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Vietnam Investment Guide

July 2017 World Business Advisory Center

World Business Division

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Table of Contents

Country & Economic Overview

Key Industries & Opportunities

Doing Business in Vietnam

KASIKORNBANK’s Support

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Why Vietnam?

The 3rd largest population (over 90 million)

In ASEAN, Vietnam has

Large pool of inexpensive workforce Attractive consumer market, which is increasingly urbanized.

The highest international trade increment Rapid industrialization driven by foreign direct investment Favorable trade terms (GSP, AFTA, EU-FTA) to integrate with

global markets

Source Data : IMF

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Country Overview

Timeline and Milestone:

Modern Industrialized Country

Country Name: The Socialist Republic of Vietnam

Area: 331,150 sq.km

Population: 95.3 million (2017)

Government: Single party system by Vietnamese Communist Party (VCP)

Currency: Vietnamese Dong (VND) USD 1 VND 22,678 (May 2017)

GDP (Current Price): USD 215.8 billion (2017) - half of Thailand’s total GDP

GDP per capita: USD 2,306 (2017)

Data Source: IMF, World Bank and The Economist Group Compiled by KResearch

Doi Moi Economic Reform

ASEAN Membership

WTO Membership

South Korea-Vietnam FTA

2020: 1986: 1995: 2007: 2014:

1990 2000 2010 2020

Vietnam has undergone drastic economic reforms since the mid-1980s. It now has the goal to become a “Modern Industrialized Country” by 2020.

Signed EU-Vietnam FTA

2015:

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Table of Contents





6

25 17

37 39

39 44

0%

20%

40%

60%

80%

100%

2000 2016

Economic Overview

Vietnam’s steady growth at over 6% since 2015 makes it one of the fastest growing markets in the world, buoyed by rising domestic demand, booming foreign direct investment and the country’s increasing attractiveness as a global export hub.

Source: IMF, Central Intelligence Agency, General Statistics Office of Vietnam

Key factors contributing to economic growth:

► Rising consumer spending and macroeconomic stability has lifted domestic consumption and consumer confidence.

► Boom in foreign investment particularly in manufacturing sector has boosted exports.

GDP and Economic Growth Outlook, 2015-2018 Changes in Economic Composition, 2000 and 2016

Industry and services sectors continue to expand:

► Construction sector expanded rapidly from growing property market and spending in basic infrastructures.

► Retail and financial sector are also growing due to a surge in middle income class and more urbanized population.

Agriculture

Services

Industry

191.3 201.3 215.8

232.6

6.7 6.2 6.5 6.3

0

1

2

3

4

5

6

7

8

0

50

100

150

200

250

300

350

2015 2016 2017F 2018F

Per

cen

t

USD

Bill

ion

GDP (USD billion) GDP Growth (Percent)

7

64% 8%

7%

21%

Foreign Direct Investment

FDI inflows in Vietnam has seen a steady and strong growth, mainly from other Asian investors. This enables Vietnam to emerge as a manufacturing hub in the region, thanks to its favorable labor market and trade privileges.

Source: FIA, Vietnam Briefing and Government Statistic Office of Vietnam compiled by AECplusadvisory

Top Foreign Investors and Registered Capital*

1st

2nd

3rd

South Korea USD 50.7 billion

Japan USD 39.8 billion

Singapore USD 36.7 billion

9th

11th

China USD 11.4 billion

Thailand USD 8.2 billion

1 2 4 3

Large pool of affordable workforce

Favorable trade terms with major economies

Strategic location: proximity to East Asia

Political stability

Vietnam’s Key Competitiveness:

► South Korea has been the top investor since 2014 due to their large scale investment in the electronics sector.

► About 80% of Thai business there is in manufacturing sector, and some has flown into retail sector by acquisition.

FDI Inflows by Sector, 2016

Manufacturing USD 15.5 billion

Automotive USD 2 billion

Real Estate USD 1.7 billion

Others USD 5.2 billion

USD 24.4

billion *Accumulation as of 2016

9% Growth

Compared to 2015

8

Vietnam Trade Overview

Trade balance has been improving as FDI inflows come to fruition in boosting its exports. Vietnam is working to improve its trade terms by closing bilateral and multilateral FTA deals with major economies and integrating itself into the global market.

Source: Trade Map compiled by AECplusadvisory

Thailand ranks 7th among Vietnam’s top trade partners in 2016, accounting for 3% of Vietnam’s total trade.

Key Imports 2016

Machinery & Equipment (11%)

Telephone & Computers (36%)

Garment & Footwear (23%)

Key Exports 2016

Electronic products & Parts (23%)

Plastic & Polymer Materials (5%)

Electronic Products & Parts (6%)

Most exports are final products produced by foreign investors such as telephones, computers, footwear, articles of clothing and machine and its parts.

Most imports are machinery for production and intermediate goods such as electrical components and raw materials such as plastic polymers.

