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DisclaimerThis publication contains information in summary form and is therefore intendedfor general guidance only. It is not intended to be a substitute for detailedresearch or the exercise of professional judgment. Neither Ernst & YoungVietnam Limited nor any other member of the global Ernst & Young organizationcan accept any responsibility for loss occasioned to any person acting orrefraining from action as a result of any material in this publication. On anyspecific matter, reference should be made to the appropriate advisor.This book is one in a series of country profiles prepared for use by clients and professional staff. Additional copies may be obtained from:Ernst & Young Vietnam LimitedHo Chi Minh City office8th Floor, Saigon Riverside Office Center2A-4A Ton Duc Thang StreetDistrict 1, Ho Chi Minh CitySocialist Republic of VietnamTel : +84 8 3824 5252Fax : +84 8 3824 5250E-mail : [email protected] office

Daeha Business Center14th Floor, 360 Kim Ma StreetBa Dinh District, HanoiSocialist Republic of VietnamTel : +84 4 3831 5100Fax : +84 4 3831 5090Email : [email protected]: www.ey.com/vn3 | Doing business in VietnamPrefaceThis book was prepared by Ernst & Young in Vietnam. It was written to provide a

quick overview of the investment climate, forms of business organization,taxation, and business and accounting practices in Vietnam. While theinformation contained in the book was, to the best of our knowledge, current atthe time of writing, the rapid pace of change in Vietnam means that laws andregulations may have changed to reflect the new conditions. Making decisionsabout foreign operations is complex and requires an intimate knowledge of acountry's commercial climate with a realization that the climate can changeovernight. Companies doing business in Vietnam, or planning to do so, areadvised to obtain current and specific information from experiencedprofessionals. This book reflects information available as of 31 December 2009.Doing business in Vietnam | 4Glossary of acronymsThe following acronyms have been used in this guide.

ADSL Asymmetric Digital Subscriber LineAFTA ASEAN Free Trade AgreementAPEC Asia-Pacific Economic CooperationASEAN Association of Southeast Asian NationsATM Automated Teller MachineBCC Business Cooperation ContractBOT Build Operate TransferBT Build TransferBTA Bilateral Trade AgreementBTO Build Transfer Operate


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CDMA Code Division Multiple AccessCIF Cost, Insurance, FreightCIT Corporate Income TaxDTA Double Taxation AgreementEPE Export Processing EnterpriseEPZ Export Processing ZoneEU European UnionFCWT Foreign Contractor's Withholding TaxFOE Foreign-owned enterpriseFIE Foreign-invested enterpriseFOB Free On BoardGAAP Generally Accepted Accounting PrinciplesGDP Gross Domestic ProductGSM Global System for Mobile CommunicationsGSO General Statistics OfficeGTI Gross Taxable IncomeHTZ High Technology ZoneIAS International Accounting StandardsIFRS International Financial Reporting StandardsIZ Industrial zoneMFN Most Favored NationMoF Ministry of FinanceMOLISA Ministry of Labor, War Invalids and Social AffairsMPI Ministry of Planning and Investment

NTR Normal Trade RelationsPIT Personal Income TaxPNI Produced Nation IncomeSBV State Bank of VietnamSME Small and Medium-sized EnterprisesSOE State-owned enterpriseSSC State Securities CommissionSST Special Sales TaxUSD United States Dollar(s)VAS Vietnamese Accounting SystemVAT Value Added TaxVND Vietnamese DongWTO World Trade Organization

5 | Doing business in VietnamContentA Introduction ................................................................................. 8A.1 Vietnam as an investment location ................................................. 9A.2 Geography.................................................................................... 9A.3 Population and labor force............................................................. 9A.4 Language................................................................................... 10A.5 Government ................................................................

............... 10A.6 Time.......................................................................

................... 10A.7 Connectivity............................................................................... 10A.8 Climate ...................................................................................... 10A.9 Public Holidays ........................................................................... 11A.10 Useful contacts.......................................................


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.................... 11B. Economy ................................................................................... 12B.1 Economy overview...................................................................... 13B.2 Recent economic performance..................................................... 13B.3 Leading industries....................................................................... 14B.4 Major exports and imports........................................................... 14C. Financial system......................................................................... 16C.1 Money and banking ..................................................................... 17C.2 Currency ................................................................................... 21C.3 Foreign exchange controls ........................................................... 21C.4 Stock exchange........................................................................... 23D. Regulations on investment/enterprises ........................................ 26D.1 General ..................................................................

.................... 27D.2 Government owned industries and privatization............................. 28D.3 Investment guarantees ................................................................ 28D.4 Forms of Enterprises ................................................................... 29D.5 Forms of direct investment .......................................................... 30D.6 Investment incentives.................................................................. 32D.7 Conditional sectors ..................................................................... 33

D.8 Investment licensing.................................................................... 33 D.8.1 Licensing authorities..................................................... 33 D.8.2 Licensing procedures .................................................... 34 D.8.3 Business registration..................................................... 34 D.8.4 Investment registration ................................................. 35 D.8.5 Evaluation procedures ................................................... 35 D.8.6 Application dossier...................................................

..... 36 D.8.7 Post licensing procedures ............................................

.. 37D.9 Labor and recruitment regulations ............................................... 37 D.9.1 Labor recruitment by a Foreign Invested Enterprise............ 37 D.9.2 Registration of expatriate employees.............................. 37 D.9.3 0 Social Insurance (SI), Health Insurance (HI) and Unemployment Insurance (UI) contributions for employees.....................................................................


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............. 37 D.9.4 Minimum salary ............................................................ 38D.10 Mergers and Acquisitions............................................................. 39 D.10.1 Regulatory aspects ....................................................... 39 D.10.2 Buying shares in existing companies ............................... 39Doing business in Vietnam | 6D.11 Dispute settlement...................................................................... 40D.12 Exit provisions ............................................................................ 41D.13 Other investment related regulations............................................ 41 D.13.1 Foreign investment in the securities market..................... 41 D.13.2 Accession to trading service by foreign investor............... 41 D.13.3 Intellectual property rights ............................................ 42 D.13.4 Competition regulations ................................................ 42 D.13.5 Use of electronic documents .......................................... 43

D.13.6 Government inspection of Foreign Invested Enterprises ........... 43E. Taxation ................................................................................... 44E.1 Corporate Income Tax ................................................................. 45E.2 Value Added Tax ......................................................................... 51E.3 Import duty and export duty........................................................ 53E.4 Special sales tax ......................................................................... 54E.5 Business license tax .................................................................... 55

E.6 Taxes on individuals: Personal Income Tax..................................... 56E.7 Transfer pricing .......................................................................... 59E.8 Penalties for tax offences ............................................................ 60E.9 Double tax relief and tax treaties.................................................. 60F. Financial Reports and Auditing..................................................... 62F.1 Statutory requirements ............................................................... 63F.2 Accounting principles and practices.......................................

....... 63F.3 Disclosure, reporting and filing requirements ............................

.... 65F.4 Audit requirements ..................................................................... 66G. Visas and permits ....................................................................... 68G.1 Entry visas ................................................................................. 69G.2 Work permits...............................................................


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............... 69G.3 Residence permits....................................................................... 70H. Living in Vietnam........................................................................ 72H.1 Housing ................................................................................... 73H.2 Education................................................................................... 73H.3 Medical services.......................................................................... 73H.4 Leisure and tourism .................................................................... 74Appendices............................................................................................. 75Appendix 1: Economic Performance Indicators ..................................75Appendix 2: Foreign Exchange Rates................................................. 75Appendix 3: Principal Imports And Exports........................................ 76Appendix 4: Principal Trading Partners.............................................. 78Appendix 5: Depreciation Periods ..............................................

....... 79Appendix 6: Personal Income Tax Rates..........................................

... 80Appendix 7: Double Taxation Agreements ......................................... 82Appendix 8: Demographic Statistics.................................................. 83Appendix 9: Comparative Data: Vietnam And Selected Countries............. 85Appendix 10: Useful Addresses And Contact Information...................... 887 | Doing business in VietnamA. IntroductionA.1 Vietnam as an investment location

Vietnam has emerged as one of the most popular investmentdestinations in Asia, offering advantages, such as:

A well-educated population, which offers potential as both aworkforce and a consumer market

Under-exploited mineral resources A central location from which to reach other markets in southern Asia Continued support by foreign aid

A commitment by the Government for economic pragmatism; and Significant investment incentives for selected types of businessesA.2 GeographyVietnam occupies the eastern coastline of the Southeast Asian peninsula, andshares land borders with China to the north, and Laos and Cambodia to the west.

