Investing in Vietnam

Michael Lorenz & Associates
Legal, Tax and Business Consultants
Investing in Vietnam: Key Issues to Consider
Ms Helen Morris
21 March 2012
21 March 2012 © Lorenz & Partners Page 1 of 31

About Michael Lorenz & Associates

- International firm of business lawyers, headquartered in Bangkok since 1995
- The firm is specialised in legal, tax and business consultation for foreign
companies investing in Southeast Asia.
- We maintain offices in: Bangkok, Berlin, Hong Kong and Ho Chi Minh City.
- Our services, e.g.:

• International Commercial Law
• Mergers & Acquisitions, Joint Ventures
• International Tax Planning
• Labour Law Issues
• Management support
© Lorenz & Partners Page 2 of 31

Contents
• Introduction to Vietnam
• Types of juristic persons available in Vietnam
• Vietnam’s WTO Commitments
• Foreign vs. local enterprise
• Establishment process, timing and costs
• Taxation
• Accounting
• Labour: foreign and local employees
• Land: rental and ownership

Introduction to Vietnam

• Vietnam became a socialist republic in 1975 under the leadership

the Communist Party.
• 87 million inhabitants over 80% live in rural areas.
• Those aged 15-44 make up 52% of the population (median age 26).
• Labour force: 46.21 million people.
• Đổi Mới (renewal) policy was adopted in 1986 and introduced a
multi-sectored market economy.
• Law on Enterprises was introduced in 2005.
• Vietnam ascended to the WTO in January 2007.
20 October 2011 © Lorenz & Partners Page 5 of 31

Types of Juristic Persons

Available in Vietnam

State Owned Enterprises

• The State owns more than 50% of the charter capital.
Private Enterprise
• One individual who is liable for all the activities of the enterprise to the
extent of all his assets.
• Only one private enterprise per person.
Partnership
• At least two individual co-owners who jointly conduct business under
one name.
• Unlimited Liability Partners: Liable for debts to the extent of all their
assets. Limited Liability Partners: Liable only for debts to the extent of
the amount of their contributed capital

Limited Liability Company with 1 member:

• The owner (individual or organization) is liable for all debts within the
amount of the company’s charter capital.
Limited Liability Company with 2 or more members:
• 2-50 members who are liable for all debts up to the amount of capital that
they have undertaken to contribute.
Joint Stock Company

• (a) the charter capital is divided into shares, (b) shareholders may be
organizations or individuals; (c) Min shareholders is 3 and there is no max;
(d) shareholders are liable for all debts up to the amount of committed
capital; (e) shareholders may transfer their shares; and (f) they may issue all
types of securities.

Vietnam’s WTO Commitments

• WTO Commitments cover 12 sectors: business; communication;

construction; distribution; education; financial; health and social;
tourism and travel; recreational, cultural and sporting; and transport.
• Majority restrictions on foreign invested capital have now been lifted.
• WTO Commitments prevail if case of any conflict with Vietnamese

law.
• Investment approval in WTO sector is not automatic. The investor's

capacity, current economic situation etc are also taken into account.

Foreign vs. Local

Enterprise

Business Lines
• Some business lines still off limits to 100% foreign owned companies e.g.
advertising, some media/telecommunication sectors, pharmaceutical
distribution etc
Real Estate
• Foreign individuals/companies can only lease (not buy) real estate use rights.
• Further foreigners can only lease land from the State. This should be taken into
account when considering sites for factories etc.
No Shelf Companies
• Local investors may set up a company and decide upon a project later. A
foreign investor must license their investment project and company at the same
time. This means that a lot of work, research and expenses are front loaded.

Establishment Process,
Timing And Costs

Process
• Application dossier is submitted to the local Department of Planning and
Investment (“DPI”).
• If there are foreign investors additional documents are required e.g.
feasibility study, capital contribution commitment.
• Online business registration and database system are under development.
• DPI has 5/40 working days to consider the registration application.
• Depending on the sector it may be necessary to obtain the opinion of the
Ministries
• If approved a domestic company will receive a Business Registration
Certificate and a foreign invested company will receive an Investment
Certificate.
• Foreign entities have a max duration of 50 years A domestic entity can
continue indefinably.

• A “foreign company” is;

– An existing company with more than 49% foreign capital; or
– A company established after 11.8.2009 with any foreign capital e.g.
1%.
Timing
• Vary significantly from case to case. Factors include;
– Sensitively of the business sector;
– Complicity of the business structure;
– Number and quality of documents involved; and
– Master-plan for the location in question.
Cost
• Application fee is 200,000 VND/10 USD

Taxation

Value Added Tax (“VAT”)
• Applies to goods and services used for production, trading and consumption in Vietnam.
• Every enterprise must register for VAT.
• VAT is charged at 10%, 5%, 0%
• There are some exemptions e.g. transfer of technology and software services
• Business may apply the Tax Credit Method: Output VAT - Input VAT; or
• The Direct Method: Added value x VAT rate (when the company cannot maintain
Vietnam’s accounting standards)
Corporate Income Tax (“CIT”)
• All enterprises registered in Vietnam with income arising out of Vietnam must pay CIT
on their worldwide income. (unless DTA says otherwise)
• Non-resident foreign enterprises pay CIT on income arising out of Vietnam.
• CIT taxable income = Total revenue- deductible expenses +other income.
• Losses can be carried forward for 5 years but cannot be carried back.
• Normal CIT rate is 25%.
• Tax incentives for encouraged sectors or difficult socioeconomic locations.

