This publication is a joint project with

Doing business in VietnamCanada Contents

Executive summary 4 Disclaimer

Foreword 6 This document is issued by HSBC Bank Ltd (the 'Bank') Introduction – Doing business in Vietnam 8 in Vietnam together with PricewaterhouseCoopers ('PwC'). Conducting business in Vietnam 10 It is not intended as an offer or solicitation for business to anyone in any jurisdiction. It is not intended Taxation in Vietnam 14 for distribution to anyone located in, or resident in, jurisdictions which Other Taxes 22 restrict the distribution of this document. It shall not be copied, Human Resources and Employment Law 28 reproduced, transmitted or further distributed by any recipient. Trade 30 The information contained in this Banking in Vietnam 32 document is of a general nature only. It is not meant to be HSBC in Vietnam 33 comprehensive and does not constitute financial, legal, tax Country overview 34 or other professional advice. You should not act upon the Contacts 36 information contained in this publication without obtaining specific professional advice.

Whilst every care has been taken in preparing this document, neither the Bank nor PwC makes any guarantee, representation or warranty (express or implied) as to its accuracy or completeness, and under no circumstances will the Bank or PwC be liable for any loss caused by reliance on any opinion or statement made in this document. Except as specifically indicated, the expressions of opinion are those of the Bank and/ or PwC only and are subject to change without notice. Executive summary

Vietnam has attracted many Other factors that make multinational corporations, Vietnam an attractive including those that seek country for investors include: ways to diversify their operations away from China • low labour costs; in their ’China plus One’ manufacturing strategies. • a growing consumer market;

Vietnam’s 87 million-strong • a gradual move from a population boasts a large and centralised to a market- young workforce that has also oriented economy; and seen an increase of disposable income in recent years. • introduction and amendments of legislation by the Government Starting from a low economic to make foreign direct base in the early 1990s, investment more attractive. Vietnam’s economy grew strongly and rapidly before it Despite the positive changes, slowed down during the current it should be noted that a global financial crisis. Vietnam’s number of barriers to foreign economy is already bouncing investment in Vietnam still back to pre-crisis growth trends remain. However, this is in 2011, and is expected to a diminishing problem as continue on this path. With the Government is actively a total revenue growth of investing in order to improve 25% a year1 even in the time the country’s infrastructure. of global economic crisis and domestic economic slowdown, This document contains the Vietnamese retail market references to some common offers a lot of potential for issues that investors should foreign investors. be aware of when operating in Vietnam, although specific Sectors which are welcoming advice on their particular foreign investment include circumstances should be sought. infrastructure, tourism development, and related real estate and retail sector development in urban areas.

Limitations on foreign investment in certain sectors have expired or are due to expire under Vietnam’s WTO commitments.

1 Vietnam Chamber of 4 Commerce and Industry Foreword

HSBC has a long history in regulatory requirements. bring stability and prosperity Sumit Dutta Vietnam – in 1870, the bank However, if you take a step to the economy as Vietnam CEO opened its first office in back and view things from a grows as an established key Saigon. In August 1995, HSBC broader perspective, Vietnam player in the regional and opened a full-service branch remains a strong growth story. global financial market. in the same city, renamed , before opening When other markets were Developed in partnership with a second branch in and foundering during the PriceWaterhouseCoopers, establishing a representative economic downturn, Vietnam this book – Doing business in office in Can Tho City in 2005. posted strong growth, and Vietnam – provides a thorough PriceWaterhouseCoopers analysis of the opportunities Since HSBC became the recently listed Vietnam as and obstacles of establishing first wholly foreign-owned the fastest-growing economy and running a business in this bank to locally incorporate among emerging markets. emerging tiger. Wherever in January 2009, we have More and more Vietnamese possible, we have identified grown in every way: we now companies are looking to trade key points on Vietnam’s operate 16 outlets nationwide, internationally, and investors taxation systems, information employ more 1,600 staff, and multinationals all over on Human Resources, and and offer our customers in the world are looking to do laws and changes in legislation Vietnam a comprehensive business in Vietnam. Our 140- that will affect businesses in range of world-class banking year history in this dynamic, the future. products and services, fast-paced market means that including Retail Banking we are uniquely positioned As your trusted financial and Wealth Management, to help our customers unlock partner, HSBC in Vietnam is Commercial Banking, Global Vietnam’s potential. always looking for ways to Banking, Global Markets, help your business to grow. Global Payments and Cash We are also committed to I hope this guide will help Management, Trade playing an active role in you on your journey to and Supply Chain and developing Vietnam’s banking establishing a profitable Securities Services. and financial industry and venture in Vietnam and promoting Vietnam as a I wish you health, wealth and In recent times we have preferred destination for prosperity in your endeavours. seen some difficult market investment, diligently following conditions, including increasing the guidelines set down by inflation, tight liquidity, a high the and interest rate regime and tough assisting, however we can, to

6 Introduction Doing business in Vietnam

Welcome to our guide to doing foreign investors are not business in Vietnam. In this disadvantaged compared publication, we hope to provide to their local counterparts, you with an insight into the including an overhaul of the key aspects of undertaking legal framework governing business and investing in investments and protection Vietnam and answer many of of intellectual property. the questions foreign businesses Furthermore, the government and entrepreneurs have when has taken measures to making their first venture into simplify administrative the Vietnamese market. procedures for areas such as import and export, The Socialist Republic of company establishment and Vietnam is a single-party state. making tax payments. As the only party in the political arena, the role and influence of Despite these measures, the Communist Party is unique. there remains a host of regulatory issues that must As a member of the World be considered by foreign Trading Organisation (’WTO’), investors coming into Vietnam. Vietnam must continue to However, foreign investment improve its business and in Vietnam continues to grow, investment environment and and the Government shows bolster its legal system to its commitment to market- meet WTO’s requirements. oriented reforms through Vietnam has made significant its ongoing efforts to attract efforts to ensure that foreign direct investment.

