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Vietnam: Market Profile

Picture: Vitenam factsheet
Picture: Vitenam factsheet

1. Overview

Vietnam's shift from a centrally planned to a market economy has transformed the country from one of the poorest in the world into a lower middle-income country. Vietnam is now one of the most dynamic and fastest growing emerging markets, globally. In 2018, a continued stellar expansion in manufacturing output, propelled by buoyant export demand for electronics and supported by robust FDI inflows, primarily fuelled solid growth. The year 2018's robust growth is expected to spill over into 2019, thanks to healthy private consumption supported by strong private credit growth and rising incomes. The industrial sector should also expand at a stellar pace, supported by strong foreign direct investment (FDI) inflows. While economies worldwide brace for the impact of rising protectionism, Vietnam could stand to benefit through increased market share in the United States. Vietnam's 2011-2020 Socio-Economic Development Strategy (SEDS) – a 10-year strategy – highlights the need for structural reforms, environmental sustainability, social equity and emerging issues of macroeconomic stability. The Socio-Economic Development Plan (SEDP) for 2016-2020, approved in April 2016, looks to accelerate reforms.

Sources: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

September 2016
India announced half a billion dollars' worth of credit for Vietnam for defence spending.

July 2018
Doosan Heavy Industries & Construction (DHIC) started the construction of a 1.33GW thermal power project in Vietnam. The project, known as Nghi Son 2, involves construction of two 665MW thermal power generation plants in Thanh Hóa. Construction is scheduled to be completed by July 2022.

August 2018
Thai firm SCG has signed loan agreements, worth more than USD3.2 billion, with six financial institutions for the Long Son Petrochemicals complex in Vietnam. The project, which will require an investment of around USD5.4 billion, will be located in Bà Ria-Vung Tàu Province. Construction on the complex was scheduled to start in 2018, with commercial operations expected to begin in 2023.

October 2018
Vietnam's ruling Communist Party agreed to nominate its General Secretary, Nguyen Phu Trong, as president, almost two weeks following the death of former president Tran Dai Quang on September 21, 2018.

December 2018
Construction is scheduled to start on Hà Noi's mega smart city project in Vietnam in December, subject to timely approvals and land availability. The 2.72sq km Nhat Tân-Noi Bài project is estimated to cost USD4.2 billion and works are scheduled to be completed in 2030.

Sources: BBC country profile - Timeline, Fitch Solutions

3. Major Economic Indicators

Graph: Vitenam real GDP and inflation
Graph: Vitenam real GDP and inflation
Graph: Vitenam GDP by sector (2017)
Graph: Vitenam GDP by sector (2017)
Graph: Vitenam unemployment rate
Graph: Vitenam unemployment rate
Graph: Vitenam current account balance
Graph: Vitenam current account balance

e = estimate, f = forecast
Sources: IMF, World Bank, Fitch Solutions
Date last reviewed: October 8, 2018

4. External Trade

4.1 Merchandise Trade

Graph: Vitenam merchandise trade
Graph: Vitenam merchandise trade

Source: WTO
Date last reviewed: October 8, 2018

Graph: Vitenam major export commodities (2016)
Date last reviewed: October 17, 2018
Graph: Vitenam major export commodities (2016)
Date last reviewed: October 17, 2018
Graph: Vitenam major export markets (2016)
Date last reviewed: August 15, 2018
Graph: Vitenam major export markets (2016)
Date last reviewed: August 15, 2018
Graph: Vitenam major import commodities (2016)
Date last reviewed: August 15, 2018
Graph: Vitenam major import commodities (2016)
Date last reviewed: August 15, 2018
Graph: Vitenam major import markets (2016)
Date last reviewed: August 15, 2018
Graph: Vitenam major import markets (2016)
Date last reviewed: August 15, 2018

Note: 2017 direct data is not available
Sources: Trade Map, Fitch Solutions

4.2 Trade in Services

Graph: Vitenam trade in services
Graph: Vitenam trade in services

Source: WTO
Date last reviewed: October 8, 2018

5. Trade Policies

  • Vietnam joined the World Trade Organisation (WTO) in January 11, 2007, following more than a decade-long negotiation process. WTO membership has provided Vietnam an anchor to the global market and reinforced the domestic economic reform process.

  • Vietnam is a member of the Association of South East Asian Nations (ASEAN) and a signatory to the ASEAN Free Trade Agreement (FTA), which aims to reduce tariff and non-tariff barriers to trade between member states. ASEAN has also negotiated FTAs with Australia, New Zealand, China, India, South Korea and Japan.

