnam 2021 34 KPMG Offices Hanoi Ho Chi Minh City Danang 46th Floor, Keangnam Hanoi Landmark Tower, 10th Floor, Sunwah Tower, Unit D3, 5th Floor, Indochina Riverside Tower, 72 Building, Plot E6, Pham Hung Street, No. 115, Nguyen Hue Street, No. 74, Bach Dang Street, Hai Chau 1 Ward, Cau Giay New Urban Area, Me Tri Ward, Ben Nghe Ward, District 1, Hai Chau District, Danang, Vietnam South Tu Liem District, Hanoi, Vietnam Ho Chi Minh City, Vietnam T: +84 (24) 3946 1600 T: +84 (28) 3821 9266 T: +84 (236) 351 9051 F: +84 (24) 3946 1601 F: +84 (28) 3821 9267 F: +84 (28) 3821 9267 E: [email protected] E: [email protected] E: [email protected]

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