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Investing in Vietnam 2020

2 3The Power of Being Understood RSM Vietnam

This Guide includes information obtained or derived from a variety of publicly available sources. RSM has not sought to establish the reliability of these sources or verified such information.

The information contained in this document is of a general nature only. It is not meant to be comprehensive and does not constitute financial, legal, tax or other professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. Even as every precaution has been taken in preparing this document, RSM makes no guarantee, representation or assurance (expressed or implied) as to its accuracy or completeness, and under no circumstances will RSM be liable for any loss caused by reliance on any estimation or statement made in this document. Except as specifically indicated, the words or opinion are those of RSM only and are subject to change without notice. This document shall not be copied, reproduced, transmitted, or further distributed by any recipient.

The materials contained in this document were assembled in July 2020 and were based on the law enforceable and information available at the time.

Table of contents

Introduction

1. An overview of Vietnam

2. Investing in Vietnam

3. Trade

4. Taxation

5. Accounting and auditing

6. Human resources and employment law

7. Banking and finance

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8. Land

9. Technology transfer

RSM Vietnam

Industry insights

Our services

Our values

Corporate responsibility

Contact us


IntroductionWelcome to our guide for investing in Vietnam. Our specialists come from several backgrounds including accounting, finance, and law. They work together to share ideas and add value to your business. In this publication, we hope to provide you with information on accounting, tax and regulatory laws when investing your business in Vietnam.

Vietnam’s dynamic environment, reflected through a young population, growing wealth, changing consumer attitudes, greater mobility, and urbanization – are pushing Vietnam through a period of great change.

With position in the heart of Southeast Asia and along the coastline of the Pacific Ocean, Vietnam offers numerous advantages in providing access to the world’s major trade routes.

We have been seeing a significant increase in foreign direct investments (“FDIs”) into Southeast Asia in many consecutive years since 2016. In fact, according to the United Nations Conference on Trade and Development (“UNCTAD”), out of US$ 1.39 trillion of global investment spending in 2019, the ASEAN member countries received US$ 177 billion, breaking the record of US$ 155 billion in 2018. Meanwhile, Vietnam leads the region, surpassing other countries in Southeast Asia namely Indonesia, Philippines and Thailand to be ranked 25th in the world in terms of FDI attraction.

Vietnam’s low-cost environment and a strong economic outlook continue to make it an attractive place for investment in Southeast Asia.

Vietnam is recognized as having high mobile commerce penetration which is attractive to entrants wanting to establish digital businesses in Vietnam. A rising middle class and a deregulated economy bring access to exciting new opportunities including manufacturing.

Vietnam’s increasing network of free trade agreements (“FTAs”) are enhancing investmentopportunities. Regardless of the reasons for entry, identifying the right path into the local market can be challenging without local knowledge and experience.

This guide contains references to some common issues that investors should be aware of when operating in Vietnam, but each case is different and specific advice should always be sought.

RSM remains available to share our considerable local knowledge with you.

Foreword It is our great pleasure to introduce the “Investing in Vietnam” guide for 2020 published by RSM Vietnam. With natural conditions, including the differentiation in conditions of topography and soil, Vietnam has been continuing to surprise the region and the world by the depth and pace of economic integration and regulatory reforms, which led to a significant improvement in the investment environment. Today Vietnam is seen as an emerging market belonging to the world’s most dynamic economies, offering a variety of attractive business opportunities to both domestic and foreign investors.

7RSM Vietnam6 The Power of Being Understood

A key turning point was Vietnam’s accession to the World Trade Organization (“WTO”) in 2007, followed by its participation in the ASEAN Economic Community (“AEC”) in 2015. In addition, Vietnam successfully held APEC in November 2017 has positioned the country to more investment opportunities.

Why Vietnam and why now?Vietnam is at a tipping point in its economic development led by free trade agreements (“FTAs”) such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”) and the EU-Vietnam FTA (“EVFTA”) and an increasingly deregulated business environment.


The south has been the traditional center of manufacturing and trade, and a major logistics hub. While the northern region has become an increasingly popular destination for foreign manufacturers looking to diversify their production bases, notably for South Korean and Japanese companies.

Six major growth drivers will enhance opportunities for investors in Vietnam:

4. A stable Government committed to growth

A stable social-political environment with the Government’s commitment to creating a fair and attractive business environment for foreign investors. Despite of being affected by the COVID-19 pandemic, the impact in Vietnam is not as serious as in many other countries, thanks to the proactive and effective countermeasures at both central and local levels to stabilize the economy.

3. Cost competitive production baseLabor costs in Vietnam are among the lowest in Asia. An ideal production base for companies thinking of shifting or diversifying out of China.

2. Stable and high growth economyVietnam is one of the most dynamic economies in the world. GDP records growth from around 6.2% in 2016 to 7.0% in 2019.

1. New free trade agreementsEnhance Vietnam’s economic integration into the global economy, including major developed markets in North America, Europe, and Asia.

5. A young digital-savvy and growing workforce

Vietnam has an educated workforce and is now in a period of golden population structure - where 68% of the population is at working age. The smart phone penetration is 44.9% of the population.

6. Infrastructure development

Large scale infrastructure demands create investment opportunities. Follow an average annual growth of 9.7% during 2015-2018, the construction industry registered an annual growth of 9.1% in real terms in 2019.


The demographic bonus provides Vietnam with a unique socio-economic development opportunity to take advantage of the young labor force, large consumer market and push its economic growth.

Legal and regulatory government

Vietnam is a single-party state. As the only party in the political arena, the role and influence of the Communist Party is unique.

The President, as Head of state, represents the Socialist Republic of Vietnam in internal and foreign affairs. The Government is the highest administrative state body, and responsible for executing and managing political, economic, cultural, social, national defense, security, and foreign affairs of the country.

Ministries are responsible for the execution of state power in a certain industry or sector. The People’s Committee (province, district, and commune) governs management affairs within its administrative location.

The People’s Committee manages, directs, and operates daily activities of local state bodies, and executes policies issued by the relevant People’s Council and higher state bodies.

There is a hierarchy of regulations in Vietnam, with laws being passed by the National Assembly, and their implementing decrees and circulars issued by the Government and its Ministries, respectively. A plethora of other legal instruments/guidelines are also issued by various other authorities.


DemographicVietnam is conveniently located in the center of Southeast Asia and is bordered by China to the north, Laos and Cambodia to the west.

The total area of Vietnam is over 330,900 kilometers including mountains and plains. Vietnam’s population is spread throughout the country.

HanoiCapital of Vietnam

Truong Sa

Hoang Sa

Ho Chi Minh CityThe largest commercial city

Da NangThe third largest city &

an important harbor

The most populous country in the world

Population

Median age

96.2million

15th

30



Seaport

Sea transportation remains a significant component of the Vietnamese infrastructure system. There are over 100 ports throughout the country, majority of which locates in Hai Phong, Da Nang and Ho Chi Minh City. In an effort to address the increasing demand of exporters, plans to upgrade and expand the existing capacity are underway, most notably the plan to develop the mega-port Hon Khoai in Ca Mau province. Once completed, the port will accommodate ships with a capacity of up to 250,000DWT.

Airport

In recent years, the country has also witnessed a significant increase in air transportation. As the economy expands both domestically and internationally, the volume of freight and passengers carried by air transport has been increasing sharply. The Government is expanding and modernizing the airport infrastructure, most notably the construction of Long Thanh Airport in the southern province of Dong Nai. When completed, Long Thanh Airport will become the largest airport in Vietnam accommodating up to 25 million passengers and 1.2 million tons of cargo per year.

Railway and metro

Vietnam’s railway is 2,600 km long, 60% of which is in the Northern provinces. The rail network includes 15 main routes and branches connecting 35 provinces and cities, of which the North-South route is the longest and most important route. In addition, several railway lines have been proposed for construction in recent years, notably the high-speed North-South Express Railway.

The metro systems which are under construction in Hanoi and Ho Chi Minh City are expected to alleviate pressure on existing road transportation and boost economic growth. The first metro lines are expected to commence operation in Hanoi and Ho Chi Minh City by 2021.

