Electronics Production in Vietnam: A Guide to Emerging Opportunties

Posted on by

By: Eugenia Latova

While many industries of the Vietnamese economy are growing rapidly, perhaps the most exciting is electronics. Imports have nearly tripled from 2011 to 2016, while exports have increased by nearly 5 times — rising from US$12.8 billion to US$65.8 billion in 2015. In 2015 alone, electronics exports nearly doubled, something that took aggregate exports nearly four years to accomplish. In the years ahead, the implementation of key trade agreements, strong demographic tailwinds, and supportive government policies are likely to continue this trend and present a variety of opportunities for investors. To tap these trends effectively, it will be critical to understand recent events in electronics production, the structure of Vietnam’s electronics sector, and prepare to meet opportunities as they arise. 

DZS RELATED: Pre-Investment Advisory Services from Dezan Shira & Associates

The state of Vietnamese electronics production 

In 2014, the electronics industry made up 23.4 percent of Vietnam GDP. At the beginning of 2015, Vietnam’s electronics industry is the 12th largest exporter in the world and the 3rd largest in ASEAN, but at this rate, the nation is expected to climb up the list very quickly.  It has already surpassed the goal of US$40 billion in electronic exports by 2017.

External demand for Vietnam’s electronics products

Top countries for Vietnam’s electronic exports in 2014 were United Arab Emirates (US$3.8 billion), United States (US$3.1 billion), China (US$2.7 billion) and Japan (US$2.7 billion). For imports, China ($13.8 billion), Korea (US$8 billion), Japan (US$2.8 billion), and Singapore (US$2.5 billion).

Foreign investment in Vietnamese electronics production

The vast majority of the electronics industry in Vietnam is dominated by foreign companies, particularly multinational giants. In 2015, US$10 billion of FDI came from multinational corporations, such as Samsung and Panasonic. FDI holds 80 percent of local market share and 90 percent of total electronic exports come from FDI. The first quarter of this year, FDI already reached US$4 billion.

Emerging electronics investment opportunities

Trade liberalization

Companies looking to invest in Vietnam can take advantage of many of the Free Trade Agreements (FTAs). With many agreements signed through its membership in the Association of South East Asian NationsCurrently, the average tax in the EU was 2.8 percent and those countries with most favored nation status, the average tax was 7.9 percent. Under EVFTA (EU-Vietnam FTA), the vast majority of these tariffs will be eliminated.

While these tariff breaks offer a tempting way to lower export costs, it is critical to be aware of the rules of origin in each FTA. Currently, domestic electronic enterprises are not adding much to the supply chain, since most materials are imported. To qualify under the agreement, there must be a sufficient transformation within Vietnamese borders, which must be much more than simple assembling. These agreements incentivize a higher localization rate—companies must invest more intensely and import more advanced technology.  

Tax incentives

Not only can investors take advantage of reduced tariffs, the Vietnamese government provides corporate income tax (CIT) breaks for companies working in the high technology sector and/or in high-tech zones. The preferential tax rates are 10 percent for 15 years or 17 percent for 10 years, as opposed to the regular rate of 20 percent.

Investors may also be eligible for additional tax holidays when they first invest: a 4-year tax exemption and a 9-year 50 percent reduction for those qualifying for the 10 percent CIT rate; a 4-year tax exemption and 5-year 50 percent reduction for those operating in certain areas; a 2-year tax exemption and 4-year 50 percent reduction for operating in certain areas or in some industrial zones. For R&D projects, 10 percent of annual profits can be placed into a tax-deductible fund before tax is levied.

Government reform

In order to further encourage growth, the government is easing restrictions on where foreign companies can invest. Regarding electronics, under the WTO, the only major restriction is on certain electronic games. Nonetheless, the nature of the electronics industry and the constraints of Vietnamese labor and infrastructure pose many other considerations for potential investors. Electronics in Vietnam are dominated by tech giants and these corporations are in desperate need of suitable local suppliers so, for SMEs, the opportunity seems to be in supplying parts or services for larger companies—helping to add value and move up the supply chain.

Furthermore, the country has a shortage of skilled labor, but with the ASEAN Economic Community, it will become much easier for individuals to travel for work within the region and largely relieve this problem. Vietnam is also working to improve its infrastructure to the satisfaction of international investors. According to the World Economic Forum Global Competitiveness Report, Vietnam ranks 67th for transport infrastructure and 78th for electricity and telephone infrastructure. Roads are particularly weak, ranking 93rd, but railroads are somewhat better— coming in 48th.

To avoid many of these problems, investors are advised to operate in tech zones, where they are already equipped with the necessary infrastructure and facilities. As an added bonus, the operation may qualify for CIT breaks, as mentioned above.

