Once war-torn and ruled by a rigid central government, Vietnam has made progress over the past 10 years in moving from a planned economy to a market economy, opening up to foreign investment and maintaining consistent growth. In the years leading up to the 1997 Asian financial crisis, Vietnam had grown at nearly nine percent annually. But, the Asian crisis marked an economic slowdown from which the country has not fully recovered. Reduced growth in GDP to less than five percent per year in the past three years and falling foreign direct investment (FDI) have marked Vietnam's recent performance.
The government is slowly introducing structural reforms to invigorate the economy and foster competitive, export-driven growth. Privatization of state-owned enterprises is hindered by political red tape and intra-governmental strife, while the private sector is suffering from a weak banking sector and protectionist policies on state-owned enterprises. Reform and restructuring of poorly managed state-owned banks are slowly progressing, causing worries the country will be unable to take advantage of domestic savings to perpetuate current growth. Vietnam is taking steps to open its economy and enable outsiders to invest in the country. Several initiatives have been taken to move in this direction. During 2000, foreign trading rights were liberalized, quantitative restrictions were removed on eight of the 19 major product groups subject to such restrictions, and a long-anticipated bilateral agreement normalizing trade relations with the United States was signed in July.
A well-educated workforce, low labor costs and a series of quiet but progressive legislative actions by an increasingly reform-minded government all figure to attract rising volumes of foreign investment in coming years. Some of the changed standards include allowing more autonomy for the board of management in joint-venture companies and lowering income taxes from 50 percent to 70 percent to a general range of 30 percent to 50 percent. The government has tried to reduce bureaucratic interference in the private sector. Under the new regulations, disclosure of proprietary information no longer is required to register with the government. With lower labor costs than its neighbors, Vietnam is a strong candidate for foreign companies to set up shop when they want to produce lower-end value-added goods for export.
Vietnam possesses modest oil reserves (less than one billion barrels but more are likely to be found as exploration continues), and produces about 360,000 barrels per day of crude oil virtually all of which is exported because the country currently has no oil refining capacity. Oil production is a substantial source of revenue for the government with about one-third of its total revenue amounting to about seven percent of GDP. Foreign investment in Vietnamese natural gas resources is also increasing with large offshore fields in the south and in the joint development area with Malaysia having potential to fuel new power plants in the populous south of the country.
2. Economic Performance
GDP grew by 4.7 percent in 2001 compared to 5.5 percent in 2000 and 4.2 percent in 1999. The inflation rate has moderated significantly since the Asian financial crisis; inflation (as measured by the GDP deflator) was just 1.7 percent in 2001, down marginally from 2.5 percent in 2000 and 5.7 percent in 1999.
Vietnam was affected relatively little by the Asian financial crisis and the global economic slowdown of late 2000 and 2001 because it is comparatively much less integrated into the world economy than its Southeast Asian neighbors and its currency is not convertible. But, foreign investment in light manufacturing businesses has been made in Vietnam, and that sector was affected by slowing world trade, explaining part of the slowdown in Vietnam's rate of GDP growth in 2001. But, it is also true that the huge flows of investment into developing countries in Southeast Asia generally have slowed down since 1997 and 1998 and Vietnam had less FDI arrive in 2001 than it had in 1996 no doubt a more significant part of the reason for the secular slowdown in the country's growth. Low agricultural commodity prices and smaller harvests affected rural incomes in 2001, slowing consumption demand as well as reducing GDP growth directly. The country is creating a number of new small and medium sized enterprises and their activities in 2001, along with government spending on infrastructure, made domestic investment a positive contributor to GDP growth.
World Bank Group Data
|
|
1997 |
2000 |
2001 |
|
25.6 billion |
30.5 billion |
32.6 billion |
|
|
340.0 |
390.0 |
410.0 |
|
|
26.8 billion |
31.3 billion |
32.9 billion |
|
|
8.1 |
5.5 |
6.0 |
|
|
12.1 |
5.3 |
2.9 |
|
|
25.8 |
24.3 |
.. |
|
|
32.1 |
36.6 |
.. |
|
|
42.2 |
39.1 |
.. |
|
|
43.6 |
.. |
.. |
|
|
51.7 |
.. |
.. |
|
|
28.3 |
27.4 |
.. |
|
|
19.7 |
17.7 |
.. |
|
|
-1.7 |
-2.5 |
.. |
3.