8 Conducting business in Vietnam Forms of Investment

Under the Law on Enterprises, A limited-liability company The management structure a foreign entity may establish established by foreign investors of a joint-stock company is its presence in Vietnam as may take the form of either: comprised of the general a limited-liability company meeting of shareholders, with one or more members, • a 100% foreign-owned the board of management, a joint-stock company, enterprise (where all members the chairman of the board or a partnership. are foreign investors); or of management, the general director and a board of Foreign investors may also • a foreign-invested joint-venture supervisors (where the joint buy an interest in existing enterprise between foreign stock company has more than domestic enterprises, subject investors and at least one 10 individual shareholders or to ownership limitations which domestic investor. if a corporate shareholder holds vary depending on the relevant more than 50% of the shares industry sector. A limited-liability company of the joint-stock company). may not issue securities to Form of Business mobilise capital. A joint-stock company may either be 100% foreign-owned 1. Limited-liability company 2. Joint-stock company or may take the form of a joint A limited-liability company A joint-stock company is a venture between both foreign is a legal entity established legal entity established by its and domestic investors. by its members through capital founding shareholders based contributions to the company. on their subscription for shares 2. Partnership The capital contribution of each in the joint-stock company. A partnership may be member is treated as equity. established between an The members of a limited- Under Vietnamese law, this individual or a legal entity liability company are liable is the only type of company and the general partner, who for the financial obligations that can issue shares. The must be an individual. The of the limited-liability company charter capital of a joint-stock general partner has unlimited to the extent of their capital company is divided into shares liability for the operations of contributions (actual or and each founding shareholder the partnership. declared to be contributed) holds a number of shares that to the company. corresponds to the amount Other Structures for of capital the shareholder has Business and Investment The management structure contributed to the company. in Vietnam of a limited-liability company consists of the members’ A joint-stock company is 1. Branches council, the chairman of required to have at least This is not a common form the members’ council, the three shareholders. There of foreign direct investment. director or general director is no limit to the maximum Branches of foreign companies and a controller (or board of number of shareholders in in Vietnam are different from supervisors where the limited- such companies. representative offices in that liability company has more a branch is permitted to than 10 members). conduct commercial activities in Vietnam.

10 11 In practice, in recent years the 3. Business cooperation private-sector investors to establishment of branches of contract (BCC) participate in BOT, BTO and foreign entities in Vietnam has A BCC is a cooperation BT in the following sectors: been restricted by Vietnamese agreement between foreign (i) construction, operation and authorities. investors and at least one management of brand-new Vietnamese partner in order infrastructure facilities; and 2. Representative offices to carry out specific business (ii)renovation, expansion, Foreign companies activities. modernisation, operation and with business relations management of the existing or investment projects in This form of investment does infrastructure facilities such as: Vietnam may apply to open not constitute the creation of a representative offices new legal entity. The investors • Roads, bridges, tunnels, in Vietnam. in a BCC share the revenues and ferry landings; and/or products arising from a A representative office is not BCC and have unlimited liability • Railway bridges and an independent legal entity for the debts of the BCC. railway tunnels; and thus may not conduct direct commercial or revenue- 4. Build-operate-transfer • Airports, seaports and generating activities (i.e., the (’BOT’), Build-transfer (’BT’) river ports; execution of contracts, direct and Build-transfer-operate payment or receipt of funds, (’BTO’) Contracts • Clean water supply systems; sale or purchase of goods, or Foreign investors may sign sewage systems; provision of services). BOT, BT and BTO contracts with a competent State body • Wastewater, waste collecting However, a representative to implement infrastructure and handling systems; office is permitted to: construction projects in Vietnam. Typically, the • Power plants and power • act as a liaison office to observe contracts are for projects transmission lines; the business environment; in the fields of transportation, electricity production, water • Infrastructure works of health • search for trade and/or supply, drainage and waste service, education, training, investment opportunities treatment. career training, culture, and partners; sport and offices of State The rights and obligations agencies; and • supervise and accelerate the of the foreign investor will be implementation of contracts regulated by the signed BOT, • Other projects as may entered into by its head office; BT and BTO contract. be determined by the Prime Minister. • act on behalf of the head office Under a decree dated 5 April to supervise and direct the 2011 on BOT, BTO, and BT implementation of projects contracts, the Government in Vietnam. encourages both public- and