Its coastline provides direct access to the Gulf of Thailand and the East Sea.Vietnam has a land area of 331,114 square kilometers. Most of the country is hillyor mountainous, with flat land representing only about 20 percent. The primarytopographical features in the north are highlands and the Red River Delta and thesouth includes the central mountains, coastal lowlands and the Mekong RiverDelta.Hanoi, the capital of Vietnam, is located in the north of the country and Ho Chi


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Minh City, the largest city in terms of population and economic activity, is situatedin the south. Other major cities include Hai Phong, Da Nang, Hue, Vinh, Quy Nhon,Nha Trang, Can Tho, and Da Lat.A.3 Population and labor forceAs of 1 April 2009, Vietnam had an estimated population of 86 million, 25.6million of those reside in urban areas accounting for 29.6% of total populationand60.4 million are in rural areas that covers 70.4% of total population. The annualaverage population growth rate for the period 1999 to 2009 is 1.2%. Thispopulation is predominantly young, with approximately 27% below the age of 15and a median age of 25.9 years. The population density is 259 persons per square kilometer1.The population is composed of nearly 90% ethnic Vietnamese, with Chinese,Hmong, Thai, Khmer, Cham and mountain groups forming the remainder.9 | Doing business in Vietnam1 Source : GSO, www.gso.gov.vn (Report on result of general investigation of population and

houses 2009)A.4 LanguageVietnamese, a tonal language in the Austro-Asiatic language family, is theofficial language. The modern written language uses the Vietnamese alphabet, aRomanized representation of spoken Vietnamese.While English is increasingly favored as a second language, other languages used toa lesser extent in Vietnam are French, Russian, Chinese, Khmer and mountain area languages (Mon-Khmer and Malayo-Polynesian).The literacy rate (percentage of the population aged 15 years or older who canread and write) was estimated at 90.3% as surveyed in 20052

.A.5 GovernmentVietnam is a one-party state run by the collective leadership of the Communist PartySecretary-General, the Prime Minister (PM) and the President. Policy is set every fiveyears by the Party congress and adjusted twice a year by plenary meetings of the Central Committee. The Government and other state organs are responsible forimplementing policy.A.6 TimeVietnam local time is seven hours ahead of Coordinated Universal Time, or UTC. Business

hours in Vietnam are generally from 7:30 a.m. to approximately 4:30 p.m., howeverinternational companies located in the urban areas operate from 8:00 a.m. to 5:00 p.m.Shops tend to be open from 9:00 a.m. to 9:00 p.m.A.7 ConnectivityVietnam is served by several digital mobile phone networks using GSM 900 and CDMA 800technology. ADSL, dial-up Internet services are available in the major cities. Recently, Vietnam


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has awarded licenses to the first 4 operators to offer high-speed 3G mobile phone services,promising millions of cellular phone users a better service. Vinaphone and MobiFone are the first3G service providers in Vietnam.A.8 ClimateNorthern Vietnam has four seasons: spring, summer, autumn and winter. Spring isfrom January to March, summer is from April to end of July, autumn is fromAugust to end of September and winter is the rest of the year. Autumn is the bestand the most beautiful weather in the north with the average temperature on theday ranging from 27C to 32C and decreases to 24C or 27C at night. Incontrast, Central Vietnam is subject to occasional typhoons. The South is generallywarm with two seasons: dry and wet. During the hottest months at the end of the southern dry season, March through May, temperatures reach the low 30C. Thisperiod is followed by the May-October monsoon season.Doing business in Vietnam | 102 United Nations Development Program Vietnam at a glance 2007A.9 Public holidaysNational public holidays are listed below. Dates for the Vietnamese New Year(Tet) vary from year to year, because they are based on the lunar calendar.

1 January New Year's DayJanuary or February Tet. This is the most significant Vietnamese annualholiday and is celebrated from the last day of the old lunar year to the thirdday, or later, of the New Year according to the traditional lunar calendar 10th day of the 3rd lunar month Kinh Hung's death anniversary (Gio toHung Vuong) 30 April Liberation Day 1 May Labor Day 2 September National DayA.10 Useful contactsFor a list of useful addresses and other contact details in Vietnam, please seeAppendix 10.11 | Doing business in Vietnam

B. EconomyB1. Economic overviewVietnam is a densely populated, developing country in Southeast Asia. In thedecade after the 1976 reunification, the economy was in stagnation while thecountry attempted to recover from three decades of independence wars. In1986, Vietnam started economic reforms aimed at moving from a planned to amarket economy. Dramatic progress has been made in economic developmentsince then, and the country has become one of the fastest growing economies inthe world. Traditionally an agrarian society, the agricultural sector, including forestry and fisheries, still employs about 65% of the population, but itscontribution to GDP has declined to about 20% in recent years from 40% in theearly 1990s. The industrial sector has been growing rapidly, and now accounts

for about 40% of GDP, with relatively well-diversified sub sectors including steel,fertilizer, cement and vehicle production, whilst the private sector is nowestimated to contribute around 35% of GDP and is rapidly growing, due to thecontinuing privatization of State Owned Enterprises (SOEs) and positiveunderlying macroeconomic factors3.Vietnam has continued its efforts of transition towards a market economy through


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adopting more flexible, market-oriented policies that are aimed at promoting privatesector growth, improving the quality of public investment and achievingmacroeconomic stability. However, further reforms are needed to achieve long termsustained rapid growth, and emphasis should be put on more prudentmacroeconomic policies, improving public sector financial management,accelerating reforms of SOEs and fair and transparent laws and regulations. Theprivate sector will continue to grow as governmental involvement in themanagement of SOEs and investment decision making in them is reduced.B.2 Recent economic performanceVietnam has achieved substantial progress in economic development following thedeclaration by the Sixth Party Congress, in 1986, of a broad economic reformpackage called Doi Moi, or renovation, which dramatically improved Vietnam'sbusiness environment. Vietnam became one of the world's fastest growingeconomies, averaging 8.4% annual GDP growth from 2005 to 2007, 6.1% in 2008and 5.3% in 20094. Vietnam's inflation rate, which stood at an annual rate of over300% in 1987 had fallen to 12.6% in 2007 and significantly increased to 23% in2008. In 2009, as the result of the global economic crisis, basic good prices fellsignificantly and Vietnam economic growth slowed down leading to the decrease in

inflation rate to 6.9%5 . Simultaneously, investment grew three-fold and domesticsavings quintupled. Agricultural production doubled, transforming Vietnam from a net food importer to one of the world's top rice exporters.Foreign trade and Foreign Direct Investment (FDI) increased significantly in 2008and the shift away from a centrally planned economy to a more market-orientedeconomic model improved business conditions and quality of life for many13 | Doing business in Vietnam3 World Bank: Taking stock (Update report on Vietnam's recent economic development)

4 GSO, www.gso.gov.vn (December update report)5 ADO update 2009 (ADB)Vietnamese. In 2009, due to the global economic crisis, FDI to Vietnam waslower than previous year. From the beginning of the year to 15 December2009, total FDI capital was US$21.5 billion decreased by 70.0% relative to thesame period last year. The registered FDI capital of 839 new licensed projects isUS$16.3 billion (decreased by 46.1% in number of project and by 75.4% incapital). The implemented FDI capital is estimated at US$10 billion, decreasedby 13.0% compared to 2008.The Bilateral Trade Agreement (BTA) signed between the United States and

Vietnam on 13 July 2000 represented a significant milestone for Vietnam'seconomy. The BTA provides for the Normal Trade Relations (NTR) status ofVietnamese goods in the US market. In turn, access to the US market will allowVietnam to accelerate its transformation into a manufacturing based,export-oriented economy.Vietnam's economic stance following the East Asian recession emphasizedmacroeconomic stability. Although the Government maintains a tight rein onmajor sectors of the economy, such as financial services, telecommunicationssectors and areas of foreign trade and economic reform,equitization/privatization of SOEs have fallen behind schedule. The Government,


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however, appears committed to economic liberalization and internationalintegration. Vietnam's membership of the ASEAN Free Trade Area (AFTA) andentry into the BTA in December 2001 has contributed to this change of pace.Vietnam achieved accession to the World Trade Organization (WTO) in January2007 to become the 150th WTO member that brings to Vietnam's businesscommunity many opportunities in integrating into the international trade andchallenges at the same time.B.3 Leading industriesVietnam's leading industries are oil and gas; textiles and footwear; agricultureand fisheries, banking and construction.B.4 Major exports and importsIn 2009, Vietnam's total exports amounted to US$56.6 billion; decreased by9.7% against 2008, in which export amount from local sector is US$26.7 billion,and from FDI (including oil) is US$29.9 billion6. Since the BTA betweenVietnam and the US came into force in 2001, the US has overtaken theEuropean Union (EU) as Vietnam's largest trading partner with estimatedexports of US$11.2 billion. The Association of Southeast Asian Nations(ASEAN) and Japan rank third and fourth with US$8.5 billion and US$6.2billion, respectively. The most impressive export increase is to the Africanmarket with 8 times increase against in 2008 with estimated amount up toUS$1.1 billion.In contrast, total imports in 2009 are estimated at US$68.8 billion, decreased

