VIETNAM – Several countries such as South Korea, Malaysia and Taiwan are currently experiencing the effects of the ongoing US-China trade war. For Vietnam, it is an excellent opportunity to bolster growth and attract foreign direct investments (FDI) amid such tumultuous economic conditions. Many businesses are shifting its manufacturing operations from China due to the country’s trade tensions with the US. With Vietnam’s relatively lower labour costs, it becomes a natural choice for foreign investments as an offshore business destination. This year, the country took the eighth spot out of 29 economies as the ideal destination for investment.
Vietnam garnered a total of $22.63 billion worth of FDI from January to August this year. As of August 2019, there are more than 29,530 foreign-invested projects with invested capital totalling $353.7 billion. Bac Ninh, a Northern Vietnamese province, is the country’s smallest province but yet managed to attract $18.2 billion of FDI from Samsung, Canon and Nokia.
According to Vietnam’s Prime Minister Nguyen Xuan Phuc, the global challenges caused by the trade conflicts present lucrative opportunities for the country. These opportunities are in line with the government’s economic liberalisation policy for exports and foreign investments. With the continuous economic development, Vietnam is poised to become an attractive destination for investors who want to set up their companies in Vietnam.
Investing in Vietnam’s Robust Business Climate
Vietnam’s growth potential to become a top investment destination is continuously expanding. Recently, the country signed a free trade agreement (FTA) with the European Union (EU). This agreement will help keep the country’s competitive edge, diversifying market risks and securing new investments. Investors are able to enjoy the benefits from this FTA along with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Market opportunities in Vietnam are brimming, which makes it a lucrative venture for entrepreneurs. For example, the tech industry in the country offers more room for development, making it relatively easy to introduce innovations. Similarly, Vietnamese enterprises seek opportunities for technology exchanges from foreign businesses in order to bolster domestic industries and improve its competitive edge in the global business climate.
Related: Top Reasons Why Vietnam is Ideal for Company Formation
Chairman of the State Securities Commission (SSC) Tran Van Dung stated that the country’s stock market is promising in terms of growth speed and foreign capital absorption reaching up to nearly $4.3 million as of end-June 2019. Hence, venturing intoVietnam’s stock market is an excellent choice for investors who want to engage in foreign indirect investment (FII)/ foreign portfolio investment (FPI).
On top of being a mature market for technological innovations and offshore incorporation, the government also offers several tax incentives for foreign investors setting up a company in Vietnam. Below, we summarise some of the incentives that investors can enjoy:
I. Corporate Income Tax (CIT) Incentives
Vietnam’s current CIT stands at 20%. However, the government offers generous perks and incentives to firms who conduct activities in specific areas and industries. These benefits will help investors gain the necessary leverage to operate their business efficiently in the country.
Here are some of the CIT incentives:
- 10% CIT rate within 15 years
- 15% CIT rate within 10 years
- 17% CIT rate in the first 10 years for investment projects operating in difficult socio-economic areas. This is also applicable to those providing agricultural service co-operatives and people’s credit funds, and will take effect for the entire operational period.
More information about the CIT incentives can be found here.
II. Tax Exemptions and Reductions
The imposition of taxes varies in every country. In Vietnam, there are exemptions which foreign investors can benefit from. In addition to preferential CIT rates, businesses may enjoy CIT exemption between 2 to 4 years, and subsequently, a 50% reduction in CIT between 4 to 9 years after the CIT exemption period has expired. The application of tax exemption starts from the business’s first profitable year, and there is a 3-year limit to the exemption period.
These are the CIT exemption plans that the government offer to business owners:
- Tax exemption for 4 years, 50% reduction of payable tax for 9 subsequent years
- Tax exemption for 4 years, 50% reduction of payable tax for 5 subsequent years
- Tax exemption for 2 years, 50% reduction of payable tax for 4 subsequent years
Related: A Comprehensive Guide to Choosing Vietnam for Offshore Company Formation
III. Import Tax Incentives
More than tax holidays and incentives, foreign businesses that engage in specific industries, areas or activities can be granted import tax incentives as promulgated and regulated in Decree 87/2010/ND-CP. These materials include construction materials which cannot be produced in Vietnam, certain goods imported by the BOT (Build, Operate, Transfer) enterprises, and certain goods for oil and gas activities. Exclusion from import duties is a huge advantage for businesses as it helps in reducing overhead costs.
Read more about it here.
IV. Land Rental Incentives
Foreign investors who wish to operate a business in Vietnam can benefit from the land rental incentives that the government offers. Land rental incentives include rent exemption for three to 15 years, depending on the type of investment and area. It is also possible for projects to be exempted from rent throughout its entire duration. Hence, for investors who want to benefit from rental incentives, it is advisable to conduct business activities specified in Decree 46/2014/ND-CP.
Contact DesFran for Advisory Solutions
Vietnam offers excellent business incentives for foreign investors. With the ongoing global economic challenges, the country has emerged as a prime destination for offshore investments.
In a market where there is a surge of investments, such as Vietnam, it is best to consult with professionals who are experts in company formation processes. At DesFran, our wide network of consultants and local specialists provide in-depth advisories on how to set up an offshore business in the country. Contact us today to learn more.
References
Vietnam gains ground in the shift from China, Ft.com
Vietnam to see strong growth in 2019, unlikely to face US tariffs: reports, Businesstimes.com.sg
Vietnam shapes as a key winner from the US-China trade war, Lowyinstitute.org
Vietnam thrives in the US-China trade war, Chinadialogue.net
Domestic industry needs technology transfer, Vietnamnews.vn
Vietnamese stock market attracts foreign investment, En.nhandan.org.vn