Balance of
Payments:
Vietnam's current account moved from
deficit to surplus over the period of the onset of the Asian financial crisis
until 2001 as imports stagnated and exports, including oil, continued to rise,
swinging the merchandise trade balance from deficit to surplus beginning in
1999. The services balance has been in deficit, averaging about US$.5 billion
annually in the past several years and, as a net international debtor, Vietnam
pays out a similar amount more in factor income to foreigners than it earns.
Perhaps the strongest and most consistent segment of the current account over
the past five years has been net transfers which have averaged more than US$1
billion annually, a reflection of a large and relatively wealthy expatriate
community.
Capital flows into Vietnam have been in direct investment and
official development assistance loans since the country lacks the private
securities market infrastructure to support portfolio investment flows with the
rest of the world. FDI inflows peaked at about US$2.4 billion in 1996, but fell
to less than half that by 2001. Short-term capital flows comprising bank
account balances have been a persistent outflow. As of year-end 2001, Vietnam's gross international reserves
stood at about US$3.7 billion, equivalent to about two months worth of imports.
|
Balance
of Payments |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
4. Import Export Markets:
|
|
1997 |
2000 |
2001 |
|
75.3 |
96.0 |
.. |
|
|
.. |
.. |
.. |
|
|
.. |
.. |
.. |
|
|
.. |
.. |
.. |
|
|
Foreign direct investment, net inflows in reporting country (current US$) |
2.2 billion |
1.3 billion |
.. |
|
.. |
11.1 billion |
.. |
|
|
7.7 |
7.5 |
.. |
|
Exports: |
$15.1 billion (f.o.b.) |
|
Exports - commodities: |
crude oil, marine products, rice, coffee, rubber, tea, garments, shoes |
|
Exports - partners: |
Japan 18.1%, China 10.6%, Australia 8.8%, Singapore 6.1%, Taiwan 5.2%, Germany 5.1%, US 5.1% (2000) |
|
Imports: |
$15.3 billion (f.o.b.) |
|
Imports - commodities: |
machinery and equipment, petroleum products, fertilizer, steel products, raw cotton, grain, cement, motorcycles |
|
Imports - partners: |
Singapore 17.7%, Japan 14.4%, Taiwan 12.1%, South Korea 11.1%, China 9.1%, Thailand 5.2%, Hong Kong 3.9% (2000) |
5. Stock Market Performance:
The government introduced a new countrywide accounting standard in 1997. Most
of the "Big Five" accounting firms have opened offices locally.
Foreign accounting firms, unlike law firms, can dispense advice about
accounting and business problems directly to foreign clients, without having to
use local accounting firms as intermediaries. Nonetheless, the absence of clear
accounting standards and of transparency in evaluating Vietnamese firms'
financial health impedes fulfillment of the government's goal to set up a stock
and securities market that would provide an efficient means of raising capital
internally. Vietnam is trying to take positive steps toward the formation of a
stock and financial-assets market. It has, for instance, formed an official
commission headed by a Vice Governor of the State Bank of Vietnam. Still, the
prevailing expectation is that a stock market will not be formed in the
immediate future.
Foreign Investment
Vietnam in principle maintains a policy of encouragement of foreign
investment. A crucial priority for its long-term development strategy to the
year 2020 is to continue to attract and utilize relatively large amounts of
oversees capital, both Foreign Direct Investment (FDI) and Official Development
Assistance (ODA). For the 2001-2005 period the government has set FDI targets
of US$15-20 billion of new registered capital and US$11 billion of realized
(disbursed) capital, as well as approximately US$2 billion annually of ODA from
foreign donors, for a total of US$36-41 billion from foreign sources. These
levels of FDI and ODA are required to support the government's GDP growth
target of six to seven percent per year. In 1999 licensed foreign investment
(not actual disbursements) and ODA totaled approximately US$2 billion each.
Actual disbursement of FDI also was about US$1.5 billion.
Despite this good start, however, Vietnam remains a difficult investment
environment. Currently in a period of transition from a totally command economy
to a "state-supervised" market economy in which the state sector
retains a "leading role", Vietnam is trying to implement a series of
gradual reforms that will enable the economy to function more efficiently. As
the government engages in this complex process, foreign investors must cope
with a wide range of problems and costs. These include poorly developed
infrastructure, under-developed and cumbersome legal and financial systems, an
unwieldy bureaucracy, non-transparent regulations, high start-up costs, arcane
land acquisition and transfer regulations and procedures, and shortage of
trained personnel. Issuance of investment licenses and implementation of
projects often is a lengthy process during which the investment environment in
areas such as taxes and procedures frequently changes.
