Market entry options
Foreign investors are allowed to set up and own 100% share capital of a company in Vietnam, except for circumstances where the foreign investment is restricted and/or foreign ownership ratio is limited under the bilateral or multilateral agreement(s) to which Vietnam is a signatory (e.g. WTO Commitments, EVFTA) or regulations of local laws.
Alternatively, foreign investors may consider other options such as Business Co-operation Contract (“BCC”), Merger and Acquisition, Branch, Foreign Contractor/ Cross-border supplies and Representative Office in initial stage of their market entry in Vietnam.
Investment procedures and conditions Each investment form is subject to different investment procedures and conditions. Establishment of a FIE normally entails the greatest expenditure of time, which involves the procedures to obtain an Investment Registration Certificate and an Enterprise Registration Certificate. Depending on the investment sectors and scale, an “in-principal” approval from the competent State authority may additionally be required.
INVESTMENT INCENTIVES AND GURANTEES
Investment incentives Foreign investors are entitled to investment incentives based on sectors and geographical locations. Highlighted sectors eligible for investment incentives are high-tech activities, high-tech ancillary products, waste collection, treatment, recycling or re-use, medical examination and treatment, education.
Areas eligible for investment incentives are disadvantaged areas and extremely disadvantaged areas; industrial parks, export-processing zones, hi-tech zones and economic zones; or other areas as decided by the Government. Moreover, special investment incentives are given to certain projects exerting significant socio-economic effects.
Investment guarantees The Government also provides some basic investment guarantee commitments towards foreign investors, for instance, guarantee for asset ownership, transfer of foreign investors’ assets overseas or business investment upon change of laws.
LAND AND RESIDENTIAL HOUSES FIE
may lease land from or is allocated land with land use levy by the State, as well sub-lease land from the industrial zone infrastructure developers. Land rent incentives (rent exemptions and reductions) apply to investment projects satisfying certain conditions.
Foreign organizations and individuals are allowed to purchase and own residential houses/apartments in Vietnam subjecting to certain conditions.
LABOR AND IMMIGRATION
Visa & temporary residence card
Except when being exempted from visa, foreigners are allowed to enter Vietnam by obtaining a visa with single entry or multiple entries, which is categorized into different types subjecting to the entry purpose, or by electronic visa whose term now is up to 90 days.
A visa can be replaced by a temporary residence card (“TRC”) which grants the foreigners the right to temporarily reside in Vietnam for a certain length of time up to 3 years or 10 years (for Investment TRC only) provided some requirements are satisfied.
Work Permit
As the case may be, foreigners must obtain a Work Permit (“WP”) or a Certificate of Work Permit Exemption (“CoWPE”) to legally work in Vietnam. Term of a WP or a CoWPE shall not exceed 2 years. Notably, the WP is only allowed to be extended once with the validity term of 2 years for the maximum.
In some special cases, neither WP nor CoWPE is required such as when foreigners enter Vietnam to work no more than 3 times per year and working period of each entry is under 30 days, or in case of an owner of a limited liability company owning a capital contribution valued of at least VND 3 billion. However, a report to the competent labor authority in such cases is still required.
PROFIT REMITTANCE
Foreign investors are only permitted to transfer after-tax profits abroad (tax on remittance of profits abroad is not applied) either at the end of the fiscal year or upon termination of the direct investment activities in Vietnam.
TAXATION
Value-Added Tax (VAT)
Generally, goods and services used for production, business and consumption in Vietnam are subject to VAT. Different VAT rates (0%, 5% and 10%) or VAT exemption are applied to different kinds of goods and services. According to the draft VAT law, the application of VAT rates for product groups may be changed to consistent with the orientation of reforming the tax system, moving towards applying a common tax rate.
(*) For the first 06 months of 2024 (i.e.: January to June 2024), the standard VAT rate was adjusted from 10% to 8% (with exception of some groups of goods and services) thanks to the incentive program of the Government. This program is extended until the end of 2024 under the Decree No.72/2024/ND-CP dated June 30, 2024.
Corporate Income Tax (CIT)
CIT is imposed on the income (Profit) of enterprises, or any kind of organisations established under Vietnamese laws doing business in Vietnam. The current standard CIT rate is 20%. Taxation for oil and gas businesses is applied within the range from 32% to 50%. The natural resources industry may have a higher tax rate (i.e. 40% or 50%). CIT incentives are available, including a preferential tax rate and tax holidays which are granted to investment projects based on their business activities or their location.