Foreign Contractor Tax (“FCT”)
• Applies to all foreign contractors with/without a permanent establishment with income arising out of
Vietnam.
• Deduction Method: VAT paid via tax credit method and CIT paid on basis of a declaration of revenue
and expenses. Tax code, permanent establishment and full Vietnamese accounting system required.
• Direct Method: VAT paid directly on basis of added value and CIT paid as % of turnover. The
Vietnam partner withholds the tax from the payments to the Contractor.
• Hybrid Method. VAT paid via tax credit method and CIT is paid as % of turnover. Deduction Method
requirements + Ministry of Finance’s specific accounting regulations.
Personal Income Tax (“PIT”)
• Resident individuals pay PIT on worldwide income (sliding scale), unless DTA states otherwise
• Non-resident individuals pay PIT on income arising within Vietnam (fixed rates e.g salary 20%)
• Employers are responsible for declaring, deducting, paying and finalizing PIT for salary
• Periodic PIT incentives
• 56 Double Taxation Avoidance Agreements( incl Germany, Hong Kong, Thailand)

Accounting

I. All resident companies must comply with the Vietnamese Accounting Standards (“VAS”).
II. Annual company reports must be compiled by the chief accountant.
III. Special regulations in Vietnam
Red invoices: Proof of the commercial transaction. Can be either bought externally or printed
internally.
Capital Account
• Mandatory for foreign invested companies. The capital of the company is paid into this
account.
• Withdrawals must be transferred to a Vietnamese current account and then paid externally
• All company profits must go through the capital account before remitted overseas.
Long Term Loans: have to be registered with the State Bank of Vietnam and go through the
capital account.
Written contracts: Any payment abroad has to be evidenced in writing.

Labour: Foreign and Local

Employees

Minimum wage and other payments

• 1.4 million-2 million VND (70-100 USD) per month depending on location.
• Employer must also pay social, health and unemployment insurance contributions
• Traditional, but not compulsory, to pay a 13th month or “Tet bonus” salary each year.
Labour Contract
• Indefinite duration; Definite duration 1-3 years; Seasonal or specific job under 1 year.
• The labour contract must be written and registered with the Department of Labour.
Probation Period
• Max 60/30 days

• Probation salary min 70% of regular salary
• Either party may terminate without notice. No compensation if the employee failed to
meet the prior agreed requirements.

Regular working hours and overtime
• Max 8 hours/day or 48 hours/week (up to 6 days per week).

• Max overtime is 4 hours/day or 200 hours/year. (130%-300% of normal hourly rate)
• Min 30 min rest period per 8 hours and 24 continuous hour rest period per week.
• 9 public holidays per year and 12 days annual leave
Female Employees.
• Cannot be dismissed due to marriage, pregnancy, maternity leave or for taking

care of a child under 1 year
• Disciplinary measures including termination must be postponed if the employee
is pregnant, on maternity leave or raising a child under 1 year.
• 4-6 months maternity leave and the employee is entitled to return to her old job.
• Maternity pay paid by social insurance.

Staff Regulations
• All businesses with 10 + employees must have written staff regulations

which are registered with the Department of Labour.
• Minimum provisions set out in the Labour law:
Trade Unions
• All enterprises must establish a Trade Union within the first 6 months of
operation and contribute to its operation fund.
• All employees have the right to join a Trade Union.

Termination and Severance Payment
• A labour contract will terminate if;

– The term of the contract expires; The job under the contract has finished;
The parties mutually agree; The employee is imprisoned or banned from
doing their job; The employee dies or is declared missing.
• The employee and employer may unilaterally terminate the contract only in
very specific circumstances
– Employee e.g. salary is not paid in full or on time
– Employer e.g the employee is absent from work without authorization or a
plausible reason for 7 days/ month or 20 days/year.
• Notification period range from 3 to 45 days depending on the reason for

termination.

• An employee can only be dismissed if they;

– Commit an act of theft, bribery, disclosure of business or technology
secrets, or other conduct which is detrimental to the assets or well-being of
the enterprise.
– Are disciplined and assigned to another job and commits another offence
while they are on probation from the first offense.
– Takes off 7 days/month or 20 days/year without proper reason.
– Breach the internal Staff Regulations
• Dismissal and termination are 2 separate processes. The dismissal procedure is

completed first.
• Severance allowance is paid by the social insurance fund: ½ month salary/yr

• If the employer illegally terminates the labour contract then the employee must
be re-instated and paid compensation.