14.7% against same period in 2008.7Imports from China, which has the largestDoing business in Vietnam | 146.7 GSO, www.gso.gov.vn (Update report in December 2009)15 | Doing business in Vietnam8 Taking stock report by WB June 2009volume with US$16.1 billion, increased by 2.7% compared to the 2008 makingChina now by far, the largest source of imports into Vietnam. The US, EU, Japan, members of ASEAN, newly industrialized countries (Korea, Taiwan and Hong

Kong) and China remain major export markets of Vietnam.Vietnam is a major exporter of crude oil, marine products, rice, coffee, rubber, tea, garments and footwear. In 2009, garment and crude oil exports were thetop earners and footwear and seafood were the second most significant exportproducts, followed by rice, coffee and wooden products. Due to the financialcrisis, exports to all major markets have declined, sometimes substantially.Vietnam exporters have been especially active trying to win markets over inLatin America and Middle East8.Vietnam's leading imports include petroleum products, steel, motorbikes andfertilizers, with a large proportion of Vietnam's imports coming in the form of

capital goods. Although Vietnam is an exporter of crude oil, imports ofpetroleum products reached US$6.2 billion in 2009, decreased by 43.8% inquota due to decrease in price but increases 0.6% in volume. Imports of garmentand textile material for processing also decreased by 17.8%.Source: GSO, www.gso.gov.vn (Report on 2009 economic development) Foreign Trade in 2009 compared to 2008 (US$ billion) (%)Imports 68.8 85.3Exports 56.6 90.3Major export products in 2009


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Major export products in value compared to 2008 in value US$ million (%)Seafood 4,200 93.3Coffee 1,700 81.0Rice 2,700 92.0Oil 6,200 60.0Garment 9,000 98.7Footwear 4,000 85.0C. Financial systemC.1 Money and bankingUntil 1988, the financial system in Vietnam consisted of the State Bank ofVietnam (SBV) and its agency network up to provincial level, which distributedcredit to SOEs and other entities under directives of the central plan, andhandled deposits of these SOEs and entities. In 1988-89, the governmentinitiated banking reforms that transformed the mono-banking system into atwo-tiered banking system, that is, the SBV restricted itself to acting as thecentral bank, and its commercial banking activities were taken over bysector-specialized state-owned commercial banks. In 1990, the rules on thesectoral specialization of these banks were removed.During the 1990s, the Government stimulated the entry of new players into thefinancial sector, a policy which led to a substantial increase in the number ofrepresentative offices and branches of foreign banks as well as so-called jointstock commercial banks. Joint ventures between foreign banks and state-ownedcommercial banks were also established, but the services they offered were

strictly circumscribed. Non-bank financial institutions, such as finance, leasinginsurance companies and later on, securities brokerage, fund managementcompanies have also been established.As a young and newly developing country, the Vietnam bank-based financialsystem is assessed as under developed. The Vietnamese government hasundertaken several reforms of the financial system, i.e. renovation of the legal framework for the banking sector including en-action of the Law on the SBV,Law on Credit Institutions and ordinance on foreign exchange as well as anissuance of implementation guidelines. The SBV has also issued measures toenhance the soundness of the country's banks. These laws and measures helpsecure loans granted by credit institutions and improve their financial

transparency. The SBV has also reduced its intervention in state-owned bank'soperation to encourage their commercial orientation, leading to a diversificationof the financial system.From 2007 to 2009, the foreign currency market has fluctuated unusually. In2008, FDI capital increased significantly up to US$6.4 billion and decreased by70% in 2009. At the same time, there have been many complicated fluctuationsin the international financial and foreign currency market. The value of somestrong currencies also had increased and decreased irregularly. Price of somemajor products, such as oil, rice, steel, etc. changed continuously. Even though the SBV and related government ministries have been implementing severalmeasurements to stabilize the foreign currency market, the VND still has been

devalued.In 2009, while the currency market has not overcome the devaluation pressure,the world financial crisis has continued to impact the Vietnam economy leadingto significant decrease in export quota, FDI capital and international touriststoVietnam. International trade balance from a surplus of US$10.17 billion in2007, US$273 million in 2008 to a deficit of US$1.9 billion in 2009, the highest deficit in recent years.17 | Doing business in Vietnam


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Share in the banking capitalThe year 2009 saw significant equitization and listing of two major stated-owned banksnamely Vietinbank and Vietcombank, the largest stated owned bank in Vietnam. Bytheend of 2009, there are three state-owned commercial banks, namely: BIDV, VBARD andMekong Housing Bank; five 100% foreign invested Banks namely HSBC, StandardChartered Bank (Vietnam) Ltd, ANZ, Shinhan Vietnam Bank Limited, Hong LeongBank Vietnam Ltd with charter capital nearly VND8,000 billion; and several branches offoreign banks including large names, such as Citibank, Deustch Bank, Calyon, May Bank, etc. The rest of the market is shared by joint-stock and joint venture banks. Theaverage charter capital of each state-owned commercial bank ranged between US$450million to US$500 million. Most joint-stock banks have an average capital of US$150million to US$200 million9.Restrictions on the use of foreign currencyThe Government is committed to seeing the VND secure the status of the primary

currency used in the economy. For that reason, certain restrictions were imposed onthe use of foreign currency in Vietnam.The local foreign exchange market in Vietnam is, however, subject to regulatorycontrols.While sale and conversion regulations were relaxed in 1999, foreign companies wereonly given the right to convert VND into US$ to cover current payments in January2001. The requirement for the compulsory conversion of foreign currency revenuefromcurrent transactions, at the rate of 80%, was also introduced in September 1998. This

requirement was, however, removed in May 2003. On 13 December 2005 and 28December 2006, the government issued the Ordinance on Foreign Exchange Controlsand Decree No.160-2006-ND-CP providing regulations for implementation of Ordinanceon Foreign Exchange Controls respectively which provides detailed regulations forimplementations of foreign exchange activities of residents and non-residents in currenttransactions, capital transactions and use of foreign currency, etc.Within the territory of Vietnam, all transactions, payments, listings andadvertisements of residents and non-residents must not be affected in foreignexchange except for the following cases:1. Transactions with credit institutions and other institutions permitted to pr

ovideforeign exchange services2. Residents being organizations shall be permitted to transfer capital internally by atelegraphic transfer of foreign currency (as between an entity with legal status and adependent accounting entity or vice versa)3. Residents shall be permitted to contribute capital in foreign currency in order toimplement a foreign investment project in Vietnam


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4. Residents shall be permitted to receive payment by a telegraphic transfer of foreigncurrency pursuant to a contract entrusting import or export5. Residents being domestic or Foreign Contractors (FCs) shall be permitted toreceivepayment by a telegraphic transfer of foreign currency from investors or headcontractors in order to make payment and disbursement transactions and to remitmoney overseasDoing business in Vietnam | 189 Source: GSO, www.gso.gov.vn and SBV's news6. Residents being institutions providing insurance business services shall bepermitted to receive a telegraphic transfer of foreign currency from insurancepurchasers for all types of goods and services which must be reinsured offshore7. Residents being institutions conducting business in duty free goods, providingservices in separated areas in international border gates or providing customs bondwarehouse services shall be permitted to receive payment in foreign currency and VND for the supply of goods and services8. Residents being customs and police offices of international border gates and customs bond warehouses shall be permitted to receive foreign currency from

non-residents for all types of taxes and fees for entry/exit visas and fees fortheprovision of services9. Non-residents being diplomatic offices and consulates shall be permitted tocollect fees for entry/exit visas and other types of fees and charges in foreign currency10. Non-resident and residents being foreigners shall be permitted to receive salary,bonuses and allowances in foreign currency from residents and non-residentsbeing organizations11. Non-residents shall be permitted to make telegraphic transfers of foreign currency

to other non-residents or to make payment to residents of money for the exportof goods and services12. Other necessary cases after consideration by and permission from the Governorof the SBV10 Use of foreign currency cash by individuals1. Residents and non-residents being individuals with foreign currency cash shall bepermitted to store or carry such cash personally to donate or bequeath it, to sellit to an authorized credit institution, to remit or carry it overseas to servic

e lawfulpurposes, or to pay it to entities entitled to collect foreign currency pursuant tothis Decree.2. Residents being individuals with foreign currency cash shall be permitted to deposit it in savings accounts at authorized credit institutions, and to withdrawthe principal in and to receive interest in foreign currency cash in accordancewith