Some additional CIT incentives are also available for enterprises operating in manufacturing, construction and transportation with a high ratio of female employees or ethnic-minority employe
From 2024, Vietnam adopts the Global Minimum Tax in line with the Pillar Two of Base Erosion and Profit Shifting (BEPS) 2.0 Actions. A minimum CIT rate of 15% shall be applied for certain qualified large multinational corporates operating in Vietnam which may potentially impact the advantages of previously granted CIT incentives. In an effort to maintain the attractiveness of the business environment, a draft decree is being formulated for the establishment, management, and use of an investment support fund. This fund is intended to support, encourage, and attract strategic investments in high-tech sectors and Research & Development activities.
Taxable income is defined as the difference between total taxable revenue and total deductible expenses of the enterprise during the tax year. Taxable revenue includes all income from sales, provision of services and other incidental income accruing to the enterprise from any business activities, irrespective of whether the revenue was derived in Vietnam or overseas and has been collected or not. Generally, expenses are tax deductible on the basis that they are business related and supported by legitimate invoices/documents and are not specifically identified as being non-deductible. For the purchase of goods or services valued at VND 20 million (VAT inclusive) and above, evidence of non-cash payment is also required.
An enterprise is allowed to carry forward fully and continuously the operating loss of a financial year to offset against future taxable income for a period of up to five years counting from the year after the year of loss.
Personal Income Tax (PIT)
PIT is applied to taxable income received by individuals. Therefore, as a general rule, PIT is a liability of individuals; however the PIT regulations encompass the concept of tax withholding at source, in which the income-payer is required to temporarily withhold tax prior to paying incomes to its employees and remit the withheld tax to the tax authority.
Taxable income includes employment income, business income, income from capital investment, income from capital transfer, income from transfer of immovable properties, and other taxable income. Employment income is the most common type. In particular, taxable employment income includes income in the form of salaries, wages, remuneration, allowances (excluding some non-taxable income and exempt income as stipulated), income from membership of business associations, boards of management, boards of control, management councils and other organisations, and other benefits in cash or in-kind. For employment income, tax residents are taxed using progressive tax rates with a top marginal rate of 35%; meanwhile non-tax residents are taxed at 20%. In general, the PIT tax year is the calendar year. In certain cases, the PIT tax year may differ from calendar-year basis.
Particularly, the PIT tax year can be 12 consecutive months from the day on which the foreign individual arrives at Vietnam if he/she stays in Vietnam for less than 183 days in the first calendar year, or from January to the departure date of the year when the foreign individual qualified as Vietnamese tax resident terminates his/her labor contract in Vietnam.
Foreign Contractor Tax (FCT)
FCT, normally referred to as the Withholding Tax, is imposed on foreign contractors or foreign sub-contractors (hereinafter collectively referred to as foreign contractors), which are defined as foreign organizations or individuals carrying out business in Vietnam under the contract signed with a Vietnamese contracting party or signed with a main foreign contractor. FCT actually comprises of two kinds of taxes, Income Tax and VAT. In cases where the foreign contractor is an organization, these are CIT and VAT. There are three methods for FCT filing, which results in different positions of taxes payable.
AUDIT AND ACCOUNTING
Foreign-invested enterprises (collectively “FIEs”) doing business in Vietnam are required to comply with the VAS, the Vietnamese Enterprise Accounting System (not applicable for credit institutions) and interpretive guidance when preparing their financial statements.
The initial VAS were modelled on earlier versions of International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). Vietnam’s approach included modifications and selective adoption of IAS or IFRS, influenced by local regulatory interpretations that differed from global standards. Unlike the dynamic and evolving nature of IFRS, VAS has remained static since their initial issuance. This divergence has created disparities in accounting practices between Vietnam and international standards, affecting financial reporting and analysis within the global context.
On 16 March 2020, the MOF issued Decision 345/QD-BTC (“Decision 345”) regarding the scheme for application of financial reporting standards in Vietnam laid the foundation for the application of IFRS in Vietnam and promulgating and organising the implementation of the Vietnam Financial Standards Reporting Standards (VFRS),
The fiscal year applicable to FIEs in Vietnam is normally a calendar year i.e., 1 January – 31 December. FIEs may notify the local tax authority about their own 12-month fiscal year, commencing from the first day of a quarter and ending on the last day of the previous quarter in the following year. For the first/last fiscal year (i.e. the year of company establishment and closure), the accounting period can be more than 12 months but must not be longer than 15 months.
Every enterprise is required to employ a Chief Accountant who must satisfy the criteria and conditions stipulated by the Law on Accounting, except for micro businesses. The enterprise can also outsource a chief accountant position from an authorized accounting service company in Vietnam.
The annual financial statements of FIEs must be audited in accordance with the Law on Independent Audit. The audit must be carried out by an independent auditing company permitted to operate in Vietnam.
YOUR CONTACTS
Huyen Nguyen Managing Partner, Forvis Mazars in Vietnam
Minh Nguyen Partner, Head of Advisory, Forvis Mazars in Vietnam