VIETNAM S CURRENT FOREIGN DIRECT INVESTMENT STATUS AND FUTURE OUTLOOK ON THE EU- VIETNAM FREE TRADE AGREEMENT OLIVER MASSMANN - Partner, General Director DUANE MORRIS VIETNAM LLC 2010 Duane Morris LLP. All Rights Reserved. Duane Morris is a registered service mark of Duane Morris LLP. Duane Morris Firm and Affiliate Offices New York London Singapore Los Angeles Chicago Houston Hanoi Philadelphia San Diego San Francisco Baltimore Boston Washington, D.C. Las Vegas Atlanta Miami Pittsburgh Newark Boca Raton Wilmington Cherry Hill Princeton Lake Tahoe Ho Chi Minh City Duane Morris LLP A Delaware limited liability partnership 1
AGENDA: VIETNAM S ECONOMIC OVERVIEW FOREIGN DIRECT INVESTMENT STATUS WHAT ARE IN THE EU- VIETNAM FREE TRADE AGREEMENT (EVFTA)? OPPORTUNITIES FOR AUTOMOTIVE INDUSTRY INVESTMENT GUIDANCE FOR FOREIGN INVESTORS 2
WHICH COUNTRY HAS ITS TWO MAJOR CITIES RANKED AS MOST DYNAMIC CITIES ON THIS PLANET EARTH? 3
Welcome to the most dynamic country on this planet : Vietnam! 4
Increasing Foreign Direct Investment 5
EU Vietnam Free Trade Agreement (EVFTA) 6
EVFTA Bilateral negotiations 06/2012 10/ 2012 Launch of negotiations First round in Hanoi 15 rounds alternately in Vietnam and Brussels Last round in Hanoi Agreement in principle Conclusion of negotiation FTA text released 7
What happens next? Current Status Middle 2017 Early 2018 Legal review Translation into all European languages EVFTA should be signed EVFTA should be taken into effect 8
EVFTA Comprehensive agreement Trade in goods Market access for goods tariffs Rules of Origin Export duties Technical Barriers to Trade (TBT) Sanitary and Phytosanitary Measures Customs and Trade Facilitation Administrative Cooperation in Customs Matters Services and investment: National treatment Liberalisation commitments / market access Investor to state dispute settlement 9 Cross-cutting issues Dispute Settlement Government Procurement State Owned Enterprises & Subsidies Intellectual Property Rights Geographical Indications Trade and Sustainable Development Cooperation and Capacity building Annexes (car; green tech and pharma)
EVFTA Main features Symmetrical elimination of nearly all tariffs (over 99%) Removal of almost all export duties and cap on remaining ones Services commitments going beyond GATS 10
Dispute settlement Much faster than the WTO: 425 days under the EVFTA compared with up to 860 days under the WTO dispute settlement system A mandatory use of rosters list of arbitrators A more transparent system (public hearing, submission of amicus curiae) 11
Legal enforceability The decisions of the tribunal are enforceable Domestic courts cannot question the legal validity of the decisions EVFTA secures a modern reformed investment dispute resolution standard 12
Investment Dispute Settlement FTA implements investor-to-state dispute settlement (ISDS) mechanisms investors can claim in case that an investor protection obligation has been breached Installation of a permanent Investment Court System (ICS) Independent International Tribunal with nine members at first instance will be competent to all conflicts about investment protection provisions (5 year transitional period for Vietnam) A court of Appeal with six members will be established 13
Government Procurement Average government procurement in the EU is about 16% Vietnam has one of the highest government procurement rates of all countries worldwide (with about 39%) Vietnam is not a member of the Government Procurement Agreement of the WTO Vietnam undertakes to transparency and procedural fairness regulations Investors will get access to a huge market of government procurement 14
Government Procurement (cont.) EU companies will be able to bid for public procurement contracts under the same conditions like Vietnamese companies for 22 central Government bodies, two state-owned enterprises (Vietnam Electricity and Vietnam Railways), 24 public hospitals, etc. EVFTA even provides higher initial transitional threshold than the TPP. Under the EVFTA, offsets are applied based on value of a contract (including non-covered procurement) but in the TPP, it is based only on the covered procurement. 15
Opportunities for automobile industry 16
Cars Tariffs: Cars: duty free after 10 years Cars with large engine (>3000 cc for petrol, > 2500 cc for diesel): duty free after 9 years Motorcycles with engines larger than 150 cc: liberalized after 7 years Smaller motorcycles: duty free after 10 years Rules of origin: Vehicles: maximum 45% of materials not originating in either party Motorcycles: change of tariff heading or 50% materials not originating in either party Car parts and accessories: same as motorcycles 17
