Vietnam’s Ministry of Industry and Trade issued Decree No.08/2018/ND-CP (Decree 08) with immediate effect on 15 January 2018, amending several decrees related to business conditions in various areas including franchising, to reduce administrative procedures. With respect to franchising, the Decree 08 amended Article 5, reducing the number of conditions on foreign franchisors to only one, namely, the business to be franchised must be operating for at least one year prior to franchising.
Legal & Regulatory
To further align itself with international IP norms, Vietnam has amended its Intellectual Property Laws in the form of Circular No. 16/2016/TT-BKHCN. It is already in effect from January 15, 2018. The amendments in patent procedures mostly relate to application rules, patent applications, and examination procedures. Patent applicants should take note of the amendments to avoid compliance risks.
In 2017, the Vietnamese government passed numerous laws which are going to come into effect in 2018. The laws primarily focus on sectors such as banking, agriculture, trade, and tourism. Most of the laws aim at improving the investment climate and reducing complexities in doing business in the country.
The Free Trade Agreement between Vietnam and the Eurasian Economic Union has been retrieved by Dezan Shira & Associates, translated into English, archived and is available for complimentary PDF download here.
The Eurasian Economic Union is a trade bloc that includes Russia, Belarus, Kazakhstan, Armenia, and Kyrgyzstan, and is a significant player in terms of China’s OBOR ambitions. The agreement, which runs to 1,300 pages, is the first FTA agreed between the Eurasian Economic Union and an Asian country, and since its ratification in May 2015. Bilateral trade between Russia and Vietnam has risen from a base of close to zero to over US$10 billion since the treaty came into effect. Of particular interest within the document are provisions for lower taxes among agricultural and automotive trade.
Choosing an Effective Entry Model for Vietnam Investments, the latest publication from Dezan Shira & Associates, is out now and available for complimentary download through the Asia Briefing Publication Store.
In this issue:
- Understanding Vietnam’s Investment Landscape
- Considering Your Market Entry Options
- Optimizing Investments in Conditional Sectors
Foreign investors in Vietnam are realizing increasing profitable opportunities because of steady regulatory reform and the gradual expansion of market access to previously restricted sectors. While the market may be opening, many foreign investors still find it challenging to establish their operations effectively in Vietnam. Those who are ill prepared to act upon regulatory updates, revisions to investment restrictions, or other changes to Vietnam’s investment environment can quickly find the setup and expansion process to be an overwhelming experience.
By: Maxfield Brown
Vietnam is a significant target for companies in the consumer goods sector. The country’s blossoming middle class, shifting spending habits, and a sizable population of over 90 million is rapidly becoming the focal point for investors building up brand identity and sales networks throughout the Association of Southeast Asian Nations (ASEAN). As the fundamentals of the Vietnamese economy continue to fall into place, foreign companies who are able to develop and implement effective market-entry strategies will be well positioned to gain increasing market share in the years to come.
For the largest players, Vietnam’s demographics and proximity to other markets present an opportunity to establish localized production and to expand distribution networks through mergers and acquisitions. Small and medium sized players, however, for whom the costs of setting up can often be inhibitive, increasingly turn to third-party logistics providers to boost their sales and build brand identity within Vietnam.
In general terms, third-party logistics, or 3PL as it is commonly referred, involves the outsourcing of logistics functions – such as customs clearance, storage of products, and order fulfillment – to a third party. Depending on the 3PL provider and range of services utilized, third party logistics can completely remove the need for a foreign company to establish a market presence in Vietnam. Instead, all operations can be run out of a single regional management center where the costs and risks of doing business are lower.
By: Dezan Shira & Associates
Editor: Trang Le
On 8 May 2017, a new Pharmacy Decree detailing articles and measures to implement the Law on Pharmacy was promulgated by the Government and is scheduled to take effect from 01 July 2017. Published under the title Decree 54, this is the first of many decrees and circulars that will be issued to guide the implementation of the 2016 Pharmaceutical Law, which came into force on 01 January 2017. The Decree has 9 Chapters and 145 Articles and will replace the following former decrees: Decree 79 issued in 2006, Decree 102 issued in 2016 and the regulations on pharmaceutical advertising set out in Decree 181 issued in 2013.
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).
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.
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
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:
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.
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.
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.
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).
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.
Vietnam Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Eurasia, including ASEAN, China, India, Indonesia, Russia & 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 email@example.com or visit us at www.dezshira.com
Dezan 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.
An 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.
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.
Compulsory M&A for weak banks
The State Bank of Vietnam (SBV) will be submitting a draft plan to the government on restructuring the credit institutions to reduce bad debts during the 2016-2020 period, by encouraging mergers and acquisitions (M&A) for weak credit institutions such as commercial banks, financial institutions, financial leasing companies, and people’s credit unions. The SBV will also have the authority to compel institutions enter into M&A deals to ensure stability. The SBV has identified five weak commercial banks in need for restructuring and aims to restructure them in 2017. Investors are also encouraged to be part of the restructuring to reduce the number of weaker firms.
Smaller banks are unable to compete in the market due to declining profits, poor administration, and reduced chartered capital, currently standing at US$131 million (VND3 trillion). Banks such as SaigonBank and DongABank also issued preferred stock to increase their chartered capital, but stockholders are not willing to invest further due to reduced growth, affecting the lending capabilities and total assets of the bank. Industry experts have suggested increasing the FDI cap in banking sector to more than 30 percent for foreign investors.