Development Zones in Vietnam
Jun. 4 – Development zones started in Vietnam about 20 years ago when the United States lifted its trade embargo on the country. Manufacturing zones include industrial zones (IZs), economic zones (EZs), export processing zones (EPZs) and high-tech zones (HTZs). Firms investing in these zones enjoy preferential governmental policies and advantages like modern infrastructure and greater access to utility services.
Development Zones by Type
IZs specialize in manufacturing industrial products and providing services for them. They are established within defined geographical boundaries in accordance with government regulations and provide investment incentives such as land rental exemptions or reductions.
If an IZ is located in an area with “difficult socio-economic conditions,” newly established investment projects in the zone are entitled to a 20 percent corporate income tax (CIT) rate for 10 years, tax exemptions for up to two years and a 50 percent reduction in taxes for up to four subsequent years. In an IZ located in an area with “especially difficult socio-economic conditions,” newly-established investment projects within the zone enjoy a 10 percent CIT rate for 15 years following their operation date, CIT exemption for the first four years after they generate taxable income and a 50 percent reduction in taxes for the next nine years.
Investors in EZs enjoy the same preferential CIT incentives that exist within IZs that are located in areas with “especially difficult socio-economic conditions.” EZs offer a highly favorable environment for foreign businesses and individuals – in particular, a 50 percent reduction in personal income tax (PIT) is applicable to both foreign and local individuals that earn a taxable income within the zone. Furthermore, foreigners who work, invest and do business in EZs are granted visas in accordance with their working time within the EZ. Other investment incentives are available, but these differ from zone to zone.
Export Processing Zones
EPZs are IZs which focus on manufacturing goods for export and providing services for the former. EPZs provide tax incentives, lower land rentals and reduced regulatory oversight in admin and customs procedures. EPZs are also non-tariff areas, so enterprises are exempt from export taxes when exporting their products and materials, and do not pay import or value-added taxes. As a result, EPZ enterprises face fewer hurdles and are more investor-friendly. They are also conveniently connected to seaports and airports, making export more efficient. There are four EPZs in Vietnam, three of which (Tan Thuan and Linh Trung I, II) are in Ho Chi Minh City; the newest EPZ, Linh Trung III, is in Tay Ninh Province.
HTZs specialize in high-tech manufacturing such as bio-technology, IT and green technology. They also specialize in research and development, personnel training and high-tech trade. Enterprises in HTZs enjoy the same CIT incentives as within IZs and EZs located in areas with “especially difficult socio-economic conditions.” Import taxes are also exempted for machinery, equipment, components and raw materials imported in order to create fixed assets. Export taxes may also be exempted, but this varies zone by zone.
There are currently three HTZs in Vietnam: Hoa Lac HTZ in Hanoi, Da Nang HTZ in Danang and Saigon HTZ in Ho Chi Minh City.
Applying for an investment certificate in Vietnamese development zones is simpler than registration elsewhere. Unlike in other countries, investors in these zones can apply for an investment certificate directly with the IZ/EZ/EPZ/HTZ authorities, which are usually helpful and efficient towards investors.
Portions of this article came from the current May/June 2013 issue of Asia Briefing Magazine, titled An Introduction to Development Zones Across Asia. In this issue of Asia Briefing Magazine, we break down the various types of development zones available in China, India and Vietnam specifically, as well as their key characteristics and leading advantages. This magazine will be available as a complimentary download through the months of May and June 2013.
Dezan Shira & Associates 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 emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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