Openness to Foreign Investment

foreign investment 

Vietnam encourages foreign investment as part of its development strategy, and the Government of Vietnam (GVN) is committed to improving the country’s business and investment climate. The Investment Law of 2005 provides the legal framework for foreign investment in Vietnam. Vietnam became the 150th member of the World Trade Organization on January 11, 2007 Vietnam's commitments in the WTO increase market access for exports of foreign goods...

.....and services and establish greater transparency in regulatory trade practices as well as a more level playing field between Vietnamese and foreign companies. Vietnam undertook commitments on goods (tariffs, quotas and ceilings on agricultural subsidies) and services (provisions of access to foreign service providers and related conditions), and to implement agreements on intellectual property (TRIPS), investment measures (TRIMS), customs valuation, technical barriers to trade, sanitary and phytosanitary measures, import licensing provisions, anti-dumping and countervailing measures, and rules of origin. Vietnam has made solid progress in implementing its bilateral and international obligations; however, concerns remain in some areas, such as protection of intellectual property rights (IPR) and effectiveness of the court/arbitration system.

The GVN holds regular "business forum" meetings with the private sector, including both domestic and foreign businesses and business associations, to discuss issues of importance to the private sector. Foreign investors use these meetings to draw attention to investment impediments in Vietnam. These forums, together with frequent dialogues between GVN officials and foreign investors, have led to improved communication and have allowed foreign investors to comment on and influence many legal and procedural reforms.

Despite the GVN’s commitment to improving the country’s business and investment climate, Vietnam is still transitioning from a centrally planned economy to a more market- oriented and private-sector based model. As indicated by the following indices, Vietnam’s business climate is generally improving, but the country still faces development challenges relevant for foreign investors, for example: poorly developed infrastructure, underdeveloped and cumbersome legal and financial systems, an unwieldy bureaucracy, non-transparent regulations, high start-up costs, arcane land acquisition and transfer regulations and procedures, a shortage of skilled personnel, and pervasive corruption. Some companies have experienced delays in obtaining investment licenses, and inconsistent licensing practices have been noted between provinces. Investors frequently face policy changes related to taxes, tariffs, and administrative procedures, sometimes with little advance notice, making business planning difficult. Because Vietnam’s labor laws and implementation of those laws are not well developed, companies sometimes face difficulties with labor management issues.

Investment Sectors

The Investment Law distinguishes four types of sectors: (1) prohibited sectors; (2) encouraged sectors; (3) conditional sectors applicable to both foreign and domestic investors; and (4) conditional sectors applicable only to foreign investors.

  • The list of sectors in which foreign investment is prohibited includes cases where the investment would be detrimental to national defense, security and public interest, health, and historical and cultural values.
  • The list of sectors in which investment is encouraged includes high-technology, agriculture, labor-intensive industries (employing 5,000 or more employees), infrastructure development, and projects located in remote and mountainous areas.
  • The list of sectors in which investment is conditional applies to both foreign and domestic investors and includes those having an impact on national defense, security, social order and safety; culture, information, press and publishing; financial and banking, public health; entertainment services; real estate; survey, prospecting, exploration and exploitation of natural resources; ecology and the environment; and education and training.

The sectors where certain conditions are applicable to foreign investors only include telecommunications, postal networks, ports and airports, and other sectors as per Vietnam’s commitments under international and bilateral arrangements.

Foreign investors have the right to sell, market, and distribute what they manufacture locally, and to import goods needed for their investment projects and inputs directly related to their production, provided this right is included in their investment license.

Foreign participation in distribution services, including commission agents, wholesale and retail services, and franchising opened to fully foreign-owned businesses in 2009. Vietnam has excluded certain products from its WTO distribution services commitments, including, rice, sugar, tobacco, crude and processed oil, pharmaceuticals, explosives, news and magazines, precious metals and gemstones. Distribution of alcohol, cement and concrete, fertilizers, iron and steel, paper, tires, and audiovisual equipment opened to foreign investors in 2010.     