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the Law on foreign currency savings accounts11.Use of VND by non-residentsNon residents being organizations and individuals shall be permitted to open and useVND accounts at authorized credit institutions in order to implement the followingrevenue and disbursement transactions:1. To collect proceeds from sale of foreign currency to an authorized creditinstitution2. To collect revenue from other legal sources in Vietnam3. To make cash payments or to withdraw cash to spend in Vietnam4. To disburse in payment of a current transaction of capital transaction inaccordance with this Decree5. To disburse by way of gift or payment of an inheritance in accordance withlaw19 | Doing business in Vietnam10 Article 29, Chapter IV of Decree No. 160-2006-ND-CP on providing regulations forimplementation of ordinance on foreign exchange control. (Decree No. 160)11 Article 32 of Decree No. 160

6. To disburse by way of purchase of foreign currency at an authorized creditinstitution for remittance abroad7. To disburse for other purposes permitted by law12 Use of currencies of countries with a common border with Vietnam1. Residents being organizations and individuals who have lawful revenue incurrencies of a country with a common border with Vietnam from activitiesof export and import goods and services or who have other lawful revenueshall be permitted to open VND accounts at authorized credit institutions inorder to implement the following revenue and disbursement transactions:a. To collect proceeds from the sale of goods and servicesb. To collect proceeds being the purchase at an authorized credit institution o

fa currency of a country with a common borderc. To collect revenue from other legal sources in Vietnamd. To disburse by way of payment for the import of goods or servicese. To disburse by way of sale to an authorized credit institution or exchangebureauf. To withdraw in cash in order to pay salary, bonuses and allowances toforeigners working for an organization or to spend in a country with acommon borderg. To disburse for other purposes permitted by law2. The use of currencies of countries with common borders with Vietnam topurchase or sell goods in border areas and in economic zones of bordergates must comply with regulations of the SBV

13.Exchange ratesThe foreign exchange rate is set by averaging rates from the previous day'sinter-bank transactions. This crawling peg system has established a trading band that allows VND/US$ exchange deals to be executed within a tight band. TheGovernment is, however, planning to move towards a more market-determinedexchange rate in coming years.Daily spot exchange rates are announced by the SBV based on the previous


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day's average rate on the interbank market. Other banks must then trade within+/- 3% of this official rate.Government assistance on foreign currency matters to enterprises withforeign owned capitalEnterprises with foreign owned capital and parties to Business CooperationContracts (BCCs) may buy foreign currency from commercial banks to meet thedemands of their current transactions and other allowable activities.Doing business in Vietnam | 2012 Article 33 of Decree No. 160: Use of VND by non-residents13 Article 35 of Decree No. 160: Use of currencies with a common border with VietnamThe Government has given assurance to provide assistance in meeting theforeign currency balance of particularly significant investment projects inaccordance with Government programs during a specific period. In addition, theGovernment assures its assistance in the foreign currency balance for projects toconstruct infrastructure facilities and certain other significant projects where commercial banks do not provide sufficient foreign currencies.The SBV's role on interest ratesThe SBV has intervened in local currency interest rates since May 2008 apartfrom setting the base rate. Commercial banks are therefore required to set their

own mobilizing and lending rates lower than 150% of the base rate.C.2 CurrencyThe official currency of Vietnam is the VND. In 2003, the SBV released coinsdenominated in VND200, VND500, VND1,000, VND2,000 and VND5,000following a 20-year hiatus. Vietnam has completed the conversion of paperbanknotes to Polymer banknotes denominated in VND10,000, VND20,000,VND50,000, VND100,000, VND200,000 and VND500,000 which were issuedfrom 2004 to 2006.Access to cash is now becoming more convenient with the presence ofAutomated Teller Machines (ATMs) network throughout the country. Traveler'schecks and charge or credit cards, such as American Express, MasterCard andVisa are now widely accepted by travel agencies, hotels, and major restaurants

and shops.C.3 Foreign exchange controlsThe inflow of foreign currency into Vietnam is generally welcomed with minimumrestrictions, although the transfer of foreign currency out of the country is stillcontrolled. Enterprises with foreign owned capital must open accountsdenominated in a foreign currency or VND at a bank located in Vietnam andapproved by the SBV. All foreign exchange transactions, such as payments oroverseas remittances, must be in accordance with policies set by the SBV.Enterprises with foreign owned capital and foreign parties to BCCs may buyforeign currency from a commercial bank to meet the requirements of currenttransactions or other allowed transactions, subject to the bank having available

foreign currency. The Government may guarantee foreign currency to significantinvestment projects or assure the availability of foreign currency to investorsininfrastructure facilities and other significant projects.Under current regulations, all foreign currency income generated in Vietnamfrom exports, services and any other sources must be deposited at or sold tolicensed banks in the country, except in special cases approved by the SBV.Before May 2003, Vietnamese companies, foreign-invested enterprises, partiesto BCCs, FCs and foreign branches were required to sell at least 30% (loweredfrom 40% in May 2002) of their current foreign-currency earnings upon receipt


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of foreign currency. From May 2003, the compulsory conversion percentage wasreduced to 0%.21 | Doing business in VietnamGenerally, banks prioritize the sale of foreign currency to companies that needitto import materials and supplies for the production of exports.Foreign investors are allowed to repatriate the following:

Profits made from business operationsPayments received for service provision and technology transfer

Principal and interest from offshore loans and credits Invested capital Other sums of money and assets legally owned by the foreign partnerForeign exchange is regulated by the Foreign Investment Law of Vietnam. Whilst theself-sufficiency rule has been in effect for some time, the SBV has, in the past, beenflexible on currency conversion. A substantial trade imbalance may lead the SBVtoenforce the self-sufficiency requirement in the future.Opening of bank accounts by foreign invested enterprisesEnterprises with foreign owned capital and foreign parties to business co-operationcontracts must open a direct investment capital foreign currency account at anauthorized credit institution in order to implement the following revenue and

disbursement transactions:1. Receipt of charter capital monetary contributions, receipt of capital forimplementation of direct investment and receipt of medium and long-termforeign loan capital2. Receipt of foreign currency from a foreign currency savings account of aresident being an enterprise with foreign owned capital or a foreign party to abusiness co-operation contract3. Disbursement of foreign currency remitted into a foreign currencysavings account of a resident being an enterprise with foreign ownedcapital4. Disbursement to outside Vietnam of principal, interest and fees on a foreign medium or long term loan

5. Disbursement to outside Vietnam of capital, profit and other legal revenue ofa foreign investor6. Other revenue and disbursement transactions relating to direct foreigninvestment activities14 In addition, Foreign Invested Enterprises (FIEs) may open current accounts in aforeign currency and VND at authorized banks in Vietnam for their businesstransactions.Registration of overseas borrowingsAll medium and long-term loans from foreign sources must be registered with andperiodically reported to the SBV. The borrower is required to comply with severa

lother requirements in purchasing foreign currency from financial institutions to repaythe loan, e.g. the repayment must be in line with the repayment schedule.Doing business in Vietnam | 2214 Article 11: Decree No. 160C.4 Stock exchangeVietnam's stock market was established in July 2000 in Ho Chi Minh City withtwo listed companies. The market trades in company issued shares and bonds


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issued by the Government, credit institutions and corporate. By the end ofDecember 2009, there are 443 companies listed on the Hanoi and Ho Chi Minhstock exchange with total market capitalization of nearly VND210 trillion.The Government has taken measures to develop the market by amendingregulations relating to the capital market, reorganizing authority structures,accelerating and linking the SOE equalization process to the stock market.In order to enhance the role of regulators, Decree No. 66/2004/ND-CP placedthe SSC under the direct supervision of the Ministry of Finance (MoF) on 19February 2004. This represents a rational step to the process of stock marketdevelopment in Vietnam. The MoF is the governing body responsible for themacro-finance policies and development of the financial market, therefore isable to enforce these policies efficiently and effectively. First and foremost,itwill increase the volume of high-quality securities in the stock market - a crucialelement to the development of the market, and in addition to that, otherfinancial policies by the MoF (i.e. issuing bonds, taxes and fees) would deliver coherence and unification between the stock market and other financialmarkets, hence ensuring safety for these markets.In September 2005, the PM increased the cap on total foreign shareholdings ondomestic companies listed on the securities market from 30% to 49% of the totalshares of a listed company, except for listed banks, of which the cap still remains

at 30%. Foreigners purchasing or selling shares in Vietnam's securities marketmust, however, register for a foreign investment management code with theStock Exchange Department through a depository bank as prescribed by theSSC. In respect of bonds listed on the stock exchange, foreign investors areallowed to buy unlimited units.Foreign securities institutions who wish to engage in securities businesses inVietnam must establish a joint venture company with a Vietnamese partner inaccordance with a SSC-issued license. The maximum foreign holding allowed insuch a joint venture is 49% of the charter capital. Similarly, a foreign investmentfund that wishes to invest in the Vietnamese securities market must be licensedby the SSC.