Road system

In addition to the major national road, Highway No.1A, stretching from the border with China in the north to the Mekong Delta Provinces in the south via Ho Chi Minh City and the Trans-Asia highway, the country is also progressing with the completion of Ho Chi Minh Road (known as Ho Chi Minh Trail during war time).

This 3,167 km long road will run parallel to the existing national road No.1A to connect the north with the south. Other notable highways linking key economic regions have also been upgraded.

InfrastructureThe Vietnamese Government recognizes the importance of an efficient infrastructure for economic development. Recent years witnessed ambitious plans from the Government to expand and upgrade the existing transport infrastructure system.


Over the last 20 years, GDP growth has averaged at approximately 7%. GDP growth was 6.2% in 2016, down from 6.7% in 2015 and hit 7.1% in 2018.

As well as enjoying strong export growth, which is high at more than 15% in the period of 2011-2019, Vietnam is becoming an increasingly large importer of capital goods which is necessary to meet its large infrastructure needs.

Vietnam’s economic growth prospects are forecast toremain positive in the forthcoming years. As being affected by the COVID-19, the growth rate is expected only about 4% in 2020, down sharply from the average

of about 7% in 2018 and 2019 but still the highest in Southeast Asia region. However, the representative of the IMF in Vietnam forecasts growth will increase significantly to about 7% by 2021, after the epidemic countermeasures are removed and more support is provided such as loosening monetary and financial policies.

The rapid increase in demand for goods and services, increasing credit issuance and investment from the country’s economic growth pushed up inflation rate to 3.5% in 2017 and 2018 and down a little bit to 2.8% in 2019.


GDP contribution by sectors in 2019

Source: Government statistics office (“GSO”)

Services

Industry and construction

Agriculture

Tax less subsidies on production

41.64%

34.49%

13.96%

9.91%

Economic environment and inflation

Vietnam is one of the fastest andrelatively stable-growing economies in Asia over the past years.

Key sectors and trading partners

Located in the heart of Southeast Asia and along the coastline of the Pacific Ocean, Vietnam offers numerous advantages in providing access to the world’s major trade routes.

Natural resources and conditions allow Vietnam to develop the fundamental and seasonal structure of agricultural products and application of different cultivation in regions. However, Vietnam is continuing to diversify away from agriculture with the major percentage of GDP occupied by service sector.

The growth in exports has been driven by the fast growing manufacturing, telecommunications, clothing and apparel sectors with major exports to US (23.2%), EU (15.7%), China (15.7%), ASEAN (9.4%) and Japan (7.7%).


Foreign direct investment (“FDI”)

With the advantages of geography, natural resources, and an affordable labor force, Vietnam attracts a large amount of capital each year. Investors doing business in Vietnam can benefit from a number of unexplored sectors and a growing consumer market. With a stable exchange rate and reductions in inflation, the macroeconomic environment has dramatically improved in recent years.

Vietnam therefore remains one of the most attractive destinations for foreign investors in Southeast Asia.

FDI pledged to Vietnam surpassed US$38 billion in 2019, marking a 10-year high and representing a year-on-year increase of 7.2%. The disbursement of FDI capital also saw a yearly increase of 7% to US$20.38 billion. In 2019, much of the FDI into Vietnam came from South Korea (US$7.9 billion) and Hong Kong (US$7.8 billion).

The role of the private sector and foreign investors in the Vietnamese economy has increasingly been emphasized. “Business forum” meetings and dialogues between the Government and the private sector and foreign investors are frequently held, which provides great opportunities for businesses - especially in the foreign sector - to make themselves heard on important legislative issues.

Considering these trade deals, Vietnam’s Ministry of Planning and Investment forecasts Vietnam’s GDP could increase by 1.35 percentage points by 2035 with the EVFTA boosting GDP by 15%.

Vietnam has entered into or completed the negotiation of a number of FTAs including both collective FTAs as a member of ASEAN, and bilateral FTAs (such as FTAs with the EU, Japan, Chile and Eurasian Economic Union).

WTOJan 2007

Free trade agreements (“FTAs”)

EVFTAAug 2020

CPTPPJan 2019

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which came into effect since January 2019 also accelerates the integration of Vietnam into the global economy.

Vietnam officially became the WTO’s 150th member on 11 January 2007. WTO accession has created both opportunities and challenges for Vietnam to become an attractive investment destination.

The EU - Vietnam FTA (“EVFTA”) is expected to be the next major milestone for Vietnam from a trade perspective. Effective for Vietnam by August 2020, EVFTA is expected to liberalize 90% of imports from both sides in a time length of 10-15 years.



Law on investment and enterprisesIn late 2014, the National Assembly passed a new Law on investment (“LOI”) and a new Law on enterprises (“LOE”), both of which come into effect on 1 July 2015. These two new laws contain major changes to the former laws (passed in 2005) and are expected to create more favorable conditions for investors into the future. A series of implementing regulations were issued since then, including:

Law No. 67/2014/QH13 on investmentLaw No. 68/2014/QH13 on enterprisesDecree No. 46/2014/ND-CP on collection of land and water surface rentCircular No. 78/2014/TT-BTC guides the implementation of the Law on CITCircular No. 103/2014/TT-BTC on fulfillment of tax liability of foreign entities doing business in Vietnam

Decree No. 118/2015/ND-CP on the implementation of the Law on investmentDecree No. 96/2015/ND-CP on the implementation of the Law on enterprisesDecree No. 15/2015/ND-CP on public-private partnershipCircular No. 38/2015/TT-BTC on customs procedures, customs supervision and inspection, export tax, import tax, and tax administrationDecree 78/2015/ND-CP guiding enterprise registrationDecree 135/2015/ND-CP on overseas indirect investmentCircular 16/2015/TT-BKHDT on templates for investment registration

Law No. 107/2016/QH13 on export and import dutiesDecree No. 134/2016/ND-CP for the Law on export and import dutiesCircular No. 83/2016/TT-BTC on investment incentivesCircular No. 130/2016/TT-BTC on guidelines on some articles of the Law on value added tax, and the Law on special sales taxDecree 50/2016/ND-CP on administrative fine for violation to planning and investment regulations. This Decree is also applied for enterprises

Law No. 04/2017/QH14 about provision of assistance for small and medium-sized enterprises (coming into force from 1 January 2018)Decree No.32/2017/ND-CP on state investment creditDecision No. 3610A/QD-BCT slashes 675 conditions on business and investment under state management

Decree No. 119/2018/ND-CP on electronic invoices for sale of goods and provision of servicesDecree No. 09/2018/ND-CP on trading activities of foreign investorsDecree No. 08/2018/ND-CP on business conditions under state management of the Ministry of Industry and TradeCircular No. 25/2018/TT-BTC on amendments of some articles of Circular 78/2014/TT-BTC and Circular 111/2013/TT-BTC

Resolution No. 50/NQ-TW on the direction of completing institutions and policies, improving the quality and efficiency of foreign investment cooperation by 2030Resolution 23-NQ/TW on the national industry development strategy during 2018-2030Amended Law on tax administration No. 38/2019/QH14 (effective from 1 July 2020)Decree No. 14/2019/ND-CP for the Law on special sales taxDecree No. 05/2019/ND-CP provides a legal framework for the establishment and implementation of internal auditCircular No. 48/2019/TT-BTC on the making and settlement of provisions for devaluation of inventory, losses of financial investments, bad debts and warranty at enterprisesDraft amended Laws on investment/enterprises

With a view to further improve the regulatory framework for investment and businesses, and to make Vietnam a more attractive investment destination, on 17 June 2020, the National Assembly of Vietnam has passed Law No. 61/2020/QH14 on investment (the “New Investment Law”) and Law No. 59/2020/QH14 on enterprises (the “New Enterprise Law”), which both will come into effect on 1 January 2021 and respectively replace Law No. 67/2014/QH13 on investment (the “Current Investment Law”) and Law No. 68/2014/QH13 on enterprises

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14

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Workforce and cost of living

Vietnam is famous for its young, hard-working, highly a literate and easy-to-train labor force which remains a key competitive advantage to attract foreign investment as well as sustaining future growth.

In 2019, the number of people of working age in employment totaled 54.7 million with an official unemployment rate of 1.98%. Better quality training provided by professional experts is required for Vietnamese workers to meet increasingly sophisticated requirements of investors.