Vietnam International Trade, 2010-2016

72

115

150

211

85

114

148

198

(50)

-

50

100

150

200

250

2010 2012 2014 2016

USD

Bill

ion

Export from VietnamImport by VietnamTrade balance

Top Import Partners 2016

1. China (31%)

Top Export Partners 2016

2. South Korea (16%)

3. ASEAN (12%)

1. USA (21%)

3. EU (14%)

2. China (18%)

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Thailand – Vietnam Trade

Source: Trade Map compiled by AECplusadvisory

Key Import Products by Vietnam

Refined Fuel (6.3%)

Telephones and Television (41%)

Key Export Products from Vietnam

Motor Car & Parts (11%)

Machinery & Equipment (6.4%)

Thailand – Vietnam Trade, 2010-2016 Top Trading Products, 2016

Recent Trends:

► Vietnam to become Thailand’s top export destination in ASEAN: Vietnam needs not only more intermediary components and capital equipment for industrial sector but also consumption goods.

► Cross-Border Trade: Different from the overall export picture; they include mostly consumer products and electronics appliances.

Opportunities:

► Potential export products to Vietnam: automobiles and parts, plastic pellets, air-conditioners and parts, refined petroleum products, chemical products, fruits and beverages.

► Tapping into Vietnam’s growing consumer market and take advantage of its preferential trade and investment policies.

Bilateral trade between Thailand and Vietnam is set to continue to strengthen; Thai-Vietnam trade surplus has been growing due to surging Thai investment and trade in the Vietnamese market.

5.6 5.8

7.1

9.3

1.2

2.8 3.5

4.4

0

2

4

6

8

10

2010 2012 2014 2016

USD

Bill

ion

s

Export from ThailandImport by ThailandTrade balance

Machinery & Equipment (16.6%)

Electronic Products & Parts (9.1%)

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Infrastructure - Overview

Single north-south railway line connecting

to China. New route (Thailand – Laos –

Vietnam) under construction.

Railway

Vietnam is one of the world’s busiest sea cargo lanes with a coastline length of 3,260km. Recent move to privatize key seaports is aimed at improving efficiency.

Maritime Major transportation means. Carries 94% of passenger traffic and 77% of freight traffic. Connects to Cambodia, China and Lao PDR.

Road

4 International Airports: 1. Tan Son Nhat Airport (HCMC) 2. Noi Bai Airport (Hanoi) 3. Da Nang Airport (Dan Nang) 4. Cat Bi Airport (Hai Phong) New

Aviation

Logistics costs in Vietnam represent 20-25% of annual GDP, owing to the lack of adequate infrastructure and logistics facilities; however, the situation is improving as more private firms, especially large global firms, see opportunities in entering the sector.

Dense river and canal network mainly supports energy sector and provides alternative transportation mode for cement, fertilizer and paper sectors.

Inland Waterway

Telecommunication

Penetration Rate in 2016

Mobile: 147%

Internet: 53%

Ranked best performing logistics in ASEAN in 2016, closing the gap with Thailand. However, the logistics sector in Vietnam still face several challenges:

► Needs for infrastructure upgrades ► Undersupply of professionals ► Unreliability in supply chain (delays, lack of planning,

lengthy procedures, etc.).

4th

New Long Thanh Airport (Dong Nai) To begin operations in 2025

Average Freight Transport Composition, 2016

Road 77.7%

Maritime 4.7%

Inland Waterway 17.1%

Others 0.4%

Source: General Statistics Office of Vietnam, Vietnam Telecommunications Authority, The World Bank, Vietnam Logistics Business Association

Freight transport via air and road had fast-growing volume of carriage, comparing to 2015.

1.3 billion tons

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Road Infrastructure

Other Key Roads

QL5B • Major road linking Hanoi to Hai Phong,

where Hai Phong port is one of Vietnam’s major ports which sees the highest cargo traffic. Hai Phong is also home to a number of industrial zones.

• The route is used extensively for Vietnam’s international trade.

GMS Network Roads

QL1A • Part of Eastern Economic Corridor. Though

it runs the entire length of the country, only parts around Hanoi and Ho Chi Minh City are used heavily for trade

• From Hanoi, the road leading to Lao Cai border is an important entry point to China.

QL9 • Part of East-West Economic Corridor.

Used for transport of Lao-Vietnam trade as well as Transit goods from Thailand’s Mukdahan through Laos.

• Provides Laos and Thailand access to Danang Port.

QL19,22,51 • Parts of the Southern Economic Corridor. • The southern arm serves as a key link

between Bangkok, Phnom Penh and Ho Chi Minh City. Traffic congestion is often a problem, especially around Ho Chi Minh city.

• The other significant portion is from Ho Chi Minh City to Vang Tao and Cai Mep port.

• QL19, the northern arm to Quy Nhon, is not often used since the Quy Nhon is not currently a major trade hub.

QL80 • Part of Southern Coastal Economic

Corridor that runs from Bangkok through Cambodia’s biggest deep sea ports and industrial zones: Sihanoukville and Koh Kong.