  • Vietnam shares the top spot in South East Asia with Singapore for having the most number of bilateral and multilateral FTAs, being a signatory to 16 of them. As Vietnam continues to live up to its commitments to further reduce import tariffs, this will lead to deeper economic integration with the world, boost foreign investments, and enhance productivity.

  • Some reductions in import tariffs have already come into effect since January 2018 (such as 0% import tariff for automobile, motorbike, vehicle components under the ASEAN FTA) and there are further commitments to progressively reduce tariffs to 0% by 2022 for a range of other commodities. For instance, under the ASEAN – Japan Comprehensive Economic Partnership, the existing 5% import tax rate for various commodities will be removed by 2019. Similarly, under the ASEAN – India FTA, items currently subjected to import tax rates of between 1-3% will see 0% import tariffs by 2019. Under the Vietnam – Korea FTA, a range of commodities with import tax rates ranging from 10-20% will also see a gradual reduction to 0% by 2022.

  • Import duty rates are classified into three categories: ordinary rates, preferential rates, and special preferential rates. Preferential rates are applicable to imported goods from countries that have most-favoured-nation (MFN, also known as normal trade relations) status with Vietnam. The MFN rates are in accordance with Vietnam's WTO commitments and are applicable to goods imported from other member countries of the WTO. Special preferential rates are applicable to imported goods from countries that have a special preferential trade agreement with Vietnam.

  • Vietnam has concluded two important agreements, the European Union (EU) FTA (EFTA) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). In addition, Vietnam is negotiating other agreements, including the Regional Comprehensive Economic Partnership (RCEP) and FTAs between ASEAN and Hong Kong, and with Israel.

  • Import duty exemptions are provided for encouraged projects and goods imported in certain circumstances.

  • Export duties are charged only on a few items, basically certain natural resources and these rates range from 0% to 40%.

  • Vietnam has reserved the right of importation to state trading entities in the following product categories: cigars and cigarettes, crude oil, newspapers, journals and periodicals, and recorded media for sound or pictures (with certain exclusions).

  • Vietnam also prohibits importation of old equipment and technologies which are more than 10 years old. However, there are exceptions in some special cases.

  • Vietnam currently prohibits the importation of some products, including weaponry, ammunition, explosive materials, military technical equipment, firecrackers, second-hand consumer goods, types of publications, and cultural products in the category prohibited from dissemination and circulation in Vietnam, right-hand-drive motor vehicles, materials and transport facilities, chemicals, plan protection agents prohibited from use in Vietnam, scrap and waste, refrigerating equipment using C.F.C., products, raw material containing asbestos of the group of amphibole, chemicals on the list of prohibited chemicals.

  • Foreign investors are exempt from import duties on goods imported for their own use and which cannot be procured locally, including: machinery, vehicles, components and spare parts for machinery and equipment, raw materials, inputs for manufacturing, and construction materials that cannot be produced domestically.

  • Valued added tax (VAT) of 10% applies to goods and services that are not specifically included in the list of goods and services subject to the 0% or 5% rates or the list of goods exempt from VAT. The 5% rate applies to the supply of essential goods and services (water supply, agricultural goods, medical goods and teaching aids).

Sources: WTO – Trade Policy Review, Fitch Solutions, PwC

6. Trade Agreements

6.1 Trade Updates

In March 2018, Vietnam and South Korea signed an agreement aimed at boosting their bilateral trade to USD100 billion by 2020.

On October 17, 2018, the European Commission (EC) submitted for approval a FTA with Vietnam, the first comprehensive open market deal between the EU and a developing Asian country. Following years of negotiations, the EU-Vietnam Free Trade Agreement (EVFTA) will likely be ratified in November 2018 and come into effect in early 2019. The trade deal would boost market access and eliminate 99% of all tariffs, although some staged over a time period and some limited by quotas.

6.2 Multinational Trade Agreements

Active

  1. Vietnam is a member of WTO (Effective date: January 11, 2007).

  2. ASEAN FTA (Effective date: January 1993): reduces tariff and non-tariff barriers between member states. The 10 members of the ASEAN FTA are: Brunei, Indonesia, Malaysia, Philippines, Singapore, Vietnam, Laos, Myanmar, Indonesia and Cambodia. Vietnam benefits from increased regional integration and tariff liberalisation that includes the elimination of import duties in various sectors and classes of goods. These factors will help reduce input costs for businesses and will increase the country's exporting capacity and industrial base in the long term. Being a member of ASEAN also opens the economy to other significant trade agreements with key regional markets. By end of 2018, member countries aim to eliminate all tariffs affecting trade with other members.