The future

As a member of the WTO, Vietnam must continue to improve its business and investment environment and bolster its legal system to meet WTO requirements. In fact, Vietnam has made significant efforts to ensure that foreign investors are not disadvantaged compared to their local counterparts, including an overhaul of the legal framework governing investments and protection of intellectual property. Furthermore, the Government has taken measures to simplify administrative procedures in areas such as import and export, company establishment and making tax payments. The commitment to market-oriented reforms is strongly boosted by the Government through its ongoing efforts to attract foreign direct investment.

Business etiquette and culture

Many Vietnamese are more comfortable using their native language rather than English. However, many English speakers can be found in Vietnam, especially in the larger cities.

Presenting business cards is an important ritual in the Vietnamese business world. Cards are exchanged at the beginning of a meeting using both hands. Translating written materials into Vietnamese shows respect for Vietnamese colleagues and business partners.

Face to face business meetings are important in Vietnam and an appropriate level of respect must be shown according to rank and seniority.


Work force (68% total population)

Average annual income per person in 2019

65million

US$ 2,172 In comparison with other countries in Asia, the cost of living in Vietnam remains relatively low. According to the worldwide Mercer’s survey in 2019, two major cities - Ho Chi Minh City and Hanoi - were ranked 120th and 112th respectively in terms of the cost of living.

Main language: English, Vietnamese

Ease of doing business: Ranked 70th – By the World Bank



2. Investing in Vietnam

1. Limited-liability companyA limited-liability company is a legal entity established by its “members” (i.e. owners) through capital contributions to the company. The capital contribution of each member is treated as equity (charter capital). The members of a limited-liability company are liable for the financial obligations of the limited-liability company to the extent of their capital contributions.

The management structure would normally consist of the members’ council, the chairman of the members’ council, the general director and a controller (or board of supervisors where the limited-liability company has more than 11 members).

A limited-liability company established by foreign investors may take the form of either:

A 100% foreign-owned enterprise (where all members are foreign investors)A foreign-invested joint-venture enterprise between foreign investors and at least one domestic investor

2. Joint-stock companyA joint-stock company is a limited liability legal entity established through a subscription for shares in the company.

Under Vietnamese law, this is the only type of company that can issue shares. The charter capital of a joint-stock company is divided into shares and each founding shareholder holds shares corresponding to the amount of capital the shareholder has contributed to the company.

A joint-stock company is required to have at least three shareholders with no limit on the maximum number of shareholders.

The governance of a joint-stock company includes the general meeting of shareholders, the board of management, the chairman of the board of management, the general director and a board of supervisors (where the joint stock company has at least 11 shareholders, or if a corporate shareholders holds more than 50% of the shares of the joint-stock company).

A joint-stock company may take theform of either:

A 100% foreign-owned enterprise A joint venture between both foreign & domestic investors

3. PartnershipIt is a rare form of investment which may be established between two individual general partners. The general partner has unlimited liability for the operations of the partnership.

4. BranchTechnically speaking, a branch of a foreign business entity in Vietnam is a dependent unit of the foreign business entity, established and conducting commercial activities in Vietnam in accordance with the law of Vietnam or an international treaty to which Vietnam is a member.

However, this is not a common form of foreign direct investment and is only permitted in a few sectors. A branch is not an independent legal entity. Branches of foreign companies are different from representative offices in that a branch is permitted to conduct commercial activities in Vietnam.

5. Representative officeIt is a common form of registered legal presence in Vietnam for foreign organizations looking to invest or to do business in Vietnam, particularly those in the first stage of a market entry strategy. Foreign companies with business relations or investment projects in Vietnam may apply to open representative offices.

The key limitation in the scope of activities of representative office is that it is not allowed to engage in any “direct profit-making” activities. It is not permitted to conduct commercial or revenue-generating activities (i.e. the execution of contracts, receipt of funds, sale or purchase of goods, or provision of services).

A representative office is only permitted to:

Act as a liaison officeConduct market researchPromote its parent company’s business and investment opportunities

Thus, representative offices can provide a wide range of ancillary supports to their foreign-based parent companies.

6. Business cooperation contract (“BCC”)A BCC is a cooperation agreement between foreign investors and at least one Vietnamese partner in order to carry out specific business activities.

This form of investment does not constitute the creation of a new legal entity. The investors in a BCC generally share the revenues and/or products arising from a BCC and have unlimited liability for the debts of the BCC.

7. Public and private partnership contractA public and private partnership (“PPP”) contract is an investment form carried out based on a contract between the Government authorities and project companies for infrastructure projects and public services.

PPP contracts include build operate transfer (“BOT”), build transfer (“BT”), build transfer operate (“BTO”), build own operate (“BOO”), build transfer lease (“BTL”), build lease transfer (“BLT”) and operate manage (“O&M”) contracts.

Both public and private investors are encouraged to participate in PPP contracts. The rights and obligations of the foreign investor will be regulated by the signed PPP contracts and the applicable regulations governing such contracts. Investment sectors include:

Transportation infrastructure and relevant servicesLighting systems, clean water supply systems, water drainage systems, water/waste collection

and treatment systems, social/resettlement houses, cemeteriesPower plants and power transmission linesInfrastructure for healthcare, educational and training, cultural, sport and relevant services, offices for Government authoritiesInfrastructure for commerce, science and technology, hydrometeorology, economic zone, industrial zone, high- tech zone, centralized information technology zone, information technology applicationInfrastructure for agriculture and rural development, services for enhancing the correlation of agricultural production with processing and consumption of agricultural productsOther sectors according to the Prime Minister’s decisions

Forms of business

A company can only be voluntarily liquidated if it is solvent and all creditors can be paid. The process generally takes 12 months or more and requires a final tax audit.

For insolvent companies, a new Bankruptcy Law came into effect on 1 January 2015. The new law sets out, inter alia, which parties can instigate bankruptcy proceeding, procedures for the appointment of a liquidator, organization of creditors meetings and priority of creditor payments.

Liquidation and bankruptcy

Vietnam joined the World Trade Organization (“WTO”) in 2007. Under its accession commitments, Vietnam has opened various business sectors to foreign investment, in some cases under a phased approach. These commitments are generally referred to when assessing whether foreign investment in a particular sector is allowed.

Following Vietnam’s accession to the WTO, the market was liberalized in certain areas, including the trading of goods.

Under Vietnamese law, the trading of goods by foreign invested enterprises covers the following areas:

“Right to import” refers to the right to import goods into Vietnam for sale to business entities that themselves have the right to distribute the goods in Vietnam. The import right does not include the right to organize or participate in the distribution of goods in Vietnam.

“Right to export” refers to the right to purchase goods in Vietnam for export. The export right does not include the right to organize a network of collecting and purchasing goods in Vietnam for export.

“Distribution right” means the right to directly undertake activities of distribution, consisting of:

Being an agent for the purchase and sale of goodsWholesale distributionRetail distributionFranchising

Vietnamese enterprises are free to carry out trading activities in Vietnam and are permitted to directly export and import all goods, except for certain restricted goods where a special business license must be obtained from the relevant state authorities.

Foreign invested enterprises in Vietnam may directly distribute or set up distribution networks to sell the products they manufacture in Vietnam and may export their products directly. However, various sectors are still subject to restrictions.

In practice, as the Vietnamese Government wishes to protect domestic distribution enterprises, retail distribution by foreign investors in Vietnam is still restricted and subject to an approval process. For more than one retail outlet, the approval must be considered by the licensing authorities based on an Economic Needs Test (“ENT”), which considers the following criteria:

Existing service suppliers in a particulargeographic areaStability of marketGeographic scale

Enterprise registration certificate (“ERC”)

Setting up a business

Representative office:

Public-private partnership (“PPP”) project (such as BOT/BTO/BT project):

Investment agreement signed with an authorized state authority

Limited-liability company/ Joint-stock company/ Partnership:

Submit application to the Provincial Department of Planning and Investment

(For the projects located outside industrial zones, export processing zones, high-tech zones and economic zones)

The Provincial Industrial Zone/ Economic Zone Management Authority

(For projects located inside industrial zones, export processing zones, high-tech zones and economic zones)

Investment registration certificate (“IRC”)

Submit application to the Provincial Department of Planning and Investment

OR

Project contract signed with the relevant state body and the project company set up in the form of a limited-liability company or a joint-stock company.