The above shortcomings caused FDI to fall precipitously in 1999, for the third
consecutive year. Realized capital fell 21 percent to US$1.536 billion and
licensed capital fell 60 percent to US$1.548 billion, although the number of
new projects rose 15 percent to 298. Continuing another trend of several years,
many foreign companies either closed their representative offices or reduced
their numbers of expatriate and Vietnamese staff.
One of the greatest challenges for Vietnam is to make its economic system more
competitive by cutting red tape, streamlining regulations, and generally making
the entire economic system more efficient and transparent, as well as less
corrupt. Some of the most vociferous and frequent complaints from foreign
investors concern the length of the contract negotiating process and the delays
in obtaining project approvals from the government.
In an effort to improve Vietnam's attractiveness to foreign investors, in May
2000, after months of revisions that generally diluted the original, more
extensive proposals, the National Assembly approved a number of changes to the
1996 Foreign Investment Law (FIL).
1. Currency
Conversion and Transfer Policies
Various
articles of the Foreign Investment Law (FIL) require foreign-invested
enterprises to "balance" their requirements for foreign currency, to
open Vietnamese and foreign currency accounts at Vietnamese or foreign banks in
Vietnam, and to convert Vietnamese currency
into foreign currency at the official exchange rate. Conversion of Vietnamese
dong into hard currency requires a foreign exchange license, which at times of
high demand for foreign exchange can present a problem for foreign businesses.
No information on average delays in remitting investment returns is available,
in part because few foreign investments thus far have been profitable.
Although vaguely worded, a potentially important change in the FIL that will
take effect July 1,
2000 may improve the
foreign currency conversion procedure. All businesses and parties to business
cooperation contracts (BCC's) will be allowed to purchase foreign currency for
the purpose of making payments for current transactions and for other purposes
permitted by law. "Support for foreign currency balance" will be
provided to infrastructure projects and some other essential projects. The
"foreign currency balance" of extremely important projects may be
ensured by the Vietnamese government on a case-by-case basis.
Foreign businesses are allowed to remit profits in hard currency, subject to
availability. Foreigners also are allowed to remit abroad royalties and fees
paid for the supply of technologies and services, principal and interest on
loans obtained for business operations, and investment capital and other money
and assets under their legitimate ownership. Approval by MPI is needed to
increase or decrease the capital of a foreign-invested business.
In principle foreign-invested companies are expected to be
"self-sufficient" for their foreign exchange requirements, although
this sometimes proves impractical. For access to foreign currency, investors
fall into three categories, only one of which (category A, including
build-operate-transfer and other infrastructure projects, import substitution
projects, and "special" projects) receives "assurance" of
currency conversion, although even that right is not clear. Investors in the
other two categories have no guarantees of foreign currency access or
conversion rights.
The requirement for companies dealing in foreign exchange to sell 80 percent of
their forex holdings to the state banking system was eased to 50 percent in
September 1999. Firms subject to this provision include domestic enterprises,
foreign-invested JV's, and foreign contractors that are eligible to buy foreign
exchange from the banks. The change reportedly was due to improved availability
of foreign exchange in Vietnam.
2. Expropriation and Compensation
There is no known recent instances of expropriation of a foreign investment by
the government of Vietnam. However, if the government should refuse to renew an
investor's visa, or impose fines for alleged infraction of laws or regulations,
the result could be similar to an expropriation.
3. Dispute Settlement
Vietnam's legal system, including dispute and claims settlement mechanisms,
remains under-developed. The current bankruptcy law was enacted in 1994,
although the government reportedly is preparing a new law or amendments to the
existing law for submission to the National Assembly. At present the bankruptcy
law applies to all domestic and foreign-invested companies except national
defense and public service organizations. Since enactment of the law,
sixty-four enterprises have been declared bankrupt, including 10 SOE's and 25
private companies. In 1999, 22 firms applied for bankruptcy, seven of which
were approved.
A firm can be deemed bankrupt if it suffers losses for two consecutive years
and is unable to meet its financial obligations to creditors as they become
due, and/or pay the full salaries of its employees for three consecutive
months. Persons permitted to petition for bankruptcy include creditors who have
not received payment for more than thirty days (this occurs in about 90 percent
of bankruptcy cases), unions or labor representatives of employees who have not
been paid for three months, and the owner or legal representative of a business
in financial difficulty. The latter is permitted to petition only if it has
exhausted all means for settlement or rescheduling of its debts and obligations.
