Economy & Trade
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.
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.
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.
By: Dezan Shira & Associates
Over the next six months, Vietnam will adjust nearly all of its area codes within the country. First announced in 2016, under the Ministry of Information and Communication’s (MIC) Decision No. 2036/QD-BTTT, gradual implementation of these changes come as part of a concerted effort by Vietnamese authorities to enhance cohesion with global best practices set out by the International Telecommunications Union.
Currently, Vietnamese area codes range from one to three digits and lack in a clearly defined system of organization. Under the updated structure, all area codes outside of Vietnam’s capital, Hanoi, and its financial hub, Ho Chi Minh City, will be standardized to three digits in length. Ho Chi Minh and Hanoi will be shifted to area codes of two digits, away from their current one digit codes. In addition to standardizing length, all area codes will now start with the number two, opposed to the prevailing area code classification which allows for any number.
Foreign investment to rise in retail sector
According to a recent Economist Intelligence Unit study, foreign investors are showing a growing interest in the country’s retail sector. The sector grew 13 percent from 2012 to 2016 driven by a growing middle class, young demographic, and an increase in consumer spending. Clothing brands, supermarket chains, shopping center developers, and convenience store chains are already investing heavily in the sector. The retail market is expected to reach US$179 billion (VND 3,580 trillion) by 2020, according to the Industry and Trade Ministry.
Consumer spending at modern chains compared to traditional retail shops is expected to rise from the current 25 percent to 40 percent by 2020. Foreign convenience stores already hold a 70 percent market share in the country. Industry experts have cautioned the government that the growing presence of foreign retail chains can affect local production and domestic retailers. However, few experts have suggested that foreign retail chains will increase competition and efficiency of the domestic retailers, suppliers, and manufacturers. Foreign retailers will have to maintain competitive prices to retain customers and will not only provide foreign-made goods but also local goods if suppliers can provide the quality at competitive prices.
By: Dezan Shira & Associates
Following the relevant customs procedures when importing or exporting goods from Vietnam is one of the most vital aspects of doing business in a country where manufacturing costs are leveraged to its favor. Goods to be imported or exported are subject to the relevant customs clearance standards, which effectively check the quality, specifications, quantity and volume of the goods. Currently, these standards are set out under Law No. 54/2014/QH13 on Customs as well as numerous implementing decrees and guiding circulars.
Following the standards set by the Vietnamese government, certain imported goods are subject to inspection. For example, imported pharmaceuticals must undergo testing and also include documents detailing product use, dosage and expiration dates (written in Vietnamese), which must also be included in or on the product packaging.
Regulatory body urges seafood firms to register online
Vietnam’s National Agro Forestry Finishes Quality Assurance Department (NAFIQAD) has encouraged local and seafood producers to apply for e-certificates though the national single window registration system. The single window regulations are on the websites of the Vietnam National Single Window, the General Customs Department and NAFIQAD. Seafood producers can contact the regulatory body’s local representatives to received instructions on how to apply for e-certification.
The move is especially important as seafood business will need to prepare for e-signatures and e-certification of product packages that will be exported to South Korea and China from March 1. In addition, NAFIQAD will stop receiving complaints and appeals over wrong information in paper certification for products sent to China and South Korea. Officials have said that local seafood businesses have been unwilling to use the new e-system but should get used to them as NAFIQAD will stop receiving paper registration in the near term.
By: Maxfield Brown
Following the withdrawal of the United States from the Tran-Pacific Partnership (TPP), the spotlight has shifted quickly to the future of foreign investment in members such as Vietnam – the party once projected to be the agreement’s greatest beneficiary. While TPP’s failure has and will continue to put a damper on investment and trade between Vietnam and members of the partnership, this does little to change Vietnam’s competitive advantage and may actually help the country over the long term.
Environment tax on fuel causes concern for businesses
The Ministry of Finance (MoF) has proposed to impose an environmental protection tax on fuel. The draft law would see almost tripling of the tax.
The ministry has proposed:
- Tax of US$0.17-0.35 (VND 4,000-8,000) per liter of gasoline, compared to the current US$0.04-0.17 (VND 1,000-4,000).
- Tax of US$0.13-0.26 (VND 3,000-6,000) per liter of jet fuel.
- Tax of US$0.06-0.35 (VND 1,500-4,000) per liter of diesel.
- Tax of US$0.13-0.08 (VND 3000-2,000) per liter of kerosene.
- Tax of US$0.04-0.17 (VND 900-4,000) per kg of heavy fuel oil.
- Tax of US$0.04-0.17 (VND 900-4,000) per kg of lubricant.
While the tax rates are tentative, the specific rates will be decided by the National Assembly. The Vietnam Chamber of Commerce and Industry (VCCI) has argued that the proposed tax rates would hurt businesses and the economy as fuel is important for transport, agriculture and seafood sectors. Sources say that fuel makes up around 25-45 percent of costs in vehicles and around 39.5 percent in airlines. The Ministry of Justice also asked the MoF to consider the proposal as it would directly affect businesses. This was followed up by the Ministry of Foreign Affairs asking if the proposed changes were necessary.
Online shopping to witness a surge
Vietnam’s rising internet population is predicted to boost online shopping in the near future, according to a new KPMG report. Currently 18 percent of consumers purchase goods from online retailers such as Amazon, Lazada, and Nhommua, with 10 percent preferring to buy from a retail shop’s website. Only three percent of buyers prefer a manufacturer or brand’s website. As per the report, the top reason for consumers to shop online is the convenience of shopping, followed closely by the ability to compare prices and availability of better deals. While considering a purchase, 9.9 percent of buyers refer to online reviews and feedback.
The report also highlights the significance of offline channels, with 11.5 percent of buyers seeking recommendations from friends and family before making a purchase, while online channels such as social media, online shops, and online reviews were preferred by 8.3 percent, 8.2 percent, and eight percent of buyers, respectively. In light of this, the report stresses the importance of companies providing privacy protection and better online security to gain consumer’s trust. In fact, one of the report’s findings indicates that 26.5 percent of buyers regard consumer information protection of utmost importance. To increase product awareness, sellers are also recommended to focus on social media channels and providing online reviews for their products. The research sample consisted of buyers aged 15 to 70 years, having made at least one purchase in the last 12 months, and within the top 65 percent of income earners in the country.