INVESTMENT IN VIETNAM Hani Office 18 th Flr, Central Building, Hapulic Cmplex, 85 Vu Trng Phung Street, Thanh Xuan Dist, Hani Tel: 84.4. 62620246 Fax: 84.4. 66640246 Email: inf@sblaw.vn Website: www.sblaw.vn H Chi Minh City Office 5th Flr, VTP Builiding, N.8, Nguyen Hue Street, Ben Nghe Ward, District 1, H Chi Minh City. Tel: 84.8.35208101 Fax: 84.8.35208102 Email: inf@sblaw.vn Website: www.sblaw.vn
GENERAL INTRODUCTION Since its accessin t the Wrld Trade Organizatin (WTO) n 11 January 2007, Vietnam has taken active steps t revamp its legal framewrk fr business and investment in Vietnam. The changes are largely favrable t bth freign and lcal investrs Since the intrductin in 2006 f bth the Investment Law, which regulates investments in Vietnam, and the Law n Enterprises, which sets ut the types f crprate vehicles investrs may establish t carry ut their investment prjects, additinal legislatin has been enacted t further enhance bth freign investment and freign invested business peratins in Vietnam. All types f cmpanies must perate accrding t the same crprate gvernance rules. This shuld create a level playing field fr ding business. The failure t cmply with these crprate rules will lead t persnal liability fr directrs r fficers f a cmpany, regardless f whether the cmpany is freign-wned, Vietnamese-wned r State-wned. Similarly, the Investment Law als applies t bth lcal and freign investrs.
LEGAL FRAMEWORK Under the Vietnamese legal system, nly written legislatin, cmmnly referred t as legal instruments is recgnized as surce f law. Annually, the Supreme Peple Curt f Vietnam cnslidates curt judgments tward utstanding cases in Vietnam int a general guide t curt judgments. Hwever, these dcuments are nly recgnized as a reference fr interpretatin and applicatin f law. Issuing Bdy Legal Instrument Gverning Scpe Natinal Assembly Standing Cmmittee f the Natinal Assembly The Gvernment The Cnstitutin Laws Reslutins Ordinances and Reslutins Decrees Regulatins and Reslutins Whle Territry f Vietnam Whle Territry f Vietnam Whle Territry f Vietnam The Prime Minister Decisins and Instructins Whle Territry f Vietnam Ministries Circular Whle Territry f Vietnam Minister Decisins Whle Territry f Vietnam Prvincial Peple Cmmittee/Cuncil Decisins and Reslutins Territry f Prvince r City
FORM OF FOREIGN INVESTMENT IN VIETNAM Direct investment where the investr invests capital and participates in the management f the investment, including (i) establishment f freign invested cmpanies (FIC); (ii) Investing pursuant t a cntract such as Business C-peratin Cntract (BCC), Build-Operate (BO), Build-Transfer-Operate (BTO) r Build-Operate-Transfer (BOT) r Build-Transfer (BT) Cntract; (iii) Purchasing shares r cntributing capital t existed cmpanies in Vietnam t participate in management; (iv) merger r acquisitin f a cmpany r branch. Indirect investment where the investr invests thrugh the purchase f securities r thrugh intermediary financial institutins where the investr des nt participate directly in the management f the investment activity, including (i) Purchasing f shares, bnds and ther valuable papers; (ii) Investing thrugh securities investment funds and (iii) Investing thrugh ther intermediary financial institutins.
