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Vietnam: Market Profile

Graph: Vitenam factsheet
Graph: Vitenam factsheet

1. Overview

Despite uncertainties in the global environment, Vietnam’s economy remains resilient. The country’s medium-term outlook remains favorable, with GDP expanding by 6.8 percent in 2017, while the country’s fundamental drivers of growth – resilient domestic demand and export oriented manufacturing – remain in force. 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, acknowledges the slow progress on certain policy priorities and emphasizes the need to accelerate reforms.

Source: World Bank

2. Major Economic/Political Events and Upcoming Elections

January 2016
Communist Party re-elects conservative Nguyen Phu Trong as general secretary for second term, after relatively liberal Prime Minister Nguyen Tan Dung withdrew from contest after failing to garner enough support from delegates.

May 2016
US lifts long-standing ban on selling weapons to Vietnam.

July 2016
Vietnam says it will release 20,000 prisoners 2016-2018.

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

Source: BBC country profile – Timeline

3. Major Economic Indicators

Graph: Vitenam real GDP and inflation
Graph: Vitenam real GDP and inflation
 
Graph: Vitenam GDP by sector (2016)
Graph: Vitenam GDP by sector (2016)
Graph: Vitenam unemployment rate
Graph: Vitenam unemployment rate
 
Graph: Vitenam current account balance
Graph: Vitenam current account balance
 

Note: (f) forecast
Source: IMF, World Bank

4. External Trade

4.1 Merchandise Trade

Graph: Vitenam merchandise trade
Graph: Vitenam merchandise trade
 
Graph: Vitenam major export commodities (2015)
Graph: Vitenam major export commodities (2015)
Graph: Vitenam major export markets (2015)
Graph: Vitenam major export markets (2015)
Graph: Vitenam major import commodities (2015)
Graph: Vitenam major import commodities (2015)
Graph: Vitenam major import markets (2015)
Graph: Vitenam major import markets (2015)

Source: WTO, World Bank WITS database

4.2 Trade in Services

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

5. Trade Policies

  • Vietnam has been a member of WTO since 11 January 2007.

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

  • The simple average most favoured nation (MFN) tariff has declined significantly, from 18.5% in 2007 to 9.8% in 2016, as Vietnam has been phasing-in its tariff concessions.

  • 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 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).

Source: WTO – Trade Policy Review

6. Trade Agreements

6.1 Trade Updates

In March 2018, Vietnam and South Korea signed an agreement aimed at boosting their bilateral trade to USD100bn by 2020.

In April 2018, the Asian Development Bank’s Trade Finance Program and Orient Commercial Bank signed a USD10mn loan agreement to further support trade in Vietnam.

6.2 Multinational Trade Agreements

Active

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

  2. ASEAN Free Trade Agreement (Effective date: January 1993) reduces tariff and non-tariff barriers between member states. The 10 members of the ASEAN Free Trade Agreement are: Brunei, Indonesia, Malaysia, Philippines, Singapore, Vietnam, Laos, Myanmar, Indonesia and Cambodia.

  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 eleminating tariffs, but it also seeks to address behind-the-border barriers that impede the flow of goods and services.

  4. ASEAN-Republic of Korea Comprehensive Economic Cooperation Agreement (Effective date: July 2007) allows 90% of the products being traded between ASEAN and South Korea to enjoy duty-free treatment.

  5. ASEAN-India Comprehensive Economic Cooperation Agreement (Effective date: January 2010) involves the liberalisation of tariffs on over 90% of products traded between the two regions, including the so-called “special products,” such as palm oil (crude and refined), coffee, black tea and pepper.

  6. ASEAN-Australia and New Zealand Free Trade Agreement (Effective date: January 2010) aims to eliminate tariffs on 99% of exports to key ASEAN markets by 2020.

  7. As part of the Chile-Vietnam Free Trade Agreement (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.

  8. 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.

  9. Vietnam-Eurasian Economic Union Free Trade Agreement (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 3-5 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.