  3. ASEAN-China (Effective date: January 2005 for goods and July 2007 for services) is a comprehensive economic cooperation between ASEAN member states and China. The goal of the agreement is not just eliminating tariffs, but it also seeks to address behind-the-border barriers that impede the flow of goods and services. Trade relations between Vietnam and China benefit from trade preference in terms of tariff exemption or reduction under ACFTA. China is an important market for Vietnam; as it is a key trade partner and an important source of investment.

  4. ASEAN-Korea FTA (AKFTA): ASEAN and South Korea consolidated their partnership by signing the Framework Agreement on Comprehensive Economic Cooperation at the 9th ASEAN-Republic of Korea Summit on December 13, 2005, which, among others, provides for the establishment of the ASEAN-Korea Free Trade Area (AK-FTA). Under this framework, three major agreements on trade in goods, trade in services and investment were subsequently signed on August 24, 2006, November 20, 2007 and June 2, 2009 respectively. The agreement provides for progressive reduction and elimination of tariffs by each country on almost all products. Vietnam benefits from trade preference in terms of tariff exemption or reduction under this agreement. South Korea is a key trade partner, and removal of tariffs benefits both exporters and importers.

  5. ASEAN-India FTA (AIFTA): The ASEAN-India Trade in Goods Agreement (TIG) was signed at the 7th ASEAN Economic Ministers (AEM) – India Consultations on August 13, 2009. The Agreement entered into force on January 1, 2010 for India and some ASEAN member states. The ASEAN-India Trade in Services and Investment Agreements were signed in November 2014. Vietnam benefits from trade preference in terms of tariff exemption or reduction under the AIFTA, which is a trade bloc agreement between India and ASEAN; this will help Vietnam in terms of trade growth and diversification given the size and performance of the Indian economy and other ASEAN member states.

  6. ASEAN-Japan FTA (AJFTA): The framework for Comprehensive Economic Partnership between ASEAN and Japan was signed by leaders at the ASEAN-Japan Summit on October 8, 2003 and was aimed at establishing a Comprehensive Economic Partnership agreement between ASEAN and Japan. The Agreement on Comprehensive Economic Partnership among Member States of the Association of Southeast Asian Nations (AJCEP) and Japan was concluded in November 2007 and signing was completed by April 14, 2008. The AJCEP is comprehensive in scope, with chapters on trade in goods; sanitary and phytosanitary measures; standards, technical regulations and conformity assessment procedures; investment; services; and economic cooperation. The agreement aims at liberalising and facilitating trade in goods between ASEAN and Japan and promoting cooperation in fields such as Information and Communications Technology, Intellectual Property, and SMEs development. The parties will also continue to discuss and negotiate improvements to the chapters on Trade in Services and Investment. Trade relations between Vietnam and Japan benefit from trade preference in terms of tariff exemption or reduction under the AJFTA. Japan provides a large market for exports, with tariff-free trade therefore benefiting the manufacturing sector in particular.

  7. The ASEAN-Australia-New Zealand FTA (AANZFTA), signed on February 27, 2009 is ASEAN's first FTA with two developed countries simultaneously, and the first ASEAN FTA done in a single undertaking. AANZFTA represents ASEAN's most ambitious FTA to date, covering 18 chapters including new areas that ASEAN had previously never negotiated on, such as competition policy and intellectual property. The AANZFTA also includes an AANZFTA Economic Cooperation Support Programme, which will provide technical assistance and capacity building to the Parties of the AANZFTA with the aim of supporting the implementation of the agreement as well as to support the overall regional economic integration process. As of 2012, the agreement has entered into force for all Parties and work is currently underway to resolve and implement the built-in agenda as stipulated under the agreement. The agreement aims to eliminate tariffs on 99% of exports to key ASEAN markets by 2020.

  8. As part of the Chile-Vietnam FTA (Effective date: March 2012), 73% of Chilean exports will be granted tariff-free access to Vietnam, while the remaining products will benefit from the free trade agreement in terms ranging from 3 to 15 years. Only 4% of products will be in exception lists. Meanwhile, 75% of Vietnamese exports will be granted a tariff-free access to Chile and the rest of the products will benefit from tax relief in a period ranging from 6 to 11 years.

