INVESTMENT POLICIES WHEN DOING BUSINESS IN VIETNAM

Over recent years, Vietnam has made tremendous progress in socio-economic development. The transition from a planned economy to a market economy has transformed Vietnam from a country considered the least developed in Southeast Asia to a developing country that has stable and highest economic growth rates in the region.

Chart 1: The growth rate of GDP of Vietnam in 10 years from 2008 to 2018

Many international economic organizations such as WB, WTO, IMF, etc. predict that the growth rate of Vietnam still maintains at a high level. The inflation rate has remained stable in one figure in 7 consecutive years, lower or approaching 4% in recent years. The external balance is under control and supported by an abundant FDI capital of nearly USD 18 billion in 2019, accounting for nearly 24% of the total investment capital for the economy. Vietnam is a country with the most stable political situation in the world. Along with the abundant labor force with increasing scientific and technological qualifications. Vietnam is a "black hole" to attract foreign investment capital from the region and the world.

Chart 2: The growth rate and FDI capital in the period 1991-2018

The amount of foreign investment capital invested in Vietnam showed no sign of declining. It is the result of the promotion of Vietnam's opening investment and domestic socio-economic development. Attracting a lot of foreign investment brings significant benefits to Vietnam's socio-economic development. It contributes to the addition of social investment, promotes and increases economic growth, and the economic restructuring of Vietnam in the current modernization process.

Public and transparent efforts in the law-enacting process have helped increase the opportunities for foreign investment. Enterprises choose Vietnam as an investment destination for the 21 st century. Provisions on subjects and procedures are gradually made clear with the development of law firms in Vietnam such as Baker Mackenzie, Allen, Doanh Tri Law firm, and so on to help foreign investors easily understand and take investment activities easily. 

I. Investment policies for investing in Vietnam

In the Investment Law 2014, foreign investors have the following recognized rights:

1. Domestic investors and foreign investors are entitled to carry out business investment activities in industries and trades not banned by this Law.

2. Investors may autonomously decide on business investment activities according to this Law and other relevant laws; approach and use of credit capital sources, support funds, use of land and other resources as prescribed by law.

3. The State recognizes and protects ownership rights over assets, investment capital, income, and other rights and interests of investors.

4. The State treats fair, adopts policies to encourage and create favorable conditions for investors to do business investment activities, sustainable development of economic sectors.

5. The State respects and implements international treaties relating to business investments to which the Socialist Republic of Vietnam is a member.

II. Protection of foreign investors' capital according to Vietnamese law

In addition to the protection of investment capital provided for in Article 5 of the 2014 Investment Law, Vietnam has made great efforts in implementing WTO commitments and free trade agreements with other countries around the world. Vietnam always proactively proposes to supplement regulations on capital protection of investors and maintains the following policy:

First, no nationalization or requisition of investors' protected investments shall be made except for public purposes, conducted through a legal process, on a non-discriminatory basis. behave, and be promptly, fully and effectively compensated.

Second, the amount of compensation prescribed in the above must be equal to the real value of the investment being protected before being requisitioned or before the risk of being requisitioned becomes public; compensation may include an interest rate of the late compensation. 

Third, in case Vietnam is the requisitioning party, any direct requisition related to land needs to ensure the purpose is suitable for the current laws of Vietnam and payment of compensation equivalent to the market price.

Fourth, if the investor does not agree with the requisition or the amount of compensation, the investor has the right to request the competent authorities of Vietnam or other independent agencies to consider back the issues.

III. Tax incentives for foreign investors

Tax policy is one of the issues that have many questions for foreign investors because each country has different tax regulations. For the Vietnamese government, in addition to creating incentives for foreign investors, Vietnam also creates other tax-related incentives for foreign investors as follows:

Foreign investors who have taxed corporate income can receive one of two preferential investment policies on corporating income tax, which are subject to the specific tax rate of 10% or 20%.

With the tax rate of 10%: 

• Enterprises newly established from investment projects in geographical areas with exceptionally difficult socio-economic conditions, economic zones, hi-tech zones, newly established enterprises from investment projects of high technology, scientific research and technological development, especially important infrastructure investment of the State, production of software products; Enterprises operating in education-training, vocational training, health care, culture, sports, and environment are entitled to this capacity.

Duration: 15 years from the first year of taxable income from the investment project.

Exemption of corporate income tax: 4 years.

Reduction of corporate income tax: 50% reduction for no more than the next 9 years.

With the tax rate of 20%: 

Conditions: Enterprises newly established from investment projects in geographical areas with difficult socio-economic conditions; Agricultural service cooperatives and public's credit funds.

Duration: 15 years from the first year of taxable income from the investment project.

Exemption of corporate income tax: 02 years

Reduction of corporate income tax: 50% reduction for no more than the next 4 years

IV. Tax incentives for import and export  

Following to Tax Law, foreign investors shall have import tax-free with importing products: 

• In order to create non-fixed assets under the Government's Decree No. 134/2016 / ND-CP of September 1st, 2016, detailing a number of articles of the Law on Export Tax and Import Tax.
• Raw materials, supplies, and components that cannot be domestically produced are imported for production of investment projects (except for projects on assembling automobiles, motorcycles, air-conditioners, electric heaters, refrigerators, and washing, electric fans, dishwashers, disc players, sound systems, electric irons, hairdryers, hand dryers, and other items as decided by the Prime Minister) are exempt from Import tax within 05 years from the date of commencement of production.

V. Tax incentives for using lands

Investors may be exempted or reduced with a land rental, land use fee, and land use tax. Specifically, according to Decree No. 210/2013/ND-CP of December 19, 2013, on policies to encourage enterprises to invest in agriculture and rural areas in the following cases:

An investor with an agricultural project eligible for special investment incentives, if the land is allocated by the State, shall be exempted from the land use fee for such investment project.

An investor with an agricultural project eligible for investment incentives, if allocated land by the State, will be reduced 70% of the land use payment to the State budget for such an investment project.

If an investor with an agricultural project encourages investment, who receives land from the State, is reduced 50% of the land use payment to the State budget for that investment project.

The above are some basic legal issues that investors should pay attention to when investing and doing business in Vietnam. During the investment process in Vietnam, Investors will face many difficulties in language, culture, market, and legal policies. Therefore, investors should choose a qualified and knowledgeable consulting Vietnamese law firm to guide and support clients to conduct business investment and minimize the legal risks that can occur when investing and doing business in Vietnam

With international consulting experience and an understanding of Vietnamese laws, Doanh Tri Law firm has been a trustful destination for many projects, supporting many delegations and enterprises in investing and doing business in Vietnam.

A deep understanding of Vietnamese legal policy changes and international consulting experience has helped Doanh Tri Law firm become a strategic partner of many clients. Doanh Tri Law firm not only can provide legal services but also protect the rights of customers in the best way.

For having advice or answers to questions about investment activities in Vietnam, please contact Doanh Tri Law firm at the information below for further advice and assistance.

Hotline: (+84) 911.233.955 or Email: [email protected]

Doanh Tri Law firm is willingly pleased to accompany and cooperate with you!