INVESTMENT CAPITAL Except fr several cnditinal investment sectr such as real estate, finance, turism and banking, educatin and trainings, etc there is n requirement fr minimum investment capital; Freign Investr is t be respnsible fr estimatin f the Investment Capital required fr running its Investment Prject in Vietnam; Cmpetent Authrity may reject t grant the License if it find that the estimated Investment Capital is nt sufficient t run the prpsed Investment Prject. Freign Investr must cntribute its capital cntributin in accrdance with the schedule stated in the License
PROCEDURES FOR SETTING UP FOREIGN INVESTED COMPANY (FIC) Freign Investr must btain an Investment Certificate frm the Licensing Authrities; Investment Certificate shall be als cnsidered as the License fr Incrpratin f FIC under Vietnam Law; Prime Minister shall apprve enrmus scale prjects, the spheres related t many branches, regins, scial cmmunity, such as il and gas explratin, telecmmunicatin service fr freign investment prjects etc and alternative prjects dimensined frm 3,000 billins VND upwards; Freign Investment prjects scaled frm 800 billins VND upwards shall be under licensing authrity f the Ministry f Planning and Investment; The remained investment prject shall be subject t decisin f Prvincial Peple Cmmittee (fr cmpanies lcated utside industrial r exprt prcessing znes) r the prvincial Industrial and Exprt Prcessing Znes Management Authrity (fr cmpanies lcated in industrial r exprt prcessing znes).
INVESTMENT GUARANTTEE Investment guarantees are a set f measures that are stipulated in the law t ensure rights and legitimate interests f investrs in the curse f investment with the purpse f earning prfits. Investment Guarantees under Vietnam Investment Law are fllws: Lawful assets and invested capital f investrs shall nt be natinalized r cnfiscated by administrative measures. Ensure equality f treatment amng investrs is the cmmitment f Vietnam twards all investrs carrying ut investment activities in Vietnam irrespective f natinalities, rigins f capital f any investrs. The State shall prtect intellectual prperty rights during investment activities; and shall ensure the legitimate rights f investrs in technlgy transfer in Vietnam in accrdance with the laws n intellectual prperty and ther prvisins f relevant laws. Freign investr has discharged fully its financial bligatins t the State f Vietnam, it shall be permitted t remit abrad its prfit, payments received frm the prvisin f technlgy and services and frm intellectual prperty, principal f any interest n freign lans, Invested capital and prceeds frm the liquidatin f investments and ther sums f mney and assets lawfully wned by the investr.
DISPUTE SETTLEMENT Any dispute relating t investment activities in Vietnam shall be reslved thrugh negtiatin and cnciliatin, r shall be referred t arbitratin r t a curt in accrdance with law; Any dispute as between dmestic investrs r as between a dmestic investr and a State administrative bdy f Vietnam relating t investment activities in the territry f Vietnam shall be reslved at a Vietnamese curt r arbitratin bdy; Any dispute t which ne disputing party is a freign investr r an enterprise with freignwned capital, r any dispute as between freign investrs shall be reslved by ne f (i) Vietnamese curt; (ii) Vietnamese arbitratin bdy; (iii) Freign arbitratin bdy; (iv) Internatinal arbitratin bdy; (v) Arbitratin tribunal established in accrdance with the agreement f the disputing parties; Any dispute between a freign investr and State administrative bdy f Vietnam relating t investment activities in the territry f Vietnam shall be reslved by a Vietnamese curt r arbitratin bdy, unless therwise prvided in a cntract signed between a representative f a cmpetent Sate bdy f Vietnam with the freign investr r in an internatinal treaty f which the Scialist Republic f Vietnam is a member.