Once a bankruptcy petition is filed, creditors must meet to consider settlement
proposals before bankruptcy is declared. The government encourages voluntary
settlements. The bankruptcy process can be quite complicated and often takes
more than one year to complete. Provincial People's Courts receive bankruptcy
petitions, which thereafter are handled by the Economic Courts. A judge may
declare a business bankrupt if it has no cohesive business strategy, the owner
does not propose a resolution or goes into hiding, creditors cannot agree on a
reorganization plan, the allowed time for restructuring expires, or the firm
violates its agreement with the creditors. Once bankruptcy is declared, an
"asset realization committee" is empowered to settle debts in the
following order: fees and costs of bankruptcy proceedings, wages and social
insurance payments, taxes, and debts to creditors. If funds available for
creditor repayment are insufficient, they are allocated proportionately.
Negotiation between the concerned parties is the most common and preferred
means of dispute resolution. Although contracts are difficult to enforce in Vietnam,
particularly if one party to a dispute is a foreigner, investors generally
should negotiate and include contract resolution procedures in their contracts.
Vietnam has acceded to the New York Convention on Foreign Arbitral Awards,
but as yet there have been no disputes between a foreign and a Vietnamese
entity settled under this multilateral agreement.
Economic Courts, in addition to hearing bankruptcy cases, also have
jurisdiction over cases involving business disputes. Administrative Courts hear
cases that concern alleged infractions of administrative procedures by
government authorities. In such cases the plaintiff must pay to the court a
bond, half of which is forfeited if the dispute is resolved before the
beginning of court proceedings. Also, the court proceedings must begin within
six months of the date of the dispute.
Outside the court system, dispute resolution also can be pursued through the
Economic Arbitration Centers. Each Center must include at least five
arbitrators licensed by the Ministry of Justice, and each arbitrator must be
"ethical, honest, impartial, and objective" as well as "wise and
experienced in the fields of law and economics".
The "Vietnam International Arbitration Center" (VIAC) operates in
close coordination with the Vietnam Chamber of Commerce and Industry (VCCI). It
has authority to settle all disputes arising from international economic
transactions, including contracts in foreign trade, investment, tourism,
international transport and insurance, technology transfers, and international
credits and payments. The decisions of VIAC are final and cannot be appealed to
any other domestic court, but it has no means of enforcement.
4. Performance Requirements and Incentives
The FIL and subsequent decrees authorize the Ministry of Planning and
Investment to "encourage investment in mountainous and remote areas"
of the country and in regions with "difficult economic and social
conditions". The Ministry of Planning and Investment also encourages
investment in export production, agricultural and forestry production, high
technology, ecology, research and development, labor-intensive processing of
raw materials, and large industrial and/or infrastructure projects. The law
also favors, to a lesser degree, investments in metallurgy, basic chemicals,
petrochemicals, fertilizer manufacture, manufacturing (especially electronic
components and car and motorbike parts), and planting industrial crops. Under
Circulars 1817 and 1818 (1999), the Ministry of Science, Technology, and
Environment (MOSTE) also encourages projects in the areas of treatment of
environmental pollution and waste, production of new or rare and precious
materials, application of new biological technology, application of new
technology for manufacturing communication and telecommunication equipment, and
electronic and informatics technology.
5. Private Ownership Rights
Until the late 1980s the Vietnamese economy was organized according to
principles of socialist central planning. Since then the government has moved
to develop a multi-sector economy and has formally recognized the existence of
the private sector. In recent years the private and collective sectors have
begun to play greater roles in the economy, although the government insists the
state sector will continue to dominate.
Although little large-scale Vietnamese private enterprise exists, there are
thousands of small, family-owned firms. Nationwide there are approximately
30,000 Vietnamese private companies, of which about 600 have more than 100
workers, as well as 16,000 cooperatives, 100,000 farms, and 3 million private
household businesses. About 73 percent of private sector businesses are in
southern Vietnam, including 25 percent in Ho Chi Minh City. Private companies
account for about seven percent of GDP and 1.2 percent of total employment,
while the entire non-state sector generates roughly 50 percent of GDP. The rate
of employment growth in the private sector, however, was 16.2 percent in 1998,
compared to 0.3 percent in the state sector.
Non-state businesses have created substantial new employment in Vietnam during
the past ten years, while employment in the state sector has been stagnant or
declining. Private firms, however, have been severely disadvantaged relative to
SOE's in terms of access to credit and land, and in legal and regulatory
treatment. Private firms face restrictions in using land use rights for joint
ventures with foreign investors. SOE's also receive most of the lending from
state-owned banks, which dominate the banking sector. In general, despite these
restrictions, the few relatively large private firms in Vietnam operate with
better management and greater efficiency than the SOE's.
