Investing in Vietnam: A Gateway for Foreign Direct Investment

Vietnam’s investment landscape is increasingly appealing to foreign investors, thanks to its strategic geographical position, competitive labor force, and various cost-saving incentives. The Vietnamese government has made considerable strides in improving business conditions, offering a range of investment incentives designed to attract foreign direct investment (FDI).

Understanding Foreign Direct Investment Enterprises (FDIs)

Foreign Direct Investment enterprises are businesses that operate under specific legal and regulatory guidelines set by Vietnamese authorities. These enterprises primarily engage in trading goods both domestically and internationally. As such, they must navigate a complex web of regulations to avoid unnecessary tax liabilities and legal complications.

Rights of FDI Enterprises: Exporting, Importing, and Distributing

The rights of FDI enterprises regarding export, import, and distribution are outlined in Decree No. 09/2018/NĐ-CP, published in 2018. The decree emphasizes the following:

• Right to Export: FDIs can purchase goods in Vietnam for export, taking full responsibility for the associated procedures. However, laws restrict the rights to buy goods for export from non-trading entities unless otherwise stipulated by Vietnamese regulations or international treaties.

• Right to Import: FDIs can import goods from abroad for sale to authorized traders, again assuming responsibility for the necessary procedures. Notably, they cannot participate in the domestic distribution system unless specifically allowed by law.

• Distribution Rights: FDI enterprises have the authority to engage in wholesale, retail, franchising, and agent sales of goods.

Conditions on Exporting, Importing, and Distributing

Certain stipulations must be met by FDI enterprises to engage in exporting and importing:

1. They must not deal in goods categorized as banned or temporarily excluded from export/import.
2. If dealing in goods requiring licenses or meeting specific conditions, the enterprises must acquire those licenses and adhere to relevant regulations, as dictated by the Law on Investment and the Law on Enterprises.

Market Access After WTO Commitments

According to Vietnam’s commitments to the World Trade Organization (WTO), any market access limitations concerning FDI enterprises in wholesale and retail trading sectors have expired. This change allows for unrestricted operations in these business lines, further promoting investment attractiveness.

Tax Incentives: The Alluring Factor for Investors

Among the array of investment incentives, tax advantages stand out as exceptionally appealing in the Vietnamese market.

Overview of Corporate Income Tax (CIT) Incentives

The Vietnamese government extends corporate income tax incentives to both foreign and domestic investors. These incentives come in two primary forms:

1. Preferential Tax Rates (Reduced Rates): Aim to lower tax burdens for investors in key sectors.

2. Tax Holidays: These offer tax exemptions for a specified duration or sometimes the entire life of the project.

Deciphering Eligibility for Tax Incentives

To qualify for tax incentives, firms must align with criteria based on:

• Sector: Investments in specific prioritized sectors may yield lower tax rates. For example:

  • Firms investing in technology-heavy sectors, garments, and footwear may enjoy a 10% tax rate for 15 years, which includes a four-year tax holiday.
  • Companies in education and healthcare are taxed at 10% for the duration of the project.

• Location: Special geographic areas may also bring about favorable tax conditions:

  • Enterprises in extremely challenging locations can benefit from a 10% tax rate for 15 years, including an initial four-year tax holiday.

• Project Size: Larger manufacturing projects can receive tax incentives based on their capital investments and employee counts, potentially leading to a 10% tax rate for 15 years.

Additional Incentives: Customs Duties and Land Rentals

Beyond tax incentives, businesses can also enjoy exemptions in customs duties and land rental fees under specific conditions:

• Customs Duty Exemptions: These are available for goods intended for fixed assets in selected projects or specific essential imports that cannot be produced domestically.

• Land Rental Incentives: Various exemptions apply based on investment areas, with certain locations offering up to 15 years of exemptions for particularly challenging socio-economic conditions.

Navigating Investment Regulations and Applications

FDI enterprises need to undergo careful scrutiny while applying for business licenses related to their rights to export, import, and distribute goods.

Considerations for FDI Enterprises

Understanding the dynamics of Vietnam’s complex legal framework is crucial for foreign investors. Engaging with the Ministry of Planning and Investment (MPI) is essential, as they oversee granting investment incentives. However, local governments also play a crucial role in the implementation phase.

Further involvement from various technical ministries during the project assessment process can add layers of complexity. Once granted, the Ministry of Finance (MoF) and relevant tax departments will oversee compliance with the applicable incentives.

Conclusion

For foreign investors aiming to capitalize on Vietnam’s rich investment landscape, understanding the comprehensive details around rights, conditions, and incentives is vital for securing and enhancing their investment outcomes. With numerous benefits available, a strategic approach combined with a deep understanding of local regulations can pave the way for successful business ventures in Vietnam.

By assessing the intricate web of regulations and capitalizing on available incentives, foreign investors can not only protect their investments but also set a foundation for a sustainable business presence in Vietnam’s dynamic market.