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Seaport Infrastructure

Central Vietnam’s cargo throughput: 408,296 TEUs

Northern Vietnam’s cargo throughput: 2.9 mil TEUs

As Vietnam is a lengthy coastal country, and sea transport infrastructure is imperative to its evolving international trade.

Major Ports in Vietnam, 2015

Annual Capacity (million tonnes)

Container (million TEUS)

Tourist Travelers (million people)

2015 480 – 590 13 - 16 1.3 – 1.6

2020 820 – 1080 24 – 30 1.9 – 2.4

2030 1400 - 2100 50 – 60 4.0 – 5.9

Share of Port Capacity, 2015

Seaport Usage in Vietnam

Overview Sea transport is an important driving force behind Vietnam’s economic growth due to its strategic geographical position and long coast line.

However, challenges still remain: (1) Inadequate facilities (2) Poor management of operating system

Development Plan 2020 In the face of rapid growth in international trade volume, there is particular focus on international gateway ports: (1) Hai Phong in the North (2) Ba Ria – Vung Tau in the South

Hai Phong Component B should come into operation in 2018

The newly operating “Tan Cang – Hiep Phuoc Seaport” in Southern Vietnam is the 1st port that is able to handle 50,000 DWT vessels.

Saigon New Port 24%

Hai Phong Port

Tan Cang – Cai Mep

Others 51%

Hai Phong Port

Da Nang Port

Hanoi

Ho Chi Minh

Southern Vietnam’s cargo throughput: 7.8 mil TEUs

Saigon Port

11 Million TEUs

6.4%

6.1% 4.6%

4% 3.9% Cai Mep Port

VICT Port Dinh Vu Port

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Key Industries and Opportunities

Electrical & Electronics

Textile & Apparel

Fishery Processing

Construction &Construction

Material Retail

With its plentiful supply of labor, natural resources as well as an expanding middle class and retail market, Vietnam offers attractive opportunities for both trade and investment.

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Electrical & Electronics

16

8

14

13

22

36

77

0 20 40 60 80

2012

2014

2016

Billion USD

Electronic equipment & parts Electrical appliances and parts

Electrical & Electronics - Overview

Source: International Trade Center, Forbes

E&E represents the fastest growing industry in Vietnam, owing to the surge in foreign direct investment by global companies, attracted by Vietnam’s abundance of youthful, affordable workforce, trade terms, and open investment environment.

Top Electronic Device and Parts Exports, 2016

Phones & Parts (53%)

Computers & Laptops (31%)

Printers (25%)

Top Electrical and Machinery Exports, 2016

IC & Micro Assemblies (19%)

9th largest electronics exporter in the world (Move up 3 rank from 2015) 43% of Vietnam’s total export value in 2016 comes from E&E products.

Surge in Electronics Manufacturing and Export

Growth driven by FDI 90% of E&E exports are produced by foreign-owned companies, especially firms from Japan, South Korea, Taiwan and Singapore.

Vietnam E&E Equipment Exports, 2013 – 2015

Top Export Destinations, 2016

Top Import Destinations , 2016

Key Trends

Mostly assembled products such as mobile phones, computers, cameras

1

2

3

China (16%)

USA (14%)

South Korea (6%)

1

2

3

China (29%)

South Korea (28%)

Singapore (7%)

Mostly components and parts for assembly and heavy machinery for production

FDI from S.Korea has boosted trade value which; • Export value surpassed Hong Kong to

become the 3rd largest export destination of South Korea

• Import value gain larger share (from 14% to 28%)

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Electrical & Electronics - Opportunities

Source: Vietnam Electronic Industries Association and International trade Center

Trade Opportunities Investment Opportunities

Export Opportunities:

1 Household Electrical Appliances

Tap into increasing urbanization and growing purchasing power in Vietnam.

2 Electronic Parts and Components

Absence of local supply chain in Vietnam despite rapid growth in electronics sector.

Electrical Appliances Production

► Produce / assemble household appliances in Vietnam to effectively capture the growing local demand.

► Long term opportunity: make Vietnam an export hub for electrical appliances.

Electronics Parts Production

► Manufacture electronic parts and enter the supply chain of major electrical and electronics appliances producers;

► This is feasible especially for suppliers of foreign investors (such as Japanese and South Korean) based in Vietnam.

Vietnam - Thailand E&E Trade by Product Type, 2016

1,552

852

287

1,827

-

500

1,000

1,500

2,000

Electrical Appliances & Parts Electronic Equipment & Parts

USD

Mill

ion

Vietnam's Imports Vietnam's Exports

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Textile & Apparel

19

Textile and Apparel - Overview

.

Source: International Trader Center, Textile World Asia, VPBS and WSJ

Jerseys & Pullovers 8.5%

Women’s suits & Dresses 7.7%

Cotton Yarn

6.1%

Key Export Markets, 2016 Top Apparel and Textile Exports, 2016

International Brands Produced in Vietnam:

Nationalities of Major Foreign Firms

China

Hong Kong

Taiwan

60% of export revenue is produced by foreign-owned companies

Total export value has grown by 7% from 2015 to 2016 alone due to export growth in finished goods.

