General Overview and Update on Draft Law on Special Administrative Economic Zones British Business Group Vietnam 19 April 2018
AGENDA ABOUT ACSV LEGAL GENERAL OVERVIEW OF LEGISLATION 2018/2019 INTRODUCTION TO ECONOMIC ZONES IN ASEAN GENERAL BACKGROUND ON SEZs ECONOMIC ZONES/SEZs IN VIETNAM KEY POINTS ON DRAFT LAW ON SAEZ FUTURE OUTLOOK ON SAEZs IN VIETNAM CONTACT US
ABOUT ACSV LEGAL ACSV Legal is a Ho Chi Minh City, Vietnam-based law firm. The firm is led by Managing Partner, Mark Oakley who has been living and working in Vietnam since 2007. Established in 2014 and most recently, at the end of March 2018, it was rebranded to ACSV Legal, with a new logo and new website: www.acsvlegal.com. ACSV Legal has a premier corporate/m&a practice in Vietnam and its approach is to understand the legal, commercial and political dynamics of every matter. We have extensive experience in private equity transactions with a focus on a strong commercial approach. ACSV Legal currently has a team of lawyers who are qualified in Vietnam and abroad in civil and common law jurisdictions. Our lawyers are bi-lingual in Vietnamese, German, English, Italian, Dutch, French and Malay. Our clients are active in a wide range of sectors and industries: manufacturing, food & beverage, hospitality and leisure, education, pharma, health, beauty & fitness, IT, apparel and fashion, retail and public relations. 4
GENERAL OVERVIEW OF LEGISLATION 2018/2019 Laws in effect from 1 January 2018 Law on Small and Medium-Sized Enterprise Support Law on Tourism Law on Foreign Trade Management Laws in effect from 1 July 2018 Law on Technology Transfer Law on State Compensation Liability Law on Public Debt Management Laws to be approved and coming into effect in 2019 Law on Competition Law on Network Security Law on Special Administrative Economic Zones 5
INTRODUCTION TO ECONOMIC ZONES IN ASEAN United Nations Industrial Development Organisation (Vietnam Country Office) has set out 5 different types under the umbrella term of economic zones. ECONOMIC ZONES Industrial Parks Special Economic Zones (SEZs) Eco-Industrial Park Technology Parks Innovation Districts There are about 1,000 economic zones in ASEAN (893 industrial parks, 84 special economic zones, 2 eco-industrial parks, 25 technology parks and 1 innovation district). Stage development of a country determines the most appropriate economic zone and competitive strategy. 6
GENERAL BACKGROUND ON SPECIAL ECONOMIC ZONES (SEZs) What is an SEZ? An area which has been demarcated as a type of economic zone with a more liberal set of economic laws to foster growth and to improve the location s competitiveness. What are typical characteristics of an SEZ? Applicable economic laws are more liberal/different from the rest of the country; Easy access to local firms, capital, skilled and unskilled labour; Located within a country's national borders; Has good and varied transportation modes; and Is administered by a single management administration. What are the aims for setting up an SEZ? Developing country perspective: increase trade and (foreign) investment, create jobs, regional development, and flexibility in policy testing. Investor perspective: access to local market and low-cost labour, vertical integration, and home market competitiveness. 7
GENERAL BACKGROUND ON SEZs (CONTINUED) The World Bank created the following table, setting out distinctions between types of SEZs. The concept of an SEZ has been implemented in more than 140 countries in various forms and with different objectives. Type Objective Size Typical Location Typical Activities Markets Free Trade Zone support trade <50 hectares port of entry entrepots and trade related domestic, re-export Export Processing Zone export <100 hectares none manufacturing, mostly export EPZ (traditional) manufacturing processing Free enterprises export no minimum countrywide manufacturing, mostly export (single unit EPZ) manufacturing processing Hybrid EPZ export manufacturing <100 hectares none manufacturing, processing export, domestic Free port/sez integrated development >1000 hectares none multi-use internal, domestic, Urban Enterprise Zone urban revitalisation export <50 hectares urban/rural multi-use domestic 8
ECONOMIC ZONES/SEZs IN VIETNAM In 2015 there were 313 economic zones in Vietnam (est.) 292 industrial parks; 18 special economic zones (3 are referred to as export-processing zones and 15 are simply referred to aseconomic zones); and 3 technology parks. Definition of Economic Zone under Decree No. 29/2008/ND-CP Zone which has an economic area separated from the investment and business environment with geographical boundaries and especially favourable conditions for investors, and established in accordance with regulations of the government. Timeline Idea of setting up SEZs dates back to 2012; First draft law put on hold in 2014; and Current draft law Law on Special Administrative Economic Zones on Van Don, North Van Phong and Phu Quoc (Draft Law) is planned to be approved in May 2018 and to enter into force on 1 January 2019. 9
