Vietnam is a densely-populated developing country which has had to recover from the ravages of war in the last 35 years. Growth averaged around 9% per year from 1993–1997. The 1997 Asian financial crisis highlighted problems in the Vietnamese economy and temporarily allowed opponents of reform to slow the progress towards a market-oriented economy. Gross domestic product (GDP) growth of 8.5% in 1997 fell to 6% in 1998 and 5% in 1999. Growth then rose to around 7.5% in 2000–06 even against the background of global recession, making it the world’s second-fastest growing economy. Simultaneously, investment grew three-fold and domestic savings quintupled.
Vietnam uses a civil law system which is based on written laws. The hierarchy of the legal System in Vietnam can be simply classified into three basic layers in term of its governing scope and level:
1) The National Assembly issues the constitution, laws, codes and resolutions; the National Standing Committee issues ordinances and resolutions
2) Legal instruments are issued by the central executive and justice bodies, including:
− Decisions and mandates of the state president
− Decrees and resolutions of the government
− Decisions and directives of the prime minister
− Decisions, directives and circulars of ministers and equivalent levels
− Resolutions of the Supreme Court Judge’s Council and other legal instruments of the Supreme Procuracy
3) Resolutions of the People Councils and decisions and directives of the People’s Committees.
FOREIGN EXCHANGE MARKET (FOREX) CONTROLS
Vietnam imposes strict control over foreign currency. Foreign investors who wish to transfer capital in foreign currency into Vietnam must open a specialised foreign currency bank account at a legal bank in Vietnam. Foreign currency remitted into Vietnam by foreign investors must be converted into Vietnamese dong or deposited in a foreign currency bank account.
Payment made by enterprises in foreign currency can be implemented in certain cases as described by the State Bank of Vietnam (SBV), such as:
- Payment for imported goods and services
- Remittances abroad by foreign investors of invested and reinvested capital
- Profits earned from an undertaking in Vietnam
- Principals and interest of off-shore loans and credits, and other legal benefits
- Payment for travel allowances to employees travelling abroad, payment of salaries and other legal income of foreigners.
The stock market is a new and exciting way to invest in Vietnam. Vietnam has two stock exchange centres, one in Ho Chi Minh City (HCMC) and the other in Hanoi. Although establishment of these stock exchange centres was decided in 1998, the Ho Chi Minh stock exchange officially began operations in July 2000, earlier than the Hanoi centre, which commenced in March 2005.
As at the time of writing, there were 401 companies listed on the Hanoi Security Trading Centre exchange and 315 on the Ho Chi Minh stock exchange.
Required documents for registration of a business in Vietnam are specified by the Law on Enterprises 2005 and newly issued decrees. The Law on Enterprises is due to be amended in 2015.
These regulations are characterised by openness, ease and flexibility. According to these regulations, the founder of an enterprise has to submit all of the enterprise registration documents as prescribed by the statutory regulations to an authorised business registration body. Enterprise registration comprises both the business registration and tax registration procedures. The business registration body will consider the enterprise registration documents and issue an enterprise registration certificate within five business days.
The enterprise registration certificate is now both the business registration certificate and tax registration certificate. If the business registration certificate is refused, the founder of the enterprise will be notified in writing. The notice must specify the reasons and the amendments or additions required.
Required registration documents for a partnership are similar to those for a private enterprise except for the addition of the draft charter of the company. A partnership must have at least two unlimited liability partners. Additional limited liability partners could also be in a partnership but are only liable in principle to the extent of their capital contribution.
Partnerships cannot issue any type of security. Unlimited liability partners cannot be owners of a private enterprise or an unlimited liability of another partnership. Activities carried out by an unlimited liability partner beyond the scope of the registered lines of business of the company shall not fall within the company’s liability, unless such activities are approved by the other partners.
LIMITED LIABILITY COMPANIES
Required registration documents for a limited liability company are similar to those for a partnership except for the addition of legal documentation for organisation members.
A limited liability company cannot have more than 50 members. All members are liable to the extent of capital they contributed to the company. Members’ shares are transferable but have lower liquidity as stock. Limited liability companies cannot issue shares.
One-member limited liability companies share similar conditions except in the event of withdrawing or assigning charted capital. One-member limited liability companies are also not able to withdraw profits of the company in cases where the company has not paid in full all debts and other property obligations which become due. In order to carry out such activities, the law requires the company register to be converted into a multiple members limited liability company within 15 days of such an assignment or withdrawal.
FOREIGN COMPANY BRANCHES
Foreign corporations and foreign traders are entitled to set up a trading branch in Vietnam if having a business registration or certificate of incorporation granted in their country for at least five years.
The business scope of a trading branch is limited to the following:
- Goods locally bought for export – handicrafts; processed/unprocessed agricultural products (except rice and coffee); processed/unprocessed fruits, consumer’s industrial commodities, animal and poultry meats and processed foodstuffs
- Goods imported for local sale – machinery and equipment for mining; processing of agricultural products; input materials for production of human treatment drugs and animal drugs; input materials for the production of fertilizers and insecticides.
TYPES OF TAXES
According to the prevailing tax law system, Vietnam has the following taxes:
- Corporate income tax
- Personal income tax
- Foreign contractor tax
- Special sales taxes
- Import/export tax
- Technology transfer tax.
Land use tax and fees are very small.
Import and export tariffs are frequently amended to satisfy the state’s requirements on import and export management.
Import tariffs include:
1) A preferential tariff applicable to countries which apply the ‘Most Favoured Nation’ (MFN) treatment to Vietnam
2) A special preferential tariff applicable to countries which apply a special treatment on tariffs for imports from Vietnam
3) A normal tariff up to 150% of the preferential tariff.
Although there are three levels of import tariff, preferential tariffs apply to almost all countries which have trading relations with Vietnam. Duty prices are determined in accordance with the rules of the General Agreement on Trade and Tariffs (GATT) adopted by the government.
The importation of commodities to create fixed assets for investment projects in domains entitled to import duty preferences or in in geographical areas entitled to import duty incentives, and investment projects funded with official development assistance (ODA) are exempted from import duties.
The importation of raw materials, supplies and accessories which cannot yet be domestically produced and are imported for production activities of investment projects which are located in areas having special difficult socio-economic conditions and are within special preferential investment sectors, shall be exempted from import duty for five years from the commencement of production.
The new regulation removes the preferential treatment of duty exemption with respect to imported goods of BOT enterprises and sub-contractors for the execution of BOT, BTO or BT projects, including equipment and machinery imported to create fixed assets and special-use means of transport included in technological lines to create fixed assets etc.