In May 1999 Vietnam's National Assembly passed a new "Enterprise Law"
that simplifies and clarifies rules governing private business, although it
does not apply to state-owned or foreign-invested firms. The new law marks a
major step in development of the private sector. It provides assurances to
private investors, opens new possibilities for investors to determine their own
management structures, and simplifies the process of business establishment.
From 1 January 2000, when the Enterprise Law took effect, through May, 1,761
new businesses were established, including 624 private companies. As part of
implementation of the new law, the Vietnamese government has moved to abolish
at least eighty-four of the nearly three hundred permits required by various
ministries and localities for operation of a business.
6. Protection of Property Rights
The Vietnamese legal system is still in a state of transition to support a more
market-oriented economy, and as such undergoes frequent and at times
significant change.
Vietnamese officials have limited experience with drafting legislation, and new
laws and regulations sometimes are contradictory or unclear. Different
officials, sometimes within the same agency, may interpret laws differently.
There is a shortage of trained lawyers, judges, and law professors. Substantial
foreign assistance is being devoted to assist Vietnam to establish a legal
structure compatible with international standards.
All land in Vietnam belongs to the people, administered or managed by the
state. Private land use rights (LUR's) were established for the first time in
1988. A LUR is a state-granted right to use land for a specific purpose. The
1992 Constitution granted stronger land rights to individuals, including rights
over commercial and personal property. In the 1993 Land Law, the National
Assembly broadened LUR's to include rights to exchange, transfer, rent,
inherit, and mortgage land. LUR's may be granted for up to fifty years,
depending on the specific use of the land. Individual holders of LUR's can sell
them if they move to a new location, change jobs, or are unable to work. In
1998 several changes to the Land Law were enacted, primarily to distinguish
between corporate lease holders, who can use their land for domestic or foreign
joint ventures, and individual lease holders who are not permitted to enter
joint ventures with foreign entities.
Vietnamese LUR-holders have the right to mortgage them, but Vietnamese banks
generally value land at a maximum of 70 percent of the total rent already paid
on the property. As organizations only were obliged to begin paying rent in
February 1995, the values of mortgages on land are not large, which limits
their usefulness for property-based project finance. Previously local branches
of foreign banks were not permitted to accept LUR's as collateral for loans,
but an amendment to the Foreign Investment Law scheduled to take effect July 1, 2000 appears to allow this.
Vietnam is a member of the World Intellectual Property Organization (WIPO)
and is a signatory to the Paris Convention for Industrial Property. It has
acceded to the Patent Cooperation Treaty and the Madrid Agreement, but has not
yet joined the Berne Convention. Vietnam is working to devise a system of
protecting intellectual property rights (IPR) consistent with the WTO TRIP'S
Agreement. Trademark registration is straightforward, although infringement is
widespread and enforcement of IPR court decisions remains problematic.
7. Transparency of Regulatory System
Although the Vietnamese government has begun to streamline and rationalize the
investment licensing process over the past year, the Ministry of Planning and
Investment and other national, provincial, and local government agencies retain
a great deal of discretionary authority. Furthermore, foreign investors
frequently encounter the need for further negotiation and administrative
processes after the licensing process has been completed. In the context of
negotiations of a Bilateral Trade Agreement, the Vietnamese Government has
indicated it would clarify which sectors of Vietnam's economy are open to
foreign investment, which are partially open, and which are closed.
Furthermore, foreign negotiators have proposed replacement of the investment
licensing system with a registration system that does not entail approval of
investment projects.
8. Political Violence
The long-standing policy of the government of Vietnam has been not to tolerate
political dissent. From time-to-time the Vietnamese government has detained or
arrested overseas Vietnamese, Buddhist monks, and other Vietnamese citizens for
engaging in allegedly subversive activities, including religious proselytizing.
Small, spontaneous demonstrations protesting specific policies or actions by
local governments occasionally have been observed. The most recent
demonstration occurred during the May 2000 session of the National Assembly,
but are not known to have resulted in damage to projects and/or installations.
Political risk for foreign investors is more likely to arise from shifts in
internal party politics rather than from political violence.
9. Corruption and Crime
Foreign firms have identified corruption in Vietnam in all phases of business
operations as an obstacle to their business activities. Vietnam's extensive
bureaucratic system of licensing, including for investment projects, encourages
many forms of corruption. At present, law enforcement authorities under the
Ministry of Public Security (MPS) have responsibility for investigation of
corruption cases. Vietnam's anti-corruption laws and regulations are adequate,
although enforcement has been inconsistent. Penalties may be severe, and in
recent years several high-profile cases involving embezzlement and misuse of
state property have resulted in execution or long prison sentences. Local
disturbances in several provinces during 1997 were at least partially linked to
official corruption and abuse of power.