Related-Reading-Icon-Asean Link RELATED: Vietnam in 2017: Spotting Opportunities for FDI

Planning effective market entry

Given the rapid growth of electronics production, trade, and investment seen in recent years, the time has never been better to make use of Vietnam as a cost center for larger Asian operations or as a full-fledged production hub. For those keen to explore Vietnam’s emerging investment landscape, a clear idea of where to invest and sell goods, and an understanding of how to structure operations to take advantage of trade agreements and tax incentives will provide a significant boost to any future projects.

Vietnam Market Watch: GDP Growth Projections, State Divestment Plans, and Aviation Guidance

Posted on by

VietnamMarkrt Watch Logo with a subtitle (550px) -01-01

Government to sell stakes in 137 state-owned enterprises by 2020

Vietnam’s State Capital Investment Corporation (SCIC) is planning to divest its entire capital in 137 state-owned enterprises (SOE) by 2020. Changes in foreign ownership limits, a growing economy, and a strong performing stock market have attracted considerable interest from foreign investors for earlier SOE’s divestments. However, a lack of transparency and the slow progress of divestments are affecting investor sentiment.

Read More

DZS RELATED: Pre-Investment Advisory Services from Dezan Shira & Associates

Vietnam’s GDP forecast to grow at 6.5 percent in 2017

Vietnam’s GDP is forecast to grow by 6.5 percent in 2017 and at 6.7 percent in 2018, according to the 2017 Asian Development Bank (ADB)’s Outlook report. While the results remain largely upbeat, Vietnam’s first quarter growth, which came in slightly below prevailing estimates in March, has led to a more conservative outlook from the ADB. From the perspective of investors, however, aggregate GDP figures are likely to play a less significant role than the performance of key industries within the Vietnamese economy such as agriculture and manufacturing.

Read more

Related-Reading-Icon-Asean Link RELATED: Vietnam in 2017: Spotting Opportunities for FDI

Government rejects airfare price floor proposal

Vietnam’s Ministry of Transport has rejected a bid to set price floors on air tickets as proposed by the country’s national carrier, Vietnam Airlines, as well as its subsidiary, Jetstar Pacific. Under the proposals, Vietnam Airlines advocated for a floor price for domestic travel between US$68 (VND 1.5 million) and US$185 (VND 4.2 million), while Jetstar Pacific proposed rates between US$26 (VND 600,000) and US$53 (VND 1.2 million).

Read more


About
 Us

Vietnam Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Eurasia, including ASEANChinaIndiaIndonesiaRussia & the Silk Road. For editorial matters please contact us here and for a complimentary subscription to our products, please click here.

Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region. We maintain offices in Hanoi and Ho Chi Minh City, as well as throughout China, South-East Asia, India, and Russia. For assistance with investments into Vietnam please contact us at vietnam@dezshira.com or visit us at www.dezshira.com

 

Related Reading Icon-VB

dsa brochureDezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.

DSA_Doing Business in Vietnam 2017_cover_126x90pxAn Introduction to Doing Business in Vietnam 2017
An Introduction to Doing Business in Vietnam 2017 will provide readers with an overview of the fundamentals of investing and conducting business in Vietnam. Compiled by Dezan Shira & Associates, a specialist foreign direct investment practice, this guide explains the basics of company establishment, annual compliance, taxation, human resources, payroll, and social insurance in this dynamic country.

VB_2016_12_en_Managing_Contracts_and_Severance_in_Vietnam_-_Cover (1)

Managing Contracts and Severance in Vietnam
In this issue of Vietnam Briefing, we discuss the prevailing state of labor pools in Vietnam and outline key considerations for those seeking to staff and retain workers in the country. We highlight the increasing demand for skilled labor, provide in depth coverage of existing contract options, and showcase severance liabilities that may arise if workers or employers choose to terminate their contracts.

Vietnam to Sell Stakes in 137 State Owned Enterprises by 2020

Posted on by

By: Koushan Das 

Vietnam’s State Capital Investment Corporation (SCIC) is planning to divest its entire capital in 137 state-owned enterprises (SOE) by 2020. Changes in foreign ownership limits, a growing economy, and a strong performing stock market have attracted considerable interest from foreign investors for earlier SOE’s divestments. However, a lack of transparency and the slow progress of divestments are affecting investor sentiment.

For 2017-18, the companies under consideration for divestment are Giang Stone Exploitation & Processing One Member Company, Trang Tien Trading Co. Ltd, Hoang Quan Appraisal Co. Ltd, and the Publishing & Printing company under HCM City’s Publishing Association. However, SCIC will continue investing in SCIC Investment One Member Company Limited, Ha Giang Mineral and Mechanics Joint Stock Company, and FPT Corporation, which are already part of their portfolio. Since its inception in 2006, SCIC has divested in over 900 enterprises. In 2016, SCIC divested from 60 business and in turn achieved an impressive 2.58x return.

