By Alexander Chipman Koty
Established in 1998, Hanoi’s Hoa Lac High-tech Park (HHTP) was Vietnam’s first high-tech park and is currently the country’s largest. While Vietnam has over 190 industrial parks and plans to increase this number to 500 by 2020, HHTP is one of only three national-level high-tech parks, alongside Saigon High-tech Park and Danang High-tech Park. The HHTP was created with the intention to become Vietnam’s leading high-tech industry cluster for manufacturing, research and development, and innovation.
Due to start-up difficulties and incomplete infrastructure, the park initially struggled to attract high profile investors. However, Vietnam has rapidly industrialized since the park’s establishment, becoming a leading recipient of foreign direct investment and an increasingly prominent electronics manufacturer. As a result, the HHTP has become equipped with higher quality infrastructure, and is beginning to fulfill its promise as a tech hub. While Ho Chi Minh City has pulled ahead as Vietnam’s most popular area for investment, Hanoi can be particularly advantageous for operations with supply chains in China due to the city’s proximity to the border.
By Mike Vinkenborg
As Ho Chi Minh City battles growing traffic congestion, municipal authorities are considering a range of measures to improve transportation in the bustling city of over eight million. The city is currently debating altering work hours to spread out traffic during peak hours and trimming sidewalks to create more space for vehicles, while also building several new overpasses. These are just a few of the many proposed measures to tackle the gridlock issue that is becoming increasingly problematic.
These are all short-term solutions that fail to tackle the root of the problem, however. Every day, an estimated of 1,000 new motorbikes and 180 new cars are registered in Ho Chi Minh City. In total, 8.5 million motorbikes and 627,000 cars are currently registered in the city, the latter indicating a 500 percent increase compared with the year 2000. And as Vietnam is set to cut tariffs on ASEAN car imports in 2019, thereby reducing car prices by 42 percent, these numbers are poised to increase even more in the future. As a result, cars on major roads didn’t exceed an average of eight kilometers per hour during afternoon rush hours as of 2010, and the situation has not improved since then.
By: Dezan Shira & Associates
Editors: Erasmo Indolino & Beatrice Beardo
Hai Phong, the “Red Flamboyant City”, is the main industrial hub and biggest port in North Vietnam (accounting for 98 percent of North Vietnam’s throughput in 2014). One of the five centrally-controlled cities at the province level, Hai Phong’s municipality is the third largest city in the country, after Ho Chi Minh City and Hanoi. It is also one of the most crowded cities in Vietnam, with 1,946,000 inhabitants as of 2014. Like Nha Trang and Binh Duong, Hai Phong’s economy is quickly becoming a powerhouse. The city is largely responsible for an 88 percent increase in throughput seen in Northern Vietnam between 2008 and 2014. Much of this success can be attributed to the strategic coastal position of the city, the development of import/export activity via its seven seaports, and its latest improvements to infrastructure.
By: Dezan Shira & Associates
Editor: Kurt Nguyen
Many may know of Da Nang as a major U.S. air force base during the Vietnam War, but the modern-day city has few remnants of its war-ravaged history. Nowadays, Da Nang has developed into a major urban center— Vietnam’s third largest economic center with the highest growth rate and urbanization ratio in the country. Endowed with a strategic location along the central coast, Da Nang is easily accessible through major highways, seaport and affordable international flights connecting it to other Asian countries. The local government’s pro- business policies offer many incentives for investors in the fishing, manufacturing, infrastructure, service, and tourism industries. The city has consistently ranked first in USAID’s Vietnam Provincial Competitive Index for the past 3 years, yet Da Nang’s FDI inflow has been low compared to its true potential, leaving future investors with ample opportunities.
By: Aysha Nesbitt
On May 6, LG Display Group, a subsidiary of South Korea’s LG Electronics, pledged US $1.5 billion to establish a screen factory in Hai Phong. Launching next year, the factory will produce high-tech digital displays using LG’s organic light emitting diodes. This investment comes just a year after LG opened a US $1.5 billion factory in Hai Phong and follows similar investments from the likes of Samsung and Nokia.
Over the past four years, Vietnam’s electronics sector has grown by 78 percent, becoming the country’s number one export in 2013. With pro-foreign investment policies and a competitive labor force, Vietnamese electronics production has also quickly surpassed regional rivals such as Thailand and the Philippines and is expected to grow at a modest five percent over the next two years, positioning Vietnam to surpass Singapore as the region’s fifth largest electronics exporter.
App Downloads Record Strong Growth Due to Gaming Culture
The app market in Vietnam has shown strong growth every year purported by a strong gaming culture. In a recent industry report, gaming app downloads contributed to half of the growth on the Google Play Store. Local users have a strong interest in local game publishers with ZingPlay in the list of top ten downloads. Three of the top 10 game downloads on the Google Play and iOS App Store were from local publishers.
At least 20 million gamers have been recorded in the country, and more than 10,000 mobile games are available on Vietnamese app stores. By 2017, the market is expected to be worth U.S. $161.6 million. While the high growth of smartphones and e-commerce make Vietnam attractive to app developers and publishers, setting unique regional preferences is key to growing the market. In addition, while the gaming culture has experienced significant growth, a large part of the population does not have access to high-speed Internet service. Nevertheless, investors should make key inroads into the industry as it’s not a market that can be ignored. Foreign investors should acclimatize and gain on the ground information if considering the industry.