Representative offices of foreign securities companies and fund managementcompanies in Vietnam15 1. Foreign securities companies and foreign fund management companies shallbe permitted to establish a representative office in Vietnam after they haveregistered its operation with the SSC.2. An application file for registration of the operation of a representative office23 | Doing business in Vietnam15 Article 78 of Law on Securities passed by Legislature XI of the National Assembly

of the Socialist Republic of Vietnam at its 9th Session on 29 June 2006.of a foreign securities company or foreign fund management company inVietnam shall contain the following documents:a. Application for registration of the operation of a representative officeb. Copy of the operation license of the foreign securities company or foreignfund management companyc. Copy of the charter of the foreign securities company or foreign fundmanagement companyd. Curriculum vitae of the person proposed to be appointed as head of therepresentative office in Vietnam and a list of the staff (if any) proposed


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to work in the representative office3. Within a time-limit of seven (7) days from the date of receipt of a validapplication file, the SSC shall issue a certificate of registration of the operationof the representative office of the foreign securities company or foreign fundmanagement company in Vietnam. In a case of refusal, the SSC shall provide awritten notice specifying its reasons for the refusal.4. The operational scope of a representative office may comprise one, a number,or all of the following items:a. Implementation of the function of a contact office and the conduct ofmarket researchb. Promotion and formulation of co-operative projects in the securities andthe securities market sector in Vietnamc. Advancement and supervision of the performance of contracts alreadyagreed and signed between a foreign securities company or foreign fundmanagement company on the one hand and economic organizations ofVietnam on the otherd. Advancement and supervision of the performance of projects which theforeign securities company or foreign fund management companyfinances in Vietnam5. A representative office shall not be permitted to conduct securities business activities.6. A representative office shall be subject to administration and supervision by

the SSC.100 % foreign invested securities firms will be permitted to be established inVietnam once Vietnam complies with WTO regulations.At the beginning of 2007, governing agencies launched several measures toestablish a legal basis to help develop a stable and healthy market, including: Issuance of the Laws on Securities (which are validated from 1 January2007), Decree No. 14/2007/N-CP providing detailed regulations on theimplementation of a number of articles on the Law on Securities. DecisionNo. 27/2007/QD-BTC promulgating regulations on the organization andoperation of securities companies, Decision No. 35/2007 QD-BTC on theorganization and operation of fund management companies, Decision No.45/2007/QD-BTC on establishment and management of securities

investment funds, Decision No.Doing business in Vietnam | 24 03/2007/QD - NHNN on 19/1/2007, Decision No. 18/2007/QD-NHNN on25/4/2007 and Directive No. 03/2007/CT-NHNN regulating themanagement of loan portfolios for securities investment Decision No. 12-2007-QD BTC dated on 13 March 2007 of the Ministry ofFinance to promulgating regulations on corporate governance applicable tocompanies listed on the stock exchange or a securities trading center,Decision No. 15-QD-TTLK dated 2 April 2008 of SSC issuing regulations onexercise of shareholders rights; and Special coordination between the MoF, the SSC and the SBV which will helpto gradually improve the supervision over the market in terms ofregistration, custody, publicity and transparency, etc.

In 2008, the global crisis and the turbulence of the domestic economy placedpressure on the stock market. During the first few months of the year, inflation increased unexpectedly leading to the concerns on the liquidity and vulnerabilityof the banking system. The monetary market was expanding with interest ratesincreasing dramatically. As a result, the SBV was adopting amonetary-tightening policy. The stock index plunged continuously and a widerange of investors suffered from losses and capital shortage. Many investors left


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for real estate or gold investments while the stock market attracted few newinvestors. Consequently, the Vietnamese stock market was on a decreasingtrend in the first 6 months of 2008 and witnessed the lowest point in June2008. In the second half of 2008, the Vietnam stock market had suffered from acontinuous decrease trend.The year 2009 is continued to be recognized as a turbulent year with securitiesstock exchange. At the beginning of the year, VN-Index decreased significantlyfrom 303.21 to 235 on 24 February 2009. With positive information on a betterfuture for Vietnam and global economy, the VN-Index increased to over 600points in middle of October and HNX- Index also increased to over 200 pointssuccessfully with significant increase of banking securities. However, aftersuccessful transactions, VN-Index continued to decrease in the last two monthsof the year. Many analysts concluded that the turbulent change in Vietnam stockmarket was partly caused unstable sentiment of investors due to recenttightening of credit policies17.Currently, there are about 103 securities firms in operation with an averagechartered capital at more than VND200 billion. Their main activities arebrokerage and proprietary trading. In addition, there are 43 funds managementcompanies and 8 custody/deposited banks.18With the gradual improvement ofthe legal framework along with the expertise and experience of the managers

and investors, the Vietnamese stock market has strongly adjusted and achievedcertain development.25 | Doing business in Vietnam17 Source: www.dantri.com.vn (Dan Tri's analysis on most outstanding economic events ofVietnam in 2009)18 Mekong Capital, www.mekongcapital.com (Updated information from SSC departmentmanaging securities firms and funds on 28 Dec 2009)D. Regulations oninvestment/enterprisesD.1 General

All investment activities in Vietnam are regulated by the Law on Enterprise (LOE)passed by the National Assembly dated 29 November 2005 and the Law onInvestment (LOI) passed by the National Assembly dated 29 November 2005. Bothlaws became effective as of 1 July 2006.The LOE addresses the types of companies and business establishments permitted tooperate in Vietnam, their governance, liability and way of operation.The LOI includes provisions on investment activities, rights and obligations ofinvestors, the registration and evaluation of investment projects, investmentincentives, investment guarantees and State management of investment. This Lawreplaces the old Law on Foreign Investment in Vietnam and the Law onEncouragement in Domestic Investment and is commonly applicable to both foreign

and domestic investors.Vietnam has signed and acceded to various bilateral and multilateral arrangements oninvestment, such as agreements for the promotion and protection of investments with47 countries and territories, the ASEAN Framework Agreement on Investment (AIA), the BTA with the United States of America containing an investment charter, theConvention on the Establishment of the Multilateral Investment Guarantee Agency(MIGA), and other related international investment agreements.


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Where the international agreements contain provisions inconsistent with theprovisions of the legal instruments on FDI, the provisions of those internationalagreements shall be applied.In 1995, Vietnam became a member of ASEAN and three years later it joinedAsia-Pacific Economic Cooperation (APEC). In 2000, Vietnam signed a BilateralTrade Agreement (BTA) with the United States. This trend towards regional andglobal integration is expected to promote socio-economic stability, better mobilizationof domestic resources, and improve efficient allocation of these resources. Moreover,the Government has embarked on and prioritized a long-term reform program for theadministrative and regulatory framework governing foreign investment. Thiscombination of internal and external factors should serve to improve the general investment climate.Vietnam officially joined the WTO on 7 November 2006 and put its commitments intoforce from 11 January 2007.The accession of Vietnam to WTO has brought a positive impact to Vietnam's marketand economy, including: The considerable reduction of import duties on goods for domestic productionas well as for private and government consumption

The liberalization of Vietnam's services market. Under the WTO's classification,provision of services is divided into four modes: (i) cross-border (e.g.,electronic money transfer services between countries; (ii) services consumedabroad (e.g., tourist services); (iii) commercial presence (e.g., FDI in servicesin Vietnam); and (iv) people (e.g., foreigners providing services in Vietnam).The liberalization of the services sector, especially in27 | Doing business in Vietnam modes (i) and (iv), will affect FDI flow in Vietnam. The services sub-sectorsthat used to be closed or restricted to foreign investment (such as distribution,transport, telecommunication, finance, etc.) is largely liberalized from the year

2009 (despite some limited conditions and a transitional period of three or five years)D.2 Government owned industries and privatizationThe Government is working towards improving the investment environment for theprivate sector despite a high degree of state control of the key sectors of theeconomy. The privatization process is proceeding slowly, and from 4,700 SOEs in2001, the Government intends to divest them all by 2010: a process which involvedthe equalization of 350 SOEs in 2006 and 116 in 2007. Additionally, the State willreduce its holding in the equitized SOEs to 51% or 35%. The State has established

the State Capital Investment Corporation (SCIC) which holds the majority of theState's share in equitized and privatized enterprises, in addition to conducting otheractivities, akin to other sovereign wealth funds like Singapore's' Temasek. LargeSOEs operating in key areas, such as electricity, cement, metallurgy, chemicals, construction, transportation, banking, telecommunication, the airlines andinsurance industries are being equitized. One major example is the December 2007 Bank for Foreign Trade of Vietnam (Vietcombank) share issue supported by