ECONOMIC ZONES/SEZs IN VIETNAM (CONTINUED) Focused industries and sectors Development of R&D activities, creative start-ups, new sciences and technologies, highquality health and education, high-class resorts and tourism services. Draft Law identifies 3 areas as Special Administrative-Economic Zones (SAEZ) Van Don (Quang Ninh) First made into an economic zone in 2007 to establish itself as a hub for eco-tourism and international trade; North (Bắc) Van Phong (Khanh Hoa) The main focus will be its port and the businesses surrounding it; an industrial center closely attached to the nearby seaport will be developed to create investment opportunities for various sectors; and Phu Quoc (Kien Giang) Similar to Van Don, the government s plan for the Phu Quoc SAEZ is to bank on its beautiful beaches to attract tourism and investments. 10
ECONOMIC ZONES/SEZs IN VIETNAM (CONTINUED) Van Don (Quang Ninh) Development in hi-tech supporting industry, ecotourism, culture tourism, culture industry, air transportation services and related services, international commerce and consumption. North (Bắc) Van Phong (Khanh Hoa) Development in IT, mechanical engineering, seaport for goods and international passengers, seaport logistic, commerce and finance. Source: VietNam Net (2017) Phu Quoc (Kien Giang) Development in resorts, ecotourism, conference, international exhibitions, international commerce and consumption, assets management, and health services. 11
KEY POINTS ON DRAFT LAW ON SAEZs Preferential treatment to be provided for identified projects in an SAEZ Business registration and procedures efficiency; Preferential treatment in land-use rights; Mortgaging of assets attached to land; Waiver of construction permit; Tax preferential treatment; Immigration preferential treatment; and Access to casino for Vietnamese citizens. 12
KEY POINTS ON DRAFT LAW ON SAEZs (CONTINUED) Business Registration and Procedures Efficiency No investment projects required before the establishment of organisations in an SAEZ; ERC issued within 3-5 days; IRC issued within 15 days; Not subject to conditions applied to foreign investor if conducting business in priority and identified industries and trades; and SAEZ Administrative Centre to be set up. 13
KEY POINTS ON DRAFT LAW ON SAEZs (CONTINUED) Preferential Treatment in Land-Use Rights Form of land use right Type SAEZ Standard/Non-SAEZ Land lease and allocation (residential development project) Normal term Up to 70 years Up to 50 years Special term Up to 99 years Up to 70 years Land and water surface rent exemption Up to 15 years / entire project Up to 3, 7, 11 or 15 years Waiver of Construction Permit For construction buildings in urban development/housing projects with approved 1/500 detailed zoning plan; and For houses, construction buildings below 7 storeys or below gross floor area of 500m2 with approved 1/500 detailed zoning plan. 14
KEY POINTS ON DRAFT LAW ON SAEZs (CONTINUED) Tax Preferential Treatment Provided to companies/individuals investing/working in an SAEZ, including and not limited to: Type of Tax Corporate income tax (CIT) Personal income tax (PIT) Special consumption tax (SCT) Import tax and value added tax (VAT) Key Points General CIT rate of 10% for 15 years; Other cases: 10% for 30 years / entire project with 4 years tax holiday followed by 9 years of 50% reduction; and Certain projects with revenue subject to SCT: 10% for 10 years with 2 years tax holiday followed by a 50% reduction for 5 years. Tax holiday (but not beyond 2030): 5 years generally and 10 years for managers, scientists and specialists; and 50% reduction of PIT for subsequent years after the expiration of the relevant tax exemption period. New casino projects shall be granted a preferential SCT rate of 10% for 10 years from the date the project generates taxable income. Exemption of import tax and VAT for the entire investment period or one time application when imported for the first time into Vietnam. 15
KEY POINTS ON DRAFT LAW ON SAEZs (CONTINUED) Immigration Preferential Treatment Foreigners coming into an SAEZ by air and sea transport may be exempted from visa requirements if term of stay is 60 days or less; Work permit for certain identified skilled foreign labour may be waived if the working period is less than - 60 days in a row and not exceeding 180 days per year for managers/executives and experts; or - 30 days in a row and not exceeding 60 days for technicians; and Submission of foreign labour report in relation to such identified foreign labour not needed. Access to casino by Vietnamese citizens Vietnamese citizens are permitted to play in casinos located in an SAEZ. 16
FUTURE OUTLOOK FOR SAEZs IN VIETNAM Not without controversy, especially issues related to cluster development and employee working conditions; While Vietnam may be well-known for the Government s strong grip over businesses and their strict regulation, the SAEZs will have more relaxed laws when it comes to taxation and land lease; The Draft law, once into effect (expected per 1 January 2019), will offer a range of concessions typically afforded to an SEZ investor; The intention behind the set up of SEZs/SAEZs is positive; and If implemented according to proper regulations whilst at the same time considering the impact the SEZs/SAEZs may have, it provides a win-win situation for parties involved. 17
CONTACT US MARK OAKLEY ELAINE CHEW HIEU PHAM MARIEKE VAN DER PIJL MANAGING PARTNER SENIOR ASSOCIATE ASSOCIATE BUSINESS DEVELOPMENT MANAGER +84 16 9231 6565 mark.oakley@acsvlegal.com +84 9 3893 5388 elaine@acsvlegal.com +84 9 6838 4842 hieu.pham@acsvlegal.com +84 9 1492 5842 marieke@acsvlegal.com ACS LEGAL VIETNAM COMPANY LIMITED (ACSV LEGAL) LEVEL 2, SOMERSET CHANCELLOR COURT, 21-23 NGUYEN THI MINH KHAI STREET DISTRICT 1, HO CHI MINH CITY, VIETNAM T: +84 28 3822 4539 F: +84 28 3822 4239 WWW.ACSVLEGAL.COM