Garment Industry Wants Long Term Plan
The garment and textile industry plans to revise a development plan to 2020 with a vision for 2030. The current plan, which was approved in April 2014, stated that garment exports would reach U.S. $25 billion by 2020. However, the garment industry has already earned an export turnover of U.S. $27.5 billion in 2015. Given this, the Vietnam Textile and Apparel Association (VITAS) demanded another long term plan until 2040 in line with the country’s economic development. VITAS has set the current growth of the sector to be between U.S. $40 and U.S. $50 billion by 2020 rather than the targets mooted by the current plan. Foreign direct investment (FDI) brought in U.S. $2 billion into the garment sector in 2015.
Despite the growth in the industry, VITAS has raised concerns about several challenges that have caused many companies to close down. It wants government support to initiate policies and make the sector attractive to investments. Some of these measures include designated industrial parks and key economic zones, infrastructure development, incentives for investors as well as quality waste water treatment plants.
Stable Outlook for Vietnam by Rating Agency
Rating agency Standard & Poor’s (S&P) on 29 April gave Vietnam a stable outlook, unchanged from March 2015. The rating reflects strong economic growth, while macro-economic factors have been recognized showing the improved outlook by the agency and investors. Factors that have contributed include the relatively diverse and flexible economy, per capita income reaching around U.S. $2,200 in 2016 and macroeconomic stability, which has made a positive impact on exports and foreign direct investment.
All these factors along with a comparative labor cost compared to other countries have helped the competitiveness of the country. S&P stated that the country should now pay attention to controlling its budget deficit as well as the increasing rate of public debt and bad debt in the banking sector. The government plans to control and bring the budget deficit to below 4 percent of the GDP, while controlling the public debt growth rate within the upper limit of 65 percent of the GDP.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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Annual Audit and Compliance in Vietnam 2016
In this issue of Vietnam Briefing, we address pressing changes to audit procedures in 2016, and provide guidance on how to ensure that compliance tasks are completed in an efficient and effective manner. We highlight the continued convergence of VAS with IFRS, discuss the emergence of e-filing, and provide step-by-step instructions on audit and compliance procedures for Foreign Owned Enterprises (FOEs) as well as Representative Offices (ROs).
Navigating the Vietnam Supply Chain
In this edition of Vietnam Briefing, we discuss the advantages of the Vietnamese market over its regional competition and highlight where and how to implement successful investment projects. We examine tariff reduction schedules within the ACFTA and TPP, highlight considerations with regard to rules of origin, and outline the benefits of investing in Vietnam’s growing economic zones. Finally, we provide expert insight into the issues surrounding the creation of 100 percent Foreign Owned Enterprise in Vietnam.
Tax, Accounting and Audit in Vietnam 2016 (2nd Edition)
This edition of Tax, Accounting, and Audit in Vietnam, updated for 2016, offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in Vietnam, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who must navigate Vietnam’s complex tax and accounting landscape in order to effectively manage and strategically plan their Vietnam operations.
Foreign Specialists Exempt from Personal Income Tax
Recent government announcements indicate foreign specialists will be exempt from paying personal income tax. The exemption applies to expatriates that are in Vietnam implementing projects for non-governmental organizations. The exemptions will comply with Decision 06/2016 / QD TTg.
However, foreign specialists will only be exempt if they meet the following terms:
- They are foreign nationals.
- The foreign national must be contracted with one of the following:
- A Non-government organization (NGO)
- A company managing the project of an NGO
- The sponsor of an NGO that is active in Vietnam
Expatriates in Vietnam that plan to work in such projects will welcome the new rules. In addition, local economists believe that these regulations will enable Vietnam to attract a more talented labour force in NGOs and related sectors, which is likely to catalyze development within the country.
By: Erasmo Indolino
Based on survey results by Indochina Research (Vietnam) ltd.
In February 2016, the Trans-Pacific Partnership (TPP) was signed in Auckland, New Zealand. In total, the agreement brings together 12 contracting countries: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Japan, Peru, the United States, Singapore and Vietnam. Experts consider TPP to be one of the largest trade agreements ever concluded, and its negotiations alone have taken more than seven years to reach an agreed upon text.
If ratified by all members, the TPP could come into force as early as Q1 2018. To facilitate transparent discussions prior to ratification by respective member states, the agreement’s full text was published in November 2015. Since then, Vietnam has rapidly emerged as the agreements’ prime beneficiary, with experts touting the many ways that TPP’s least developed economy can tap demand of larger members.
By: Dezan Shira & Associates
Editor: Maxfield Brown
Vietnam’s rapid pace of integration into global commerce is likely to yield unparalleled opportunities and record foreign investment in the near to medium term. While speculation on the nature of Vietnamese FDI has been on the rise, the availability of credible data remains scarce.
To help investors make informed decisions about existing opportunities and likely competitors, the following article outlines key findings from some of the first FDI data released by the Vietnamese Ministry of Planning and Investment since the passage of TPP, Implementation of the ASEAN Economic Community, and signing of Vietnam’s FTA with the European Union. Published at the end of January, 2016, this data provides insight on sources, destinations, industries, and vehicles of foreign direct investment. Should any questions arise as a result of this presentation, do not hesitate to contact members of our staff at email@example.com or www.dezshira.com.
By Edward Barbour-Lacey
HCMC – According to a plan released by Vietnam’s Ministry of Finance, the Ho Chi Minh Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX) are likely to be merged at the end of this year. If completed, the new Vietnam Stock Exchange (VSE) will be headquartered in Hanoi, although it will also have a southern branch in HCMC.
During the period 2015-2020, the VSE will be a 100-percent state-run unit managed by the Ministry of Finance. After 2020, member securities companies of the VSE will be able to purchase a 10-25 percent stake in the exchange.