LABOR CONTRACT Labr cntract shall be entered int ne f the fllwing frms: An indefinite term labr cntract: An indefinite term labr cntract is a cntract in which the tw parties d nt determine the term and the time fr terminatin f the validity f the cntract; A definite term labr cntract: A definite term labr cntract is a cntract in which the tw parties determine the term and the time fr terminatin f the validity f the cntract as a perid f twelve (12) mnths t thirty six (36) mnths; A labr cntract fr a specific r seasnal jb with duratin f less than twelve (12) mnths. Terminatin f Labr Cntract The expiry f the cntract; The tasks stated in the cntract have been cmpleted; Bth parties agree t terminate the cntract; The emplyee is sentenced t imprisnment r is prevented frm perfrming his frmer jb in accrdance with a decisin f a curt; The emplyee dies r is declared missing by a curt; One f Parties unilaterally terminates the Labr Cntract;
FOREIGN EMPLOYEE Freign Emplyee wh wrks in Vietnam 3 mnths upward must btain Wrk Permit except fr (i) Freigner being a member r an wner f a limited liability cmpany; (ii) Freigner being a member f the Bard f Management f a Jint Stck Cmpany; (iii) Freign lawyer licensed t practice in Vietnam; (iv) Freigner entering Vietnam t ffer services; (v) Freigner wh enters Vietnam t reslve an emergency case; (vi) Freigner being the Chief f Representative Office f Freign Cmpany and (vii) Freign Emplyee designed by the Freign Parent Cmpany t wrk fr its subsidiaries in Vietnam. Enterprises f all ecnmic sectrs, Vietnamese as well as freign r internatinal rganizatins, are entitled t emply nn- Vietnamese emplyees. Hwever, the emplyer must have a training plan t train Vietnamese t replace their freign emplyees. In rder t btain wrk permit, Freign Emplyee must satisfy fllwing cnditins: with r Minimum age f 18 years Gd health Suitable t the requirements f the jb Manager, executive directr r an expert high prfessinal r technical qualificatins, experience in ne's career r in management that Vietnamese emplyees d nt yet pssess N criminal cnvictins r civil recrd in respect f a breach f natinal security any ther crime as well as n current criminal prsecutins r criminal sentences nt yet been discharged in accrdance with Vietnamese and freign laws.
TAXES Business License Tax Business License tax s nature is an annual fee n the establishment f prductin and business activities f all ecnmic sectrs. All rganizatins and individuals engaged in business are liable t pay the license tax. Enterprises shall pay license tax n the basis f their registered capital inscribed in the Business License. Fr freign-invested enterprises, it shall be the investment capital. License Tax Grade Registered Capital (VND) License Tax fr the whle year (VND) Grade 1 Over 10 billin 3,000,000 Grade 2 Between 5 and 10 billin 2,000,000 Grade 3 Between 2 and 5 billin 1,500,000 Grade 4 Under 2 billin 1,000,000
TAXES Value Add Tax (VAT) VAT is levied n the value added f gds and services incurred in the prcess f prductin, circulatin and cnsumptin; VAT s paid by manufacturers, traders and service prviders, but the cnsumer is taxpayer thrugh the prices f gds and services; Taxable bjects are gds and services used fr prductin, trading r cnsumptin in Vietnam are subject t value-added tax, except fr machinery, equipment, spare parts, special-purpse means f transprt and supplies which cannt be manufactured at hme and need t be imprted fr prspecting, explring and develping il and gas fields. VAT Rate: 0%; 5% and 10%
TAXES Crprate Incme Tax (CIT) Crprate incme tax is a direct tax levied n prfits f enterprises; Enterprises established under Vietnamese law shall pay tax n taxable incmes generated in and utside Vietnam; Taxable incmes include incme frm gds and service prductin and business activities; Incme frm the transfer f capital r real estate; incme frm the right t wn r use assets; incme frm the transfer, lease r liquidatin f assets; incme frm interests, lans r freign currency sales; refund f prvisins; recvery f bad debts already written ff; cllectin f payable debts f unidentifiable creditrs; mitted incme frm previus years business activities, and ther incmes, including incme generated frm prductin and business activities utside Vietnam; Taxed incme in a tax perid shall be determined as fllws: Taxed incme = Taxable incme - (Tax-exempt incme + Lsses carried frward under regulatins) Taxable incme shall be determined as fllws: Taxable incme = (Turnver - Deductible expenses) + Other incmes CIT rate: 25%