  10. ASEAN-Hong Kong, China Free Trade Agreement. Hong Kong has long been important for trade between China and ASEAN countries. At the end of 2015, ASEAN ranked sixth among Hong Kong’s destinations for outward FDI (with a stock of HKD218bn) as well as sixth among sources of inbound direct investment (with a stock of HKD555bn). This agreement will also be important to both the government and business communities for China’s Belt and Road initiative (BRI).
Under negotiation
  1. Vietnam and the EU are negotiating a free trade agreement. EU exports to Vietnam are dominated by high tech products including electrical machinery and equipment, aircraft, vehicles, and pharmaceutical products. Vietnam's key export items to the EU include telephone sets, electronic products, footwear, textiles and clothing, coffee, rice, seafood, and furniture.

  2. 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 USD2.3bn in 2015. Prospects for co-operation have been seen in fields such as investment, finance, services, science, technology and labour.

  3. 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.

  4. Regional Comprehensive Economic Partnership is a proposed free trade agreement (FTA) between the ten member states of the Association of Southeast Asian Nations (ASEAN) (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) and the six states with which ASEAN has existing free trade agreements (Australia, China, India, Japan, South Korea and New Zealand). This will allow better market access for Indonesian goods and services throughout Asia.
Source: WTO Regional Trade Agreements database, ASEAN, Phnom Penh Post

7. Investment Policy

7.1 Foreign Direct Investment

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

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

  4. 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.

  5. 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 (e.g., public voice service where the supplier owns its transmission facilities) is generally capped at 49%.

Sources: WTO – Trade Policy Review, The International Trade Administration (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.


8. Taxation – 2017

  • Value added tax: 10%
  • Corporate income tax: 20%

Source: PwC Tax Booklet

8.1 Important Updates to Taxation Information

  • Vietnam plans to raise taxes on fuels starting in July 2018 to reduce pollution and pay off public debt. Vietnam will raise the environment tax on gasoline by 33.3% to VND4,000 per litre. Taxes on diesel fuel, coal and lubricants would also increase, though the finance ministry did not indicate by how much.

  • VAT refunds are now allowed for imported goods that are then exported (this was previously disallowed). In addition, the scope of items not subject to VAT was amended to include exported products being primarily processed from natural resources and mined minerals. Both these changes are effective 1 February 2018.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income TaxThe standard corporate income tax rate is 20%. The rate of corporate income tax applicable to activities of exploration and exploitation of oil, gas and other precious natural resources ranges from 32% to 50%, depending on the project.
Capital Gains TaxGains derived from sales of shares or assignments of capital in enterprises are subject to tax at a rate of 20%.
Branch Tax20% on profits.
Value Added Tax10% on sales and services; 5% on water supply, agricultural goods, medical goods and teaching aids.
Special Consumption Tax (SCT)Applies to the production or import of certain goods including cigarettes, cigars, spirits, beer, certain automobiles, assorted types of petrol, air conditioners and the provision of certain services including dance halls, massage parlors, casinos, golf clubs and lotteries. SCT rates range from 10% to 70%. Exported goods are not subject to SCT.
Social Insurance and ContributionsThe total contribution rates (i.e. social, health and unemployment insurance) are 21.5% for employers and 10.5% for employees, based on gross salary.
Foreign Contractor Tax1% to 10%, depending on type of business activity.


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.

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody'sB1 (positive)28/04/2017
Standard & Poor'sBB- (stable)19/08/2011
FitchBB- (positive)18/05/2017

Source: 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/AN/A
Corruption Perception Index
113/176107/180N/A
IMD World CompetitivenessN/AN/AN/A

Source: World Bank, IMD, Transparency International

10.3 BMI Risk Indices


World ranking
201620172018
Economic Risk Index
47/202
Short-Term Economic Risk Score65.667.967.1
Long-Term Economic Risk Score64.065.865.8
Political Risk Index
115/202
Short-Term Political Risk Score82.582.582.5
Long-Term Political Risk Score57.759.759.7
Operational Risk Index 
 78/201
Operational Risk Score53.752.953.7

Source: BMI Research

10.4 BMI Risk Summary

ECONOMIC RISK
Vietnam's short-term economic outlook is constrained by the country's chronic fiscal deficits.