  9. Japan-Vietnam Economic Partnership Agreement (Effective date: October 2009): The agreement boosts cooperation between the two countries in many areas such as: goods, services, investment, business climate improvement, human resource transfer, technical transfer, etc. Under this agreement, 92% of goods exchanged between the two countries will enjoy tax exemption and reduction within 10 years from the date of validity of the agreement. Vietnam's agricultural, garment, and aquatic products will gain tax exemptions when entering the Japanese market, and Japanese industrial products, including car components and electronic products, will gain tax exemptions or see a decrease to the corresponding import taxes.

  10. Vietnam-Eurasian Economic Union (EAEU) FTA (Effective date: October 2016) commits Vietnam to open the market for about 90% of total tariff lines within a 10-year tariff reduction schedule. Tariff elimination for products in the priority list of EAEU (which consists of Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan) at the entry into force (EIF) including agricultural commodities (such as beef, dairy products, wheat flour); after 3 to 5 years since EIF including processed meat and fish, electrical machinery, machinery used in agricultural; after 5 years since EIF including pork, chicken; after 10 years since EIF including alcohol beverages and cars. For some special products, tariff elimination will be not earlier than 2027 for petroleum, and not longer than 10 years for iron and steel. EAEU will eliminate the tariff rate for approximately 90% of all tariff lines. Groups of products for which the import tariff will be eliminated are agricultural-forestry-fishery products of Vietnam (majority of fishery items, some certain kinds of fresh and processed vegetable and fruits, processed meat and fish, cereals, rice (with the tariff quota is 10,000 tons)); and some industrial goods that Vietnam has an advantage in exporting (such as: textile (in quota) and raw textile materials, footwear (especially athletic shoes), machinery, electronic components, some pharmaceutical products, iron and steel, rubber products, and wood and furniture.

Signed

  1. The CPTPP, also known as Trans-Pacific Partnership (TPP) is a signed, but not-yet ratified, trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The eleven countries represent 13.4% of the global gross domestic product or USD13.5 trillion, making this one of the largest trade agreements after the North American Free Trade Agreement (NAFTA). The CPTPP incorporates most of the TPP provisions by reference, but suspended 22 provisions the United States favoured that other countries opposed, and lowered the threshold for enactment so the participation of the United States is not required. The TPP was signed on February 4, 2016, but never entered into force as a result of the withdrawal of the United States. All original TPP signatories, except the United States, agreed in May 2017 to revive it and reached an agreement in January 2018 to conclude the CPTPP. The formal signing ceremony was held on March 8 2018 in Santiago, Chile. The agreement enters into effect 60 days after ratification by at least 50% of the signatories (six of the eleven participating countries), with three countries having ratified as of July 18, 2018.
Under Negotiation
  1. Vietnam and Israel are negotiating a free trade agreement. Israel is one of Vietnam's important partners in the Middle East, with two-way trade reaching USD2.3 billion in 2015. Prospects for co-operation have been seen in fields such as investment, finance, services, science, technology and labour.

  2. Vietnam and the European Free Trade Association (consisting of Iceland, Liechtenstein, Norway and Switzerland) are negotiating a free trade agreement. The European Free Trade Association's leading exports to Vietnam included fish, pharmaceutical products, and machinery and mechanical appliances, while electrical machinery, footwear and precious stones and metals were leading imports.

  3. RCEP: There are also ongoing negotiations about the RCEP, which is a regional economic agreement being negotiated between the ASEAN governments and their six FTA partners: Australia, China, India, Japan, New Zealand and South Korea. This totals to a population of over 3 billion people that contributes around a third of the world's GDP. The RCEP is envisioned to be a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement that aims to advance economic cooperation, and broaden and deepen integration in the region which builds upon existing economic linkages. The RCEP would lower tariffs and other barriers to the trade of goods among the 16 countries that are in, or have, existing trade deals with the ASEAN.

