Industrial Zones in Vietnam

By the end of 2008, Vietnam had a total of 219 industrial zones with a natural land area of 61,472.4 hectares throughout 54 cities and provinces nationwide. Of which, the industrial land area planned for leasing was nearly 40,000 hectares, or 65 percent of total industrial land.

In Vietnam, the industrial zone is a zone which specializes in manufacturing industrial products and providing services for industrial manufacturing. They have defined geographical boundaries as established in accordance with government regulations and often provide investment incentives.

In 2008 alone, there were 40 newly established industrial zones with a total natural land area of 15,675 hectares (an increase of 73 percent over 2007), and eight industrial zones expanded by a total natural land area of 2,810 hectares (increasing by 41 percent compared to 2007). 2008 was marked as the year when the most number of industrial zones were newly set up and expanded over the last 17 years.

Most of the industrial zones in Vietnam are concentrated in three key economic regions, the North, the Central and the South of Vietnam:

• The key northern economic region includes seven cities and provinces: Hanoi, Haiphong, Quang Ninh, Hai Duong, Hung Yen, Vinh Phuc and Bac Ninh
• The key central economic region includes seven cities and provinces: Danang, Thua Thien Hue, Quang Nam, Quang Ngai and Binh Dinh
• The key southern economic region includes seven cities and provinces of Ho Chi Minh City, Dong Nai, Ba Ria-Vung Tau, Binh Duong, Tay Ninh, Binh Phuoc and Long An

By the end of 2008, these three key economic regions had 149 industrial zones with the total natural land areas of 49,232 hectares, accounting for 68 percent of the total number of industrial zones, and 81 percent of their total natural land areas.

However, out of the 219 industrial zones nationwide, only 118, or 54 percent,  are operational. The remaining 101 industrial zones, most of which were established in 2007 and 2008, are still in the process of developing their infrastructure and have yet to see any investors move in. At the end of 2008, the total leased land area accounted for 14,904 hectares, or 64 percent of the total industrial land area.

According to plans approved by the prime minister, by 2015 Vietnam will add 91 newly established industrial zones with the total area of 20,839 hectares, and 22 expanded industrial zones with the total area of 3,543 hectares. This will increase the country's total industrial land by 24,381 hectares.

Foreign direct investment in industrial zones

By the end of 2008, all the industrial zones nationwide had attracted 3,564 FDI projects with a total registered investment capital of US$42.67 billion. In 2008 alone, industrial zones in attracted registered FDI capital of US$12.79 billion, including 540 new projects with a total capital of US$10.45 billion and 537 capital-increasing projects worth more than US$2.34 billion.

Ba Ria-Vung Tau was the leading province in terms of foreign investment in 2008, receiving US$4.5 billion. It was followed by Bac Ninh province (US$1.14 billion) in the North, Binh Duong Province (US$1.08 billion) and Dong Nai Province (US$1.01 billion) in the South.

Compared to the above committed figures, by the end of 2008, there were a total of 2,250 FDI projects worth US$16.2 billion coming into operation, accounting for 38 percent out of total registered investment capital. In which, for 2008, the disbursement was US$2.5 billion.

Incentives for investors in industrial zones

In an effort to improve historically poor areas of the nation, the Vietnamese government promulgated investment incentives for special designated regions with difficult socioeconomic conditions. Because industrial zones in Vietnam are able to clasify themselves like a region with difficult conditions, they benefit from the same incentives, which include preferential land, tax and labor policies.

Investors with projects in industrial zones, even if it is an expansion project, are entitled to enjoy investment advantages in the following manner:

 (i)  Investment projects in sectors listed as being entitled to special investment preferences will qualify for incentives if the projects are implemented in areas with difficult or extremely difficult socioeconomic conditions

(ii)  Investment projects in sectors listed as being entitled to investment preferences and projects located in industrial zones will qualify for incentives if the projects are implemented in areas with difficult or extremely difficult socioeconomic conditions

Details of these investment preferences are as follows:

Land
Land rents shall be exempt from the date of project operation, specifically in the following cases:

(i) Seven years for investment projects in geographical areas with difficult socioeconomic conditions or projects on the list of domains entitled to special investment preferences

(ii) Eleven years for investment projects in geographical areas with extremely difficult socioeconomic conditions or projects on the list of domains entitled to investment preferences which are executed in areas with difficult socioeconomic conditions

(iii)  Fifteen years for projects on the list of domains entitled to investment preferences which are executed in geographical areas with extremely difficult socioeconomic conditions

The lists of geographical areas with difficult socioeconomic conditions and areas with extremely difficult socioeconomic conditions can be found in the winter 2008 issue of Vietnam Briefing.

A list of sectors entitled to investment preferences can be found on pages 10 and 11. A complete list of sectors including those entitled to special investment preferences can be found at www.vietnam-briefing.com.

Taxes

(i) Corporate income tax

               Incentives in tax rate: 10 percent tax rate (instead of 25 percent standard rate) shall apply for 15 years. The above tax incentive will apply from the year in which revenue is generated

                Incentives in tax exemption and reduction: tax exemption will be applied for a maximum four years; and a 50 percent tax reduction will be applied to income tax payable for a maximum period of nine subsequent years; the above tax incentives will apply from the year in which taxable income arises; in case businesses do not have taxable incomes in the first three years since the year in which revenue is generated, then the tax exemption and reduction will be applied from the fourth year.

                The cost of building, maintaining or renting apartments and infrastructure buildings in order to serve laborers working in industrial zones is deducted when calculating the income tax of enterprises

 (ii)   Personal income tax

          A 50 percent reduction in personal income tax is given to Vietnamese and foreign employees working in industrial zones

 Labor
Foreigners and overseas Vietnamese who work, invest and do business in industrial zones, and their family members are granted visas for leaving or entering Vietnam in accordance with the working period in industrial zones. They are also allowed to reside or temporarily reside inside the industrial zones as well as in Vietnam.

The following pages provide an overview of four major locations and the indutrial zones present there: Haiphong, Danang, Ba Ria-Vung Tau, and Ho Chi Minh City.

Dezan Shira & Associates is a foreign direct investment practice offering business advisory, tax, accounting, due diligence, payroll and audit services for multinational clients in China, Hong Kong, India and Vietnam. For professional advice and assistance with tax and regulatory matters, please contact vietnam@dezshira.com or visit www.dezshira.com.