Foreign Employees
• Only be employed if the job requires highly technical or managerial skills which
Vietnamese workers do not yet possess.
• All vacancies must be advertised to Vietnamese candidates for at least 30/60
days before a foreign candidate can be considered.
• The employer must show that there is a training program in place to train a
local citizen to replace the foreigner.
• Foreigners must have a work permit (unless exempt) and be:

– At least 18 years old and in good health;
– A manager, executive director or an expert; and
– Have no criminal record.
• The work permit will last for the same length of time as the labour contract (max
36 months) and is renewable.

Land: Rental and

Ownership

Basic Real Estate Principles
• All land belongs to the People. The State may grant or lease the land to
individuals/ organizations who hold a Land Use Rights Certificate
(“LURC”).
• The land and the premises built upon that land are separate entities
• Land Grant: Land Use Fee paid to the State after which the LURC
holder may transfer, mortgage, sublease and capitalize their land use
rights. Only applies to Vietnamese individuals/organizations (some
exceptions).
• Land Lease: The land user pays the Land Rent to the State. For
foreigners the max lease duration is 50 years (sometimes extended to
70 years). A land lease may be contributed as capital by a Vietnamese
party to a joint venture.
Premises Ownership Rights
• Local Ownership Rights: No restrictions
• Foreign Ownership Rights: Foreign organization/individuals may own residential

property for max 50 years if they are a resident of Vietnam and fall into 1 of 7 categories;
• e.g came to Vietnam to conduct direct investments, are married to a Vietnamese
citizen etc
• Only 1 apartment in a commercial apartment building at any one time.
• Can not: Lease their apartment; Contribute their apartment as capital; Use their apartment
as a registered office or for non-residential purposes.
• Overseas Vietnamese/Viet Kieu: 1 house/apartment if they have lived in Vietnam for 3

consecutive months;
Registration System
– All land must be registered with the Department of Natural Resources and
Environment and issued with a LURC.
– Transfers are not valid until it registered and the name of the transferee has been entered
onto the LURC.

Thank you for your attention.
Any questions?
Lorenz & Partners
(International Business Consultants)
Suite 1003, 10th Floor, Kinwick Centre
32 Hollywood Road
Central, Hong Kong S.A.R
+852 252 81433
info@lorenz-partners.com

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Michael Lorenz & Associates

Legal, Tax and Business Consultants

Investing in Vietnam: Key Issues to Consider

21 March 2012 © Lorenz & Partners Page 1 of 31

About Michael Lorenz & Associates

- Our services, e.g.:

© Lorenz & Partners Page 2 of 31

© Lorenz & Partners Page 3 of 31

© Lorenz & Partners Page 4 of 31

• Vietnam became a socialist republic in 1975 under the leadership

20 October 2011 © Lorenz & Partners Page 5 of 31

Types of Juristic Persons

© Lorenz & Partners Page 6 of 31

State Owned Enterprises

© Lorenz & Partners Page 7 of 31

Limited Liability Company with 1 member:

Limited Liability Company with 2 or more members:

Joint Stock Company

© Lorenz & Partners Page 8 of 31

Vietnam’s WTO Commitments

© Lorenz & Partners Page 9 of 31

• WTO Commitments cover 12 sectors: business; communication;

• Majority restrictions on foreign invested capital have now been lifted.

• WTO Commitments prevail if case of any conflict with Vietnamese

• Investment approval in WTO sector is not automatic. The investor's

© Lorenz & Partners Page 10 of 31

Foreign vs. Local

© Lorenz & Partners Page 11 of 31

© Lorenz & Partners Page 12 of 31

© Lorenz & Partners Page 13 of 31

© Lorenz & Partners Page 14 of 31

• A “foreign company” is;

© Lorenz & Partners Page 15 of 31

© Lorenz & Partners Page 16 of 31

Value Added Tax (“VAT”)

Corporate Income Tax (“CIT”)

© Lorenz & Partners Page 17 of 31

Foreign Contractor Tax (“FCT”)

Personal Income Tax (“PIT”)

• 56 Double Taxation Avoidance Agreements( incl Germany, Hong Kong, Thailand)

© Lorenz & Partners Page 18 of 31

© Lorenz & Partners Page 19 of 31

II. Annual company reports must be compiled by the chief accountant.

III. Special regulations in Vietnam

Written contracts: Any payment abroad has to be evidenced in writing.

© Lorenz & Partners Page 20 of 31

Labour: Foreign and Local

© Lorenz & Partners Page 21 of 31

Minimum wage and other payments

• Max 60/30 days

© Lorenz & Partners Page 22 of 31

Regular working hours and overtime

• Max 8 hours/day or 48 hours/week (up to 6 days per week).

• Cannot be dismissed due to marriage, pregnancy, maternity leave or for taking

© Lorenz & Partners Page 23 of 31

• All businesses with 10 + employees must have written staff regulations

© Lorenz & Partners Page 24 of 31

Termination and Severance Payment

• A labour contract will terminate if;

• Notification period range from 3 to 45 days depending on the reason for

© Lorenz & Partners Page 25 of 31

• An employee can only be dismissed if they;

• Dismissal and termination are 2 separate processes. The dismissal procedure is

• Severance allowance is paid by the social insurance fund: ½ month salary/yr