  4. ASEAN-Hong Kong FTA (AHKFTA): Hong Kong and ASEAN commenced negotiations of an FTA and an Investment Agreement (the Agreements) in July 2014. After ten rounds of negotiations, Hong Kong and ASEAN announced the conclusion of the negotiations in September 2017; and forged the Agreements on November 12, 2017. The Agreements are comprehensive in scope, encompassing trade in goods, trade in services, investment, economic and technical co-operation, dispute settlement mechanism and other related areas. The Agreements will bring legal certainty, better market access and fair and equitable treatment in trade and investment, thus creating new business opportunities and further enhancing trade and investment flows between Hong Kong and ASEAN. The Agreements will also extend Hong Kong's FTA and Investment Agreement network to cover all major economies in South East Asia. They are expected to enter into force on January 1, 2019 at the earliest, subject to completion of the necessary procedures. Hong Kong is a key export market and the reduction of tariffs will ease the trading process; Hong Kong's potential as a key export market increases the importance of AHKFTA.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Vitenam FDI stock
Graph: Vitenam FDI stock
Graph: Vitenam FDI flow
Graph: Vitenam FDI flow

Source: UNCTAD
Date last reviewed: October 8, 2018

7.2 Foreign Direct Investment Policy

  1. The Ministry of Planning and Investment (MPI) oversees an Investment Promotion Department to facilitate all foreign investments, and most of the provinces and cities also have investment promotion agencies. The agencies provide information, explain regulations, and offer support to investors when requested.

  2. Foreign and domestic private entities can establish and own a business except in prohibited business lines, such as illicit drug, wild life trafficking, etc., and 243 conditional sectors. Foreign investors must negotiate on a case-by-case basis with the government on market access in sectors that are not explicitly open through a trade or investment agreement. The government occasionally issues investment licenses with time limits to specifically targeted investors.

  3. Vietnam has made steady progress in improving its business environment. This can be seen by the higher scores in the World Economic Forum's competitiveness index where it improved by five places to 55th (out of 137) in the 2017-18 edition, and in the 2018 World Bank's ease of doing business index where it climbed by 14 places to 68th among 190 economies. The Vietnamese government has also invested heavily in power and transport infrastructure to meet rapidly rising demand from the burgeoning manufacturing sector, resulting in a positive feedback loop.

  4. Foreign owners are permitted to acquire full ownership of local companies except when mentioned otherwise in Vietnam's international and bilateral commitments.

  5. There is a 25% cap on foreign investment in local banks from one foreign entity, and a 30% cap on overall foreign investment in local banks. The government can waive these caps on a case-by-case basis.

  6. Vietnam permits foreign participation in the telecommunications sector, with varying equity limitations depending on the sub-sector (there are five basic and eight value added sub-sectors). Foreign ownership in private networks is permitted up to 70%, while foreign ownership in facility-based basic services (eg, public voice service where the supplier owns its transmission facilities) is generally capped at 49%.

  7. There are no local, state, or provincial income taxes in Vietnam.

  8. Tax incentives are granted based on regulated encouraged sectors, encouraged locations, and size of the projects. The sectors that are encouraged by the Vietnamese government include education, health care, sport/culture, high technology, environmental protection, scientific research and technology development, infrastructural development, processing of agricultural and aquatic products, software production, and renewable energy.

  9. The encouraged locations include qualifying economic and high-tech zones, certain industrial zones, and difficult socio-economic areas. Large manufacturing projects with investment capital of more than VND6 trillion disbursed within three years of being licensed can also qualify for CIT incentives if:

    • the minimum revenue is VND10 trillion per annum by the fourth year of operations at the latest, and
    • the minimum headcount is 3,000 by the fourth year of operations at the latest.

  10. The preferential incentive rate applied for large manufacturing projects can be extended for a maximum additional 15 years if the project manufactures goods having 'international competitiveness' whose revenue exceeds VND20 trillion per annum within five years from the first year of revenue generation, or whose average head count is over 6,000.

  11. Further, new investment projects engaging in manufacturing industrial products prioritised for development will be entitled to income tax incentives if the products support:

    • the high technology sector, or
    • the garment, textile, and footwear; information technology (IT); automobiles assembly; or mechanics sector and were not produced domestically as of January 1, 2015, or, if produced domestically, they meet the quality standards of the EU or equivalent.

  12. Business expansion projects are now entitled to corporate income tax (CIT) incentives if any of the following criteria are met:

    • Additional fixed assets costing at least VND20 billion (or VND10 billion if the projects are in certain specified regions with difficult socio-economic conditions) are invested.
    • There is at least a 20% increase in the value of fixed assets compared with the period before expansion.
    • There is at least a 20% increase in the designed capacity compared with the period before expansion.

  13. Additional tax reductions may be available for engaging in manufacturing, construction, and transportation activities that employ several female staff and/or ethnic minorities.

  14. Business entities in Vietnam are allowed to set up a tax deductible R&D Fund. Enterprises can appropriate up to 10% of annual profits before tax to the fund. Various conditions apply.