12 Taxation in Vietnam Corporation Income Tax

Scope Administration Non-deductible expenses For certain businesses such as Interest insurance companies, securities An interest withholding tax of An enterprise established under Provisional quarterly CIT returns Certain expenses are classified trading, and lotteries, the 10% applies to interest paid the must pay must be filed and taxes paid by as non-deductible. Ministry of Finance provides on loans from foreign entities. tax on its worldwide income. the 30th day of the first month specific guidance on deductible Offshore loans provided by of the subsequent quarter. Examples of non-deductible expenses for CIT purposes. certain Government or semi- A foreign enterprise with a expenses include: Government institutions may permanent establishment in Final CIT returns are filed • Employee remuneration Capital Gains – Capital be eligible for an exemption Vietnam must pay tax on all annually. The annual CIT expenses which are not actually Assignment Profits Tax from the interest withholding income arising in Vietnam return must be filed and paid or are not stated in a tax where a relevant double and on foreign income that submitted within 90 days labour contract or collective Gains on transfers of interests taxation agreement or inter- relates to the permanent following the fiscal year end. labour agreement; (as opposed to securities) in a governmental agreement establishment. Any outstanding tax payable • Interest on loans corresponding foreign-invested or Vietnamese applies (see the double tax must be paid at the same time to any portion of charter capital enterprise are subject to capital agreements section below for A foreign enterprise without when the annual CIT return not yet contributed; assignment profits tax (’CAPT’) more details). a permanent establishment is submitted. • Interest on loans from non- at 25%. in Vietnam must pay tax only economic and non-credit Interest earned from bonds on income arising in Vietnam. The default CIT tax year is organisations exceeding 1.5 The taxable gain is determined as (except for tax-exempt bonds) the calendar year. However, times the interest rate set by the excess of the sale proceeds and certificates of deposit is A permanent establishment different tax and accounting the State Bank of Vietnam; over the original cost (or the subject to 10% withholding tax. in Vietnam is a place for year ends can be used if • Provisions for stock devaluation, initial value of contributed charter production and/or the entity’s approval is obtained from the bad debts, financial investment capital for the first transfer) less Interest earned from bonds business activities, which can Ministry of Finance. losses, product warranties, or transfer expenses. (except for tax-exempt bonds) be in the form of: construction work which are and certificates of deposit is Taxable Profit not in accordance with the Transfers of securities (bonds, subject to 10% withholding tax. • Branches, plants and a location prevailing regulations; shares of public joint stock in Vietnam where natural Taxable profit is the difference • Advertising, promotion (except companies, etc.) are subject Royalties, licence fees, etc. resources are mined; between total revenue, whether certain items), fees to attend to CIT on a deemed basis at A 10% royalty withholding tax • Construction sites; domestic or foreign sourced, conferences or parties; 0.1%, from 1st August - 31st applies to payments made to • Establishments providing and deductible expenses, plus • Commissions, prompt payment December 2011, CIT rate is a foreign party for transfers services; other assessable income. discounts exceeding 10% of reduced by 0.05%, of the total of technology, which is a very • Agents; and total other deductible expenses value of the disposal proceeds. broadly defined category. • Representatives. Taxpayers are required to prepare (this cap is increased to an annual CIT return which 15% for newly-established Withholding Tax Payments to foreign Tax rate includes a section for making enterprises for the first 3 contractors adjustments between accounting operating years); Withholding tax applies to A foreign contractor withholding Taxpayers are subject to the profits and taxable profits. • Unrealised foreign exchange payments of interest, royalties, tax (’FCWT’) applies to tax rates imposed under the losses due to the revaluation licence fees, foreign contractors’ payments to foreign contractors Corporate Income Tax (’CIT’) Deductible expenses of foreign currency items other fees, cross-border leases, where a Vietnamese Law. The standard CIT rate is than account payables at the insurance/reinsurance, airline contracting party (including currently 25%. Expenses which relate to end of a financial year; and and express delivery charges. foreign-owned enterprises) the generation of revenue and • Administrative penalties contracts with a foreign party Enterprises operating in the oil which are properly supported and fines. Dividends that does not have a licensed and gas industry are subject to by suitable documentation No withholding or remittance presence in Vietnam. CIT rates ranging from 32% to are tax deductible, unless tax is imposed on profits paid to 50%, depending on the project. specifically disallowed by foreign corporate shareholders. 14 the legislation. 15 This FCWT, which includes If the foreign contractor carries Method Three – Hybrid Method The VAT and CIT rates are a value-added tax (’VAT’) out many projects, and qualifies summarised below: element and a CIT element, for application of the deduction The hybrid method allows generally applies to payments method for one project, the foreign contractors to register Effective VAT rate Deemed CIT Activity derived in Vietnam for services contractor is required to apply for VAT and accordingly pay (%) rate (%) provided in Vietnam and the deduction method for its VAT based on the conventional overseas. Pure supply of other projects as well. method (i.e. output VAT less Trading: distribution, Exempt* 1 goods, services performed input VAT), but with CIT supply of goods, materials, and consumed outside The foreign contractor will pay continuing to be subject to machinery and equipment Vietnam, and various other CIT at 25% on its net profits. the deemed rates (opposite). supplied together with services performed wholly services in Vietnam outside Vietnam (e.g. certain Method Two – Direct Method Foreign contractors wishing to repairs, training, advertising, adopt the hybrid method must: Services 5 5 promotion etc.) are exempt Direct method foreign Services together with 3 2 from FCW T. contractors do not register • Have a PE in Vietnam or be tax supply of machinery and for VAT. VAT and CIT residents in Vietnam; equipment Foreign contractors can choose will be withheld by the between three methods for Vietnamese contracting party • Operate in Vietnam under a Construction, installation** 5 2 FCWT, which are as follows: at deemed percentages of contract with a term for more without supply of the taxable turnover. than 182 days; and materials or machinery, Method One Various rates are specified equipment – Deduction Method according to the nature of • Maintain accounting records in ** the services performed. accordance with the accounting Construction, installation 3 2 Foreign contractors can regulations and guidance of the with supply of materials register for VAT and follow the The VAT withheld by the Ministry of Finance. or machinery, equipment conventional VAT deduction contracting party is generally Leasing of machinery and 5 5 method, provided they meet an allowable input credit in the equipment the requirements below: Vietnamese contracting party’s VAT return. Leasing of aircraft, Not specified 2 • they have a permanent vessels (including establishment (’PE’) or are components) tax residents in Vietnam; Transportation 3 2 • the duration of the project Interest Exempt 10 in Vietnam is more than 182 days; and Royalties Exempt 10 Insurance Exempt 2 • they adopt the full Vietnamese Accounting System (’VAS’). Transfer of securities Exempt 0.1 Manufacturing, other 3 2 business activities

