Doing Business in Vietnam
Welcome to our guide to Doing Business in Vietnam. In this section, we hope to provide you with some insight into the key aspects of doing business in Vietnam and answer many of the questions foreign businesses and entrepreneurs have upon their early-days business considerations in Vietnam.
Many foreigners have been lured into doing business in Vietnam for its numerous favorable charactertics over regional peers. Geographically, Vietnam has such a strategic location within Asia and South East Asia: center of oth. This represents a key advantage from logistics viewpoint, as the Vietnam-based operations can be the regional hub in airways, seaways and roadways.
Demographically, Vietnam has a golden population of approx. 95 million (2018), roughly half of which are under age 30. One third of the population are urbanites and this is increasing rapidly, due to high urbanization rates and economic structure switch (decreasing significance of agriculture). Improving welfare is improving the people’s longevity (2017: 73.4 years). Simultaneously, the middle class is rising quickly and is expected to reach 44 million by 2020, in sync with the steadily improved GDP per capita ( US$2,587 in 2018).
The nation started adopting extensive economic reforms in late 1980s and have since made considerable achievements. After being hard hit by the global financial crisis in 2009, Vietnam has managed to make positive economic rebounds during the period 2013-2016 (average GDP growth rate of 6.1%), and then reached and retained robust growth momentum in 2017 and 2018 (growth rate of 6.8% and 7.1%, respectively). By the same token, CPI inflation has been well under control and budget for years (consistently well below 5%).
Despite the prolonged world economic downturn, Vietnam’s FDI performance has been quite positive. Both FDI commitments and disbursements have been on an upward trend since 2010, indicating foreign investors’ continued confidence in the country’s business environment and long-term prospects in spite of short-term challenges. Particularly, in 2017, registered FDI made a record growth of 44.4% to reach nearly US$36bn. By the same token, disbursed FDI reached a record high of US$17.5bn (up 10.6% from previous year).
Numerous industry sectors are identified as high-growth notably retail, food and beverage (or FMCG in a broader sense), ICT services, healthcare & pharmaceuticals (notably food supplements or dietary supplements as an exciting emerging sub-sector).
Vietnam’s business environment has been improving, though quite slowly. Its ranking on ease of doing business by World Bank currently stands as 69/190 (2018), a fall from the 68th in 2017, which is more attributed to changes in indexing methodology.
Opportunities for foreigners to do business in Vietnam are increasingly abundant, as the country has recently concluded more and more multilateral free trade agreements such as the CP-TPP, Vietnam-EU AFTA, and ASEAN Economic Community (AEC).
Furthermore, numerous factors continue to make it an attractive destination for investment: a strong economic outlook, broad-based growth, low wages, dynamic environment, young population, growing wealth and middle class, changing consumer attitudes and lifestyles, greater mobility and urbanization. Besides, the government’s further opening up the economy as well as its reform commitments is pushing the country through a period of great change, giving foreigners access to exciting new sectors and opportunities outside of manufacturing, particularly services and distribution/retail.
As of now, a foreign-owned company can do almost everything a local can, given that most major WTO commitments have been in place, especially in terms of market access or foreign ownership. On top of that, various market entry options (with or without creating new local entities) are available for foreign investors (firms and individuals), in differrent legal forms of business (joint stock, LLC, proprietorship, partnership). Investors should also be aware about preferential business sectors (with tax and other incentives), business licensing and post-licensing procedures, financial reporting requirements.
Regardless of rationale for market entry, determining the right market entry strategy and pathway can be challenging. Success in other markets cannot necessarily be easily replicated in Vietnam given the market’s numerous idiosyncrasies. The message for those those planning on doing business in Vietnam is clear: make sure that you have adequately assessed your markets and risks, and that you take time to invest in knowing your customers and partners, your government touch points and stakeholders, the rules and regulations to comply with.
Vietnam’s tax system has undergone crucial reforms over the past 20 years. Tax policy and tax reform has become increasingly aligned with international rules and practices, and simultaneously tax collection and administration processes have been improved. In 2007, the Law on Tax Administration was first enacted implemented, providing rules on tax administration, management of information, tax collection and enforcement. It also provided guidance in areas previously open to wide interpretation.
Tax administration is controlled by the National Department of Taxation, which operates under the Ministry of Finance. Tax affairs are more commonly handled by local provincial (municipality) tax departments and district tax departments.
Every corporate business should be subject to the following common taxes: Corporate Income Tax (CIT), Value Added Tax (VAT), Foreign Contractor Tax (FCT), and Personal Income Tax (PIT). Other less common taxes are Special Sales Tax, Environmental Tax, Import and Export Duties, Natural Resources Tax, Environmental Tax, Property Tax, etc.. The working mechanism of these taxes is described in great detail, and is governed by each respective tax law and/or set of regulations (decrees and circulars).
Standard CIT rate is 20%, VAT 10%, PIT progressively ranging between 5% and 35%, FCT (or withholding tax) varying greatly, depending upon the type of nature of business of the offshore taxpayer.
Despite all the reforms and progress, taxation is still one of the most challenging areas facing people doing business in Vietnam, both foreign and local.
Finally, we hope you’ve found this section somewhat helpful. For further questions, you are welcome to contact us at email@example.com. For specific professional assistance, we would be keen to meet you for a discussion.