bamboo foreign investment procedure in vn

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Foreign Investment

Procedure in Vietnam

(Initial focus on Thanh Hoa and Hoa Binh provinces)



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Contents

1 General Information ............................................................................................................ 3

1.1 National general information ...................................................................................... 3

1.2 Bamboo production information ................................................................................. 3

2 Foreign Investment Information.......................................................................................... 42.1 Investment regulations for foreign investors .............................................................. 4

2.1.1 Foreign Investment Law....................................................................................... 4

2.1.2 Licensing............................................................................................................... 4

2.1.3 Investment Activities and Investment Forms ...................................................... 4

2.1.4 1.4 Investment approval procedures................................................................... 5

2.1.5 Investors’ rights.................................................................................................... 5

2.2 Investment incentives and tax breaks in these two Province ..................................... 6

2.2.1 Hoa Binh Province ................................................................................................ 6

2.2.2 Thanh Hoa Province ............................................................................................. 6

3 Tax regulations, dividends and capital transfers- relevant regulations and tax rates ........ 73.1 Types of Taxes.............................................................................................................. 7

3.2 Corporate Income Tax.................................................................................................. 7

3.3 Incentive tax rates........................................................................................................ 7

3.4 Value-Added Tax .......................................................................................................... 8

3.5 Import/Export Duties ................................................................................................... 8

3.6 Personal Income Tax .................................................................................................... 8

3.7 Transfer of foreign investors’ profits ........................................................................... 9

4 Employment regulations /social security obligations.......................................................... 9

4.1 Labor code.................................................................................................................... 9

4.2

Minimum Wage Regulation in Enterprises.................................................................. 9

5 Accounting and auditing ...................................................................................................... 9

5.1 Accounting ................................................................................................................... 9

5.2 Auditing ...................................................................................................................... 10

6 Dispute resolution and governing law ............................................................................... 10

6.1 Dispute resolution...................................................................................................... 10

6.2 Governing law ............................................................................................................ 10

7 Land access/allocation/costs ............................................................................................. 10

7.1 Land allocation for foreign investment enterprise.................................................... 10

7.2 Lessors permitted to lease land to FICs ..................................................................... 10

7.2.1 Lease term.......................................................................................................... 10

7.2.2 Rights of foreign investors to the land leased ................................................... 11

7.3 Lease of Commercial Property................................................................................... 11

7.4 Land use right certificate (LURC) ............................................................................... 11

8 Energy costs (electricity, diesel)......................................................................................... 11

8.1 Electricity cost ............................................................................................................ 11

8.2 Fuel cost ..................................................................................................................... 12

9 Domestic road haulage costs ............................................................................................. 12

10 Labor costs (unskilled, semi-skilled, skilled) .................................................................. 12

11 Customs cost for 20’ container of bamboo flooring...................................................... 12

12 Trade tariffs when exporting to USA, Japan, EU............................................................ 13

13 Typical shipping costs for a container to USA (port?), Japan (port?) ............................ 13



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Foreign Investment Procedure in Vietnam

(Initial focus on Thanh Hoa and Hoa Binh provinces)

The report is summarized from various information resources of law firms, government

agencies and local enterprises.

1 General Information

1.1 National general information

Key national information

Capital city: Hanoi

Surface area: 332,000 sq km

Population: 86.3 million

Official language(s): Vietnamese

Currency: Dong (VND)

Government: Communist state

Vietnam's principal export destinations: USA, Japan, China

Vietnam's principal import sources: China, Singapore, Taiwan

Key economic indicators and statistics for 2008

GDP: US$89.8 billion

GDP per capita: US$1,040

Real GDP growth: 6.2%

International Seaports

Province International ports

Quang Ninh Hon Gai / Cam Pha

Hai Phong Hai Phong

Nghe An Cua Lo / Ben Thuy

International Airports

Hanoi Noi Bai

Da Nang Da Nang

Hochiminh City Tan Son Nhat

1.2 Bamboo production information

Currently, there is about 1.4 million ha of natural bamboo in Vietnam, accounting for 15% of

total area of natural forest. Out of this area, 800,000 ha is pure bamboo and 600,000 is

bamboo mixed with other wooden trees. The total number of bamboo culms is about 8.4

billion. In addition to this, the area of planted bamboo has also been increasing quickly and is

now about 100,000 ha. Further more, out of 6 million ha of unused land, a big part can be

used to grow bamboo.

