Legal & Regulatory
Editor’s Note: This article was originally published on August 30, 2016, and has been updated as of November 25, 2016, to include finalized wages passed by the Vietnamese National Assembly.
By: Anh Ta
Vietnam’s National Wage Council has decided upon a modest 7.3 percent average increase in monthly minimum wages across the country for 2017. From January, workers must be compensated between minimums of VND 2.58 million (US$113) to VND 3.75 million (US$165). This is the lowest annual increase since 1997 and seems to be a compromise between the employers’ proposed increase of 5 percent and that of workers which pushed for an 11 percent increase. The decision also seems to be in response to competition from fellow manufacturing powerhouses in the region and hence primarily an effort to maintain its attractiveness to foreign investors and businesses.
Vietnam to Increase Minimum Wages from January
The Vietnamese government issued Decree 153 on November 14 to raise regional minimum wages to US$ 115-167 from January 2017 for workers with labor contracts. The wages will increase by around US$8-11 compared to existing levels. For Region 1, there will be a salary hike of US$166 (VND 3.75 million), US$147 (VND 3.32 million) for Region 2, US$128 (VND 2.9 million) for Region 3 and US$114 (VND 2.58 million) for Region 4. Businesses must also pay minimum wage workers in normal conditions at least 7 percent higher than skilled and trained workers.
Reducing extra payments for those working overtime or at night while doing hazardous work will not be allowed. Urban areas in Hanoi and Ho Chi Minh City come under Region 1, while Region 2 includes the Hanoi and Ho Chi Minh City’s rural areas and urban parts of Can Tho, Da Nang and Hai Phong cities. Region 3 includes provincial cities and districts in Bac Ninh, Bac Giang, Hai Duong and Vinh Phuc provinces. Region 4 consists of the remaining areas in the country.
Authorities Introduce Specialized Decree for Da Nang
Vietnamese authorities introduced a special decree in Da Nang regulating investment, finance, budget and decentralized administration in a bid to boost the city’s economic development. Authorities in Da Nang will be able to borrow domestic investment funds, via the issuance of local government bonds, under the law and can re-borrow funds the government has borrowed for local lending. These type of loans cannot exceed 40 percent of the local budget revenue or the ratio for the state budget deficit.
The government will also prioritize using part of its budget to support public-private partnership (PPP) projects. The Da Nang City People’s Committee can approve project lists and decide to receive grants for specific projects. The government will give Da Nang 70 percent of initial government funds for cities and provinces to pay outstanding debts in capital construction, infrastructure investment projects, high-tech parks, national defense and security and social safety among others. The above developments will help the city be an industrial, commercial and service center catering to its 1 million strong population.
Vietnam Cuts Imports Taxes Under Free Trade Agreement with the Eurasian Economic Union
The Vietnamese government has issued a decree to cut import taxes for the 2016-18 period under the free trade agreement between Vietnam and the Eurasian Union (EAEU). The reductions will be implemented in the following three stages and result in import taxes on 4,959 tariff lines being dropped to zero:
- Stage 1 – Runs from October 5 to December 31, 2016
- Stage 2 – Runs from January 1, 2017 to December 31, 2017
- Stage 3 – Runs from January 2018 to December 31, 2018
Goods that will benefit include input material for production, like textile, garments, leather, footwear and plastic as well as key export products such as shoes, garments, seafood, electronic products, tea, coffee, vegetables, rubber, milk, steel, chemical products and machinery and equipment. The Vietnam-EAEU FTA came into effect on October 5 and bodes well for Vietnamese industries. Vietnam remains a key exporter to the EU; seafood exports in 2015 reached US$1.2 billion worth of fish products – 46 percent of which consisted of shrimp.
By: Dezan Shira & Associates
The Office of Vietnam’s Prime Minister, Nguyen Xuan Phuc, recently expanded the Lào Cai boarder-gate economic zone through the issuance of Decision 40/2016/QD-TTg. Issued on September 22nd, it clarifies the boundaries of the economic zone, which includes additional districts previously excluded from the zone’s coverage. Companies operating or establishing within the Lào Cai province will be the most likely to benefit from the expansion and should note that adjustments to the zone will take effect from November 15th.
Prior to the expansion, the Lào Cai border-gate economic zone was geographically limited by Decision 44/2008 QD-TTg to the Lào Cai border-gate international area and the Muong Khuong border-gate area. Annulling previous decisions on the matter, the Prime Minister’s latest announcement maintains coverage of previous location while including a number of new localities. Under the updated guidelines, companies operating in any of the following areas will be eligible for the zone’s incentives:
By: Dezan Shira & Associates
Vietnam’s state bank (SBV) has published a draft circular which looks set to limit the ability of foreign nationals to open and deposit within Vietnamese bank accounts. With significant interest rate differentials on the side of investors, as well as a healthy appetite for capital on the part of many governing officials, the announcement has naturally been met with mixed reactions.