  15. Foreign investors generally pay rental fees for land use rights. The range of rates is wide depending on the location, infrastructure, and the industrial sector in which the business is operating. In addition, owners of houses and apartments have to pay land tax under the law on non-agricultural land use. The tax is charged on the specific land area used based on the prescribed price per square metre at progressive tax rates ranging from 0.03% to 0.15%.

  16. Natural resources tax (NRT) is payable by industries exploiting Vietnam's natural resources, including petroleum, minerals, natural gas, forest products, natural seafood, natural bird's nests, and natural water. Natural water used for agriculture, forestry, fisheries, salt industries, and sea water for cooling purposes may be exempt from NRT, provided that certain conditions are satisfied. The tax rates vary depending on the natural resource being exploited, ranging from 1% to 40%, and are applied to the production output at a specified taxable value per unit. Various methods are available for the calculation of the taxable value of the resources, including cases where the commercial value of the resources cannot be determined. Crude oil, natural gas, and coal gas are taxed at progressive tax rates depending on the daily average production output.

  17. Environment protection tax (EPT) is an indirect tax that is applicable to the production and importation of certain goods deemed detrimental to the environment, the most significant of which are petroleum and coal. The tax is calculated as an absolute amount on the quantity of the goods.

  18. At the end of September 2018, the government announced the imposition of higher taxes on petroleum products, aimed at boosting revenue collection and environmental protection. The policy will come into effect on January 1, 2019.

Sources: WTO – Trade Policy Review, ITA, U.S. Department of Commerce

7.3 Free Trade Zones And Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
270 industrial zones and export processing zones across the country. Vietnam is divided into three key categories of economic zones (KEZs), each of which has its own economic development plan.Foreign investors are exempt from import duties on goods imported for their own use and which cannot be procured locally, including: machinery, vehicles, components and spare parts for machinery and equipment, raw materials, inputs for manufacturing, and construction materials that cannot be produced domestically. Remote and mountainous provinces are allowed to provide additional tax breaks and other incentives to prospective investors. In addition, projects in high tech, research and development, new materials, energy, clean energy, renewable energy, energy saving products, automobile, software, waste treatment and management, primary or vocational education; or projects located in difficult areas or economic and projects in industrial zones are entitled to investment incentives such as lower corporate income tax, exemption of import tariffs, or land rental.
Tax holidaysInvestors may be considered for tax holidays and reductions. The holidays take the form of a complete exemption from CIT for a certain period beginning immediately after the enterprise first makes profits, followed by a further period where tax is charged at 50% of the applicable rate. However, where the enterprise has not derived profits within three years of the commencement of operations, the tax holidays/tax reduction will start from the fourth year of operation.

Criteria for eligibility to these holidays and reductions are set out in the CIT regulations as follows:

- Four years of tax exemption and nine subsequent years of 50% reduction shall be applied to:

1. Income earned by enterprises carrying out new investment projects entitled to 10% CIT.

2. Income earned by enterprises carrying out new investment projects in the socialised sectors and difficult socio-economic areas.

- Four years of tax exemption and 50% tax reduction for five subsequent years shall be given to income earned by enterprises carrying out new investment projects in the socialised sectors and in regions not included in the list of difficult socio-economic areas.

- Two years of tax exemption and four subsequent years of 50% reduction shall be applied to:

1. Income earned by enterprises from carrying out new investment projects in regions with difficult socio-economic conditions.

2. Income earned by enterprises from carrying out new investment projects, including production of high-grade steel, production of energy saving products, production of machinery or equipment used to serve agricultural, forestry, fishery, or salt production, production of irrigational equipment, production and refinement of foodstuff for cattle, poultry, or aquatic products, and development of traditional trades.

3. Income earned by enterprises that carry out new investment projects in industrial zones (except for industrial zones located in regions with favourable socio-economic conditions).

- From January 1, 2018, certain incentives, including a lower CIT rate, will be granted to small and medium enterprises (SMEs) (various criteria applied to be considered as SMEs).

- Business entities in Vietnam are allowed to set up a tax deductible R&D Fund. Enterprises can appropriate up to 10% of annual profits before tax to the fund. Various conditions apply.

Sources: US Department of Commerce, Fitch Solutions, PwC

8. Taxation – 2018

NIL

9. Foreign Worker Requirements

9.1 Localisation Requirements

Generally preference for all roles is given to Vietnamese nationals. In order to qualify for work permits, foreign workers must have a degree of specialised knowledge, or experience in management and technical roles that the domestic labour force cannot fill/carry out efficiently – as deemed apt by the department of Labour.