10. Labor
One of Vietnam's principal attractions for foreign investors has been its
large, relatively well educated (the literacy rate is approximately 80
percent), and inexpensive labor force. Now estimated at 40 million, the labor
pool continues to increase by 1.1-1.3 million workers annually due to the
post-war population explosion.
Despite its attractions, however, labor in Vietnam poses some problems for
foreign investors. There is a shortage of managerial talent and skilled
workers, resulting in higher salaries for those employees. Another factor
raising the cost of skilled and managerial workers is Vietnam's sharply
progressive personal income tax system, resulting in labor costs for relatively
high-paid local staff to be two-three times higher than in other Asian
countries. One western manager estimated that if he wanted one of his engineers
to receive a net salary of US$2,000 per month, the gross cost to his firm for
wages, taxes, and benefits would exceed US$9,000 per month. In some cases he
said it would be less expensive to employ an expatriate worker.
A requirement to denominate the salaries of Vietnamese employees of
foreign-invested enterprises (FIE's) in U.S. dollars rather than Vietnamese
dong has exacerbated this problem, although a 1999 decree partially remedied
the problem for some foreign-invested firms. In many localities this requirement
was not enforced even before the 1999 decree.
Under two 1999 directives, foreign organizations including FIE's must recruit
and hire staff through state-owned employment bureaus, a requirement many
investors find onerous. Under new regulations, however, if the employment
bureau is unable to locate a suitable employee within thirty days, the employer
can recruit directly.
Employers are required by law to establish labor unions within six months of
establishment of the company. All labor unions are members of the Vietnam
General Confederation of Labor, a quasi-governmental organization. In 1999
approximately sixty-three labor strikes occurred, including thirty-four at FIE's,
compared to a total of sixty-two in 1998. Strikes took place in SOE's, Vietnam-foreign
joint ventures, and Vietnamese private companies. Most of the strikes involved
labor-management disputes over health, safety, or other working conditions,
work hours, or late payment of wages, and were settled quickly.
Vietnam is a member of the International Labor Organization (ILO). As of
January 2000, it had ratified two of the seven core labor conventions: 100
(Equal Remuneration) and 111 (Non-discrimination in Employment). Vietnam
ratified both conventions on 7 October 1997. Vietnam has not ratified the ILO
Convention on Freedom of Association and Protection of the Right to Organize.
However, as an ILO member it is required to comply with ILO association and
collective bargaining standards. A number of technical assistance projects in
the labor field sponsored by foreign donors are underway in Vietnam, including
work by the ILO.
11. International Investment Agreements
Vietnam has Bilateral Investment Agreements with the following countries and
territories: Algeria, Argentina, Armenia, Australia, Austria, Belarus, Belgium,
Bulgaria, China, Cuba, Czech Republic, Denmark, Egypt, Finland, France,
Germany, Hungary, India, Indonesia, Italy, Laos, Latvia, Lithuania, Luxembourg,
Malaysia, Netherlands, Philippines, Poland, Romania, Russia, Singapore, South
Korea, Sweden, Switzerland, Taiwan, Tajikistan, Thailand, Ukraine, and
Uzbekistan. The U.S. Bilateral Trade Agreement includes investment provisions.
12. Foreign Trade Zones
Companies may choose to produce within an export processing zone (EPZ) to take
advantage of exemptions from customs duties for equipment, raw materials, and
commodities imported into the zones, and for finished goods and products
exported from the zones, subject to specific provisions regulating EPZ's. All
of the production within an EPZ must be exported. Industrial zones (IZ's) have
been developed to offer tax advantages for establishing factories within the
zones. Companies can produce within an IZ for the domestic market or for
export. The companies pay no duties when importing raw materials, if the end
products are exported.
From the establishment of its first EPZ in 1991 through February 2000, Vietnam
established a total of sixty-three IZ's and three EPZ's. As of 1999 there were
914 licensed enterprises in the zones with total registered capital of US$7.8
billion, including 569 foreign enterprises with US$6.4 billion registered
capital. About 40 percent of the registered capital was disbursed (realized).
In 1999, the IZ's and EPZ's attracted 262 projects with US$900 million registered
capital. In 1999 the IZ's and EPZ's accounted for 25 percent of gross
industrial output and 16 percent of export value.