Key Trends

USA 42%

EU 10%

Japan 12%

South Korea 4%

China 11%

Other 21%

Vietnam’s exports of textile and garments have grown continuously as the country becomes more competitive. However, most exports are of foreign brands from large foreign firms while local firms are restricted to doing contract work for those larger firms.

20

4.9

3.8 3.6 2.9

5.2

3.7 3.2 3.1

-

1

2

3

4

5

6

Knitted orCrocheted

Fabric

Cotton ManmadeStaple Fibres

ManmadeFilaments

USD

Bill

ion

2015 2016

Textile and Apparel - Opportunities

The Vietnamese textile sector offers opportunities such as (1) raw materials exports and (2) investment in textile production for export purposes and to cater to the domestic market.

Vietnam still needs to import most of its raw materials for apparel production, mostly from China.

1 Export Raw Materials

2 Invest in Textile Production

There is growing demand for raw materials for textile production; Thai products enjoy 0% tariff compared to 2-5% for Chinese products.

• Benefit from the cost advantage (affordable workforce) and trade incentives (e.g. GSP, other FTAs) to export across the world.

• Firms could also produce apparel products that suit local tastes to serve the domestic market.

Investment Incentives for Textile Industry

As the Vietnamese government is pushing for more value added activities, investment in the textile industry may not enjoy attractive tax incentives except for large scale investments.

Source: International Trade Center

Textile and Garment Raw Material Import, 2015 and 2016

Top Sources of Raw Material Import, 2016

Potential Business Opportunities

1

2

3

China (53%)

South Korea (13%)

Taipei (10%)

8 Thailand (2%)

21

Fishery & Processing

22

Fishery Processing - Overview

With its long coastline, branches of rivers and over 3,000 islands offshore, Vietnam’s landscape provides plenty of resources for fishery processing industry and it is the 5th largest aquatic product exporter in the world.

Source: International Trade Center, Viettrade, OFCO

► Vietnam’s fishery exports are mostly raw materials and primary processed products with low value-added.

► With the Vietnamese government’s aims to increase value-addition for natural resource exports, secondary processing will gain more share in the future.

Moving forward, more value added

2010

USD Billion

5

2016

USD Billion

6.1

CAGR

3.4%

Seafood Production Area (mainly in the South)

Vietnam’s Fishery Products Exports, 2016 Vietnam’s Fishery Exports Value

Top Seafood Export Products, 2016

Seafood Products Export Destinations, 2016

Preliminary Processing 70.5% Secondary

Processing 29%

1

2

3

USA (24%)

Japan (14%)

Korea (10%)

4 Thailand (4%)

5 Germany (3%)

Thailand is now Vietnam’s 4th largest export market, up from 6th place in 2014

Non-Processing 0.5%

1 Fish fillets & pieces (fresh, chilled or frozen) 31%

2 Crustaceans 28%

3 Crustaceans & molluscs (prepared/preserved) 20%

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Fishery Processing - Opportunities

Foreign businesses could consider to invest in (1) fishery processing, especially high value-added activities and (2) supporting industries such as fishing / aquatic farming equipment, cold storages, and packaging materials.

Supporting Activities

• Fishing equipment and supply (feed) • Cold storages • Material for packaging

Processing Factory Higher value-added

• Canned products • Ready to eat foods

Potentially serve:

1. Domestic market – to serve the increasingly urbanized and growing middle income groups.

2. Exports market – benefit from the tariff privileges that Vietnam has with major trading economies. Vietnam has been exporting seafood products to over 130 countries.

Lower value-added • Frozen products

• Demand of these supporting activities would grow in tandem with the expansion of the fishery processing industry.

Key Considerations:

1 2 3 High Competition Food Safety Certificates Technology Adoption

Most players are large firms. Should meet international standards. Slow technology adoption among local firms; needs to be upgraded.

Potential Business Opportunities

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Construction and Construction Material

25

Construction - Overview

Data Source: General Statistics Office of Vietnam, Vietnam News, Financial Times

► In the period between 2011 and 2014, private sector consistently contributed to more than 80% of total construction output and was key in stimulating industry growth.

► Private investment contributes to development of not only residential sector, but also infrastructure segment via Build-Transfer, Build-Operate-Transfer, Build-Own-Operate and Public-Private-Partnership contracts

Top Investors, as of 2014

1

2

3

South Korea: 21%

Singapore: 17%

Taiwan: 13%

The construction sector in Vietnam is developing rapidly. Vietnam now allows full foreign ownership for investment in the construction sector, and the relaxation of the law for foreign property ownership will stimulate sector growth.

Construction Output by Economic Sector, 2008, 2011 and 2014

Construction Output by Sub-segment, 2014

Residential 40.6%

Industrial 18.3%

Infrastructure 41.2%

► Key infrastructure development projects are transport infrastructure, energy and utilities, while key residential project is mainly in affordable housing projects.