Automotive 3 years after the FTA comes into effect, Vietnam will accept UNECE (standards adopted from the EU, U.S., Russia and many other states which settle e.g. Worldwide harmonized Light vehicle Test Procedures) certification without any further testing requirements Note: Vietnam is not yet a party to the UNECE Agreement Demand for automobiles in Vietnam is at no other time set to surge like this moment Vietnam is going to be the new production hub in Asia for the machinery and especially automotive tier two manufacturing industry where several German and European automotive companies already experienced their own success story 18
Remanufactured goods First time ever concept introduced Remanufactured products will received the same treatment as new like products. Trade for high value products is now open, for example car parts (especially for commercial vehicles) to serve the aftersales market with original (manufactured) parts. 19
INVESTMENT GUIDANCE FOR FOREIGN INVESTORS 20
Investment procedure under new 2014 Investment Law Under the Investment Law and Enterprise Law: 2 separate steps - Application for Investment Registration Certificate ( IRC ) and Application for Enterprise Registration Certificate ( ERC ) Step 1: IRC IRCs for projects required to obtain preliminary approval of the National Assembly/ People s Committee are issued within 05 working days upon issuance of such approval For other projects, IRCs are issued within 15 days (instead of 35 days as in the old law) upon receipt of the application dossier Step 2: ERC Submit an application dossier to the licensing authority upon issuance of the IRC ERCs are issued within 03 working days upon receipt of the application dossier Under recent Decree guiding the Investment Law: 2 steps can be combined and application dossiers for IRC and ERC can be submitted at the same time to the investment registration authority only. The IRC and ERC will be given to the investors at the same time at the investment registration authority. 21
INVESTMENT INCENTIVES Items 2017 Inside SEZ Tax rates 10% for first 15 years Outside SEZ 20% CIT Holidays 04 years 2 years CIT reduction 50% for subsequent 09 years 50% for subsequent 04 years Carrying forward losses Reduction or exemption of land rental, land use fee Incentives for enterprises employing female workers 22
Personal Income Tax Subjects: Vietnam residents: those individuals residing in Vietnam for 183 days or more in a calendar year, or in 12 consecutive months from the first date of arrival Non-residents: an individual staying in Vietnam from 90 to183 days in a tax year - Tax rates: varied for employment and non-employment income (employment income: graduated tax rates from 5-35%; non-employment income: depending on each type of income) 23
Taxation in Vietnam Value-added Tax ( VAT ) Tax applied to goods and services used for production, trading and consumption in Vietnam (including goods and services purchased from abroad) Tax rate: 0-10% depending on types of goods and services Other taxes: special sales tax (applied to luxury goods or amusement places), natural resources tax, land and housing tax, etc. 24
Labor and Employment Minimum regional wages: ranging from US$113 US$165/month Social security: both employer and employee have to contribute to social fund (social insurance, health insurance, unemployment insurance) The Fund covers the employees benefits during sick leave, maternity leave, retirement, allowances for work related accidents and occupational diseases, and survivors benefits Pension: Monthly pensions are provided from the Social Insurance Fund where an individual has contributed social insurance for more than 20 years and when they reach 60 years of age for men, or 55 years of age for women. 25
Questions & Answers 26
DUANE MORRIS VIETNAM LLC Thank you very much! HANOI OFFICE HO CHI MINH CITY OFFICE Pacific Place, Unit V1307/08, 13 th Floor, Suite 1503/04, Saigon Tower 83B Ly Thuong Kiet, Hoan Kiem District 29 Le Duan Street, District 1 Hanoi, Vietnam Ho Chi Minh City, Vietnam Tel.: +84 4 39462200 Tel.: +84 8 3824 0240 Fax: +84 4 3946 1311 Fax: +84 8 3824 0241 Contact email: omassmann@duanemorris.com ALERT: This presentation is protected by latest Copyright software that enables the right holder to track it. Do not distribute this presentation or use content without written consent of the Author Oliver Massmann. 27
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