* Provided that import VAT is paid

** Relates to VAT only 17 VAT

Double Tax respectively, starting from Transfer Pricing Scope of application • Medical services; Agreements (’DTAs’) the commencement of • Teaching and training; operating activities. When Vietnam has transfer pricing Value-added tax (’VAT’) • Printing and publishing The withholding taxes in the preferential rate expires, regulations which outline applies to goods and services of newspapers, magazines, the table on page 17 may the CIT rate reverts to the various situations where used for production, trading and certain types of books; be affected by relevant DTAs. standard rate. transactions will be considered and consumption in Vietnam • Certain cultural, artistic, sport For example, the deemed CIT as being between related (including goods and services services/products; on foreign contractors may be Taxpayers may be eligible for parties and the mechanisms purchased from abroad). In • Passenger transport by eliminated or reduced through tax holidays and reductions. for determining the market each case the business must public buses; a relevant DTA. The holidays take the form of ’arm’s length’ transaction value charge VAT on the value of • Transfer of technology and a complete exemption from CIT (comparable uncontrolled goods or services supplied. software services, except Vietnam has signed more for a certain period beginning price, cost plus, resale price, exported software which than 60 DTAs and others immediately after the enterprise comparable profits and VAT payable is calculated as is entitled to 0% rate; are at various stages of first makes profits, followed by profit split). the output VAT charged to • Gold imported in pieces which implementation and negotiation. a period where tax is charged customers less the input tax have not been processed The agreements in force at 50% of the applicable rate. Under the wide-ranging suffered on purchases of goods into jewellery; include those with Australia, However, where the enterprise definition of associated parties, and services. • Exported unprocessed mineral France, Germany, Japan, Korea, has not derived profits within the control threshold is lower products such as crude oil, Malaysia, the Netherlands, 3 years of the commencement than in many other countries For input tax to be creditable, rock, sand, rare soil, rare Singapore, Thailand, Hong of operations, the tax holiday/ (20%). The definition also the taxpayer must obtain stones, etc; Kong and the United Kingdom. tax reduction will start from the extends to certain significant a proper VAT invoice from • Imports of machinery, Notably absent is a DTA with fourth year of operation. Criteria supplier, customer and the supplier. Entities in Vietnam equipment and special means the United States of America. for eligibility to these holidays funding relationships between can use pre-printed invoices, of transport which are directly and reductions are set out in otherwise unrelated parties. self-printed invoices or for use in technology research Tax Incentives the CIT regulations. electronic invoices. The tax and development activities Compliance requirements invoice template must contain and which cannot be made Tax incentives are granted for Tax incentives do not apply include an annual declaration of certain required items and in Vietnam; certain regulated encouraged to ’other income’, which is related-party transactions and must be registered with the • Equipment, machinery, spare sectors and difficult socio- broadly defined. transfer pricing methodologies local tax authorities. parts, specialised means of economic locations. used. Specified documents transportation and necessary Tax Losses must be filed together with the There are stipulated categories materials used for prospecting, The sectors which are annual CIT return. of VAT exemptions: exploration and development encouraged by the Taxpayers may carry forward of oil and gas fields (which Vietnamese Government tax losses fully and consecutively Companies which have related- • Certain agricultural products; cannot be produced in include education, health for a maximum of five years. party transactions must prepare • Imported leased drilling rigs, Vietnam); and care, sport/culture, high and maintain contemporaneous aeroplanes and ships of a • Goods imported in the technology, environmental Losses of non-incentivised transfer pricing documentation. type which cannot be produced following cases: international protection, scientific activities can be offset against in Vietnam; non-refundable aid, including research, infrastructural profits from incentivised • Transfer of land use rights; from Official Development development and computer activities, and vice versa. • Financial derivatives and credit Aid, foreign donations software manufacture. services; certain insurance to government bodies Carry-back of losses is not services (including life and and to individuals (subject Two preferential CIT rates permitted. There is no provision non-commercial insurance); to limitations). of 10% and 20% are available for any form of consolidated for 15 years and 10 years filing or group loss relief.