Investment registration certificate

The Ministry of Planning and Investment

Step 2

Step 1

Submit application to the Provincial Department of Industry and Trade

Representative office license

Take 7 working days

3. Trade

In April 2013 the Ministry of Industry and Trade issued a new regulation which provides an exemption from the ENT procedures for retail outlets that are less than 500m2 in size and located in facilities constructed for the purpose of selling goods (although the establishment of such an outlet is still subject to approval of the licensing authority).



4. Taxation

Tax incentives:Preferential CIT rates of 10%, 15% and 17% for 15 years, 12 years and 10 years are applied, respectively. From 1 January 2016, enterprises previously entitled to the preferential CIT rate of 20% will enjoy a rate of 17% instead. When the preferential rate expires, the CIT rate reverts to the standard rate. Certain socialized sectors (e.g. education, health) enjoy a 10% rate for the life of the project.

Tax holidays with a complete exemption from CIT for a certain period generally beginning after the enterprise first makes profits, followed by a period where tax is charged at 50% of the applicable rate:

General overviewMost business activities and investments in Vietnam will be affected by the following taxes:

Corporate income tax (“CIT”)Value added tax (“VAT”)Personal income tax (“PIT”)

Foreign contractor tax (“FCT”)Special sales tax (“SST”)Import and export duties (“IED”)

There are various other taxes that may affect certain specific businesses, including:

Natural resources tax Land rentalEnvironment protection tax

All taxes are national taxes and administered locally. There are no local, state, or provincial taxes in Vietnam.

4 years of tax exemption and 9 subsequent years of 50% reduction



Corporate income tax (“CIT”)The Law on CIT applies to all domestic and foreign entities that invest in Vietnam. The law expands the taxpayer pool to include all foreign enterprises that have income from Vietnam, regardless of whether they have a permanent establishment in Vietnam or not.

A corporate-tax payer can elect to adopt a calendar year, or a fiscal year ending on a quarter of a calendar year, as the basis for the tax year.

Tax rates:Currently, the CIT standard rate is 20%. For enterprises with total revenues of less than VND20 billion, a 17% CIT rate shall be applied.The corporate tax rates are classified into the following certain industries are liable to a higher tax rate:

Companies operating in the oil and gas industry are subject to rates ranging from 32% to 50%, depending on the location and specific projectAny companies engaging in prospecting, exploration and exploitation of mineral resources are subject to CIT rates of 40% or 50% depending upon location

CIT may be reduced under investment incentive schemes.

Tax incentives:

Preferential tax treatments such as tax exemption, tax reduction, and preferential rates (17%, 15% or 10%) are limited to:

Encouraged sectors such as: healthcare, education, training, sports, art activities, environment, scientific research, high-tech, infrastructure development and software

Economic zones, industrial zones without favorable conditions or locations with difficult socio-economic conditions

Particularly, preferential CIT rate of 10% for 15 years will be applied to:

Income of enterprise from performance of new investment project in the area with extremely difficult socio-economic conditions

Income of enterprise from performing new investment project in the high technology field

Income of enterprises from performing new investment projects in the field of environmental protection

High-tech enterprises and agricultural enterprises applying high-tech

Social, unemployment and health insurance contributions

TAX

Tax exemption for 4 years and a 50% reduction of tax payable for 9 subsequent years will also be applied in certain cases.

Income of an enterprise from the implementation of a new investment project in production if the conditions on scale of investment, disbursement time and total annual revenue or labor usage are satisfied


Enterprises currently applying a CIT rate of 20% will apply a CIT rate of 17% from 1 January 2016.

Calculation of taxable profits:

Taxable profit is calculated as the difference between total revenue, whether domestic or foreign sourced, and deductible expenses, plus other assessable income.

Taxpayers are required to prepare an annual CIT return which includes a section for making adjustments to accounting profit to arrive at taxable profit.

A CIT rate of 17% for 10 years will be applied to:

Tax exemption for 2 years and a 50% reduction of tax payable for the 4 subsequent years will be applied in certain cases.

Income of an enterprise from performing a new investment project in production of equipment, high-quality steel, and other products

Income of an enterprise from performing a new investment projects in the areas with difficult socio-economic conditions

Deductible expenses:

In general, deductible expenses for CIT purposes are reasonable expenses actually incurred that relate to the activities of production and business of the enterprise and are accompanied by legal and complete invoices and vouchers as required by law.

Expenses related to the value of uncompensated losses caused by natural disaster, epidemic, fire or other force majeure events but not being supported by the valid documents according to the prevailing regulationsDepreciation of fixed assets which is not in accordance with the prevailing regulationsExpenses related to the purchase of goods and services without the list of purchased goods and services (the purchase from the enterprises who are allowed to issue the list instead of invoices)Expenses related to the lease of assets from individuals without sufficient documentsEmployee remuneration expenses which are not actually paid, or are not stated the conditions and rates for entitlement in one of the following documents: labor contract, collective labor agreement, financial regulations and reward regulations in accordance with financial regulationsSalaries and wages of owners of private enterprises or single-member limited liability companies (owned by an individual); remuneration paid to the founding members, members of the Members’ Council or Board of Directors who are not directly involved in administering production and business activitiesExpenses in kind for employees’ uniforms without invoices; expenses in cash for employees’ uniforms that exceeds VND 5 million/person/yearBusiness travel expenses not in compliance with the prevailing regulationsContributions to voluntary pension funds and the purchase of voluntary pension insurance for employees exceeding VND 1 million/month/person. From 1 May 2018, the cap increases to VND 3 million/month/person; and the purchase of life insurance for employees will be also subject to such cap (previously, no cap on life insurance)Provisions for severance allowance (except for the enterprises who are not subject to compulsory unemployment insurance contributions) and payments of severance allowance in excess of the prescribed amount according to the Labor Code

Non-deductible expenses:


Allocation of the rental fees of fixed assets exceeding the number of years paid in advanceInterest on loans from non-economic and non-credit organizations exceeding 1.5 times the interest rate set by the State Bank of VietnamInterest on loans corresponding to the portion of charter capital not yet contributedLoan interest expenses in excess of 20% of the total net earnings before interest, taxes, depreciation and amortization (EBITDA) arising in the period according to the transfer-pricing regulations. Recently, the Government has changed the deductibility limitation from 20% to 30% of EBITDAProvisions for stock devaluation, bad debts, financial investment losses, product warranties or construction work which are not in accordance with the prevailing regulations. In August 2019, the Ministry of Finance officially issued Circular 48/2019/TT-BTC (replacing the previous Circular 228/2009/TT-BTC and other related regulations) providing guidance on treatment of provision for inventory devaluation, losses from investment, doubtful debts, and warranty of products, goods, services, and construction. It was stated that provisions of this Circular is the basis for taxpayer to determine related CIT-deductible expensesPeriodic accrual expenses that are not used up at the end of the periodUnrealized foreign exchange losses due to the year-end revaluation of foreign currency items other than account payablesDonations (except certain donations for education, health care, natural disaster or building charitable homes for the poor in line with the prevailing regulations)Overhead expenses allocated to a permanent

establishment in Vietnam by the foreign enterprise’s head office exceeding the amount under a prescribed revenue-based allocation formulaExpenses sourced from other funding sources, expenses paid from the Science and Technology Development Fund, expenses for buying golf membership cards and for playing golfExpenses related to the hiring of management for the business of prize-winning electronic games or casino games in excess of 4% of the turnover from such businessExpenses that do not correspond to taxable revenue Staff welfare (including certain benefits provided to family members of staff) exceeding a cap of one month’s average salary (except the purchase of voluntary pension and life insurance are separately stipulated)Expenses for fundamental construction during the investment phase to form fixed assetsCertain expenses directly related to the issuance of stock, the payment of dividends, the purchase or sale of treasury shares, and other expenses directly related to the increase and decrease of capitalAdministrative penalties, fines, late payment interestInput VAT that has been credited or refunded; input VAT on the value of a car of nine seats or less that exceeds VND 1.6 billion; CIT (except for CIT which a Vietnamese enterprise pays on behalf of a foreign contractor under a net contract); and PIT (unless the employer pays net salary to employees)

Administration:

CIT taxpayers are required to make quarterly provisional CIT payments based on estimates. In case the provisional quarterly CIT payments account for less than 80% of the final CIT liability, any shortfall in excess of 20% is subject to late payment interest (currently as high as 11% per annum), applying from the deadline for payment of the Quarter 4 CIT liability.