TAXES Crprate Incme Tax (CIT) Tax incentives are granted based n regulated encuraged sectrs and difficult sciecnmic lcatins. The sectrs which are encuraged by the Vietnamese Gvernment include educatin, health care, sprt/culture, high technlgy, envirnmental prtectin, scientific research, infrastructural develpment and cmputer sftware manufacture; The tw preferential rates f 10% and 20% are available fr 15 years and 10 years respectively, starting frm the cmmencement f perating activities. When the preferential rate expires, the enterprise incme tax rate reverts t the standard rate; Taxpayers may be eligible fr tax hlidays and reductins. The hlidays take the frm f a cmplete exemptin frm enterprise incme tax fr a certain perid beginning immediately after the enterprise first makes prfits, fllwed by a perid where tax is charged at 50% f the applicable rate. Hwever, where the enterprise has nt derived prfits within 3 years f the cmmencement f peratins, the tax hliday/tax reductin will start frm the furth year f peratin. Criteria fr eligibility t these hlidays and reductins are set ut in the Crprate incme tax regulatins. Additinal tax reductins may be available fr engaging in manufacturing, cnstructin, and transprtatin activities which emply many female staff, and emplying ethnic minrities. Tax incentives d nt apply t ther incme, which is bradly defined
TAXES Imprt Tax and Exprt Tax Exprt tax, imprt tax is a tax n cmmercial gds, nn-cmmercial gds being allwed t exprt r imprt acrss brders f Vietnam; Gds in the fllwing cases shall be liable t imprt tax r exprt tax: Gds imprted r exprted thrugh Vietnam s brder-gates r brders, including gds imprted r exprted thrugh land r river way brder-gates, seaprt, airprts, transnatinal railway statins, internatinal pst ffices r ther custms clearance venues set up under decisins f cmpetent state agencies; Gds brught frm the dmestic market int nn-tariff znes r frm nn-tariff znes int the dmestic market; Other sld, purchased and exchanged gds which are cnsidered imprted r exprted gds. Gds transited thrugh Vietnam s brder-gates r brders; Gds exprted frm nntariff znes t freign cuntries; Gds imprted frm freign cuntries int nn-tariff znes fr use in nn-tariff znes nly; gds transprted frm ne nn-tariff zne t anther; Gds being petrleum vlumes paid t the State as natural resurce tax when exprted shall be nt subjected t Imprt Tax.
TAXES Imprt Tax and Exprt Tax Tax rates applicable t exprts shall be specified fr each gds item in the Exprt Tariff; Tax rates applicable t imprted gds shall be specified fr each gds item, including preferential tax rates, special preferential tax rates and rdinary tax rates: Preferential tax rates shall apply t imprted gds riginating frm cuntries, grups f cuntries r territries which sanctin mst favred natin treatment in their trade relatins with Vietnam. Preferential tax rates shall be specified fr each gds item in the Preferential Imprt Tariff; Special preferential tax rates shall apply t imprted gds riginating frm cuntries, grups f cuntries r territries which sanctin mst favred natin treatment in their trade relatins with Vietnam under the regime f free trade areas r tariff alliance in rder t facilitate brder cmmercial exchange, and ther cases f special preferential treatment; Ordinary tax rates shall apply t imprted gds riginating frm cuntries, grups f cuntries r territries which d nt sanctin mst favred natin treatment r grant special imprt tax preferences t Vietnam.
TAXES Persnal Incme Tax (PIT): Tax Residents are thse individuals residing in Vietnam fr 183 days r mre in a calendar year, r in 12 cnsecutive mnths frm the first date f arrival; r thse having a permanent residence in Vietnam (including a registered residence which is recrded n the permanent/ temprary residence card in case f freigners); Individual stays in Vietnam fr mre than 90 days but less than 183 days in a tax year, the individual will be treated as a tax nn-resident if he/she can prve that they are tax resident f anther cuntry; Tax residents are subject t Vietnamese PIT n their wrldwide taxable incme, wherever it is paid r received. Emplyment incme is taxed n a graduated tax rates basis. Nnemplyment incme is taxed at a variety f different rates; Individuals nt meeting the cnditins fr being tax residents are cnsidered tax nnresidents in Vietnam. Nn-residents are subject t PIT at a flat tax rate f 20% n the incme received as a result f wrking in Vietnam in the tax year, and at varius ther rates n their nn-emplyment incme.