18 Rates of tax tax (if applicable). The importer • The foreign company is not declared and claimed within must pay VAT to Customs at a VAT registrant or payer in 6 months from the month in There are three VAT rates, as the same time that they pay Vietnam. which they arise. shown in the table below. import duties. When a supply cannot be Various supporting documents If a business sells exempt readily classified based on Exported services are required in order to apply goods or services, it cannot the tax tariff, VAT must be 0% VAT to exported goods recover any input tax paid on calculated based on the highest Services rendered to foreign and services, e.g., contracts, its purchases. rate applicable for the particular companies, including evidence of payment via bank range of goods which the companies in non-tariff areas, transfer, customs declaration This contrasts with the business supplies. will be subject to 0% VAT if the (for exported goods only). application of 0% VAT, where following conditions are met: the sales are within the VAT Imported goods Input tax credits system (albeit at a VAT rate of • The foreign company has zero), and hence input tax can In addition, VAT is levied on no permanent establishment Input credits can be claimed in be recovered. imported goods. (’PE’) in Vietnam (PE is not the month in which the invoice defined in the VAT regulations is issued. For imports, input Where a business generates VAT is calculated on the and the definition under the credits are based on the date both taxable and exempt sales, import dutiable price plus domestic CIT regulations will of payment to the Customs it can only claim an input tax import duty plus special sales apply in this respect); and office. Input credits can be credit for the portion of inputs used in the taxable activity. Tax rates (%) Activity Administration 0 This rate applies to exported goods including goods sold to enterprises without permanent establishments in Vietnam (including companies in non-tariff zones), goods All organisations and processed for export, goods sold to duty free shops, exported services, construction and individuals producing or trading installation carried out abroad or for export processing enterprises, aviation, marine and in taxable goods and services international transportation services/export goods & services/construction or installation in Vietnam must register for for Export Processing Enterprise’s Fixed Assets.. VAT. In certain cases, branches of an enterprise must register 5 This rate applies generally to areas of the economy concerned with the provision separately and declare VAT on of essential goods and services. This includes: their own activities. • clean water; • fertiliser production; Taxpayers must file VAT • teaching aids; returns monthly, by the 20th • certain books; day of the following month. • foodstuffs; • medicine and medical equipment; Taxpayers paying tax under • husbandry feed; various agricultural products and services, the deduction method are not required to lodge • technical/scientific services; an annual VAT finalisation • rubber latex; or reconciliation. • sugar and its by-products. 10 This ’standard’ rate applies to activities not specified as exempt or subject to the 0% or 5% rates.

20 Other Taxes Import and Export Duties

Import and export duty rates or when goods are sourced exploited and are applied to the are subject to frequent changes from non-preferential treatment production output at a specified and it is always prudent to countries, the ordinary rate taxable value per unit. check the latest position. (being the MFN rate with a 50% surcharge) is imposed. Various methods are available Import duty rates are classified for the calculation of the taxable into 3 categories: Special Sales Tax (’SST’) value of the resources, including cases where the commercial 1. Ordinary rates; SST is a form of excise tax value of the resources cannot 2. Preferential rates – applicable to that applies to the production be determined. imported goods from countries or import of certain goods that have Most Favoured Nation and the provision of certain Property Tax (MFN, also known as Normal services. Goods and services Trade Relations) status with that are subject to SST are Land in Vietnam is owned by Vietnam. The MFN rates are also subject to VAT. the state, meaning that users in accordance with Vietnam’s of land are required to acquire WTO commitments and are The Law on SST classifies or rent land use rights from the applicable to goods imported objects subject to SST into government. from other member countries two groups: of the WTO; and Foreign investors requiring land 3. Special preferential rates – 1. Commodities – cigarettes, for their operations in Vietnam applicable to imported goods liquor, beer, automobiles having will pay a rental fee to the from countries that have less than 24 seats, motorcycles, government, which is in effect a special preferential trade airplanes, boats, petrol, air- a form of property tax. agreement with Vietnam. conditioners up to 90,000 BTU, playing cards, votive The amounts of the land use Also, as part of the Association papers; and right rental fees vary depending of Asian Nations upon the location, infrastructure (’ASEAN’), Vietnam has 2. Service activities – discotheque, and the industrial sector in special preferential trade massage, karaoke, casino, which the business is operating. agreements with: gambling, golf clubs, • China; entertainment with betting Environmental • Korea; and lotteries. Protection Tax • Japan; • Australia; Natural Resources Tax A law on environmental • New Zealand; and protection tax takes effect • India (signed but not yet Natural resources tax is from 1 January 2012. in force). payable by industries exploiting Vietnam’s natural resources The environment protection To be eligible for preferential such as petroleum, minerals, tax is an indirect tax which is rates or special preferential forest products, seafood and applicable to the production rates, the imported goods natural water. and importation of certain goods must be accompanied by an including petroleum products. appropriate Certificate of Origin The tax rates vary depending (’C/O’). Without such a C/O, on the natural resource being

22 23 Personal Income Tax (’PIT’)