The bamboo area and number of bamboo culms in some provinces are summarised below:



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Area: ha; Stock: 1000 culms

Total Bamboo mixed

with wooden trees

Natural pure

bamboo

Planted pure

bambooProvince

Area Stock Area Stock Area Stock Area Stock

Hoa Binh 27,219 311,617 7,462 119,392 12,784 178,976 6,973 13,248

Thanh Hoa

194,679

1,830,33

9 52,473 577,203 80,727 1,130,178 61,479 122,958

Nghe An 134,307 1,500,82

9

48,708 467,597 81,73

0

1,021,625 3,869 11,607

Quang Nam 8,969 224,225 8,969 224,225

Quang Ngai 3,374 57,358 3,374 57,358

Kon Tum 107,537 1,140,54

8

38,368 498,784 69,16

9

64,1764

Dak Lak 30,331 401,206 11,687 140,244 18,64

4

261,016

Thanh Hoa has the largest bamboo area in 7 provinces mentioned above. The Luong bamboo

(Dendrocalamus Barbatus )were widely planted for decades because of suitable soil and

weather condition. Total bamboo area is about 195,000 ha, mainly distributed at the western

part of the province. The planted Luong bamboo are is 65,000 ha, distrusted at Quan Hoa,

Lang Chanh, Ba Thuoc, Ngoc Lac and Quan Son provinces. Luong bamboo is being used by

flooring and laminated furnitures producers in Vietnam.

2 Foreign Investment Information

2.1 Investment regulations for foreign investors

2.1.1 Foreign Investment Law

Under the new Investment Law, investors may invest in all sectors not prohibited by law.

2.1.2 Licensing

Investors must follow different licensing and registration steps depending on the size and the

sector of investment.

Level 1 (Business Registration): Small domestic enterprises with invested capital below VND15

billion (approx. US$940,000) are only subject to business registrationLevel 2 (Investment Registration): Foreign projects with invested capital under VND300 billion

(approx. US$19 million require registration of investment and the issuance of an investment

certificate.

Level 3 (Investment Evaluation): Any project with invested capital over VND300 billion (US$19

million) or projects in conditional sectors must undergo an investment evaluation.

2.1.3 Investment Activities and Investment Forms

The UEL provides four main forms of business including a LLC, a joint stock company, a

partnership company, and a private enterprise. Foreign investors choosing to set up a



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business in the form of a JVC will find that either a LLC or joint stock company would be the

most appropriate structures.

Shareholding limit for foreigners

The UEL does not set restrictions on the percentage of a company a foreigner may own,

although this is subject to further regulation. Foreigners currently wishing to purchase shares

in a domestic company may only purchase up to 30% of a non-listed company which operatein certain sectors approved by the Government, and 49% of a listed company.

Choosing between an LLC and a joint stock company

The distinct advantage of a joint stock company is that a foreign partner may always sell

shares to raise capital.

The joint stock company structure may be preferable for a minority foreign partner interested

in testing the. The LLC structure is likely to be the optimum structure for a fully foreign owned

enterprise. The single owner has complete control of the company and is not subject to rules

governing business relationships with partners, quorums, and majority voting. The LLCstructure may also be preferable for foreign investors entering into joint ventures with

Vietnamese parties. In an LLC, the foreign investor may choose his partners, rather than in a

joint stock company where the public has the rights to purchase shares. The foreign partner

may also enter an agreement within an LLC that, in the event the local partner wants to sell

his share in the company, the foreign partner has pre-emptive rights of purchase.

2.1.4 1.4 Investment approval procedures

Please refer details to Hanoi DPI website below:

http://www.hapi.gov.vn/portals/default.aspx?portalid=5&tabid=86

In theory, required time for verifying and issuing the Certificate of Investment is normally 15

working days, upon receipt of full set of valid documentations. However, it would take much

more time for investor to arrange the “valid” documents.

2.1.5 Investors’ rights

Investors in Vietnam are entitled to the following rights, among others.

• Right to autonomy in investment/business is to select the sector in which to make an

investment, form of the investment, method of raising capital, geographical location

and scale of the investment, and to decide on and select an investment partner and

the term of operation of the project (though the restrictions on term of operationdescribed above will apply to foreign-invested projects).

• Equality in access to and use of sources of credit and aid funds, and in use of land and

natural resources, although this is qualified by what must be the favorite words in the

Vietnamese draftsmen’s lexicon: ‘in accordance with law’.

• To lease or purchase equipment and machinery either domestically or overseas to

carry out an investment project.

