Vietnam may be familiar to the world, after a lengthy war fought, but the country isn't all that popular among investors. But after shifting from a highly centralized planned economy to a socialist-orientated market economy, the country has become significantly more attractive to international investors.
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Vietnam’s economy has grown spectacularly, expanding at an average rate of 7.5% per annum over the past decade. In 2010, foreign investors registered capital of nearly $18.6 billion, in which the actual disbursed capital came to $11 billion. Vietnam is becoming more attractive with its tax incentives, low-cost labor, and long coastline with increasingly modern and sophisticated port infrastructure. Foreign firms are beginning to regard Vietnam as a strategic investment location from which to improve the cost effectiveness of their global supply chains. The government offers a welcoming investment climate for foreign investors that wish to establish a presence here, including solid economic growth, political stability, a competitive workforce, a gradually more open and transparent market, abundant natural resources, and a good geological positioning in the region.
However, there are also risks, including Socialist-orientated Economy: Vietnam may have transitioned from a centrally planned economy, but the government still controls many key industries, and Early Stage Market Economy: Vietnam remains at an early and vulnerable stage of its economic development and is therefore more risky than developed markets. For risk mitigation, measures to improve the business environment and competitiveness of businesses will continue to be implemented by the Government; so that to improve the quality of economic growth rather than merely numbers. That promises more opportunities for investment.
The Government of Vietnam is seeking to attract increased investment across a wide array of sectors. Nowadays, they focus more on developing the high-tech and supporting industries. Another priority is to help ensure more equal economic development across the country. In this regards, Foreign Invested Enterprises are encouraged to invest in specific geographic area known as “encourage areas” and “special encourage areas”.
It is because of the cheap Vietnamese labor force, especially labor intensive industries. Almost 60% of the 92 million inhabitants have the working age of 15 to 65 years, ranking Vietnam the 13th largest labor force in the world. Minimum wage varies from one province to the next, and in the cases of Ho Chi Minh City and Hanoi from one district to another. On 14 November 2013 the government issued Decree No. 182/2013/ND-CP which provides four new regional minimum salaries of employees per month, including employees of foreign invested enterprise: VND 2,700,000 ($128), VND 2,400,000 ($114), VND 2,100,000 ($100) and VND 1,900,000 ($90), depending on which region the relevant enterprise is located in. The region-based minimum wage levels in this Decree are applied from 1 January 2014.
Joint ventures can be done either as a limited liability partnership with one or more domestic partners, or a joint-stock company. A joint stock company can’t be 100% foreign-owned. Only a limited liability company can be completely foreign-owned. Foreign invested enterprise, whether wholly foreign owned or in the form of a joint venture with Vietnamese partners, must be approved by the relevant authorities.
Please refer to Decree 72/2006/ND-CP together with Circular 11/2006/ TT-BTM detailing instructions on implementing of that Decree.
All land in Vietnam is owned and administrated by the State; so there is no private ownership of land and all land is thus rented from the State. In Vietnam, each province and municipality has its own land registry system, which is managed at the district/ commune level. Before being granted the right to use land for business purposes, all land users must obtain a Land Use Right Certificate which is approved by the People’s Committee.
The specific zones, including industrial, export-processing, high-tech, economic and new urban zones are allocated by the State to those who construct and operate the zones, know as Developers. The Developers can sub-lease the land to lessees, including foreign invested enterprises. Lessees must pay land rental and infrastructure fees to the developers according to the land lease contract and they are entitled to be issued with a land used right certificate. Once the lessees get the land used right certificate, they may transfer, mortgage or contribute their land use rights.
A Foreign Invested Enterprise (FIE) in Vietnam is subject to main five taxes: Corporate Income Tax (CIT), Import-Export Duties, Value-Added Tax (VAT), Special Sale Tax (Excise Tax), and Personal Income Tax (PIT). The various tax holidays and other incentives offered are giving the country extremely attractive tax incentives. There are lowering taxes, particularly trade tariffs in order for Vietnam to meet commitments of the World Trade Organization (WTO) and upcoming The Trans-Pacific Partnership Agreement (TPP).