Scope income. However, this will need For non-employment income, Non-employment income Statutory SI, HI and UI to be considered in light of the the individual is required to Taxable non-employment employer contributions do not For individual tax purposes, provisions of any DTA that declare and pay PIT in relation income includes: constitute a taxable benefit to Vietnam residents are those might apply. to each type of taxable non- • Business income the employee. The employee individuals residing in Vietnam for employment income. The PIT (e.g. rental income); contributions are deductible 183 days or more in a calendar Personal income tax rates regulations require income to • Investment income for PIT purposes. year, or in 12 consecutive months be declared and tax to be paid (e.g. interest, dividends); from the first date of arrival. Residents – employment on a regular basis, often each • Gains on sale of shares; Other Taxes income time income is received. • Gains on sale of real estate; Vietnam residents also include and Numerous other fees and taxes those having a permanent • Inheritances in excess can apply in Vietnam, including Annual Taxable Monthly Taxable residence in Vietnam (including, Tax rate of VND10 million. business license tax and stamp Income Income in the case of foreigners, a % duty or registration fees. registered residence which (million VND) (million VND) Social, Health and is recorded on the permanent Unemployment Insurance Tax Audits and Penalties 0 – 60 0 – 5 5 or temporary residence card). 60 – 120 5 – 10 10 Social insurance (’SI’) and Tax audits are carried out Where an individual stays in unemployment Insurance (’UI’) regularly and often cover a 120 – 216 10 – 18 15 Vietnam for more than 90 days contributions are applicable number of tax years. Prior to an but less than 183 days in a tax 216 – 384 18 – 32 20 to Vietnamese individuals audit, the tax authorities send year, the individual will be treated only. Health insurance (’HI’) the taxpayer a written notice 384 – 624 32 – 52 25 as a tax non-resident if he or contributions are required indicating the time and scope she can prove that they are tax 624 – 960 52 – 80 30 for Vietnamese and foreign of the audit inspection. resident of another country. individuals that are employed More than 960 More than 80 35 under Vietnam labour contracts. There are detailed regulations Tax residents are subject setting out penalties for various to Vietnamese PIT on their Tax declarations Taxable Income SI/HI/UI contributions are as tax offences. These range from worldwide taxable income, and payment follows: relatively minor administrative wherever it is paid or received. For employment income, tax Employment income Employment income is taxed on has to be declared and paid The definition of the taxable SI HI UI a graduated tax rates basis. Non- provisionally on a monthly employment income is employment income is taxed at basis by the 20th day of the broad and includes all cash Employee 7% 1.5% 1% a variety of different rates. following month. remuneration and benefits- in-kind. However, there are a Employer 16% 3% 1% Individuals not meeting the The amounts paid are limited number of items that conditions for being tax residents reconciled to the total are not subject to tax. The amount of employment penalties through to tax are considered tax non-residents tax liability at year-end. income subject to SI/HI/UI penalties amounting to various in Vietnam. contributions is the amount multiples of the additional Expatriate employees are stated in the labour contract, tax assessed. Non-residents are subject to also required to carry out a PIT capped at 20 times the PIT at a flat tax rate of 20% on finalisation on termination of minimum salary (current The general statute of the income received as a result their Vietnamese assignments minimum salary is VND limitations for posing penalties of working in Vietnam in the before exiting Vietnam. Tax 1,400,000 - 2,000,000 is 5 years. The tax authorities tax year, and at various other refunds due to excess tax per month). can collect under-declared and rates on their non-employment payments are only available unpaid tax at any time. to those who have a tax code. 24 Audit and Accountancy accounting standards and 37 auditing standards which are Foreign-invested business primarily based on international entities are generally required standards, but with some local to adopt the Vietnamese modifications. Accounting System (’VAS’). If a company strictly follows Certain provincial tax authorities the VAS, registration with the have used non-compliance with Ministry of Finance (’MoF’) VAS as a mechanism to collect is not required. However, if additional tax. Such action is the VAS is modified, a written supported by the tax regulations. approval from the MoF is Measures that the tax authorities required before implementation. can take in order to penalise non- compliance include: Accounting records are required to be maintained in • the disallowance of input VAT Vietnamese dong. Accounting credits (not just in the case of records are required to be VAT refunds); written in Vietnamese, although a commonly-used foreign • the withdrawal of CIT language can be used at the incentives; same time along with the . At the • a change of the method for end of the fiscal year, an entity the application of CIT; and must perform a physical count of its fixed assets. • assessment of CIT on a deemed basis. The annual financial statements of all foreign-invested business entities must be audited by an independent auditing company operating in Vietnam. Audited annual financial statements must be completed within 90 days from the end of the year. These financial statements should be filed with the applicable licensing body, Ministry of Finance, local tax authority, Department of Statistics, and other local authorities as required by law. Vietnam has issued 26

26 31 Human Resources and Employment Law

Vietnam’s population is The law provides for an 8-hour estimated at approximately 88 working day and a 48-hour million and is expected to grow working week. An employer with an annual growth rate and an employee may agree of 1.3%. Around 60% of the that an employee works population are under 25 years overtime, provided that the of age. Approximately 15% of total overtime worked does the population are considered not exceed 200 hours per year. to be trained or skilled workers (with elementary qualifications In an employment contract, or higher). wages and salaries should be defined in Vietnamese The Labour Code issued in dong (except for employees July 1994 (as amended in working for foreign 2002, 2006 and 2007) creates representative offices and a legal framework that sets branches whose salaries are out, amongst other things, quoted in US dollars and paid the rights and obligations of in Vietnamese dong). The employers and employees with wages of employees working respect to working hours, labour in foreign-invested enterprises agreements, payment of social are subject to minimum rates insurance, overtime, strikes, determined by the Ministry and termination of employment of Labour, War Invalids (i.e. contracts. In addition, there are disabled war veterans) and specific implementing decrees Social Affairs from time to time. and circulars guiding the provisions of the Labour Code.