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newly-issued Government regulations.To promote this, the Government has fulfilled the conditions of economic reformthat were necessary for its WTO entry and in efforts to meet its obligations underthe bilateral trade agreement with the US.The new laws streamlining the formation and operation of private companies haveresulted in an increase in the number of Small and Medium-sized Enterprises(SMEs). This process is being encouraged by the World Bank structural adjustment processes and by reform in the banking sector.D.3 Investment guarantees The Vietnamese Government guarantees fair treatment for investors. Investors'capital and other legal assets will not be expropriated or confiscated by law or administrative measures, and businesses with foreign-invested capital will not benationalized. Foreign investors are allowed to remit abroad investment capital andprofits, loan principal and interest, and other legal proceeds and assets.Expatriates working for businesses with foreign-invested capital or for a BCC areallowed to remit their income abroad.The interests of foreign investors are satisfactorily guaranteed in the event of

adverse effects caused by a change in law through the application of a number of measures. The LOI warrants that such changes will be disregarded or thatdisadvantages to the investor stemming from a change in law will be compensatedby permission to amend its operations, the granting of compensatory taxexemptions or by other means of compensation for damages.Moreover, where more favorable provisions are enacted, existing investors will beable to reap those benefits.Doing business in Vietnam | 28Upon the completion of company liquidation procedures, foreign investors maytransfer abroad any remaining capital.

D.4 Forms of enterprisesLimited liability companyUnder the LOE, the following forms of enterprise exist in Vietnam:

Limited liability company with one member (one-member LLC) Limited liability company with more than one membersA limited liability company is a legal entity established by its members by wayofcapital contribution to the limited liability company. The capital contributionofeach member is treated as equity. The members of a limited liability company are liable for the financial obligations of the limited liability company to the extent of

their capital contributed or undertaken to be contributed - to the limited liabilitycompany.A limited liability company established by one or more foreign investors may takethe form of either a 100% Foreign Owned Enterprise (FOE) (where all membersare foreign investors) or of a foreign-invested joint-venture enterprise between one or more foreign investors and one or more domestic investors.Joint stock company/shareholding company


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A joint stock company is a legal entity established by its founding shareholders on the basis of their subscription of shares of the joint stock company. Thecharter capital of a joint stock company is divided into shares and each foundingshareholder holds a number of shares corresponding to their subscribed and paidup shares in the joint stock company.A joint stock company is required to have at least three shareholders (with nomaximum number of shareholders).PartnershipsA partnership is required to have at least two members and the unlimited liabilitypartners are liable for the obligations to the extent of all their assets.

Private enterpriseA private enterprise is owned by one individual who is liable for all activities ofthe enterprise to the extent of all his/her assets. Private enterprises may not issue any type of security. An individual may only establish one privateenterprise.The LOE does not address the establishment of a private enterprise of a foreigninvestor. It will be regulated by separate regulations issued by the Government

which are not available at this time.29 | Doing business in VietnamD.5 Forms of direct investmentThe LOI provides for the following basic forms of direct investment: jointventures, 100% FOEs and BCC.Joint ventureFundamentally, the foreign investor and its Vietnamese partner jointly apply toestablish a company. The investor has two ways to create a joint venture: (i)create a new enterprise (including merger & acquisition); or (ii) participate in anexisting enterprise via the purchase of a proportion of the company's shares.There is no requirement on the minimum amount of foreign equity, unless it is ajoint venture between the State or its bodies and the foreign investor.

A joint venture may be established as a limited liability company with more than onemember, as a joint stock company or as a partnership and is a legal entity withlimited liability established on the basis of a joint venture contract between:(1) A Vietnamese party and a foreign party(2) A Vietnamese party and a 100% FOE(3) A joint venture enterprise and a foreign party(4) A joint venture enterprise and a 100% FOE; or(5) Two joint venture enterprises.100% FOEs/wholly foreign-ownedA 100% FOE is a legal entity set up by one or more foreign investors under a formof enterprise as set out above. The common form of 100% FOE is a limited

liability company or a joint stock company, except in cases where a partnershipisa compulsory form.Foreign investors are prevented from engaging in certain sectors in form of 100% FOE.Foreign investors are not subject to minimum investment capital restrictions asVietnam does not have thin capitalization rules. It previously had a maximum70:30 debt to equity limit; however, this was removed in 2006, and the debt toequity structure of the company will be subject to, negotiation with, and approval


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of, the licensing authority, except certain sectors where a fixed amount of legalcapital (equity) is regulated.Business cooperation contractA BBC is an agreement between one or more foreign investors and one or moreVietnamese partners with the objective of cooperating to operate one or morespecific business activities. This form of investment does not constitute a newlegalentity and the investors have unlimited liability for the debts of the BCC. This formof investment is generally only chosen by foreign investors with respect to projectswhere investment is restricted to a BCC, such as certain telecommunicationsprojects or projects in relation to airlines, railways or sea transportation. ABCCprovides, however, more flexibility than a joint venture or a 100% FOE. Within theframework of Vietnamese law, the parties involved areDoing business in Vietnam | 30free to decide on the subject, content, interests, obligations and responsibilities of andrelations among the parties, and to specify these in the contract.Build operate transfer, build transfer, build transfer operate or build operatearrangements

Build Operate Transfer (BOT), Build Transfer Operate (BTO), Build Transfer (BT)andBuild Operate (BO) investments are recognized under the Law on Foreign Investment,but are largely governed by a separate legislation. Foreign investors may sign a BOT,BT and BTO contract with a competent state body to implement infrastructureconstruction projects in Vietnam. These are often in the areas of traffic, electricityproduction and trade, water supply or drainage, and waste treatment. The rightsandobligations of foreign investors will be regulated by the signed BOT, BT and BTO

contracts.Under BOT, the investor is fully in charge of construction and management of a projectfor a specific duration, after which the project is to be transferred to the state withoutany compensation.Under BTO, the title has to be transferred to the state immediately upon completion ofconstruction; however, the state will allow the investor to operate the projectover theperiod of time agreed by both parties in the contract so that the investor can recovercapital and reasonable profits.

Under BT, the project is transferred to the state on completion of constructionand theState pays the investor by either granting the right to implement another project ormaking payment as agreed in the BT contract.Other facilities for business and investment in VietnamBranchA branch office is a dependent unit of a foreign entity and may conduct commercialactivities for direct profit-making purposes in line with international treaties


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to whichVietnam is a signatory.This is not a common form of foreign direct investment but banks, tobacco companies,airlines, law firms, and foreign companies operating in the fields of culture, educationand tourism are allowed to establish branches in Vietnam. Foreign companies mayalsoestablish branches in Vietnam to conduct trading activities and activities directlyrelated to trading of goods.The establishment of a foreign company branch is simpler than the establishmentof a100% FOE (i.e. time frame for granting branch license is within 15 days), with thedifference that a 100% FOE is a Vietnamese legal entity separate from its parent company while a branch still holds foreign legal entity status and is dependenton itsparent company.Representative officeIn addition to obtaining investment licenses for establishment of a legal entity inVietnam, foreign companies which have business relations with Vietnam, or invest

mentprojects in Vietnam, can apply to open representative offices in Vietnam.31 | Doing business in VietnamA Representative Office (RO) is not an independent legal entity and is notpermitted to conduct direct commercial activities (such as execution of contracts,direct payment or receipt of monies, sale or purchase of goods, or provision ofservices). However, a RO can: Act as a liaison office to study the business environment Search for trade and/or investment opportunities and partners Act on behalf of its head office to negotiate and sign contracts for the supplyor purchase of goods and services at the authorization of the parent company

(care needs to be taken for tax purposes) Supervise and accelerate the implementation of contracts Act on behalf of the parent company to supervise and direct theimplementation of investment projects in Vietnam; and Publicize and promote its company's goods and/or services A RO is allowed to hire local Vietnamese and expatriate staff and conductvarious administrative functions on behalf of its companyA representative office may, however, not engage in any profit generating activities.D.6 Investment incentivesThe system of tax and other incentives offered to foreign investors and domestic businesses is relatively complex. Standard benefits include reduced corporate ta

xrates, tax-free periods or tax reductions during the start-up phase, land-rentreductions and import-duty exemptions. As a general guide, the followingincentives are available to investors:BOT projectsIncentives offered to BOT projects include the following:

Reduced Corporate Income Tax (CIT) rates e.g. 10% or 20% relative to thestatutory rate of 25% Tax holiday for 4 years from the first profit-making year and a 50% reductionin the applicable rate for the following 9 years


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Exemption from certain import and export duties; andExemption from paying land use fees