► With 9.1 percent growth in 2016, the industry had been driven by the economic recovery and the increased issuance of building permits.

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Construction Material - Overview

Source: UN International Trade Centre, Vietnam News

Cement Sanitary ware Brick Tile

Top Import Destinations, 2016

China Thailand Malaysia

80% 8% 4%

Although local firms in Vietnam export certain materials to the overseas market, there are still gaps to fill, especially in higher-end and more sophisticated products, for which imports are growing.

Vietnam Construction Material Imports and Exports, 2016

Market Tips

Demand for construction material usually spikes two months before Tet (Vietnamese new year, lunar calendar) when developers speed up construction of housing projects and people renovate their houses prior to the New Year.

Key Construction Material Products

► Most local manufacturers are small and mid-sized companies.

► There is insufficient technological and financial capacity to meet the high-end segment with more sophisticated demand.

► Still heavily reliant on imports, especially in ceramic tiles.

► Growing FDIs to this sector to exploit raw material, affordable wage rate and trade privileges

Current Situation

403

129

87

0

34

307

41

14

0 100 200 300 400 500

Cement

Ceramic Tiles

Sanitary ware

Brick

USD Million

ImportExports

27

Construction and Construction Material - Opportunities

Vietnam’s infrastructure sector still has ample room for development.

Property sector demand is booming with the implementation of the new foreign property regulation.

Demand for construction equipment would increase in tandem with expansion of the construction sector.

1 Construction Projects

3 Construction Material

Invest in construction projects: infrastructure or residential.

Operate as contractor / consultant / architecture and design service provider.

Supply construction equipment to Vietnam

Rationale: Opportunities:

2 Construction Equipment

Vietnam’s construction sector offers opportunities for construction project developers, service providers as well as market opportunities for construction equipment and materials.

Local firms still lack technology and know-how to produce high-end, high-quality and aesthetic construction material.

Export high quality construction material to construction projects or distribute to households.

Invest in manufacturing plant to produce locally with advanced technology

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Retail

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Retail - Overview

Source: GSO Of Vietnam Compiled by KResearch, World Bank. The International Osteoporosis Foundation (IOF), UN Population Data,

CEICE, Insider Retail Asia and Vietnam Retailers Association

Vietnam’s retail sector is evolving fast due to the bourgeoning middle class and expanding retail sector with the entrance of foreign players attracted by the country’s various trade pacts.

Modern Retail

2020 2014

91 million 96 million

12 million 33 million

171 USD 269 USD

Type Number

Supermarket 800

Shopping Center 160

Traditional Market 8,600

Vietnam Basic Demography, 2014 and 2020 Major Cities for Retail Sector

Number of Retail Stores, 2016

Traditional Markets

Shift in trend towards modern retail

► Modern retail’s share in consumer spending is around 20-25%.

► Modern retail currently accounts for 25% of retail market. This is expected to increase to 45% by 2020.

► Vietnam’s ultra-rich population is growing faster than any economy in the world.

► Rising demand for consumer products and electrical appliances, following their higher income.

Current Situation

Population

Middle Affluent Class

Per Capita Monthly Income

E-Commerce sector

• Several foreign-based e-commerce websites such as Lazada and Zalora have entered Vietnam market.

• Key products: fashion, electronic goods, books and food.

30

Retail - Opportunities

Data Source: Nielsen, PwC Doing Business in Vietnam

Foreign investors could venture into Vietnam’s retail market by (1) investing in trading / wholesale / retail businesses, or (2) exporting products to distributors based in Vietnam.

Investment Opportunities Export Opportunities

Invest and expand in trading / wholesale / retail activities in Vietnam.

Export products (especially food and beverage, apparel and electronics) to local market.

Regulations

Key Considerations

► 100% foreign-owned firms are able to operate one retail outlet only under business license.

► To operate multiple retail outlets, they need to pass an Economic Need Test (ENT) which considers several local market criteria.

► Lack of transparency and clarity in ENT. ► High rental cost in major cities, especially in

key commercial areas. ► Intense competition with international giants

and local players. ► Regional difference in terms of consumer

behavior.

Regulations ► Firms could export to importers who possess (1) rights to import, and (2) distribution rights.

► Products such as food and beverage should have product standard publication certificates to fulfill Vietnam’s requirements for food hygiene and safety.

Key Considerations

► Seek local importers who has extensive networks and are able to collaborate in marketing activities.

► Consider challenges such as fragmented distribution between North and South Vietnam.

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Consumer Behavior

Owing to their political and geographical differences, consumers in the North and the South have different consumption patterns and product preferences.

‘Demographic sweet spot’ –

most of the population is entering

working age and

leaving poverty

Tips / Key Recommendations

► Vietnamese consumers are attracted by promotional campaigns such as discounts and free gifts.

► Better quality and healthier products become more popular as more people have stronger purchasing power.

Northern Behavior

Spend more carefully; more price sensitive.

Do NOT have window shopping habit.

Look for convenience, go to local stores near home / office.