OPERATIONAL RISK
Vietnam is constrained by a fairly poor trade and investment risk subcomponent. That said, Vietnam offers businesses a number of other strategic advantages, which include a young and increasingly well-educated population that possesses high numeracy and literacy, modest level of security risk, and fairly adequate logistic infrastructure.

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

Note: Higher Score = Lower Risk
Source: BMI Economic, Political Risk Indices, BMI Country Risk summaries

10.5 BMI Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Vietnam Score53.752.655.554.552.1
East and Southeast Asia average55.356.555.754.454.7
East and Southeast Asia position (out of 18)10.011.09.09.010.0
Asia average48.950.647.747.150.0
Asia position (out of 35)10.013.09.011.016.0
Global average49.849.850.049.349.9
Global Position (out of 201)78.080.080.073.086.0

100 = Lowest Risk; 0 = Highest Risk
Source: BMI Operational Risk Index

Graph: Vitenam vs global and regional averages
Graph: Vitenam vs global and regional averages
Country
Operational Risk
Labour Market Risk
Trade and Investment RiskLogistics RiskCrime and Security Risk
Singapore82.977.8
89.974.789.3
Hong Kong81.271.2
88.575.989
Taiwan74.866.474.377.980.7
South Korea70.363.567.578.172
Malaysia68.361.673.575.462.5
Macau62.264.266.950.567.3
Brunei Darussalam60.262.857.25367.7
Thailand59.156.765.268.246.2
China56.653.952.265.854.3
Vietnam53.752.655.554.552.1
Indonesia52.751.553.957.647.8
Mongolia51.557.852.441.953.7
Philippines44.151.347.344.633.4
Cambodia42.646.74637.940
Laos39.244.2383638.3
North Korea32.749.620.329.631.2
Timor-Leste32.240.526.62833.8
Myanmar32.145.528.229.525.4
Regional Averages55.356.555.754.454.7
Emerging Markets Averages46.84847.545.846.1
Global Markets Averages49.849.85049.349.9

Note: Higher Score = Lower Risk
Source: BMI Operational Risk Index

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Vietnam


2016
Growth rate (%)
Number of Vietnamese residents visiting Hong Kong55,6526.4
Number of Vietnamese residents in Hong Kong5,909N/A

Source: Hong Kong Tourism Board, Hong Kong Immigration Department


2017
Growth rate (%)
Number of East Asia and South Asia residents visiting Hong KongN/AN/A
Number of East Asia and South Asians residents in Hong Kong2,784,870N/A


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 & Statistics Department

11.3 Treaties and Agreements between Hong Kong and Vietnam

  • Double Taxation Avoidance Agreements (DTAs)
  • Air Services Agreements and Air Services Transit Agreements
  • Consular Agreements

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

Hong Kong - Vietnam Chamber of Commerce
Inaugurated in November 2008, the Hong Kong - Vietnam Chamber of Commerce (HKVCC) is a non-government, non-profit limited organization 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

Source: www.hkvcc.com/

Vietnam Consulate in Hong Kong
Address: 15th Floor, Great Smart Tower, 230 Wan Chai Road, Wan Chai, Hong Kong
Email: tlsqhk@mofa.gov.vn
Hours of Business: Monday to Friday, 9:00 a.m. - 5:00 p.m.
Head of Mission: Mr. Tran Thanh Huan, Consul General
Tel: (852) 2821 0800
Fax: (852) 2865 1628

Source: Hong Kong Protocol Division of Government Secretariat

11.5 Visa Requirements for Hong Kong Residents

Visa upon arrival valid for 1 month.

Source: Visa on Demand

Content provided by Picture: BMI Research