Location in special zonesThe Government encourages Vietnamese enterprises in all economic sectors,foreign economic organizations and FIEs to invest in IZs, Economic andHigh-Technology Zones (HTZs).In Ho Chi Minh City, there are over 10 IZs which are in operation, covering a totalarea of about 3,000 hectares. The city's master plan for IZs until 2020 envisages21 zones (17 IZs, 3 EPZs and 1 HTZ) covering a total area of 7,100 hectares.There is a high-tech zone in Ho Chi Minh City.These zones have the following infrastructure conditions:

Location: situated on a primary road transportation artery, or next to the port,5km to 8km from the city centerDoing business in Vietnam | 32 Power source: directly connected to the national power network Water source: connected to the city's water system Land rental: ranging from US$100 to US$250 per square meter, depending onthe leased area, its location, lease term, payment terms and infrastructureconditionsIndirect investmentIn addition to carrying out direct investment activities, foreign investors mayconduct indirect investments by way of purchasing shares, bonds and other valuab

lepapers; investing through securities investment funds and investing through otherintermediary financial institutions, where the investor does not participate directlyin the management of the investment activity.D.7 Conditional sectorsUnder the LOI, certain sectors are subject to particular conditions for investment. Inorder to engage in these sectors, a foreign or local investor must meet certainconditions set by the Vietnam Government including the conditions regarding formsof investment, the conditions applicable to establishment of economic organizati

onsand conditions on market access.In addition, a number of investment sectors are unconditional for Vietnameseenterprises but conditional for foreign investors (e.g., exploitation and processingof mineral resources, and investment in the fields of importing, exporting, tradingand distribution, etc.). The LOI and its guiding Decree No. 108/2006/ND-Cpdated 22 September 2006 provide for such list of investment sectors, however,relevant sectoral legislation shall provide the "conditions" that foreign investorsare required to meet. In certain industries, this may mean that the FOE may only

operate in the form of a foreign-invested JVE with the majority or minorityparticipation of a Vietnamese enterprise. In other sectors, FOEs operating inconditional investment sectors may nevertheless operate as 100% FOEs but mustmeet certain conditions of capital structure, project-specific experience and so forth.The List of Conditional Investment Sectors include the following sectors: television,production and publishing of cultural products, telecommunications, transportation


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by all means, cigarette manufacturing, exploring and processing natural resources,real-estate business, education, and medical services distribution.D.8 Investment licensing D.8.1 Licensing authoritiesThe authorities who are authorized to issue establishment licenses to Vietnamese and foreign-owned companies include (i) the PM of the Government whoseapproval is limited to investment policy, (ii) the People's Committees (PCs) inthe provinces and cities under the central state administration and (iii) themanagement authorities of industrial zones, export processing zones, high-techzones and economic zones in the provinces and cities under the central stateadministration (Management Authorities (MAs)).33 | Doing business in VietnamThe hierarchy of the investment approval and licensing authority is as follows: Prime Minister:

Projects regardless of capital source or capital amount within specificsectors (airports, seaports, mining, oil & gas, TV broadcasting, casinos,cigarette manufacturing, universities, development of IZs, EPZs, HTZsand ECs (Zones) Projects regardless of capital source with capital amount overVND1,500 billion within specific sectors (electricity, metallurgy, alcohol

and beer production, trading, etc.) FDI projects regardless of capital amount within specific sectors (seatransportation, post, telecom and internet networks, printing, etc.) People committees (which almost all of the technical issues, i.e. receivingapplication, reviewing application, etc. are handled by local Department ofPlanning and Investment):

Projects outside Zones and not under PM's approval authority Projects for development of infrastructure in Zones in localities with noMA MAs:

Projects in zones and not under PM's approval authority

Projects for development of infrastructure in ZonesAll investment certificates (previously called investment licenses) are nowissued by either the relevant PCs or MAs. However, in specialized sectors, suchas banking or insurance, the relevant line ministries are still empowered with theapproval and licensing authority.D.8.2 Licensing proceduresDepending on the size and the sector of investment, different licensing andregistration procedures will be applied:

Business registration Investment registration; or Investment evaluationD.8.3 Business registration

Domestic projects of less than VND15 billion (approximately US$830,000),and which are not included in conditional sectors are subject to businessregistration procedures.However, these projects shall be subject to investment registration where (i) they fallwithin a conditional sector, or (ii) if they wish to apply for investment incentivesrecorded in their license.Doing business in Vietnam | 34D.8.4 Investment registration


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Registration procedures under the LOE and LOI apply to foreign investment projectswhich have an invested capital of less than VND300 billion (approx. US$16.75 million)and are not in a conditional investment sector.Domestic invested projects with total invested capital of between VND15 billiontoVND300 billion (approx. US$16.75 million) are also subject to this registrationprocedure. Local investors tend to set up their corporate entity separately and then filefor registration of any project without receiving an investment certificate.Enterpriserises can register additional investment projects without the need tocreate alegal entity.D.8.5 Evaluation proceduresApply to foreign and domestic invested projects which are: Invested capital of VND300 billion or more; or Included in the list of conditional investmentsForeign investors investing in Vietnam for the first time must have an investmentproject and carry out either registration or evaluation procedures, in order for aninvestment certificate to be issued.35 | Doing business in Vietnam

Businessregistration(only)Domestic investmentprojects with investedcapital below VND15billion (i.e.US$830,000)excluding conditionalprojectsNone, unlessinvestmentincentives are

desired.None, BusinessRegistration Certificateissued under the (new)LOEInvestmentregistrationDomestic investmentprojects with investedcapital from VND15billion to VND300billion; foreign investedprojects with invested

capital below VND300billion (approx.US$16.7 million),excluding conditionalprojectsRegistration ofinvestment on sampleform at provincialState administrativebody for investment,


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accompanied byprescribeddocumentation(more onerous forforeign projects)For foreign projects,Investment License (whichis also BusinessRegistration Certificate) inthe case of initialestablishment of economicorganization to undertakefirst investment project);For domestic projects,Investment Certificate andBusiness RegistrationCertificate (a one-step buttwo-part process)Who is entitled?What investmentprocess applies?What investmentdocument is issued?D.8.6 Application dossier

In general, the following documents are required for the establishment of a 100% FOE: Request for the issuance of an investment certificate in the prescribed form A draft charter of the company to be established A list of investors in the prescribed format A report of the financial capability of the investors An economic and technical explanation of the project Feasibility Study An explanation of how the conditions will be satisfied The investor's Certificate of IncorporationDepending on particular case and during the evaluation process, the licensingauthority may request the investors to provide additional documents (such asaudited financial reports or banker letter of comfort) or further clarifications.

Doing business in Vietnam | 36Investmentevaluation/certificationProject which are inconditional sectors;Projects with investedcapital of VND300billion (approx.US$16.7 million) ormoreThe ApplicationDossier varies from

(i) projects belowVND300 billionwhich are inconditional sectors,(ii) projects overVND300 billionwhich are inconditional sectors,and (iii) projectsover VND300


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billion which arenot in conditionalsectors.For foreign projects,Investment License(which is also BusinessRegistration Certificatein the case of initialestablishment ofenterprise to undertakefirst investmentproject); For domesticprojects, InvestmentCertificate and BusinessRegistration Certificate(a one-step buttwo-part process).Who is entitled?What investmentprocess applies?What investmentdocument is issued?Note: See the exchange rate at Appendix 2, page 75.D.8.7 Post licensing procedures

Upon obtaining the Investment Certificate, a FOE is required to conduct certainadministrative formalities, including, but not limited to:(i) Obtaining the seal and the seal registration(ii) Placing an announcement of its establishment in a print or electronicnewspaper permitted to be circulated in Vietnam in three consecutiveissues(iii) Opening a bank account(iv) Registering the tax code(v) Arranging accounting team/policy(vi) Recruitment/register employees with relevant labor authoritiesD.9 Labor and recruitment regulationsD.9.1 Labor recruitment by a FIEUnder the revised Labor Code, a FOE may either directly recruit Vietnamese

employees or recruit via an authorized labor agency. The FOE is then required to register the list of recruited Vietnamese employees with the local labordepartment, and submit reports on the utilization of and changes to staff to the labor department on a periodic basis. D.9.2 Registration of expatriate employeesAll expatriates working for a Vietnamese employer for a period of more thanthree (03) months are required to obtain a work permit. The employer isrequired to submit applications to the local labor department to obtain workpermits for its expatriate employees.D.9.3 Social insurance, health insurance and unemployment

insurance contributions for employeesThe Law on Social Insurance (SI) became effective on 1 January 2007 whichproviding guidance of SI and Unemployment Insurance (UI). The Law on HealthInsurance (HI) became effective on 1 July 2009. SI, UI and HI contributions arecompulsory for Vietnamese employees.The SI contributions, 15% by the employer and 5% by the employee, are requiredwith respect to Vietnamese employees.The UI contributions, 1% by the employer and 1% by the employee, are requiredwith respect to Vietnamese employees. It is only required for the employer thathas 10 employees or more.