CIT returns are filed annually. The annual CIT return must be filed and submitted not later than 90 days from the fiscal year end (typically 31 December). The outstanding tax payable must be paid at the same time.

The standard tax year is the calendar year. Enterprises are required to notify the tax authorities in cases where they use a tax year (i.e. fiscal year) other than the calendar year.

Taxpayers must pay tax in the province where their main head office is located. If an enterprise has a “dependent accounting production establishment” in another province or city, then the amount of CIT assessable and payable will be determined in accordance with a ratio of expenses incurred by each manufacturing establishment over the total expenditure of the company.

Non-deductible expenses:

For certain businesses such as insurance companies, securities trading and lotteries, the Ministry of Finance provides specific guidance on deductible expenses for CIT purposes.

Profit remittance:

Foreign investors are acceptable to remit their profits annually at the end of the financial year or upon termination of the investment in Vietnam. Foreign investors are not permitted to remit profits if the investee company has accumulated losses.

The foreign investors or the investee enterprises are required to notify the tax authorities of the plan to remit profits at least 7 working days prior to the scheduled remittance.

Losses:

Tax losses may be carried forward for a maximum of five (5)consecutive years.

Losses arising from incentivised activities can be offset against profits from non-incentivised activities, and vice versa. Losses from the transfer of real estate and the transfer of investment projects can be offset against profits from other business activities.

Carry-back of losses is not permitted. There is no provision for any form of consolidated filling or group loss relief.


Vietnam’s TP regulations are governed by Decree 20/2017/ND-CP which came into force on 1 May 2017, replacing the previous Circular 66/2010/TT-BTC.

While it is based loosely on Circular 66, Decree 20 extends the interpretation of existing provisions and introduces additional concepts and principles from the transfer pricing

guidelines of the Organization for economic cooperation and development (OECD) and BEPS action plan.

Recently, on 24 June 2020, Vietnam’s Government issued Decree No. 68/2020/ND-CP amending, supplementing Clause 3, Article 8 of Decree 20, which took effect from the signing date.

Applicable tax rates vary depending on whether a foreign contractor registers to use the Vietnamese Accounting System (“VAS”) or not. The standard FCT rate is 10% but different rates can apply depending on the transactions and taxpayer’s tax filing status.

Compliance requirements include an annual declaration of related party transactions and TP methodologies used, and a taxpayer confirmation of the arm’s length value of their transactions (or otherwise the making of voluntary adjustments), which is required to be filled together with the annual CIT return.

Decree 20 requires that the TP method applied must ensure that there is no loss of tax revenue to the state budget, which could imply that no downward adjustments are allowed. Decree 20 also introduces a new TP declaration form which requires disclosure of more detailed information, including segmentation of profit and loss by related party and third-party transactions.

Decree 20 gives the tax authorities the power to use internal databases for TP assessment purposes in cases

where a taxpayer is deemed noncompliant with the requirements of the Decree.

Tax payers engaged in related party transactions with domestic related parties may be subject to different rules.

2015 to 2017 saw significant developments in transfer pricing initiated by the tax authorities. In July 2015, a Transfer Pricing Audit department was established within the GDT. Soon afterwards, in November 2015, local Transfer Pricing Audit departments were also established in the Hanoi, Binh Duong, Dong Nai, and Ho Chi Minh City tax authorities.

In July 2016, the GDT announced the establishment of a BEPS Working Group which is responsible for preparing action plans to implement the OECD - BEPS Initiatives and overseeing the implementation process.

TP methodologies:

Acceptable methodologies for determining arm’s length pricing are analogous to those espoused by OECD in the transfer pricing guidelines for multinational enterprises and tax administrations, i.e. comparable uncontrolled price, resale price, cost plus, profit split and comparable profits method.

Related party definition:

The ownership threshold required to be a “related party” under Decree 20 is 25%, higher than the 20% under Circular 66. In addition, Decree 20 removes from the related party definition of Circular 66 two entities having transactions between them accounting for more than 50% of their sales or purchases. Vietnam’s transfer pricing rules also apply to domestic related party transactions.

Transfer pricing (“TP”)

TP documentation: Double taxation agreements (“DTAs”)The application of CIT (including via FCT rules) may be affected by a relevant DTA. For example, the 5% CIT withholding on services supplied by a foreign contractor may be eliminated under a DTA if the foreign contractor does not have profits attributable to a permanent establishment in Vietnam. Vietnam has signed more than 70 DTAs and a number of others at various stages of negotiation.

There are various guidelines on the application of DTAs. These include regulations relating to beneficial ownership and general anti-avoidance provisions. DTA entitlements will be denied where the main purpose of an arrangement is to obtain beneficial treatment under the terms of a DTA (treaty shopping) or where the recipient of the income is not the beneficial owner.

There are three methods of FCT payment at the FC’s selection:

Foreign contractor tax (“FCT”)

Foreign organizations and individuals carrying out permitted businesses in Vietnam without a legal entity are subject to FCT comprising VAT and CIT.

Hybrid method:

This method is a mixed-up between the deduction method and direct method, i.e. allows the FC declares VAT based on the creditable approach and CIT at direct method.

Direct method:

Under this method, FCT is the mechanism to withhold taxes. The FC’s VAT and CIT will be withheld by the Vietnamese customers at prescribed rates from the payments made to the FC. Various FCT rates are regulated under the nature of activities performed (please kindly see our below table briefing the FCT rates for each activities).

Deduction method:

This method allows the FC declaring: (i) VAT under the approach of crediting the input VAT against the output VAT, and (ii) CIT based on the declaration of revenue and expense similar to the local enterprises’ application. Of note, FC is required to meet some criteria, including FC’s adoption of the Vietnamese Accounting System.

The guidance dictates that a substance over form analysis is required for the beneficial ownership and outlines the factors to be considered, which include:

Where the recipient is obligated to distribute more than 50% of the income to an entity in a third country within 12 monthsWhere the recipient has little or no substantive business activitiesWhere the recipient has little or no control over or risk in relation to the income receivedBack to back arrangementsWhere the recipient is resident in a country with a low tax rateWhere the recipient is an intermediary or agent

1 2 3


Natural resources tax (“NRT”)Natural resources tax (also known as royalty tax) is imposed on the exploitation of Vietnam’s natural resources including petroleum, mineral resources, forest products, seafood, and natural water. Tax rates vary upon the specific classification of natural resource and are applied to the production output at a specified taxable value per unit.

The VAT system in Vietnam applies to goods and services used for production, business, and consumption in Vietnam. Two methods can be used to calculate VAT payable:

Value added tax (“VAT”)

Credit method (for taxpayers meeting the requirements): VAT payable under the credit method is calculated on the difference between output VAT (VAT collected for sales) and input VAT (VAT paid on purchases).1

2 Direct method (taxpayers that do not qualify for the credit method): Taxpayer will pay VAT by applying a deemed rate on the added value of the transaction.

A corporate-tax payer is required to file and pay VAT on monthly basis, or on quarterly basis if relevant conditions are met. The standard VAT rate is 10%, but the rates are classified into four groups: exempt, 0%, 5% and 10%.

SST is a form of excise tax imposed on a selected number of goods and services, either at the stage of production, provision of services or import (except for export products). The tax is calculated based on the selling price at the place of production excluding this tax and VAT.

Taxpayers producing SST goods from SST inputs are entitled to claim a credit on the amount of SST paid on the materials imported or purchased from local suppliers.

Include: cigarettes, cigars and other products processed from tobacco; spirits and beer; certain passenger vehicles; two-wheel motor vehicles with a cylinder capacity above 125cm3; aircraft and yachts; various types of petrol; air-conditioners with a capacity of 90,000 BTU or less and playing cards.

Special sales tax (“SST”)

Include: dancehalls, massage lounges and karaoke parlors, casinos, slot machines and other similar types of machines, betting businesses, golf and lotteries.

