Vietnam Regulatory Brief: Minimum Wage Hikes, Business License Fines, a New Circular on Mineral Exports, and Auto Part Tax Cuts

This edition of Vietnam Regulatory Brief examines new minimum wage rules, a crackdown on incorrect business licenses, and a new draft circular on mineral exports.

Government set to raise minimum wage in 2016

The Vietnamese government is set to raise the minimum wage for 2016. The raise of 13 percent will be effective from January 2016. News reports state that the new minimum wage will be between US $107-156, which is equivalent to 2.4-3.5 million Vietnamese Dong (VND). The change will enable workers to meet at least 80 percent of their living expenses, including rent and food.

The increase in the minimum wage is set to increase the operating costs for employers in Vietnam. However, Vietnam retains a lower minimum wage compared to countries like China. In addition, local experts believe higher worker productivity due to the higher wages will offset the increased operating costs.

The change comes after the National Wage Council, the labor ministry and corporations recommended an increase in the minimum wage. The Council states that the current minimum wage was sufficient to meet around 70 percent of workers’ expenses, thus reducing labor productivity.

Violation of business registration certificates to attract new fines

The government issued a new decree to reduce violations by businesses operating in Vietnam. The decree, which will be effective from 5 January 2016, states that fines will be applicable for administrative violations while conducting commercial activity. The decree imposes the following fines on companies:

RELATED: Dezan Shira & Associates’ Corporate Establishment Services

1. US $44-88 for conducting business in an office other than that, which is registered on the certificate of business registration.
2. US $88-133 for household businesses that do not possess a certificate of business registration.
3. US $133- 222 for conducting business which do not possess a prescribed certificate of business registration.
4. US $222-444 for continuing business operations despite warnings from state authorities.
5. The decree also empowers state authorities to double the fines for violations in some cases and revoke certificates of business registrations as a punitive action.

Companies operating in Vietnam should ensure that their certificates of business registration are in order. Corporations with accurate and up-to-date certificates of business registration can effectively manage their legal requirements in the country. The decree seeks to ensure regulatory compliance in Vietnam.

New draft circular stipulates conditions for mineral exports

The Ministry of Industry and Trade issued a circular, which stipulates new conditions for exporting minerals in Vietnam. The circular states that only corporations established and operating on the Law on Enterprises and abiding by the conditions of the Law of Commerce are authorized to export minerals.

 RELATED: Vietnam’s Product Self-Certification Pilot Scheme Explained

The government will not grant mineral export licenses to companies that have violated the law on minerals, mineral exports and environmental protection. In addition, companies, which have suspended their export activity, will not be allowed to export minerals. Companies will also have to meet quality standards and the minerals need to have a lawful origin. The Vietnam Laboratory Accreditation Scheme (VILAS) will perform quality checks, when necessary, and the cost of such testing will be borne by the company. Corporations involved in the export of mineral should ensure compliance with the regulations under the new circular. Companies that ensure compliance will significantly reduce the risks to their business operations in Vietnam. 

Vietnam Targeting China Component Manufacturing Via Auto Parts Tax Cuts 

The Vietnamese tax authorities have stated that import tax on spare parts and components used in the automotive industry may be removed next year under the Association of South East Asian Nations (ASEAN) intra-free trade agreement. If ratified, this will be a significant step in Vietnams AEC compliance, as well as pave the way for U.S. and Japanese auto component industry investment into Vietnam under the proposed TPP agreement. 

The tax cuts, which have been brought forward from the original planned implementation in 2018, reduces import duties on automotive parts and vehicle engines to zero on components brought in from the ASEAN nations of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, and Thailand. In addition to this, the Vietnamese tax department also announced that tax on vehicle engines imported from South Korea, which is not a member of ASEAN, will be reduced to three percent from 20 percent next year, while taxes on gearboxes and accessories used in trucks imported from South Korea and Japan will be cut to zero in 2016. These match Vietnam’s commitment under the ASEAN agreement. Import tax on auto parts from China will also be cut to zero percent by 2018 under the terms of the ASEAN-China FTA. 

The tax cuts will impact on further investment into China’s existing auto-components industry, as manufacturers there will be seeking to sell components directly onto the Vietnamese market. In addition, the TPP agreement allows that Vietnamese manufactured products may be sold onto the lucrative American and Japanese markets, suggesting that a move to Vietnamese based production may be in the offing for some China based businesses in this field.

Import and Export: A Guide to Trade in Vietnam
In this issue of Vietnam Briefing Magazine, we provide you with a clear understanding of the current business trends related to trade in Vietnam, as well as explaining how to set up your trading business in the country. We also attempt to give perspective on what will be Vietnam’s place in the Association of Southeast Asian Nations (ASEAN) in 2015, and look at some of the country’s key import and export regulations.

Using Vietnam’s Free Trade & Double Tax Agreements
In this issue of Vietnam Briefing we explore how Vietnam’s Free Trade Agreements – and especially those via its membership in ASEAN – will affect foreign investment into Vietnam. We also go a step further and examine the specific, bilateral Double Tax Agreements that Vietnam has enacted, and how these can be further used to minimize profits and withholding taxes that would otherwise be levied upon foreign investors.

Developing Your Sourcing Strategy for Vietnam In this issue of Vietnam Briefing Magazine, we outline the various sourcing models available for foreign investors – representative offices, service companies and trading companies – and discuss how to decide which structure best suits the sourcing needs of your business.

• Previous Article Trademarks in Vietnam – Part One
• Next Article Vietnam Regulatory Brief: New Machinery Import Regulations, Gambling at Airports, and Publicly Listed Company Disclosures