Conservative; prefer to shop at traditional markets and purchase fresh products.

Southern Behavior

Spend more recklessly;

Weekend bulk shopping; spend family time at department stores.

Look for pleasure.

Open to new things; eager to try new products and shop at modern retail stores.

Data Source: World Bank and Primary Research

Vietnam Population Pyramid, 2017 Consumer Behaviors in Northern and Southern Vietnam

60 20 20 60

0-4 5-9

10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+

Million people

Male Female

32

Major Cities for Business Activities by Region

Agriculture Forestry

S OUTHERN Key commercial centre; busiest trading port and manufacturing hub.

C ENTRAL Still less industrialized; touristic resources such as beaches, highlands and historical sites.

N ORTHERN Administrative centre; location of the capital city - Hanoi; increasingly industrialized.

Da Nang

Hub for Central Vietnam Tourism

Da Lat

Tourism

Ho Chi Minh City

Packaging Industry Food & Beverage Retail E&E

Lao Cai

Retail Food & Beverage Textile & Garment E&E

Ha Noi (Capital) Hai Phong

Construction Material Real Estate E&E Logistic

Da Lat

Binh Duong

Hai Phong

Lao Cai

Da Nang

Ho Chi Minh Vung Tau

Ha Noi

Binh Duong

Manufacturing Chemicals Garment Footwear

Vung Tau

Oil and Gas

Mekong Delta

Agriculture (Rice) Fishery Retail

E&E Supporting industry

Bac Ninh

Mekong Delta

Bac Ninh

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34

Major Costs – Labor and Utility

Utility USD

Electricity for industrial sector 0.064/kWh (at standard Hours)

Electricity for business sector 0.097/kWh (at standard Hours)

Electricity for general usage 0.068-0.12/kWh

Water for business sector 0.24-0.64/cu.m

Water for business sector 0.15-0.45/cu.m

Gas for business sector 0.95/Kg

Gas for business sector 1.15/Kg

Region Covered Areas Minimum wage

1 Urban Hanoi and Ho Chi Minh City USD 165

2 Rural of Region 1 and urban Can Tho, Da Nang and Hai Phong

USD 145

3 Bac Ninh, Bac Giang, Hai Duong and Vinh Phuc USD 127

4 The remaining localities USD 113

The minimum wage in Vietnam differ by region (1-4), depending on the location’s level of industrial and infrastructure development and living costs.

Current range: VND 2.5 – 3.7 million (USD 113 – 165)

Data Source: Dezan Shira & Associates, Vietnam news, DITP compiled by KResearch

Minimum Wage in ASEAN, 2017 Vietnam’s Minimum Wage Rate by Region, 2017

Utility cost

USD

263

209

171

140

113

113

87

81

0 50 100 150 200 250 300

Thailand

Malaysia

Philippines

Cambodia

Vietnam

Lao PDR

Indonesia

Myanmar

233

165

195

227

35

Tax System

Type of Tax Tax Rate

Corporate Income Tax

20%

Value Added Tax 10%

Withholding Tax

Dividends

No tax, unless paid to individuals where a 5% tax rate is imposed

Interest 5%, unless the rate is reduced under a tax treaty

Royalties 10%, unless the rate is reduced under a tax treaty

Monthly Employment Income (VND Million)

Tax Rate

0-5 5%

5-10 10%

10-18 15%

18-32 20%

32-52 25%

52-80 30%

Above 80 35%

Source: Deloitte, PWC, KPMG and Ernst & Young and HSBC

Personal Income Tax (PIT) Corporate Taxes

* VAT T is also applied on the duty paid value of imported goods and payable at the same time importers pay import duties. Residents are subjected to PIT either in the case of:

1. Residing in Vietnam for 183 days or more or

2. Having permanent residency in Vietnam. Double Tax Agreement (DTA): Vietnam has more than 65 DTAs including one with Thailand.

36

Investment Incentives - Tax Incentives

Source: KPMG, Am Cham Vietnam, Vietnam Foreign Investment Agency

VAT exemption for imported machinery, equipment and materials which are:

Not yet able to be produced domestically Required for direct use in scientific research and

technological development activities. Allowance of tax loss up to 5 consecutive years.

Tax Exemptions

Import duty exemption on machinery and equipment, raw materials and components for the manufacture of goods for export.

Export duties are charged mainly on natural resources.

Import / Export Duties Exemption

CIT Rate Criteria

Newly established enterprises in: Period

Applicable CIT

Exemption

50% CIT reduction when CIT exemption

period expired

10%

Locations: 1. High-tech zones

2. Economic Zones (EZ) 15 years and 17%

CIT at 16th year

First 4 years

9 years (5 years for socialization sectors that do not operate in specially difficult socio-economic conditions)

Encouraged Sectors such as: 1. High technology, scientific research and

technology development 2. Infrastructure facilities development 3. Production of software products. 4. Processing of agricultural products

Large manufacturing projects: • Minimum revenue of VND20

trillion/annum within 5 year of operation. Or • Head count of more than 6,000 within 5

year of operation

15 years (maximum 30 years)

Socialized sectors (health, education) Whole

operation period

17% Locations: Difficult socio-economic conditions Whole

operation period

2 years 4 years

Corporate Income Tax (CIT) Exemptions Tax incentives such as CIT reduction and exemption are offered according to location and activities of the foreign investment.