28 Trade Trade and Competition

Upon Vietnam’s accession to Vietnamese enterprises are free In practice, as the Vietnamese the WTO in 2007, the services to carry out trading activities government wishes to market in Vietnam has been in Vietnam and are permitted protect domestic enterprises, liberalised in certain areas, to directly export and import retail business by foreign including the trading of goods. all goods, except for certain investors in Vietnam is Under Vietnamese law, the restricted goods where a limited. An application for trading of goods covers the special business licence must the establishment of multiple following areas: be obtained from the relevant retail outlets will be carefully State authorities. considered by the licensing • ’Right to import’ refers to the authorities based on an rights to import goods into Foreign-invested enterprises Economic Need Test (’ENT’), Vietnam for sale to business in Vietnam may directly which considers the following entities that themselves have distribute or set up distribution criteria: the right to distribute the goods networks to sell the products (i) existing service suppliers in Vietnam. The import right they manufacture in Vietnam in a particular geographic area; does not include the right to and may export their products (ii) stability of market; and organise or participate in the directly. (iii) geographic scale. distribution of goods in Vietnam. The establishment of pure It is at the discretion of the • ’Right to export’ refers to trading or distribution licensing authorities whether or the right to purchase goods businesses not associated not to allow the establishment in Vietnam for export. The with manufacturing activities of multiple retail outlets. export right does not include using foreign-invested capital the right to organise a network was restricted before Vietnam of collecting and purchasing joined the WTO. However, in goods in Vietnam for export. accordance with Vietnam’s intention to open up its markets • ’Distribution right’ means since joining the WTO, the the right to directly undertake restrictions on the set up of activities of distribution, such pure trading businesses consisting of: have been gradually removed. (i) being an agent for the purchase and sale of goods; The law currently permits (ii) wholesale distribution; 100% foreign-owned (iii) retail distribution; or enterprises to undertake (iv) franchising. distribution activities by operating one retail outlet only.

30 31 Banking in Vietnam Who we are

Generally, all foreign investors Foreign Exchange Control Exceptions are applicable to The HSBC Group in Vietnam in September 2008. with established presences in payments for exports made The new locally incorporated Vietnam will need to open a bank The local currency, Vietnamese between principals and their The HSBC Group is one entity, HSBC Bank (Vietnam) account in order to conduct their dong, is not freely convertible agents and payments for of the largest banking and Ltd., is headquartered at business in Vietnam. and the market is still largely goods and services purchased financial service organisations the Metropolitan Building, dependent on foreign currency, from institutions authorised in the world, with well- 235 Dong Khoi Street, in Foreign investors in Vietnam may particularly United States dollars. to receive foreign currency established businesses in Ho Chi Minh City’s District 1, open accounts denominated in The Government has been payments, such as payments Europe, the Asia-Pacific with a registered capital the local currency, Vietnamese implementing measures for air tickets, shipping and region, the Americas, the of VND3,000 billion. dong, and may also open to gradually reduce the country’s air freight, insurance, and Middle East and Africa. HSBC accounts denominated in United dependency on the dollar. international communications. differentiates its brand from HSBC’s Vietnam network States dollars. its competitors by describing includes 16 branches and All buying, selling, lending and Foreign-invested enterprises the unique characteristics transaction offices of which In Vietnam, banks include transfer of foreign currency may, subject to certain which distinguish HSBC, our Head Office, one branch domestic commercial banks, must be made through banks conditions, buy foreign summarised by its slogan and five transaction offices are state-owned commercial banks, and other financial institutions currency from banks to ’The world’s local bank’. located in HCMC; one branch, 100% foreign-owned subsidiary authorised by the State fulfil certain foreign currency three transaction offices and banks, foreign bank branches Bank of Vietnam (’SBV’). The obligations from their Headquartered in London, the one deposit office are located and cooperative banks. outflow of foreign currency transactions. Foreign investors HSBC Group has over 7,500 in Hanoi; and four independent by transfer is authorised for and foreigners working offices in 87 countries and branches are located in Binh The Law on Credit Institutions certain transactions such as in Vietnam are permitted territories. The Group’s total Duong, Can Tho, Danang and allows commercial banks to payments for imports and to transfer abroad capital assets are US$2,455 billion as Dong Nai, respectively. HSBC is provide a wide range of products services abroad, the refunding investment profits and income of 31 December 2010. now the largest foreign bank in and services, from traditional of loans contracted abroad and legally earned in Vietnam and Vietnam in terms of investment financial products to fund the payment of interest accrued any remaining invested capital HSBC in Vietnam capital, network, product range, management and securities. thereon, transfers of profits and upon the liquidation of an staff and customer base. dividends, and revenues from investment project. In Vietnam, HSBC first opened HSBC’s history in Vietnam In accordance with Vietnam’s the transfer of technology. an office in Saigon (now Ho Chi and knowledge of local culture commitments to the WTO, Minh City) in 1870. In March both reflects and facilitates there is now virtually no As a general rule, all monetary 1995, HSBC opened a full- the bank’s commitment difference in the treatment transactions in Vietnam service branch in Ho Chi Minh to delivering excellence in of wholly-owned foreign banks must be undertaken in City. In 2005, HSBC opened customer service. established in Vietnam and local Vietnamese dong. its second branch in Hanoi and Vietnamese banks. established a representative Awards: office in Can Tho. • Best Foreign Bank in Vietnam On 1 January 2009, HSBC 2006, 2007, 2008, 2009, 2010, became the first foreign bank 2011 by FinanceAsia to incorporate in Vietnam, after gaining approval from the State • The Best Overall Private Bank Bank of Vietnam to set up a in Vietnam 2011 awarded by wholly foreign-owned bank Euromoney