Environment protection tax (“EPT”)Effective from 1 January 2012, Vietnam introduced environment protection tax (“EPT”) which is aimed to impose tax on goods that may cause damage to the environment.

EPT is in effect an indirect tax applicable to the production and importation of certain goods such as petroleum, coal, plastic bags, and restricted chemicals.

Land rentalGenerally, rental fees are paid by foreign investors for rights of land use. The rates are ranging widely depending upon the location, infrastructure and industrial sector in which the business is operating. Additionally, house and apartment owners are required to pay land tax under the law on non-agricultural land use tax which is charged on a square meter basis at progressive rates from 0.03% to 0.15%.

Goods subject to SST

Businesses subject to SST


All goods entering Vietnam are generally subject to import duty. Import duty rates vary depending on the nature of goods involved and origin of the goods. There are three import duty rates applicable (ordinary, preferential, and especially preferential), based on the trading relationship between Vietnam and the exporting country.

A partial or full exemption from import duty may be granted on application. Raw materials and components imported into Vietnam for the manufacture of goods for export are usually exempt from import duty provided that the goods are actually exported within 275 days. Enterprises with foreign-invested capital and parties to a business cooperation contract (“BCC”) in especially encouraged projects are exempt from import duty in respect of certain imported goods which form part of their fixed assets.

Personal income tax (“PIT”)Both foreigners working in Vietnam and Vietnamese citizens are subject to PIT. For tax residents, a progressive taxing system, where the marginal rate ranges from 5% to 35%, is applied to worldwide income. For tax non-residents, a flat rate of 20% is applied to the income derived from Vietnam.

Present in Vietnam for at least 183 days in a tax year

If an individual has a regular place of abode in Vietnam, but is actually only present in Vietnam for less than 183 days in the tax year and fails to prove their residence in any other country, that individual will be considered to be a tax resident of Vietnam.

In general, a tax resident is a person:

Not a tax resident of another country (subject to applicable double tax agreement)

With permanent residence in Vietnam, i.e. an individual rents a house in Vietnam according to legislation on housing under a contract that lasts 183 days or longer in the tax year

Social, health and unemployment insurance contributionsSocial insurance (“SI”) and Unemployment insurance (“UI”) contributions are applicable to Vietnamese individuals only. Health insurance (“HI”) contributions are required for Vietnamese and foreign individuals that are employed under Vietnam labor contracts.

Tax returns are filed on self-assessment basis and subject to tax audit at a later point in time.

Tax audits are performed regularly and often cover a number of tax years. Prior to an audit, a written notice from the tax authorities is sent to the tax payer to specify the timing and scope of the audit inspection.

Various tax offences are subjected to certain penalties as stated in the detailed regulations. These range from relatively minor administrative penalties through to tax penalties amounting to various multiples of the additional tax assessed. For discrepancies identified by the tax authorities

(e.g. upon audit), a 20% penalty will be imposed on the amount of tax under-declared. Late payment of tax is subject to interest of 0.03% (it was 0.05% prior to 1 July 2016) of the tax liability for each day late.

The general statute of limitations for imposing tax and late payment interest is 10 years (effective 1 July 2013) and for penalties is up to 5 years. In case the tax payer did not register for tax, there is no statute of limitation for imposing tax and late payment interest.

Tax audits and penalties

Import and export duties

Most exports are duty-free, except for certain natural resources such as sand, chalk, marble, granite, ore, crude oil, forest products and scrap metal.


5. Accounting and auditing

Accounting framework

Accounting standards:

There are currently 26 Vietnamese Accounting Standards (“VAS”) which were issued from 2001 to 2005. All standards were adopted from and primarily based on the International Accounting Standards (“IAS”) and International Financial Reporting Standards (“IFRS”) as promulgated by the International Accounting Standards Board (“IASB”) prevailing at the time of issuance. Key differences between IFRS and VAS include terminology, applied valuation methods or disclosure requirements due to the continuing changes and amendments to IFRS. Vietnam is on the way to close the gap between VAS and IFRS.

Accounting Law and applicable implementation guidance:

In Vietnam, Accounting Law is the highest accounting regulation issued by the National Assembly. Various applicable implementation guidance is then issued by the Government and the Ministry of Finance (“MoF”) in respect of implementing a Decree or Circular, respectively.

The accounting framework in Vietnam is majorly rules-based accounting rather than a principles-based one. The Vietnamese Accounting System is seen as the book keeping and financial reporting manual which provides a standard chart of accounts, financial statements template, accounting books and voucher templates, as well as detailed guidance on accounting double entries for specific transactions in each individual account.

Industry-specific accounting guidelines are developed for credit institutions, insurance companies, securities companies, fund managers and funds. Out of these sectors, the accounting guidelines for credit institutions are issued by the State Bank of Vietnam.

Accounting records

Framework: Vietnamese Accounting System

Language: Vietnamese

The company can use electronic documents as accounting records, but must print and file those electronic papers in hardcopy

Records retention: five (5) years for accounting documents; ten (10) years for accounting data, accounting books and permanently for documents that are significant in terms of economics, national security, and defense

Seal: Enterprises have the rights to actively decide the form, quantity, and contents of their seal. The compliance with entities’ charter is required for the management, usage and retention of the seal. The seal shall be used in the cases prescribed by law or agreed by the parties

Accounting period: The accounting period is generally 12 months in duration. The first accounting period must not be longer than 15 months from the license date. The last accounting period must also not be longer than 15 months

Currency: Accounting records are generally required to be maintained in Vietnamese Dong (“VND”). Foreign invested entities are allowed to select & use another currency in recording transactions & maintaining their accounting records, provided that they can clearly demonstrate that the receipts & disbursements are mainly denominated in such other currency. However, for statutory reporting, entities using another currency as functional currency must convert their financial statements prepared under such other currencies into VND under certain prescribed regulations

38 The Power of Being Understood

Employment lawThe Labor Code No. 45/2019/QH14 passed by the National Assembly in November 2019 with many new points, will take effect from 1 January 2021 and replace the current Labor Code 2012. The Labor Code creates a legal framework that sets out, inter alia, the rights and obligations of employers and employees with respect to working hours, labor agreements, payment of social insurance, overtime, strikes, and termination of employment contracts.

The law provides an 8-hour working day and a 48-hour working week. An employer and an employee may agree that an employee works overtime, provided that the total overtime worked does not exceed 200 hours per year. In special circumstances and with notification to the relevant authorities, the maximum overtime can be increased to 300 hours per year.

In a labor contract with Vietnamese workers, wages and salaries must be set in VND. The wages of employees are subject to minimum rates determined by the Government from time to time.

Foreigners working in Vietnam must generally have a work permit issued by the labor management authority. In order to obtain a work permit, foreigners assigned to work in Vietnam are required to show a degree of proprietary knowledge, a special skill or a manager/ executive-level skill not readily available in the domestic labor market.

Under the Labor Code, the maximum duration of a work permit is 24 months (which can however be extended subject to certain conditions).

Financial reportingThe basic set of financial statements prepared under VAS comprises the following:

Heading to international financial reporting standards (“IFRS”)

There are certain key differences between IFRS and VAS, mainly including terminology, accounting treatment and presentation and disclosure requirements. It should be noted that IFRS has been changing continuously with a number of revisions and amendments made to date. However, there are still a number of key accounting standards such as regarding financial instruments and impairment of assets that have not been issued yet in Vietnam.

It should be noted that Accounting Law 2015 introduces the concept of Fair Value for the first time, with further specific guidance expected to be issued by the MoF in the near future.

Vietnam is expected to align with IFRS in its efforts to enhance comparability and improve transparency. IFRS application in Vietnam will be implemented according to a roadmap with three stages: Preparatory period from 2020 to 2021; Phase 1 will apply voluntarily from 2022 to 2025; Phase 2 will be compulsory after 2025.

The international standards of auditing act as base for 47 auditing standards issued in Vietnam with certain customizations to fit the local circumstances.

The annual financial statements of all foreign-invested entities must be audited by an independent auditing company operating in Vietnam. Audited annual financial statements must be completed within 90 days of the end of the financial year. These financial statements should be filed with the applicable licensing body, Ministry of Finance, local tax authorities, Department of Statistics, and other relevant authorities.