9.2 Obtaining Foreign worker permits for skilled workers

All foreign nationals seeking paid employment in Vietnam must be in possession of a valid work permit – the tenure of a work permit for a foreign worker is generally two years. In the first half of 2016, the Vietnamese government issued a decree ('Decree No. 11') guiding a number of articles of the Labour Code on foreigners working in Vietnam. The Decree proposes developments including changes to the conditions, paperwork and timeline for work permit applications and exemptions, allowing the import of skilled and unskilled labour with less red tape. Decree 11 also extends the time frame for lodging the re-issuance of work permits from 45 days prior to the expiry date, instead of the 15 days as per previous regulations.

9.3 Employee Contributions Structure

Social insurance (SI) and Unemployment insurance (UI) contributions are applicable to Vietnamese individuals only. Health insurance (HI) contributions are required for Vietnamese and foreign individuals that are employed under Vietnam labour contracts. Effective from January 1, 2018, SI contribution is also applicable to foreign individuals working in Vietnam under a work permit or practising certificate or licence.

Accordingly, from January 2018, the salary subject to SI/HI/UI contributions is the salary, certain allowances, and other regular payments according to labour law, but this is capped at 20 times the minimum salary for SI/HI contributions and 20 times the minimum regional salary for UI contributions. Effective from July 1, 2018, the minimum salary is increased from VND1,300,000 per month to VND1,390,000 per month. Effective from January 1, 2018, the minimum regional salary varies from VND2,760,000 per month to VND3,980,000 per month. These minimum salaries are subject to change each year.

Sources: Government websites, Fitch Solutions, PwC

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody'sBa3 (stable)10/08/2018
Standard & Poor'sBB- (stable)19/08/2011
Fitch Ratings
BB (stable)14/05/2018

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
91/18982/19068/190
Ease of Paying Taxes Index
168/189167/19086/190
Logistics Performance Index
64/160N/A39/160
Corruption Perception Index
113/176107/180N/A
IMD World CompetitivenessN/AN/AN/A

Sources: World Bank, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201620172018
Economic Risk Index
43/202
Short-Term Economic Risk Score65.667.968.3
Long-Term Economic Risk Score64.065.866.7
Political Risk Index
114/202
Short-Term Political Risk Score82.582.582.5
Long-Term Political Risk Score57.759.759.7
Operational Risk Index 
 77/201
Operational Risk Score53.752.953.7

Source: Fitch Solutions
Date last reviewed: October 8, 2018

10.4 Fitch Solutions Summary

ECONOMIC RISK
Vietnam has recorded important achievements in socio-economic fields and has become one of the fastest-growing economies in the world. While structural factors underpinning Vietnam's potential for long-term growth (including favourable demographics, proximity to China, and low cost of labour relative to the region) remain largely unchanged, there are several developments that reinforce  the country's bright outlook. A continued strong expansion in manufacturing output, propelled by buoyant export demand for electronics and supported by robust FDI inflows, primarily fuelled Q3 2018's solid growth. The retail sector also posted a strong showing in the third quarter as inflation moderated from the end of Q2 2018, giving a boost to households' purchasing power. In addition to an open trade and investment policy environment there has been a decisive shift in the government's focus towards policies aimed at maintaining price stability, and ongoing efforts to further address macroeconomic imbalances and fiscal deficits.

OPERATIONAL RISK
Vietnam offers businesses a number of other strategic advantages, which include a young and increasingly well-educated population that possesses high numeracy and literacy, a large industrial base, open trade policies, low security risks, and fairly adequate logistic infrastructure. Vietnam is constrained by a fairly weak legal risk subcomponent. The year 2018's robust growth is expected to continue in 2019, thanks to healthy private consumption supported by strong private credit growth and rising incomes. The industrial sector should also expand at a stellar pace, supported by strong FDI inflows and investor-friendly reforms that are improving the ease of doing business. While economies worldwide brace for the impact of rising protectionism, Vietnam could stand to benefit from increased market share in the United States.