32 33 • Best Bank in Vietnam 2006, Corporate responsibility Our activities to promote of these four world-class 2008, 2009, 2010 by the education include Future First, environmental charities – Asset Triple A Corporate Sustainability has HSBC’s Global Education aims to combat the urgent always been at the heart of Trust’s five-year programme threat of climate change by • Best Sub-custodian Bank in our business. In line with the (2007-2012) to offer education, inspiring action by individuals, Vietnam 2008, 2009, 2010 by HSBC Group strategy for a livelihood training and businesses and governments Global Finance sustainable development, since rehabilitation to street children, worldwide. In Vietnam, 1992 HSBC in Vietnam has children in care and orphans HSBC invested US$50,000 • Best Consumer Internet Bank sponsored and organised many around the world. HSBC in in the WWF Climate Camp in Vietnam 2009, 2010 by innovative community-oriented Vietnam coordinates with in- programme to help staff Global Finance initiatives and encouraged country NGOs to find projects understand the importance bank staff to become actively that will most benefit these of ecology and the impact of • Best Corporate Internet Bank in involved in all our CS projects. children in Vietnam. the climate change on nearby Vietnam 2011 by Global Finance HSBC has continued its wetlands, and to implement community support efforts, We are also the very first a number of schemes to help • Best Domestic Cash focusing mainly, though not financial organisation in protect the environment in Management Bank in Vietnam exclusively, on education Vietnam to run programmes which we all live and work. 2010, 2011 by Euromoney Poll and the environment. This to improve the standard demonstrates HSBC’s strong of banking and financial We always encourage the entire • The Best Foreign Cash commitment to the community knowledge among local HSBC staff to play an active Management Bank, Best Foreign in which the bank is operating. people. By offering innovative, role in developing the Bank’s Transaction Bank in Vietnam We understand that being a tailor-made financial philanthropic activities. Staff 2010 by the Asset Triple A sustainable business helps training schemes that equip Working Group, the flagship us build lasting relationships with of our staff engagement • Best Trade Finance Bank in with our customers, gains the a strong financial planning programmes, offers the Vietnam 2008, 2009 by the confidence of investors and capability, we hope to chance for HSBC’s employees Asset Triple A supports our brand in being contribute to the creation of to explore the needs of the one of the world’s leading a platform for the sustainable community and devise and • Best Sub-custodian Bank in financial institutions. development of the economy. execute their own CS projects. Vietnam 2006, 2009 by the Asset Triple A • We apply clear policies and Our environmental programme Our employees also play processes to manage potential is closely linked to the HSBC a vital role in other grass • Best for Overall Forex Services social and environmental risk in Climate Partnership, a five-year root activities, including in Vietnam 2006, 2007, 2009 our lending and other financial partnership between HSBC and the Saigon Cyclo Challenge – by Asiamoney FX Poll activities in sensitive sectors. The Climate Group, Earthwatch in which HSBC has been a Institute, Smithsonian Tropical Gold Sponsor for 11 • Best for Innovative FX Products • We make every effort to reduce Research Institute and WWF. consecutive years, the annual and Structured Ideas 2009 by our carbon footprint and share HSBC's US$100 million Fun Run, Earth Hour, and local Asiamoney FX Poll best practices with our clients investment – the largest ever scholarship programmes for and stakeholders. corporate donation to each underprivileged youngsters. • Certificate of Merit for 15 years of Excellence in Banking by State Bank of Vietnam

34 Country overview

Capital city Hanoi

Area and population 331 thousand sq km; 87.3m

Language Vietnamese

Currency Vietnam dong

International dialling code +84

National Holidays for 2012 New Year 1 January Lunar New Year From last two days of the last Lunar month to 3rd day of the first Lunar month Hung Kings Commemorations 31 March Liberation/Reunification Day 30 April International Worker’s Day 1 May National Day 2 September

Business and banking hours Generally 8am to 5pm, Monday to Saturday but many banks and businesses now operate extended opening hours

Stock Exchange Ho Chi Minh City Stock Exchange Ha Noi Stock Exchange

Political structure Vietnam is a socialist country operating under the single-party leadership of the Communist Party. A nationwide congress (’National Congress’) of Vietnam’s Communist Party is held every five years determining the country’s orientation and strategies and adopting its chief policies on solutions for socio-economic development. The National Congress elects the central committee, which in turn elects the politburo.

36 Contacts

Richard J. Irwin

Tel: +84 8 3824 0117

Email: [email protected]

http://www.pwc.com/gx/en/ worldwide-tax-summaries

Website: http://www.hsbc. com.vn/1/2/home_en

Phone: 1800 555528 (toll-free)/ +84 8 3520 3333

1st Edition: December 2011

Copyright

Copyright 2011. All rights reserved.

’PwC’ and ’PricewaterhouseCoopers’ refer to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.

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