• To recruit foreign employees to fulfill management tasks, provide technical labour and

provide expertise in accordance with production and business requirements, unless

otherwise provided in an international treaty of which Vietnam is a member.



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• To import directly or indirectly equipment, machinery, raw materials, supplies and

goods for investment activities, and to export directly or indirectly and to sell its

products.

• To process or reprocess products (apparently for third parties), to place orders for

processing or reprocessing of goods domestically or to place orders for processing of

goods overseas, although again this must be ‘in accordance with the commercial law’.

• To purchase foreign currency from credit institutions. The government will provideguarantees for important projects in energy, construction of traffic infrastructure

facilities and waste treatment.

• To assign or adjust investment capital or the investment project itself, although any

profits from such assignment will be subject to income tax.

• To mortgage land use rights to credit institutions operating in Vietnam

2.2 Investment incentives and tax breaks in these two Province

Thanh Hoa Province and Hoa Binh Province are in similar level of development.

2.2.1 Hoa Binh Province

Investment incentive of Hoa Binh provinces are stated in Decision No 31 of Hoa Binh PPC,

dated November 25, 2002. The summary is below:

( http://www.dpihoabinh.gov.vn/DocumentFiles/2006091916195894625490.pdf )

About land:

The investment holders have right to select location, area to rent or to hand over following

the regulation of the Land Law and conformable to the master plan and the using land plan of

the province

Support on infrastructure:

Hoa Binh government will support the investor to build electricity line, water supply, water

drainage, road to the wall of factory or Support on other infrastructure with a maximum

measure of 3 billion VND each project if the project meets one of the conditions as follows:

Financial support for training labor

Once support expense for local training labor with an amount of 300,000 VND each labor (the

labor mush have certificate of training)

Tax incentivesTax incentives are followed with Government regulation (as stated in Tax regulation below).

List of encouraged investment sector

Production of pressed wooden fiber plank, fabric shoes, and different kinds of construction

material

Breeding, rearing, growing and processing agricultural, forestry and aquaculture product

2.2.2 Thanh Hoa Province

In general, Thanh Hoa offers investors with highest level of incentives and lowest level of obligation in the range regulated by Government.



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Land site clearance

Other incentives:

• Support on labor recruiting and training.

• Support on infrastructure for project implementation.

• Special support for projects which have large impact on the economic development of province

3 Tax regulations, dividends and capital transfers- relevant regulations and

tax rates

3.1 Types of Taxes

According to the prevailing tax law system, at least, the following taxes should be aware of by

foreign investors when doing business in Vietnam.

• Corporate income tax;• Value-added tax;

• Special sales taxes;

• Withholding tax;

• Import/export tax;

• Technology transfer tax;

• Foreign contractor tax; and

• Personal income tax.

3.2 Corporate Income Tax The standard tax rate is now 28%.

The rate of 10% will be applied in the first 15 years for cooperatives and newly-established

enterprises in areas in the List of especially difficult areas.

After 15 years enjoying preferential tax rate, the standard tax rate of 25% will be applied.

Newly-established enterprise can get following tax exemption and holidays as follows: Tax

exemption up to 4 years after first profit-making year and reduction of 50% up to 9 years

subsequently will be applied for enterprises producing some special products or set up in

especially difficult areas.

3.3 Incentive tax rates

Different incentive tax rates applied. In addition to the mentioned incentive tax rates, the

projects may enjoy the following tax holidays and reductions.



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3.4 Value-Added Tax

Value-Added Tax (VAT) is levied on the added value of most goods and services generated

during the process from the production, circulation to consumption (With respect to some

categories, they are subject to Special Sales Tax, as described in Section hereunder). There are

four VAT rates as follows:

(i) The tax rate of 0% is applicable to goods for export

(ii) The tax rate of 5% is applicable to essential goods and services such as water,fertilizer, insecticides, medicine, educational and training equipment and tools, baby

toys, scientific and art books, natural agro-forestry products, animal feeds, services

for scientific and agricultural applications, etc;

(iii) The standard tax rate of 10% is applicable to most goods and services

3.5 Import/Export Duties

Foreign capital projects and foreign investors to BCCs are exempted from duties imposed on

the goods which they import to create their fixed assets, including:

(i) Equipment, machinery;(ii) All and any input material, component, part and other material imported for

manufacture of export products shall be exempted entirely from the import duties.

3.6 Personal Income Tax

All foreigners having incomes in/ from Vietnam, regardless the length of time they live in

Vietnam, are the payers of personal income tax.