Audit contracts should be signed with the independent auditing companies no later than 30 days before the end of the enterprise’s fiscal year. The enterprise is legally responsible for providing timely and sufficient information, as well as explanations to the auditor.

There is a requirement to rotate audit firms after five consecutive years for credit institutions operating in Vietnam. For entities other than credit institutions, the signing auditors are required to be rotated off after three consecutive years.

An enterprise is obliged to appoint a chief accountant who must satisfy the criteria and conditions stipulated by the Law on accounting and guiding regulations. The chief accountant and the legal representative must approve on the annual financial statements, then a copy of which must

be submitted to the local authorities within 90 days of the end of the financial year. For those enterprises operating in export processing zones (“EPZs”) or industrial zones (“IZs”), Annual financial statements may be required to be filed with the management board of the respective EPZs or IZs.

Audit requirements

6. Human resources and employment law

Population growth rate

Trained or skilled population (with elementary qualifications or higher)

36.5%

1%

ImmigrationForeigners coming to Vietnam must obtain a visa (with certain exceptions under treaties or other reciprocal agreements) from the Vietnamese Immigration Department or Vietnamese embassies/consulate offices in foreign countries.

A business visa is issued to foreign individuals conducting business in Vietnam.

Notes to the financial statements, including a disclosure on changes in equityBalance sheet Income statement Cash flow statement

39RSM Vietnam


Internal controls and internal auditTo comply with the SBV’s applicable regulations, credit institutions and foreign banks’ branches operating in Vietnam must set up an internal control system and internal audit function.

Credit institutions and foreign banks’ branches must review and assess the adequacy, validity, effectiveness, and efficiency of internal controls on a yearly basis. Accordingly, a report on the self-assessment of internal controls containing risk updates, a summary of the main operations, relevant risks and checks and controls at an organization-wide level, unit level and department level of the credit institutions and foreign banks’ branches must be prepared. That report shall be submitted to the key stakeholders of the credit institutions and foreign banks’ branches as required and the State Bank of Vietnam within 30 days from the end of the fiscal year.

7. Banking and finance

Capital management

Basel II:

In 2015, the SBV selected ten domestic commercial banks to pilot the application of Basel II standards from February 2016 to the end of 2018, with an aim to apply Basel II standards for all banks by 2020. Commercial banks are required to maintain a CAR of at least 8% from January 2020.

Capital adequacy ratio (“CAR”):

CAR under the guidance of State Bank of Vietnam (“SBV”) is required to be maintained at the minimum regulatory requirement of 9%. The existing CAR calculation methodology is based loosely on Basel I with respect to credit risk and does not consider other risks, such as operational risk and market risk charges.

In late 2016, the SBV issued a new regulation on CAR which will be effective from 2020. In accordance with this new regulation, CAR is required to be maintained at a minimum requirement of 8% and its calculation methodology was changed to be aligned with Basel II, which not only takes into account credit risk but also operational risk and market risk. This new regulation is considered a step forward to safety and effectiveness in Vietnam’s operation of the banking industry.

PAY

INVOICE

INVOICE

PAY

Foreign ownership:

Total foreign ownership in a local bank is capped at 30%. Subject to approval by the Prime Minister on a case by case basis, foreign investors can own more than 30% of the total shares in a local bank.

Minimum legal capital requirement:

A minimum legal capital requirement applies for credit institutions operating in Vietnam. Accordingly, minimum legal capital levels for commercial banks, foreign banks’ branches, finance companies and financial leasing companies are VND3,000 billion, US$15 million, VND500 billion and VND150 billion, respectively.

Foreign exchange controlThe Vietnamese Dong is not freely convertible and the market is still heavily dependent on foreign currencies, especially the U.S. dollar.

The Government has implemented measures to gradually reduce its reliance on the dollar. All monetary transactions in Vietnam must be made in Vietnamese Dong, except for a limited number of transactions allowed by law to be made in foreign currencies (i.e. salary payment to foreign employees). Foreign invested enterprises may, subject to certain conditions, buy foreign currency from banks to carry out a number of obligations in foreign currencies from their transactions.

Generally speaking, the flow of foreign currencies into Vietnam is less constrained by the SBV compared to the outflow, which has been restricted to certain transactions such as payment for imports of goods and services, repayment of loans contracted abroad and payment of interest accrued thereon.

Only banks, non-bank credit institutions and other authorized institutions are eligible to provide foreign exchange services.

Independent auditor requirementsThe annual statutory financial statements and operating effectiveness of the internal control system of credit institutions and foreign banks’ branches are required to be audited by an independent auditor. Credit institutions are also required to rotate auditing companies every five years.

Before the end of each fiscal year, credit institutions and foreign banks’ branches must select an independent auditing company from the list of authorized auditing companies published by the SBV to audit their financial statements and operation of the internal controls for the subsequent fiscal year.

42 The Power of Being Understood

The Vietnamese Constitution stipulates that land in Vietnam belongs to the people with the state acting as the representative owner and exerting its control over the land in practice on the people’s behalf.

Although private ownership of land is technically not permitted, legal ownership can in essence be derived through the right to use land (i.e. the land use right (“LUR”)). The state may allocate or lease LURs to individuals, households and organizations to use land for a defined or undefined term.

Vietnam’s legal framework for the management and administration of LURs is composed of: various key

laws and in particular the Land Law which was amended in 2014 for some important reforms relevant to foreign invested enterprises (“FIE”); supplementing laws including the Civil Code which provide clarity on areas not specifically addressed in the key laws and including areas relating to foreign investment; and, auxiliary rules and regulation.

The ownership of LUR and other assets attached to land is evidenced by the Certificate of Land Use Right, Ownership of House and Other Assets Attached to Land (the “LURC”). This LURC sets out fundamental information on the land use, including the term and purpose

of the land use, and the assets attached to the land (if any).

The state’s power over land construction activities is exercised by the following Government bodies: at the national level, by the Ministry of Natural Resources and Environment, an administrative body of the state for land management, and the Ministry of Construction, an administrative body of the state for construction activities; and, at local level by the People’s Committees, supported by their administrative bodies such as the Department of Natural Resources and Environment and the Department of Construction.

8. Land

Banking systemVietnam’s banking system was divided into a two-tier structure in 1988 when the SBV assumed the regulatory and supervisory roles for the banking sector, with commercial activities shifting to credit institutions.

The SBV acts as both the Central Bank and as a Government Agency of the Socialist Republic of Vietnam. Operating under the tight direction of the Government, the SBV is subject to the Government’s or the Prime Minister’s approval for key areas of operation. Since dividing into a two-level system, the Vietnam banking system has expanded rapidly.

Four SOCBs dominate the domestic banking sector are the Bank for Foreign Trade of Vietnam (Vietcombank), the Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), the Bank for Investment and Development of Vietnam (BIDV), and the Vietnam Bank for Agriculture and Rural Development (Agribank). The SOCBs currently account for around 50% of total banking system assets; however, the domination of these banks has been on a significant downward trend.

The second phase of bank restructuring process (2016 – 2020) follows the first phase ending in 2015 (2011 – 2015). The merger of several banks and the buying of underperforming banks, banks unable to self – restructure by the State Bank has brought about several achievements including improvement in the performance of banks and reduction of total bad debt ratio of the banking system to 1.48% by end of 2019.

Over the last decades, foreign banks have expanded their presence in Vietnam. There are about forty-nine foreign bank branches, two joint-venture banks, and nine 100%-foreign-owned banks by December 2018.

Current legislation states that the total foreign shareholdings, in local Vietnamese banks, is not to exceed 30%. Within this limit the maximum shareholding permitted to a foreign bank as a strategic partner is 20%, while a non-strategic investor can own 15%. Individual investors may hold no more than 5% of the shares.

While the banking industry developed rapidly, Vietnam is still a largely cash-based society with the fact that only about 31% of Vietnam’s population held bank accounts at the end of 2015. However, the proportion of Vietnamese adults holding a bank account increases steadily to 63% by 2019 thanks to many facilitations of the Government.