Understanding Banking Limitations
Under the draft circular, it is stated that “depositors of Vietnamese and foreign currencies” would be open to Vietnamese citizens. While not explicitly banning foreigners, the specific nature of the regulation does bring into question the prevailing state of affairs with regard to banking within the country. Currently, given the proper documentation – usually a passport and valid visa – foreign nationals are permitted to open and operate vietnamese bank accounts. However, in recent years, the operation of these accounts has seen increased regulation. As per a decree released in 2014, foreign accounts have been restricted to denomination in Vietnamese Dong. It is feared that the omission of foreign nationals under the latest draft Circular would effectively end the ability of foreign nationals to deposit within the country all together.
By: South-East Asia IPR SME Helpdesk
On June 8, 2016, Vietnam’s Ministry of Information and Communication and the Ministry of Science and Technology issued a Joint Circular on the amendment and recovery of domain names which breach the law on intellectual property. The Joint Circular introduces a set of administrative proceedings that are available under the Vietnamese Law on Intellectual Property, for companies experiencing internet domain name infringement disputes. Such measures include clear deadlines for infringers to ensure they stop their activities and return the domain names to their rightful owners, as well as steps that the authorities can take if the infringers refuse to obey these regulations. Understanding these regulations will be of great benefit to a variety of investors keen on tapping into Vietnam.
New Exemption for Import and Export Duties
The Ministry of Finance on August 31 issued new guidelines in Law no 107/2016/QH13 on import and export duties. Goods that are eligible for duty exemption now include:
- Import duty exemption is now for both toll manufacturing and contract manufacturing.
- Goods that are temporarily imported or exported for warranty, repair, replacement and subject to certain conditions
- Goods that are filed under commercial temporary import for re-export custom procedures
- Materials, supplies, and components imported for digital content, information technology and software.
- Fertilizers and pesticides which cannot be locally made.
The above exemption will be welcomed by investors who want to enter the country. The exemption apply to items that are typically not found in the country or are difficult to get. Investors should look out for such sectors that are exempt to benefit from the latest regulations.
Licensing Procedures for Foreign Contractors Amended
New regulations by the Ministry of Construction was introduced for foreign construction contractors in relation to licensing procedures. The ministry came out with Circular 14/2016TT-BXD which went into effect on August 15. The regulation refers to foreign companies and individuals who want to conduct construction related activities in the country.
The changes have been made to the documentation requirements which must be submitted to the licensing authority. In addition, the process will take longer and will now be 20 days instead of the previous 15. License holders will now only need to submit annual operations reports instead of on a bi-annual basis. Licenses can be revoked if contractors have been sanctioned for violations twice as compared to three times before.
Vietnam, Cambodia to Strengthen Information Exchange
Vietnam’s government agencies will coordinate with Cambodia to deepen bilateral relations in all areas including information and communications. In a reception hosted by the Cambodian Prime Minister Hun Sen, Sen urged greater information sharing between the two countries. Both the countries signed four cooperate documents including documents on information sharing between 2016-2020 between the Vietnamese Ministry of Information and Communications (MIC) and the Cambodian Ministry of Information. The event was held in Phnom Penh on September 22 and 23. The developments bode well for investors in both countries.
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By: Dezan Shira & Associates
Editor: Eugenia Lotova
Once a foreign investor has decided on Vietnam as a location to establish operations, the next big step is identifying where and how to obtain land for the business. In Vietnam, private ownership of land is technically not permitted, but the law allows ownership of a right to use land—called the Land Use Right (LUR). While this may seem like an inconvenient system, other countries such as the United Kingdom also employ this system without significantly constraining investors. In fact, with a proper understanding of current regulation, leasing land in Vietnam can provide all the resources for successful investment within the country.
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Uber Required to Pay Tax
Vietnam’s Ministry of Finance (MoF) issued a new rule making it mandatory for Uber to pay taxes in the country. Uber will be required to pay taxes as a foreign establishment, which earns income in Vietnam without resident offices. The tax amount will be based on revenue multiplied with the tax rate, which is 3 percent for value added tax (VAT) and 2 percent for corporate income tax (CIT). The MoF has asked Uber to ask either its subsidiary or a third party to pay the relevant taxes. Drivers that have signed contracts with Uber will be required to pay tax on their income.
Uber drivers will be taxed at 3 percent for VAT and 1.5 percent for individual income tax. Uber entered Vietnam in June 2014 and has been able to avoid paying taxes till now. Its rival Grab is registered and has already been paying taxes.