Continue reading…

Vietnam’s GDP Forecast to Grow at 6.5 Percent in 2017

Posted on by

By: Koushan Das

Vietnam’s GDP is forecast to grow by 6.5 percent in 2017 and at 6.7 percent in 2018, according to the 2017 Asian Development Bank (ADB)’s Outlook report. While the results remain largely upbeat, Vietnam’s first quarter growth, which came in slightly below prevailing estimates in March, has led to a more conservative outlook from the ADB. From the perspective of investors, however, aggregate GDP figures are likely to play a less significant role than the performance of key industries within the Vietnamese economy such as agriculture and manufacturing.

Continue reading…

Vietnam: Government Rejects Airfare Price Floor Proposal

Posted on by

By: Koushan Das

Vietnam’s Ministry of Transport has rejected a bid to set price floors on air tickets as proposed by the country’s national carrier, Vietnam Airlines, as well as its subsidiary, Jetstar Pacific. Under the proposals, Vietnam Airlines advocated for a floor price for domestic travel between US$68 (VND 1.5 million) and US$185 (VND 4.2 million), while Jetstar Pacific proposed rates between US$26 (VND 600,000) and US$53 (VND 1.2 million).

Continue reading…

Setting up a Foreign Currency Bank Account in Vietnam

Posted on by

By: Dezan Shira & Associates
Editor: Maxfield Brown

In the event that a company has established operations and turned a profit within the Vietnamese market, challenges will remain with respect to ensuring that its proceeds may be sent abroad without a hitch. Whether it be a decision over the method of repatriation or when to take profits, the ways in which investors choose to approach the remittance process can have a significant impact on the quantity and timeframe under which profits will become accessible.

One of the first decisions that will have to be made by investors is that of banking. Upon entering the Vietnamese market, foreign investors who wish to remit profits to their home markets will be required to open a foreign currency bank account. This account is to be utilized for all foreign currency transactions carried out within the country.

For companies that have already established operations in Vietnam, foreign currency accounts will have been set up during the transfer of funds to capitalize given projects. Alternatively, those considering Vietnam as a destination for future investment should note that, while the use of foreign bank accounts is important at the latter stage of the remittance process, it is nonetheless crucial to finalize banking arrangements on the front end of investment.  

Understanding which actions require the use of a foreign currency account, where restrictions are placed upon these types of accounts, and what documents must be prepared will all ensure that operations are optimized effectively. 

Professional Service_CB icons_2015RELATED: Dezan Shira & Associates’ Corporate Establishment Services

Actions requiring foreign currency accounts

The following are transactions which require the use of a foreign currency bank account:

  • Receipt of charter capital
  • Increased capital expenditure in which the funding of such expenditure originates in third party countries
  • Receipt of financing via loans from foreign sources
  • Disbursement of loan payments to third parties outside of Vietnam (inclusive of interest)
  • Disbursement of dividends and other profits to shareholders, the origins of which have been derived from Vietnam based operations

Restrictions

When selecting and operating a foreign currency account, investors are faced with a number of restrictions. The following are some of the most pressing issues that investors should prepare for when opening foreign currency accounts:

Institutional selection

When opening a foreign currency account, investors are limited to the selection of a single account with a bank that has been licensed by the SBV. In practice, the only banks that will be able to operate foreign currency accounts for investors are those with this license. While limiting the selection of institutions, a number of large international banks such as Standard Chartered and HSBC are able to host foreign accounts. Individual banks should be contacted in order to ascertain their status with Vietnamese officials.

Currency limitations

When opening foreign currency accounts, investors must select the account’s denomination. At present, foreign firms are limited to one foreign currency account in a single currency. Exceptions to this rule may be made in the event that investors can prove that the denomination of their overseas loans differ from the currency utilized in the funding FDI projects within the country.

Switching banks

Pursuant to the aforementioned limitations on foreign accounts, those seeking to switch banks may be required to close existing accounts prior to establishing relations with new financial institutions. In the event that this course of action is taken, the closure of accounts must be conducted in compliance with procedures outlined by respective banks.

Related Link IconRELATED: Setting Up a Foreign-Invested Enterprise in Vietnam

Requisite documentation

Upon selection of a government approved bank, the following documentation should be prepared in order to open the foreign currency account. It should be noted that the specific requirements of banks may vary and that requirements may differ depending on the nature of FDI projects within the country (i.e. 100 percent Foreign Owned Enterprise vs Joint Venture).

Setting Up A Foreign Bank Account in Vietnam

Optimizing your remittance process

As Vietnam continues to attract record levels of investment, the importance of repatriation will only continue to increase, with banking playing a significant role. Those investing within the country are highly advised to maintain an up to date understanding of all regulations and procedures related to accounting, banking, and the general remittance process. Given the rapidly changing nature of regulation within the Vietnamese market, it is also highly advisable to consult with government bodies or other professional service firms should any concern arise over compliance and related procedures. 

