Vietnam investment climate for foreign investment in 2013 is seen very promising. According to the report on Vietnam’s 2013 investment climate prepared by the Bureau of Economics and Business Affairs, Vietnam has been very successful in attracting foreign investment over the last five years. The government has open policies encouraging foreign investment. However, in this report, hindrances including corruption, bureaucracy, weak legal infrastructure, inadequate training and education systems, etc. have been pointed out, calling for an overall reform to make sure that Vietnam can continue to attract good-quality foreign investment.
Platforms for foreign investment
The Investment Law 2005: The Law has provided legal framework for foreign investment in Vietnam.
Being WTO’s 150th member: Becoming WTO member from 11.1.2007 has put Vietnam under many commitments such as free trade, transparency in regulations and trade pratices, creation of more level playing field for both Vietnam and foreign companies. Many important agreements have been signed accordingly, such as intellectual property right, investment measures, etc.
Business forums: The Vietnamese government holds many business forums for business discussion. Through these, both domestic and foreign companies can directly involve in the process, have their voices on important issues, comments and exchanges of ideas.
Poorly developed infrastructure, inadequate and cumbersome legal and financial systems, an unwieldy bureaucracy, non-transparent regulations, high start-up costs, arcane land acquisition and transfer regulations and procedures, a shortage of skilled personnel and pervasive corruption. Most investors make provisions for international arbitration so they do not have to rely exclusively on an under-developed and unreliable judicial system to uphold contracts. Foreign companies report delays in obtaining investment licenses, and licensing practices can vary among provinces. Investors frequently face policy changes related to taxes, tariffs, and administrative procedures, sometimes with little advance notice, making business planning difficult. Because Vietnam’s labor laws and implementation of those laws are not well developed, companies sometimes face difficulties with labor management issues. Corruption became more prevalent as evidenced by Vietnam’s dropping 11 places in the Transparency International Corruption Perceptions index.
The Investment Law provides for five main forms of foreign direct investment: (1) 100 percent foreign-owned or domestic-owned companies; (2) joint ventures (JV) between domestic and foreign investors; (3) business contracts such as business cooperation contracts (BCC), build-and-operate agreements (BOT and BTO), and build and transfer contracts (BT); (4) capital contribution for management of a company; and (5) merger and acquisitions (M&A). Foreign investors can, with restrictions, invest indirectly by buying securities or investing through financial intermediaries.
The Investment Law distinguishes four types of sectors: (1) prohibited sectors; (2) encouraged sectors; (3) conditional sectors applicable to both foreign and domestic investors; and (4) conditional sectors applicable only to foreign investors.
Foreign investors have the right to sell, market, and distribute what they manufacture locally, and to import goods needed for their investment projects and inputs directly related to their production, provided this right is included in their investment license.
Local authorities in Vietnam’s 58 provinces and 5 municipalities generally have the authority to issue investment licenses. Provincial authorities and the management boards of industrial zones are the issuing entities for most types of investment licensing, with the exception of build-and-operate projects (BOT, BO, BTO), which are still licensed by the central government. Domestic investors with projects of less than VND 15 billion (approximately $714,000) do not need to acquire investment licenses.
Licensing is required to establish a new investment as well as to make significant changes to an ongoing enterprise, such as to increase investment capital, restructure the company by changing the form of investment or investment ratios between foreign and domestic partners or add additional business activities.
Investment projects that must be approved by the Prime Minister include:
- All projects, regardless of capital source and size, in airports and seaports; mining, oil and gas; broadcasting and television; casinos; tobacco; higher education; sea transportation; post and delivery services; telecommunication and internet networks; printing and publishing; independent scientific research establishments; and establishment of industrial, export processing, high-tech and economic zones.
- All projects having capital in excess of VND 1.5 trillion (approximately $71 million), regardless of foreign ownership, in electricity; mineral processing and metallurgy; railways, roads and domestic waterways; and alcoholic beverages.
- All foreign-invested projects in sea transport, post and telecommunication, publishing, and independent science research units.
Participation of Foreign Investors in the GVN “Privatization” Program
Foreign investors are allowed to buy shares in state-owned enterprises (SOEs) being “equitized” (converted to joint stock companies, though rarely fully privatized) by the GVN. Shares are typically offered through an auction, although the process is not always clear or transparent. Foreign ownership in certain specified sectors may not exceed the limits for that sector, generally 49 percent.
In December, the GVN proposed to lower corporate income tax rates from the current 25 percent to 20 percent for small- and medium-sized enterprises and 23 percent for all other enterprises. If approved, the tax cut would take effect January 1, 2014. Corporate income tax for extractive industries varies from 32 to 50 percent depending on the project, and can be as low as 10 percent if an investment is made in selected priority sectors or in remote areas. Incentives are the same for both foreign-invested and domestic enterprises.
Vietnam does not tax profits remitted by foreign-invested companies. However, companies are required to fulfill their local tax and financial obligations before remitting profits overseas and are not permitted to accumulate losses, and the government has shown a strong interest in investigating alleged transfer pricing. A new personal income tax regime placing Vietnamese and foreigners on the same tax rate schedule took effect in January 2009. The new law regulates all types of personal income, including income previously subject to other laws such as income from individual businesses and property sales. The lowest tax rate is 5 percent while the highest is 35 percent.
Also in this report, many other foreign investment related issues are highlighted. Those are conversion and transfer policies, expropriation and compensation, dispute settlement, performance requirements and incentives, right to private ownership and establishment, protection of property rights, transparency of the regulatory systems, efficient investment markets and portfolio investment, competition from SOEs, corporate social responsibility, political violence, corruption, bilateral investment agreements, labor, and foreign trade zones.
For details, please visit http://www.state.gov/e/eb/rls/othr/ics/2013/204760.htm
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