Investors who invest in preferential sectors and/or location may also apply for:

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Key Economic Zones (KEZ)

The Northern KEZ: • Hanoi • Hung Yen • Hai Phong • Quang Ninh

The Central KEZ: • Thua Thien • Hue • Quang Nam

The Southern KEZ: • Ho Chi Minh City • Binh Duong • Ba Ria – Vung Tau • Dong Nai

• Hai Duong • Ha Tay • Bac Ninh • Vinh Phuc

• Quang Ngai • Binh Dinh • Da Nang

• Tay Ninh • Binh Phuoc • Long An

Data Source: Runckel & Associates

Industrial Zone (IZ) 1

2 Export

Processing Zone (EPZ)

3 Hi-Tech Zone (HTZ)

Production of industrial goods or provision of services for manufacturing goods that will be mainly sold in the country.

Production of goods to be exported and related activities. There are currently 4 EPZs.

Research, development and application of high technologies; training of hi-tech human resources; manufacturing of hi-tech products.

Vietnam has 15 coastal and 28 border Economic Zones (EZ)

► Investment in EZs are entitled to tax incentives

► However, NOT all Industrial Parks in the specific zones are entitled to incentives. They need to fulfill certain criteria set by the particular EZ.

Types of Economic Zones in Vietnam:

Locations of Key Economic Zones:

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Non-Tax Incentives and Trade Privileges

Non-Tax Incentives

Guarantee Lawful assets of investors shall neither be nationalized nor confiscated by administrative measures.

Guarantee relating to remittance of assets of foreign investors abroad.

Business investment guarantees in event of changes in laws or policies.

Protection on foreign investors’ intellectual property, market access and the right to remit their capital and assets out of Vietnam.

Protection

Trade Agreements

ASEAN: Association of Southeast Asian Nation

WTO: World Trade Organization

GSP (Generalized System of Preference) [Implemented] Preferential trade to export to advanced nations such as Japan, US and EU.

Source: ADB, KPMG, Am Cham Vietnam and Australian Department of Foreign Affairs and Trade, KResearch

FTAs Under Negotiation Bilateral Trade Agreement with 55 countries, including all 10 ASEAN members, Russia, China, Japan, India, South Korea and European Union*new.

• RCEP (Regional Comprehensive Economic): A deeper liberalization of trade among 10 ASEAN countries, China, Japan, South Korea, India, Australia and New Zealand, covering 3.4 billion people and which may emerge as the alternative to the TPP.

• Eurasian Economic Union (EEU) • European Free Trade Association (EFTA)

• US • Switzerland

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Forms of Investment

Source: Economic Research Institute for ASEAN and East Asia (ERIA), KPMG, Kasikorn Reseasch and Ministry of Foreign Affairs of Vietnam

Wholly Foreign-owned Enterprise

1 Business Co-operation Contract (BCC)

3 2 Joint Venture (JV)

Representative Office (RO) Branch Legal Entity

• A common form of initial establishment for foreign business.

• Able to do market survey and commercial promotion activities.

• Unable to do direct profit-making activities.

• Not that popular form of commercial presence for foreign business.

• Limited to special business sectors such as non-life insurance, banking, securities, fund management and tourism.

Feature Required number of members/ shareholders Liability of members/ shareholders

Limited liability company One or more number of member Limited to the extent of the registered capital contributions into the company

Joint stock company

At least three shareholders; no restriction on maximum Limited to the extent of the registered capital contributions into the company

Partnership - Unlimited liability partners: At least two general partners - Limited liability partners: organizations or individuals - Unlimited liability partners - Limited liability partners

From June 2015, Foreign investors are allowed to own up to 100% shares of listed companies, except in industries operated under the government’s policy e.g. Banking (30% maximum)

Update: Forms of Foreign Investment

Forms of Commercial Presence

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Types of Economic Activities

Source: Economic Research Institute for ASEAN and East Asia (ERIA), KPMG, Kasikorn Reseasch and Ministry of Foreign Affairs of Vietnam

1. Promoted Sectors for Investment 2. Not Permitted to Foreigners 3. Permitted with Special Conditions

1. Manufacturing for exporting purposes. 2. Breeding, growing and processing of

agricultural, forestry and aquaculture products.

3. Use of high technology and advanced techniques; protection of the environment.

4. Labor-intensive industries. 5. Infrastructure construction and

development.

1. Activities detrimental to the environment, nation, health or national culture.

2. Projects that are related to the treatment of toxic wastes and manufacturing of hazardous chemicals that is banned by international law.