 

Investment Licensing

Provincial authorities in Vietnam’s 63 cities and provinces generally have the authority to issue investment licenses. Provincial authorities and the management boards of industrial zones (Industrial, Export Processing Zones, High-tech and Economic Zones) are the issuing entities for most types of investment licensing, with the exception of build-and-operate projects (BOT, BO, BTO), which are still licensed by the central government. Domestic investors with projects of less than VND 15 billion (approximately USD $770,000) do not need to acquire investment licenses.

The procedure to obtain investment certification is complex, requiring investors to get approval from several ministries and/or agencies, depending on ownership (foreign or domestic), size and the sector of investment. Projects deemed to be of "national importance” must be approved by the National Assembly. Key infrastructure projects must be approved by the Prime Minister's Office (see below). Investments in conditional sectors such as broadcasting, mining, telecommunications, banking and finance, ports and airports, and education are subject to a more complex licensing process. 

Licensing is required to establish new investment as well as to make significant changes to an ongoing enterprise, such as to increase investment capital, restructure the company by changing the form of investment or investment ratios between foreign and domestic partners, or add additional business activities.

Decentralization of licensing authority to provincial authorities has streamlined the licensing process and significantly reduced processing times; however, it has also given rise to considerable regional differences in procedures and interpretations of relevant investment laws and regulations. Investment projects that must be approved by the Prime Minister include:

 

  • All projects, regardless of capital source and size, in airports and seaports; mining, oil and gas; broadcasting and television; casinos; tobacco; higher education; sea transportation, post and delivery services; telecommunication and internet networks; printing and publishing; independent scientific research establishments; and establishment of industrial, export processing, high-tech and economic zones.
  • All projects having capital in excess of VND 1.5 trillion (approximately USD $81 million), regardless of foreign ownership, in electricity; mineral processing and metallurgy; railways, roads and domestic waterways; and alcoholic beverages.
  • All foreign-invested projects in sea transport, post and telecommunication, publishing and independent science research units.

Vietnamese authorities evaluate investment license applications using a number of criteria, including the legal status and financial capabilities of the foreign and Vietnamese investors; the project's compatibility with Vietnam's "Master Plan" for economic and social development; the benefits accruing to the GVN or to the Vietnamese party, especially acquisition of new production capabilities, industries, technologies, expansion of markets, and job creation; projected revenue; technology and expertise; efficient use of resources; environmental protection; plans for land use and land clearance compensation; project incentives including tax rates and land, water, and sea surface rental fees.

The 2005 Commercial Law and the implementing guidelines contained in Decree 72, which was issued by the Prime Minister in July 2006, allow foreign firms to establish branches or representative offices. Branches may engage in trading activities, while the representative offices are allowed to liaison with customers, negotiate and enter into contracts on behalf of their parent company and conduct market research, but not to engage in commercial or profit making activity.

Foreign investors are allowed to buy shares in State-owned enterprises (SOEs) being “equitized” (converted to joint stock companies, but not necessarily privatized) by the GVN. Shares are typically offered through a price auction. Foreign ownership in certain specified sectors may not exceed 49 percent. The share price offered to foreign investors must be higher than the average auctioned price.

 

Other Investment Related Legislation

Vietnam's Bankruptcy Law of 2004 provides that parties other than creditors are able to participate in bankruptcy procedures and gives courts authority to deal with insolvent businesses. The Law on Competition of 2004 aims to create an equitable and non-discriminative competition environment, and protect and encourage fair competition. The Law acknowledges the importance of the rights of organizations and individuals to compete freely, and addresses anti-competitive agreements, state monopoly, economic concentration and unfair competition.

Taxation

Vietnam lowered corporate income tax rates from 28 to 25 percent in January 2009. Corporate income tax for extractive industries varies from 32 to 50 percent depending on the project, and can be as low as 10 percent if an investment is made in selected priority sectors and in remote areas. Incentives are the same for both foreign invested and domestic enterprises.

Vietnam does not tax profits remitted by foreign-invested companies. However, companies are required to fulfill their local tax and financial obligations before remitting profits overseas and are not permitted to accumulate losses. A new personal income tax regime placing Vietnamese and foreigners on the same tax rate schedule took effect in January 2009. The new law regulates all types of personal income, including income previously subject to other laws such as income from individual businesses and property sales. The lowest and highest marginal tax rates are 5 percent and 35 percent, respectively.

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EXPORTHELP ASIA

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