Source: Fitch Solutions
Date last reviewed: October 18, 2018

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: Vitenam short term political risk index
Graph: Vitenam short term political risk index
Graph: Vitenam long term political risk index
Graph: Vitenam long term political risk index
Graph: Vitenam short term economic risk index
Graph: Vitenam short term economic risk index
Graph: Vitenam long term economic risk index
Graph: Vitenam long term economic risk index

100 = Lowest Risk; 0 = Highest Risk
Source: Fitch Solutions Political and Economic Risk Indices
Date last reviewed: October 8, 2018

Country
Operational Risk
Labour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Singapore83.177.8
89.9
74.9
89.7
Hong Kong81.671.2
88.5
77.0
89.5
Taiwan73.366.4
74.3
73.4
79.2
South Korea70.963.5
67.5
79.6
73.1
Malaysia67.861.6
73.5
75.7
60.5
Macau62.864.2
66.9
52.0
68.0
Brunei61.462.8
57.2
55.0
70.6
Thailand58.956.7
65.2
68.4
45.2
China56.753.9
52.2
66.3
54.4
Vietnam53.752.6
55.5
55.6
51.3
Indonesia52.651.5
53.9
56.8
48.4
Mongolia51.357.8
52.4
40.9
54.1
Philippines43.151.3
47.3
42.4
31.3
Cambodia42.546.7
46.0
37.7
39.5
Laos38.344.2
38.0
34.2
36.7
North Korea33.149.6
20.3
31.5
30.8
Myanmar32.145.5
28.2
30.0
24.9
Timor-Leste30.140.5
26.6
21.0
32.5
Regional Averages55.256.555.754.054.4
Emerging Markets Averages46.848.047.545.7
46.0
Global Markets Averages49.649.749.9
49.1
49.8

100 = Lowest Risk; 0 = Highest Risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: October 8, 2018

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Vietnam

Graph: Major export commodities to Vitenam (2017)
Graph: Major export commodities to Vitenam (2017)
 
Graph: Major import commodities from Vitenam (2017)
Graph: Major import commodities from Vitenam (2017)
 

Note: Graph shows the main Hong Kong exports to/import from Vietnam (by consignment)

Graph: Merchandise exports to Vitenam
Graph: Merchandise exports to Vitenam
 
Graph: Merchandise imports from Vitenam
Graph: Merchandise imports from Vitenam
 

Note: Graph shows Hong Kong exports to/import from Vietnam (by consignment)
Exchange Rate HK$/US$, average
7.78 (2011)
7.76 (2012)
7.76 (2013)
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Source: Hong Kong Census and Statistics Department
Date last reviewed: October 8, 2018


2017
Growth rate (%)
Number of Vietnamese residents visiting Hong Kong55,6526.4
Number of Vietnamese residing in Hong Kong11,100
N/A

Sources: Hong Kong Tourism Board, United Nations Department of Economic and Social Affairs – Population Division


2017
Growth rate (%)
Number of Asia Pacific residents visiting Hong Kong54,482,538
3.5
Number of East Asia and South Asians residing in Hong Kong2,784,870N/A

Sources: Hong Kong Tourism Board, United Nations Department of Economic and Social Affairs – Population Division
Date last reviewed: October 8, 2018

11.2 Commercial Presence in Hong Kong


2016
Growth rate (%)
Number of Vietnamese companies in Hong KongN/AN/A
- Regional headquarters
- Regional offices
- Local offices

Source: Hong Kong Census and Statistics Department

11.3 Treaties and Agreements between Hong Kong and Vietnam

Hong Kong has concluded Comprehensive Double Taxation Agreements with Vietnam. This agreement was signed on December 16, 2008 and entered into force on August 12, 2009.

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

Inaugurated in November 2008, the Hong Kong-Vietnam Chamber of Commerce (HKVCC) is a non-government, non-profit limited organisation that engages to promote the common interests of the Hong Kong and Vietnamese business communities.

Address: Unit 1608, 16/F, Bank of America Tower, 12 Harcourt Road, Central, Hong Kong
Email: info@hkvcc.com
Tel: (852) 3188 6306
Fax: (852) 3188 1808

Source: Hong Kong-Vietnam Chamber of Commerce

Vietnam Consulate in Hong Kong
Address: 15th Floor, Great Smart Tower, 230 Wan Chai Road, Wan Chai, Hong Kong
Email: tlsqhk@mofa.gov.vn
Tel: (852) 2591 4517 / 2591 4510
Fax: (852) 2591 4517 / 2591 4510

Source: Vietnam Embassy Worldwide

11.5 Visa Requirements for Hong Kong Residents

All Hong Kong SAR passport holders are required to have a visa to enter Vietnam. They can apply for a visa at the Vietnam consulate (in either Hong Kong or a third country), or online for a visa on arrival. Generally visits can range from one to three months stay.

Source: Vietnam Visa for Hong Kong citizens

Content provided by Picture: Fitch Solutions – BMI Research