The operation of customs warehouses was approved in 1994. There are bonded
warehouses in Can Tho, Danang, Haiphong, Ho Chi Minh City, Mong Cai, Quang Ninh,
and Vung Tau. Entities permitted to lease customs bonded warehouses are:
foreign enterprises, individuals, and overseas Vietnamese;
Vietnamese import-export license companies;
foreign-invested enterprises licensed to perform import-export activities.
Most goods pending import and domestic goods pending export can be deposited in
bonded warehouses under the supervision of the provincial customs office. The
exceptions are goods prohibited from import or export, Vietnamese-made goods
with fraudulent trademarks or labels, goods of unknown origin, and goods
dangerous or
harmful to the public or environment.
The lease contract must be registered with the customs bond unit at least
twenty-four hours prior to the arrival of goods at the port. Documents required
are a notarized copy of authorization of the holder to receive the goods, a
notarized copy of the warehouse lease contract, the bill of lading, a
certificate of origin, a packing list, and customs declaration forms. Owners of
the goods pay import or export tax when the goods are removed from the bonded
warehouse.
Customs warehouse keepers can provide transportation services and act as
distributors for the goods deposited. Additional services relating to customs
declaration, appraisal, insurance, reprocessing or packaging require the
approval of the provincial customs office. In practice the level of service
needs improvement. The time involved for clearance and delivery is often
lengthy and unpredictable.
Taxing Structure and Incentives
Under current law,
import taxes are issued by the National Assembly and then detailed by the
Ministry of Finance. Import duties are calculated on the basis of:
the quantity of goods specified in the declaration,
dutiable value,
applicable duty rates.
Currently, there are three types of tariff rates imposed on imports, namely:
preferential rates, or NTR rates
standard rates or non-NTR rates,
special tariff rates, such as the tariff rates of 0-5 percent under the Common
Effective Preferential Tariff Agreement.
In addition to the above tariff rates, Vietnam also reserves the right to impose surtaxes such as antidumping and
countervailing duties. No regulations on surtaxes are available at present.
Other taxes include the special sales tax on goods such as cigarettes, alcohol,
spirits and beer, automobiles with twenty-four seats or less, and other
miscellaneous items such as gasoline, air conditioner with capacity of 90,000
BTU or less, playing cards, and joss-paper. Excise taxes also apply for
services such as dancing, massage, karaoke, casino, jackpot machine games,
certain betting activities and golf. The special sales tax is applicable to the
import and to the production of the above goods and services. Importers pay the
special sales tax upon importation, ranging from 15 percent to 100 percent. The
tax is calculated on the basis of applying the applicable tax rate to the CIF
value of the good. Since Jan.
1, 1999, the
government issued a "luxury tax" on passenger automobiles produced in
Vietnam. The luxury tax applies for five seat
or less, six-15 seat, and 16-24 seat vehicles at rates of 100 percent, 60
percent, and 30 percent, respectively. Locally produced commercial automobiles
such as trucks and vans are exempt from the luxury tax, but subject to value
added tax (VAT) of 10 percent, which is not applied to passenger automobiles.
VAT replaced the previous turnover tax, which was insufficient and levied on a
sliding scale from zero percent to 20 percent. Most sectors of the economy are
likely to pay less under VAT. There are four rates of VAT: (i.) zero percent
for exported goods; (ii.) five percent for the provision of essential goods and
services (e.g. clean water, food stuff, medicine); (iii.) standard rate of 10 percent
for activities such as power generation, mineral products, postal, and
transportation services; and (iv.) 20 percent for activities such as lottery
and brokerage.
Under the FIL, the standard rate of profit tax is 25 percent, with preferential
rates of 10, 15, or 20 percent for designated project categories. The 20
percent rate, valid for 10 years from the initial date of operation, applies to
projects meeting the following conditions:
Export at least 50 percent of production;
Cultivate or process agricultural, forestry, or aquatic products;
Utilize advanced technology or invest in research and development;
Utilize substantial amounts of materials available in Vietnam, process
Vietnamese natural resources, or utilize high local content in production.
The 15 percent profits tax rate is valid for twelve years from commencement of
operations and applies to the following projects:
Export at least 80 percent of production;
Investment in metallurgy, chemicals, petrochemicals and fertilizers, and
manufacture of machinery, electronics components, automobile and motorcycle
spare parts;
Construction and operation of infrastructure projects;
Cultivation of perennial industrial crops;
Investment in regions with difficult natural, economic, and social
conditions;
Assignment of assets to the state of Vietnam without compensation after the
project license expires;
Projects satisfying two of the conditions listed for the 20 percent category.
The 10 percent profit tax rate is valid for fifteen years and applies to
projects involving the following:
Construction of infrastructure in regions with difficult natural, economic,
and social conditions, or mountainous or regions;
Reforestation;
Projects in sectors where investment is specifically encouraged.