Vietnam’s credit institutions comprise:

Finance companies

Finance leasing companies

Credit cooperatives

Branches of foreign banks

100% foreign-owned

banks

Joint-venture banks

Joint-stock commercial banks

State-owned commercial banks (SOCBs)1

2

3

4

5

6

7

8

43RSM Vietnam


ConfidentialityCompetent authorities responsible for the issuance of technology transfer permits and certificates of registration of TTCs are obligated to maintain confidentiality of the technologies and business secrets in application files for issuance of technology transfer permits and registration of technology transfer contracts.

9. Technology transfer

Technology transfer in Vietnam is regulated by the Law on technology transfer (“LTT”) 2018 which takes effect from 1 July 2018.

The LTT has seven chapters with 61 articles, dealing with objects eligible for transfer; technologies encouraged for, restricted to, and prohibited from transfer; technology transfer agreements; technology transfer services (including technology transfer brokerage, appraisal, evaluation, assessment and promotion); measures for encouraging and boosting technology transfers; approval and registration of technology transfers; and handling disputes, claims, denouncements and breaches in technology transfers.

General principlesThe LTT defines technology as solutions, processes and know-how, which may or may not be associated with tools and means, to turn resources into products.

The term “transfer of technology” refers to either the transfer of the right to own the technology or the licensing/sublicensing of the right to use the technology either by an individual or a corporation.

Governing lawThe parties are allowed to agree on foreign governing law, together with other terms and conditions which are not contrary to Vietnamese law. Article 776 of the Civil Code 2005 provides that technology transfer with a foreign element (i.e., between a Vietnamese entity and foreign entity and technology transfer from any foreign country into Vietnam or from Vietnam to any foreign country) must comply with (i) provisions of the Civil Code 2005 and other legal documents of Vietnam concerning technology transfers; (ii) international treaties to which Vietnam is a contracting party; or (iii) foreign law, if the application of such foreign law or the consequence of its application does not contradict “the basic principles of the law of Vietnam”.

RegistrationBeside some cases where the technology transfer contracts (“TTCs”) are compulsorily required to register with the Government such as TTL from a foreign country to Vietnam and vice versa, the LTT also provides the right of the parties to register on a voluntary basis with respect to “unrestricted” TTCs in order to set the ground for the parties to enjoy incentives given in this law and other relevant laws”. It is therefore suggested that parties register TTCs to enjoy incentives under the LTT and other laws.The LTT requires that “restricted” technology transfers are subject to approval by the technology management authority (the “technology authority”) before the TTC is entered into by the parties, and then a permit is issued after the TTC’s execution.


Corporate responsibilityAt RSM Vietnam, we believe the core of corporate responsibility (“CR”) is a real commitment to corporate social responsibility unites an organization, strengthens its reputation and creates vital links with the communities in which it operates.

We understand that we all have an obligation as business leaders, not only to do the right thing by embedding good social, environmental & economic practices into our everyday business, but also to be a catalyst for change by promoting these ethical & transparent business practices to the marketplace as well.

Key contactsDang Xuan Canh | Managing partnerHead of Audit & assuranceT: +(84) 28 3827 5026 - Ext: 183 E: [email protected]

Le Khanh Lam | PartnerHead of Tax & consultingT: +(84) 28 3827 5026 - Ext: 227 E: [email protected]

Van Huu Luong | ManagerHead of Business developmentT: +(84) 28 3827 5026 - Ext: 346 E: [email protected]

RSM Vietnam is one of the leading mid-tier accounting and advisory firms in Vietnam, which was established in July 2001. RSM Vietnam has become a member of RSM network since 2012. Under its core purpose of being the firm of choice for growing businesses looking for high quality & personalized services, RSM Vietnam assists clients in achieving their goals through audit, tax, advisory & outsourcing services. RSM Vietnam has more than 400 staff in Vietnam serving mid to large public-listed, multi-national and private companies in various industries. RSM is the 6th largest provider of audit, tax and consulting services worldwide (based on International Accounting Bulletin in February 2020) and the 5th largest supplier in USA. RSM has 810 offices in over 120 countries and more than 43,000 people internationally. The network’s annually total fee income is US$5.74 billion for 2019.

RSM Vietnam was founded by the group of the certified public auditors (“CPAs”) and accredited consultants, who had worked in the field of the auditing and consulting since the very first days of this industry in Vietnam. With these advantages, RSM Vietnam has possessed the valuable manpower resources to confidently provide professional services requiring full understanding of Vietnam business climate and with international quality standards. With our mission “RSM Vietnam wants to be your great business partner by way of bringing creative added value solutions to your success in local and global environment”, we endeavor to provide our clients with professional services following international quality standards adapted to Vietnam business environment. Currently, RSM Vietnam have the offices in Ho Chi Minh City, Hanoi and Da Nang encompassing the total of employees of about 400 people (of which 40 professionals holding CPAs issued by the Ministry of Finance). RSM Vietnam is currently the 8th largest provider of tax services and audit and accounting services in Vietnam based on the ranking of Ministry of Finance.

Industry insightsOur teams are organized by business area to provide focused support on issues specific to any given industry. We have expertise in the following industries, amongst others:

Our servicesRSM Vietnam provides clients with professional and high-quality services including audit, tax, accounting, deal advisory and consulting by bringing solutions in order to truly understand your needs and go to success for your business.

We have rich specialist resources from our network, combined with extensive knowledge of the Vietnamese market, which ensures capabilities to provide an unrivalled level of support to our clients in the following services:

Our valuesAs a network, we underpin our brand with the following values that are integral to the way we act with each other and with clients: Respect, Integrity, Teamwork, Excellence, and Stewardship.

Computer & IT

Real estate & construction

Retail & consumer

Industrial manufacturing

Pharmaceuticals & healthcare

Agriculture

Energy

Financial services

Insurance

Education

Audit & assurance

Tax

Transaction support

Business process solutions & outsourcing

Risk advisory

Business consulting

We also provide tailored support to special groups of clients with service packages such as private business services and country desks (including Japanese, Korean, Chinese and Taiwanese business services).

Do the right thingWe stay true to our beliefs: in decisions, in negotiations, in communications

Treat others as we would like to be treated. We display respect in each interaction with: clients, employees, and partners

Better our network, members and our people. We make RSM a better place by: developing our people, building our brand, supporting our communities

Be the best in everything we doWe achieve distinction through: our standards, our operations and the work we deliver

Work together effectively. We cultivate genuine collaboration: in work groups, across member firms, across functions, amongst leaders

Respect Integrity Teamwork Excellence Stewardship

rsm.global/Vietnam

The aim of this publication is to provide general information about doing business in Vietnam and every effort has been made to ensure the contents are accurate and current. However, tax rates, legislation and economic conditions referred to in this publication are only accurate at time of writing. Information in this publication is in no way intended to replace or supersede independent or other professional advice. No responsibility for any errors or omissions nor loss occasioned to any person or organisation acting or refraining from acting as a result of any material in this publication can, however, be accepted by the author(s) or RSM International. You should take specific independent advice before making any business or investment decision.

This Guide includes information obtained or derived from a variety of publicly available sources. RSM has not sought to establish the reliability of these sources or verified such information. The materials contained in this document were assembled in July 2020 and were based on the law enforceable and information available at the time.

RSM Vietnam is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network.

Each member of the RSM network is an independent accounting and advisory firm each of which practices in its own right. The RSM network is not itself a separate legal entity of any description in any jurisdiction.

The network is administered by RSM International Limited, a company registered in England and Wales (company number 4040598) whose registered office is at 50 Cannon Street, London EC4N 6JJ.

The brand and trademark RSM and other intellectual property rights used by members of the network are owned by RSM International Association, an association governed by article 60 et seq of the Civil Code of Switzerland whose seat is in Zug.

© RSM International Association, 2020

RSM Vietnam

facebook.com/RSMVietnamlinkedin.com/company/rsm-vietnam

Ho Chi Minh City

5th Floor, Sai Gon 3 Building, 140 Nguyen Van Thu Street, Da Kao Ward, District 1

T: +84 28 3827 5026 E: [email protected]

Hanoi

25 Floor, Tower A, Discovery Complex, 302 Cau Giay Street, Dich Vong Ward, Cau Giay District

T: +84 24 3795 5353 E: [email protected]

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