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HI contributions, which are 2% by the employer and 1% by the employee, arealso required to be made with respect to Vietnamese employees and also foreignemployee (effective from 1 October 2009). HI contributions, which willincrease to 3% by the employer and 1.5% by the employee effective from 1January 2010. These contributions are calculated based on the contracted basicsalary, but capped at 20 times the minimum salary.37 | Doing business in VietnamD.9.4 Minimum salaryUnder the Decree No. 97/2009/ND-CP dated 30 October 2009 of theGovernment, the current monthly minimum salary applicable to governmentstaff, employees working for SOEs and domestic enterprises from 1 January2010 is divided into four levels depending on the location of the enterprises,detail as follows: For enterprises located in urban districts of Hanoi and Ho Chi Minh City(Area I), the minimum salary paid for Vietnamese employees isVND980,000

For enterprises located in Hanoi and Ho Chi Minh City's rural districts, and incertain districts of surrounding provinces, such as Hai Phong, Quang Ninh,Vung Tau, Binh Duong, Dong Nai etc. (Area II), the minimum salary paid toVietnamese employees is VND880,000

For enterprises located in the rest of Hanoi, Ho Chi Minh City, Hai Phong,Binh Duong, Dong Nai's rural districts, and in certain districts ofsurrounding provinces, such as Bac Ninh, Bac Giang, Hung Yen, Hai Duong,Khanh Hoa, etc. (Area III), the minimum salary paid to Vietnamese

employees is VND810,000; and The minimum salary of VND730,000 for Vietnamese employees shall applyfor enterprises located in other localities which are not defined above (AreaIV).The monthly minimum salary for Vietnamese employees working for FOEs isalso divided into similar four levels depending on the location of theenterprises, provided in Decree No. 98/2009/ND-CP dated 30 October 2009which will be effective on 1 January 2010 detail as follows: For enterprises located in Area I the minimum salary paid monthly forVietnamese employees is VND1.34 million For enterprises located in Area II, the minimum salary paid to Vietnameseemployees is VND1.19 million monthly For enterprises located in the Area III the minimum salary paid monthly to

Vietnamese employees is VND1.04 millionThe minimum monthly salary of VND1 million for Vietnamese employeesshall apply for enterprises located in Area IVDoing business in Vietnam | 38D.10 Mergers and acquisitionsD.10.1 Regulatory aspectsDuring the process of investment within Vietnam, businesses withforeign-invested capital and BCC are allowed to restructure their investment byway of division, separation, merger or consolidation, or foreign investors mayconvert their investment into a different legal form. Foreign investors can also transfer their interest to other entities.The LOI provides that investors are permitted to (i) contribute capital to; and

(ii) purchase shareholding in companies and branches operating in Vietnam.However, the LOI also provides that the ratio of capital contribution andpurchase of shareholding by foreign investors in a number of sectors, industries and trades will be regulated by the Government.The Government Decree No. 108/2008/ND-CP issued on 22 September 2006,stated that investors who intend to acquire an interest in businesses in Vietnam must implement the provisions in the international treaties of which Vietnam isa member with respect to the ratio of capital contribution, form of investment


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and schedule for opening market; comply with the provisions in Law onCompetition and LOE and other related regulations.D.10.2 Buying shares in existing companiesForeign investors who intend to acquire an interest in a joint venture company ora FOE 100% may do so by acquiring the capital contribution portion of anotherexisting foreign investor. A new foreign investor may acquire some or all of the shares in an offshore company that holds the interest of an existing FOE, or the foreign party in a joint venture may acquire the capital contribution portion of its Vietnamese partner to convert the joint venture to a 100% FOE. AVietnamese party to a joint venture may also buy the foreign investors' interestto become a 100% local entity. Gains from transfer of shares shall be subject to income tax on capital gains.Transfer/purchase of assets (Assets deal)In addition to purchasing shares from an existing company, the buyer buys theassets of the target company. The cash the target receives from the sell-off ispaid back to its shareholders by dividend or through liquidation. This type oftransaction leaves the target company as an empty shell, if the buyer buys outthe entire assets. A buyer often structures the transaction as an asset purchase

to "cherry-pick" the assets that it wants and leave out the assets and liabilitiesthat it does not. This can be particularly important where foreseeable liabilitiesmay include future, unquantified damage awards, such as those that could arisefrom litigation over defective products, employee benefits or terminations, orenvironmental damage.Asset deals have not been common in practice to date. The transaction is likely to involve the following main steps: Conduct a due diligence Enter into a Memorandum of Understanding (MOU)39 | Doing business in Vietnam

Obtain an approval in principle from the licensing authority for the proposedtransaction Establish the FOE and obtain a tax code Enter into a formal Asset Assignment Contract Conduct procedures for transferring the Land Use Rights (LURs) and theownership of the factoryTax treatment in this case shall differ from transfer of shares.Sellers must charge output VAT (capital gains are VAT exempt). The gain andloss derived from the sale of assets is taxable and deductible, respectively, forEIT purposes.Buyers must pay registration fees for assets of which the ownership is requiredto register (i.e. housing, land, vehicles, boats or vessel). The applicable rate

is1% for housing, land, boats and ships, and 2% for other specified assets (such asmotor vehicles). However, registration fees are capped at VND500 million perasset per transaction.D.11 Dispute settlementIn Vietnam, legal disputes may be settled by negotiation, in court or by domesticor foreign arbitration.The judiciary


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The hierarchy of Vietnamese courts include: (i) Supreme People's Court; (ii)Provincial People's Courts; and (iii) District People's Courts. The courts operatein five divisions: (i) Criminal; (ii) Civil; (iii) Administrative; (iv) Economic and(v) Labor.Unlike common law countries, Vietnam does not follow the doctrine ofprecedence under which cases decided by judges in the past are used asauthority for later cases. Judgments are based only on legislation andprinciples of interpretation of the laws.Running parallel to the court systems is the People's Procuracy which isresponsible for supervising the operation of judicial authorities and exercising the power of public prosecution. The People's Procuracy can lodge protestsagainst a judgment and ask for its review.Arbitration and dispute resolutionTo supplement the court system, Vietnam has a system of independentarbitration centers, established under the Commercial Arbitration Ordinance(2003). An arbitral award given by an arbitration center or an arbitration panel established by the parties in accordance with the provisions of the Ordinancewill be enforceable in Vietnam without need for prior recognition.Disputes involving foreign investors may be also settled by foreign arbitration. In1995, Vietnam became a member of the 1958 New York Convention on the

Recognition and Enforcement of Foreign Arbitral Awards. An arbitral awardDoing business in Vietnam | 40given by a foreign arbitration will be enforceable in Vietnam after it isrecognized by a Vietnamese court.Accordingly, where a dispute occurs:

Between parties in a BCC, between parties in a joint venture contract, orbetween enterprises with foreign-owned capital or parties in a BCC andVietnamese economic enterprises: these shall firstly be resolved throughnegotiation and conciliation. If the negotiation is not successful, the partiesinvolved in the dispute can agree to use one of the following methods tosettle:

The Vietnamese court

A Vietnamese arbitration body (the Vietnam InternationalArbitration Center or an Economic Arbitration Center)An international arbitration body; orAn arbitration tribunal as agreed by the parties, etc.

D.12 Exit provisionsThe termination, liquidation, or dissolution of a FOE or a BCC shall occur in thefollowing circumstances:

Term of operation stated in investment license has expired In accordance with JV contract, charter of company, etc. In accordance with the decision by the investors The licensing authorities decide to terminate the operation of a FOE or aBCC

Relevant FOE or BCC is responsible for establishing a liquidation committeeto liquidate the assets of the enterprises or of the BCC Where the liquidation process is complete, the FOE or BCC must submit areport on the liquidation to licensing and other relevant authoritiesD.13 Other investment related regulationsD.13.1 Foreign investment in the securities marketForeign organizations and individuals are allowed to buy shares and other typesof securities (listed or non-listed) in the Vietnamese securities market.D.13.2 Accession to trading service by foreign investorUnder WTO's commitments, from 2009, 100% FOE on trading is allowed. Trading


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activity and activities directly related to trading are defined under theCommercial Law as exportation, importation, distribution, etc.The importation right under Decree No. 23/2007/ND-CP dated 12 February2007 (Decree No. 23) on trading and related activities of foreign-investedcompanies in Vietnam is the right to import goods into Vietnam for sale todealers who have the right to distribute such goods in Vietnam. The right toimport, however, does not include the right to organize or take part in thedistribution of goods in Vietnam.41 | Doing business in VietnamBased on Decree No. 23, a foreign invested company in Vietnam can carry outimportation activities, provided th

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