1. Only permitted as BCC activities: Telecommunication, Telecommunication service and Post.

2. BCC or JV activities Allowed: Cultural products, Minerals, Transportation, Service Incidental to Forestry, Agriculture and Hunting, Tourism (restaurant &hotel), Advertising and Service Incidental to Mining

3. Required Prime Minister’s approval:

Activities that have at least USD 15 million registered capital and or are in conditional sectors

• There are 267 conditional business lines. • Companies doing business in conditional business industries are

required to fully satisfy the applicable conditions ; - minimum capital - foreign ownership limitation - requirement on facilities and personnel - operation license

Note:

• For JV activity, foreign investors are allowed to invest at least 30 percent, but not exceeding 70 percent.

• For investments in any condition sector via JVs with Vietnamese partners, foreign investors, who have shares not more than 51 percent, can directly apply for domestic investment registration without having to obtain an investment certificate.

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Procedure for Investment Approval (1/2)

Data Source: Dezan Shira & Associates and KPMG

Step 1. Pre-investment approval

Sectors: • Petroleum exploration • Nuclear power plant • Press and publication • Seaports & sea transport • Airports • Telecommunication • Development of infrastructure in economic zones

Required documents • Application • Financial statements • Detailed use of restricted technology • Proposed use of land • Environment impact assessment • Socioeconomic efficiency evaluation

Step 2. Apply for an “Investment Registration Certificate (IRC)”

Timeframe • 35-150 days

Importance of IRC • Being Required for all 100 percent

foreign owned investment activities • Being the right of the foreign

enterprise to invest in Vietnam

Required documents • Details of investment project • Lease agreements or outlined land use

needs • Financial statements

Timeframe • 15 days (25 days for PPP)

Licensing authority • For Legal Entity and BCC:

Provincial Department of Planning and Investment (DPI) or Management Board of special purpose zone

• For PPP: Ministry of Planning and Investment or Local People’s Committee

Form of investment: • Legal Entity • Business Co-operation Contract (BCC) • Public Private Partnership (PPP)

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Procedure for Investment Approval (2/2)

Step 3. Apply for an “Enterprise Registration Certificate (ERC)”

Importance of ERC • Being Required for all activities which

seek to set up new entities • Being accompanied by a number

which will double as the tax registration number of the entity

Required documents • Application • Company charter • List of all board members • List of legal representatives • Letters of appointment and

authorization

Timeframe • 3 days

Licensing authority • For Legal Entity and PPP: DPI • BCC needs to apply “Certificate of

Operation Registration” to DPI instead and takes15 days of timeframe.

Form of investment: • Legal Entity • Public Private Partnership (PPP)

Step 4. Post licensing procedures: Things needed for operating business, including:

Data Source: Dezan Shira & Associates and KPMG

Note: • Documents need to be in Vietnamese. • ERC and IRC can be applied concurrently.

Public announcement of company establishment

Seal carving

Bank account opening

Labor registration

Business license tax payment

Charter capital contribution

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Etiquette Tips for Doing Business with Vietnamese

Greeting:

• Handshakes are commonly used as a way of greeting and goodbye

• Traditionally, businessmen who are senior (in age or in rank) usually initiate the handshake. The other side then sticks out both hands to grasp the other’s hands.

• Prepare some gifts for your potential partners.

- Do use colorful wrapping paper for a gift

- Do not give a gift in black and white flowers

- Do not give a sharp weapon gift such as knives or scissors

Data Source: Compiled by KResearch, Ministry of Culture

Business negotiation:

• Enlist the services of an interpreter who is a native Vietnamese speaker and is knowledgeable about the nature of the business under discussion.

• Start with introduce yourself, topics for discussion and basic information of the company.

Making an appointment:

• English is common use language for business contacts with large or multinational corporations.

• Smaller outfits tend to do business in Vietnamese language.

• Making an appointment is essential and should be done 2-3 weeks prior to the desired date.

• Being on time is necessary.

• Business cards are also vital.

• When exchanging business cards, it is considered appropriate to show respect by paying attention to the card you receive.

During the talks, Vietnamese partners may gesture positively. However, these gestures do not necessarily mean that they will go along with everything, but are more of a way to express their attention.

Note:

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Table of Contents





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Hanoi and Ho Chi Minh City Representative Offices

Mr. Loedchai Thongvigitmanee

Chief Representative – Ho Chi Minh City

Tel. (+84) 122 325 4911

E-mail : [email protected]

Hanoi

Address: 14th Floor,

AB Tower, 76A Le Lai Street, Ben Thanh Ward,

District 1, HCMC, Vietnam

Tel: (+84) 838274147-8

Ho Chi Minh City

Mr. Ritthiwut Watthanachai

Chief Representative - Hanoi

Tel. (+84) 123 204 4650

E-mail : [email protected]

Address: Unit V807 8th Floor

Pacific Place Building, 83B Ly Thuong Kiet Street,

Hoan Kiem, Hanoi, Vietnam

Tel: (+84) 439460007-8

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Representative Office Support

Advisory Service Business Matching

Local Staff Support AEC+3 Linkage