With respect to whom living in Vietnam less than 183 days, they will be liable for paying tax at

a fixed rate of 20% of the aggregate income. With respect to whom living in Vietnam over 183days (so called locally-resident foreigners), they will be subject to the progressive tax tariff,

with the rate of their monthly income as following:

Tax

Level

Yearly Income

(million VND/ year)

Monthly Income

(million VND/ month)

Tax Rate

(%)

1. To 60 To 5 5

2. From 60 to 120 From 5 to 10 10

3. From 120 to 216 From 10 to 18 15

4. From 216 to 384 From 18 to 32 20

5. From 384 to 624 From 32 to 52 25

6. From 624 to 960 From 52 to 80 30

7. Above 960 Above 80 35

The taxable income minimum rate applicable when calculating tax for a locally-resident

foreigner is VND 4 million.



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3.7 Transfer of foreign investors’ profits

According to this circular of Finance Ministry, profits earned by foreign investors from capital

investment under the Law on Foreign Investment in Viet Nam which can be transferred

abroad

4 Employment regulations /social security obligations

4.1 Labor code

Under the Labor Code, FIEs may either directly recruit Vietnamese employees or recruit via an

authorised labor agency. The FIE is then required to register the list of recruited Vietnamese

employees with the local labor department and submit the reports on utilization and changes

of employees to the labor department on a periodic basis.

Except for the Director General, Deputy Director General and members of the Boad of

Management, all expatriates working in the company for a period of more than 6 months are

required to obtain a Work Permit. The company is required to submit applications to the locallabor department to obtain the Work Permit for its expatriate employees.

Labor contract: there are different kinds of contract, such as indefinite term, definite term

and seasonal work.

• Social Security contributions: 15% on gross salaries

• Health insurance contributions: 2% gross salaries

4.2 Minimum Wage Regulation in Enterprises

The rate of VND 1,340,000 per month is applicable to employees of enterprises located in

districts of Hanoi and Ho Chi Minh City;

The rate of VND 1,190,000 per month is applicable to employees of enterprises located in

suburb districts of major cities

The rate of VND 1,040,000 per month is applicable to employees of enterprises located in the

other areas.

5 Accounting and auditing

5.1 Accounting

In addition to the accounting regimes released by Ministry of Finance, a number of

Vietnamese Accounting Standards (VAS) is issued.

Recent VAS pronouncements are generally consistent with IFRS (International Financial

Reporting Standard), with a few slight differences to reflect and address the local

circumstances. The reporting of VAS-based financial statements follows a prescribed chart of

accounts and report format.

An FIE may employ a full-time Chief accountant or hire an accounting service firm operatingindependently and legally in Vietnam.



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5.2 Auditing

It is regulated that the annual financial statements of FIEs shall be audited by an independent

auditing firm. The audited financial statements shall be submitted to MPI, MOF and GSO an

the local tax authorities where the head office of the FIE is located. Audited statutory financial

statements should be submitted within 90 days from the end of the financial year. Filing of audited financial statements is the responsibility of the enterprise.

The FIE is required to report to MPI within 6 months from the implementation of its approved

investment capital. All relevant supporting documents for all expenditures during

construction period should be collected and kept.

6 Dispute resolution and governing law

6.1

Dispute resolutionDisputes involving a foreign-invested company may be referred to foreign or international

arbitrators, or ad hoc arbitrators. However, disputes between foreign investors and

Vietnamese state authorities must be referred to either Vietnamese arbitrators or

Vietnamese courts, except where provided otherwise in a contract between the foreign

investor and

a Vietnamese state body or in an international treaty to which Vietnam is a party.

6.2 Governing law

In general, investment activities in Vietnam must be governed by Vietnamese law. In the caseof foreign investment, foreign law may be chosen as a gap filler, provided that the choice of

foreign law is not contrary to fundamental principles of Vietnamese law. It may be expected

that the question of whether Vietnamese law contains a relevant provision, or whether

foreign law is required as a gap filler, will remain as troublesome as ever. The provisions of

any international treaty to which Vietnam is a party will prevail over the provisions of the

Investment Law.

7 Land access/allocation/costs

7.1 Land allocation for foreign investment enterprise

Instead of obtaining the LUR in the form of capital contributions from the local partner to a

JVC, a foreign investor may consider leasing the land directly from the Government after

he/she establishes an FIC in Vietnam

7.2 Lessors permitted to lease land to FICs

7.2.1 Lease term

The lease term must be consistent with the duration of the approved project provided that it

must not exceed 50 years or, in some special circumstances, 70 years. The extension of the



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lease term may be allowed by the Government upon expiry if the lessee wants to continue to

use the land, provided that:

the lessee has complied with the land regulations during its land using period; and

the use of land is consistent with the approved land plan.