The following has been an excerpt from our Vietnam Briefing Magazine entitled: “Remitting Profits from Vietnam“. In this edition, we outline current regulations on remittance, including those regarding banking, and provide guidance on how to ensure compliance in order to repatriate profits in a timely fashion.


About
 Us

Vietnam Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Eurasia, including ASEANChinaIndiaIndonesiaRussia & the Silk Road. For editorial matters please contact us here and for a complimentary subscription to our products, please click here.

Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region. We maintain offices in Hanoi and Ho Chi Minh City, as well as throughout China, South-East Asia, India and Russia. For assistance with investments into Vietnam please contact us at vietnam@dezshira.com or visit us at www.dezshira.com

 

Related Reading Icon-VB

dsa brochureDezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.

DSA_Doing Business in Vietnam 2017_cover_126x90pxAn Introduction to Doing Business in Vietnam 2017
An Introduction to Doing Business in Vietnam 2017 will provide readers with an overview of the fundamentals of investing and conducting business in Vietnam. Compiled by Dezan Shira & Associates, a specialist foreign direct investment practice, this guide explains the basics of company establishment, annual compliance, taxation, human resources, payroll, and social insurance in this dynamic country.

VB_2016_12_en_Managing_Contracts_and_Severance_in_Vietnam_-_Cover (1)

Managing Contracts and Severance in Vietnam
In this issue of Vietnam Briefing, we discuss the prevailing state of labor pools in Vietnam and outline key considerations for those seeking to staff and retain workers in the country. We highlight the increasing demand for skilled labor, provide in depth coverage of existing contract options, and showcase severance liabilities that may arise if workers or employers choose to terminate their contracts.

 

Managing Payroll in Vietnam

Posted on by

By: Tam Nguyen, Business Advisory Manager at Dezan Shira & Associates

In recent years, foreign direct investment (FDI) flows into Vietnam have been on the rise as greater numbers of foreign companies decide to establish businesses in the country. To operate in Vietnam, a thorough knowledge of the country’s salary structure is vital to maintaining efficiency and to motivate quality staff to stay and contribute to your company’s growth for years to come.

Salary and wages

The salary of Vietnamese employees that work in foreign companies in Vietnam is determined through negotiations between the two parties, but it should be no lower than the minimum monthly salary rates as stipulated by the Vietnamese government.

Continue reading…

Understanding Provincial Competitiveness in Vietnam

Posted on by

By: Loan Quach

Da Nang, Quang Ninh, and Dong Thap were recently awarded as the top three most competitive provinces in Vietnam, according to the twelfth Provincial Competitiveness Index (PCI) of 2016, recently published by the Vietnam Chamber of Commerce and Industry (VCCI). Compiled in partnership with the United States Agency for International Development, PCI 2016 surveys private enterprises and measures economic governance of 63 provinces and municipalities in order to help promote Vietnam’s private sector development. In more conventional terms, the report assesses the regulatory environment within each province and relays this data to businesses through rankings and comprehensive information pertaining to the sentiment of established business leaders. Foreign investors can then refer to this data to make a decision regarding whereabouts to relocate or expand their businesses in Vietnam.

Continue reading…

Setting Up a Foreign-Invested Enterprise in Vietnam

Posted on by

By: Dezan Shira & Associates
Editors: Tam Nguyen and Dam Thi Phuong Mai 

By continually issuing favorable policies and incentives aimed at attracting inflows, and deciding to decrease the country’s corporate income tax levels to 20 percent from January 1, 2016, it is clear that Vietnam’s government is intent on taking a proactive approach to foreign direct investment. Enterprises and individuals interested in taking advantage of the country’s friendly investment environment therefore need to be aware of the various market entry structures available to foreign investors.

There are two main types of vehicles for foreign investment in Vietnam: 100 percent foreign-owned enterprises (FOEs) and joint venture enterprises (JVEs).

100 percent FOEs can be established by one or more foreign investors, under the form of either a limited liability company (LLC) or a joint-stock company (JSC). JVEs can be established as an LLC, a JSC, or a partnership, and the profits and risks in a JVE are distributed among the parties in proportion to their charter capital contributions. Other options for establishing a commercial presence in Vietnam include representative offices and branch offices, but these are not legal entities.

Continue reading…

Podcast: Talking ASEAN Episode 1 – FDI Opportunities in ASEAN, a Look Ahead for 2017

Posted on by

By: Dezan Shira & Associates

In the first-ever episode of the Talking ASEAN podcast series, Dezan Shira & Associates’ Dustin Daugherty and Max Brown provide a country-by-country prediction of ASEAN’s foreign investment future. As part of this, the recent progress and prospects for the Vietnamese economy are evaluated in a regional context. 

 

Continue reading…

Scroll to top