Depending on the sector, foreign invested enterprises and foreign parties to a
BCC may be exempted from a profit tax for a maximum period of two years. This
period commences from the first profit-making year and may be allowed a 50
percent reduction of a profit tax for a maximum period of two consecutive
years. Certain "encouraged" projects may be exempted from a profit
tax for up to four years from their first profitable year and may be allowed a
50 percent reduction of the profit tax for a further four years.
Where the investment is "especially encouraged", the maximum period
of tax exemption shall be eight years. The Law on Export and Import Duties
specifies the rates which FIE's and parties to BCC's must pay on exports and
imports. Equipment, machinery, specialized means of transportation, components
and spare parts for machinery and equipment, raw materials and inputs for
manufacturing, and construction materials that cannot be produced domestically,
which are imported to Vietnam to form fixed assets of an FIE or a BCC are
exempted from import duties. Other exemptions or reductions of import and
export duties can be stipulated by the Vietnamese government for
"encouraged" projects. Other special incentives are available to
foreign investors in build-operate-transfer (BOT), export processing zone
(EPZ), and industrial zone (IZ) projects. BOT's may be joint ventures or 100
percent foreign-owned. They are exempt from land tax and from payment of duties
on goods imported to implement the contracts. They enjoy a lower profits tax
rate (10 percent), a five percent withholding tax rate (the lowest normal
rate), an eight-year tax holiday starting from the first profitable year, and a
government guarantee for conversion of revenue from local to foreign currency.
The term of a BOT can extend to 50 years, after which project ownership reverts
to the government.
Projects in both EPZ's and IZ's are entitled to profit tax rates of 10-12
percent for the duration of the investments. EPZ's were the first production
zones developed in Vietnam, but interest in them has been less
than anticipated due to inadequate infrastructure. Ho Chi Minh City's Tan Thuan Zone is Vietnam's largest EPZ, while others are
planned or in operation in Danang, Can Tho, Hanoi, and Ho Chi Minh
City.
Export-producing firms wishing to operate in an EPZ apply for licenses and pay
taxes directly to the EPZ Management Boards, which streamlines the process.
Imports of machinery and raw materials enter the zones duty-free, and EPZ firms
sometimes also benefit from cheaper labor, lower rents, fewer regulations, and
a variety of tax incentives. EPZ firms must pay normal import duties for any
goods they sell domestically.
IZ's are open to companies engaged in construction, manufacturing, processing
or assembly of industrial products, and service to support industrial
production. Companies submit license applications and pay taxes directly to the
IZ management boards. IZ firms also are eligible for certain tax benefits,
including a 10 percent profit tax for the duration of the investment. Companies
that reinvest profits may be eligible for refund of profit taxes.
Foreign-invested automobile manufacturing projects are subject to local content
requirements in their investment licenses.
Tourist Information
For a country that is only
slightly larger than Italy, Vietnam possesses an immense geographical and cultural
diversity. Its varied climate and landscape range from four seasons in the
mountainous north to year-round tropical temperatures in the lush south.
Vietnam's cultural mix stems from its intriguing history dating back more than
4,000 years. Its historical legacy includes a thousand years of Chinese
occupation, which has left a very strong foreign cultural influence, evident in
the pagodas, local cuisine, and continuing practice of Confucianism. The Cham
civilization, which blossomed in the central region in the 14th century, has
left many ancient Hindu-like temples, which are still visited today. Vietnam's
regal past can be revisited in the former capital city of Hue, where the
Citadel and Royal Tombs represent an era of cultural renaissance. The French
colonial legacy is still evident in many parts of Vietnam, as
illustrated by the distinctive yellow pastel-colored architecture of its villas
and administrative buildings.
In Vietnam you can discover unspoiled beaches along the coastline stretching
3,200km north to south and mountainous regions where hill tribe people continue
to live isolated from mainstream society. Pastoral landscapes of lush rice
paddies and fresh vegetation, offer ample opportunities to observe the agrarian
lifestyle of eighty percent of Vietnam's population. Today, most of the country remains
relatively unchanged although in major cities you will discover a modern
infrastructure and technology. Today, visitors can choose to travel at various
levels of comfort, staying in anything between budget to deluxe accommodation,
using public or private transportation, and dining local style or in the finer
Vietnamese and international restaurants.
Sources: Country Watch, Central Intelligence Agency: http://www.cia.gov
International Monetary Fund: http://www.imf.org
World Bank: http://www.worldbank.org