7.2.2 Rights of foreign investors to the land leased

The LUR of foreign investors shall vary depending on the payment arrangement of landrentals. Where land is being leased from the Government, the Land Law contemplates two

payment arrangements of land rental:

annual rental payment (the “Annual Payment”); and

one-off payment of rentals for the entire lease term (the “One-off Payment”).

Under a land lease for the Annual Payment, the rights of FICs are basically the same with the

previous land laws: the FIC could use the land only and is not allowed to transfer, sub-lease or

mortgage the LUR. In addition to the LUR given under the Annual Payment regime, FICs

adopting the One-off Payment regime have additional rights as follows:

rights to transfer LURs and assets attached to the land (foreign investors with anAnnual Payment plan may only transfer assets attached to land);

rights to sublease land and assets attached to the land;

rights to contribute LURs and assets attached to the land as capital to joint ventures;

rights to mortgage or guarantee LURs and assets to credit institutions in Vietnam

during the term of the lease;

7.3 Lease of Commercial Property

As an alternative to leasing a piece of land, service or software companies may consider

leasing an office in a commercial building. The procedure for the lease of such an office isquite simple and is not subject to any approval by Vietnamese authorities.

7.4 Land use right certificate (LURC)

The office in charge of granting the certificate on land use right to foreign organizations/

individuals renting land is appointed by the People's Committee of the province/city under

the central authority, even for the cases when the rent of land must be decided by the

government.

8 Energy costs (electricity, diesel)

8.1 Electricity cost

Unit: VND/KWH

Price

1 ELECTRICITY PRICE FOR PRODUCTION

1.1 NORMAL PRODUCTION

1.1.1 110Kv and above

a) “Medium” hours 835

b) “Low” hours 455



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c) “High” hours 1690

1.1.2 From 22 kV to 110 kV




1.1.3 From 6 kV to 22 kV

a) “Medium” hours 920b) “Low” hours 510


1.1.4 Below 6 kV




8.2 Fuel cost

Diesel Oil: VND 14,300–14,600 / liter

Mogas 92: VND 16,300–16,700 / liter

Mogas 95: VND 16,800–17,200 / liter

9 Domestic road haulage costs

The below rates are subject to an offer (Nov, 2009) of a Forwarder Agent, based in Hanoi.

Trucking fee: Form Hoa Binh Town to Haiphong,not including lift on and lift off at Haiphong

port.• USD160/20’DC,

• USD175/40’DC

10 Labor costs (unskilled, semi-skilled, skilled)

The rates are subject to the survey on similar enterprise, Hoa Binh based. Hoa Binh province

and Thanh Hoa province are in similar level of development and income.

• Unskilled labor: VND 1,000,000–1,200,000 per month.

• University graduated staff for: VND 2,500,000 – 4,500,000 VND per month.

11 Customs cost for 20’ container of bamboo flooring

From experiences of local forwarder agents here, the bamboo product are items that

government encourages to export. So there is no difficulty in the customs and inspections

procedure. The customs procedure could be handled within 1-2 days before each delivery.

Relating the cost, any forwarder can offer a full service including Customs clearance, C/O

preparation, Fumigation process with charges of around 1.5-2 million VND/ 20’ DC and 2-2.5

million VND/ 40’ DC. If the enterprises have time and staff to do the export procedure by

themselves, the cost would be much lower.



12 Trade tariffs when exporting to USA, Japan, EU

• Export tax (Vietnam) on Bamboo flooring: 0%

• Import tax (USA) on Bamboo flooring: 0%

• Import tax (Japan) on Bamboo flooring: 0%

• Import tax (EU) on Bamboo flooring: 0%

13 Typical shipping costs for a container to USA (port?), Japan (port?)

The below rates are subject to an offer (Dec, 2009) of a Forwarder Agent.

Haiphong –NEW YORK/ USA

• Ocean freight : US$ 1720/20'DC, USD2330/40’DC, USD2330/40’HC (All in)

• Transit time : 40-45 Days

Haiphong –Osaka/ Japan

• Ocean freight : US$ 595/20'DC, USD945/40’DC, USD945/40’HC (All in)

• Transit time : 17-18 Days

bamboo foreign investment procedure in vn

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