Date: 16 August 2021
Writers: Huy Nguyen
Vietnam is fast becoming an attractive country for foreign investors looking to expand their business coverage. This is especially for investors within the South-East Asian region. The Vietnamese government has recognized this positive outlook and has provided investor-friendly policies aim at attracting investments into Vietnam with a view to promote strong economic development, jobs growth, and increase stands of living for its citizens.
To assist investors from South-East Asia looking to invest in Vietnam, BLawyers Vietnam has provided some important commentary on how to access the attractive investment incentives available to investors. We would be pleased to discuss any of the below information with your business in detail.
1. Overview of the investment environment in Vietnam
The Covid-19 pandemic remains a significant barrier to economies around the world. In Vietnam, despite the recent complications for businesses arising from the prolonged shutdown of big cities such as Ho Chi Minh City and Hanoi, the total foreign investment capital, including newly registered capital, adjusted registration capital and the value of capital contributions and shares purchase by foreign investors amounted to approximately 14 billion USD (as at 20 May 2021), an increase 0.8% compared to the same period in 2020. In which, there were generally:
- 613 newly licensed projects with the registered capital of 8.83 billion USD, going down by 49.4% in the number of projects and rising by 18.6% in the registered capital compared to the corresponding period of 2020;
- 342 times of licensed projects from previous years registered to adjust investment capital with the additional capital reaching 3.86 billion USD, growing by 11.7%;
- 1,422 times of capital contribution and share purchase from foreign investors with a total value of a capital contribution of 1.31 billion USD, declining by 56.3%. Foreign direct investment capital in the first 5 months of 2021 was estimated at 7.15 billion USD, going up by 6.7% compared to the corresponding period of 2020.
(The above data was from General Statistic Office of Vietnam: www.gso.gov.vn/du-lieu-va-so-lieu-thong-ke/2021/06/tinh-hinh-von-dau-tu-nuoc-ngoai-5-thang-dau-nam-2021/)
Thus, from the above breakdown, government investment incentives are a significant consideration where investors are looking to Vietnam as the destination to expand their operations.
2. What are the available investment incentives that investors from South-East Asia should consider when investing in Vietnam?
Below we divided investment incentives for investors from South-East Asia into 2 parts; in which the first part is relating to incentives about taxes and costs and the second one for market entry.
2.1. Investment incentives available for taxes and costs
2.1.1. Investment projects eligible for investment incentives
Here are some investment projects eligible for investment incentives pursuant to the prevailing laws of Vietnam:
- Investment projects in business lines eligible for investment incentives or business lines eligible for special investment incentives specified in Appendix II of Decree No. 31/2021/ND-CP (see link);
- Investment projects located in disadvantaged or extremely disadvantaged areas specified in Appendix III of Decree No. 31/2021/ND-CP (see link);
- Investment project whose capital is at least VND 6,000 billion when:
- At least VND 6,000 billion is disbursed within 03 years from the issuance date of the investment registration certificate or other similar documents; and
- The total revenue is at least VND 10,000 billion per year within 03 years from the year in which the revenue is earned or the project has an annual average number of at least 3,000 employees in accordance with regulations of law on labor 03 years within 03 years from the year in which the revenue is earned.
- Projects on investment in the construction of social housing in accordance with regulations of Law on Housing;
- Projects located in rural areas and employing at least 500 employees per year in accordance with regulations of law on labor (excluding employees who work on a part-time basis and employees who sign employment contracts with a fixed term of under 12 months);
- Projects employing persons with disabilities accounting for at least 30% of the annual average number of employees in accordance with regulations of laws on persons with disabilities and on labor;
- Hi-tech enterprises, science and technology enterprises and science and technology organizations; projects involving the transfer of technologies on the List of technologies the transfer of which is encouraged; science and technology enterprise incubators, etc.;
- Innovation centers established by agencies, organizations and individuals so as to assist in executing start-up projects, establishing startups and promoting innovation, research and development in the centers;
- Innovative start-up projects;
- Projects on the establishment of research and development centers;
- Investment in business in small and medium-sized enterprises’ product distribution chain; investment in business in technical establishments supporting small and medium-sized enterprises, small and medium-sized enterprise incubators; investment in business in co-working spaces serving small and medium-sized enterprises and startups.
2.1.2. 5 forms of investment incentives
- Incentives on corporate income tax, including:
- The preferential tax rate of 10% for 15 years;
- The preferential tax rate of 10% over the entire operating period;
- The preferential tax rate of 15%;
- The preferential tax rate of 17% for 10 years; or
- The preferential tax rate of 17% over the entire operating period.
- Incentives on tax exemption, tax reduction, including:
- Tax exemption for 4 years and 50% tax reduction for the next 9 years;
- Tax exemption for 4 years and 50% tax reduction for the next 5 years; or
- Tax exemption for 2 years and 50% tax reduction for the next 4 years.
- Incentives on import and export tax
There are some examples for this kind of incentives as follows:
- Exemption from import and export tax for enterprises importing or exporting goods for further processing and processed imports or exports under processing contracts;
- Exemption from import tax for enterprises importing goods for the manufacture of domestic exports; or
- 5-year exemption from import tax for enterprises importing raw materials, supplies and components that cannot be domestically manufactured.
- Incentives on land rent and water surface rent, including:
- Exemption of land rent and water surface rent over the entire renting period;
- Exemption of the land rents and water surface rents after the land rent and water surface rent exemption of the fundamental construction period; or
- Reduction in land rent and water surface rent.
In addition, with respect to the investment projects eligible for special investment incentives and assistance, the Prime Minister should decide that:
- the duration of exemption from land and water surface rents does not exceed 1.5 times the duration of application of the exemption from land and water surface rents for some specific projects;
- the reduction in land does not exceed 1.5 times the reduction in land rents leased by a cooperative to be used as business and production premises.
- Accelerated depreciation, increasing the deductible expenses upon calculation of taxable income, including:
- The enterprises operating with high economic efficiency may accelerate their depreciation, but not more than 2 times of the depreciation rate by the straight-line method for rapid technological innovation;
- For incentives to increase the deductible expenses when calculating taxable income, this is a new form of investment incentives according to the provisions of the Law on Investment, currently, there are no detailed regulations on this preferential case.
2.2. Market entry – Exclusive incentives under the ASEAN Framework Agreement on Services (AFAS) for investors from Southeast Asia countries
Investors from Southeast Asia countries can also access the ASEAN Framework Agreement on Services (AFAS). In comparison to Vietnam’s commitment to join WTO, the level of liberalization of trade in services of AFAS is broad and deep in many fields. For example:
- Educational services: Investors from Southeast Asia countries are given priority to invest in primary education services (CPC 921) in accordance with AFAS;
- Sanitation and similar services (CPC 9403) and Nature and landscape protection services (CPC 9406): Investors from Southeast Asia countries can operate in such services in Vietnam in accordance with AFAS;
- Hospital services (CPC 9311): Investors from Southeast Asia countries are given priority to establish hospitals without limitation on market access. Of note, non-Southeast-Asian investors must have the minimum investment capital for a commercial presence in hospital services. Notablely, it is at least US$20 million for a hospital, US$2 million for a policlinic unit and US$200,000 for a specialty unit.
- Tourism services: Investors from Southeast Asia countries are also entitled to provide tourist theme parks by establishing a joint venture with a Vietnamese partner with the capital contributions of the foreign side being up to 70 % in accordance with AFAS.
- Rental of vessels with crew (CPC 7213): Investors from Southeast Asia countries can establish a joint venture with a Vietnamese partner with the capital contributions of the foreign side being up to 70 % in accordance with AFAS.
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