Vietnam-Spain Bilateral Relations: Trade and Investment

Vietnam and Spain have developed relatively close relations over the last few decades, with a bilateral relationship based primarily on trade. Spain’s imports from Vietnam have grown substantially as the latter country has become a prime destination for manufacturing, as more countries look at reshoring from neighboring China.

While still modest, Spanish foreign direct investment (FDI) into Vietnam has increased in recent years as Spanish companies show a growing interest in Vietnam’s manufacturing and chemical industries, in particular.

As an EU member state, Spain is set to benefit from the expansive European Union-Vietnam Free Trade Agreement (EVFTA), which came into effect in 2020. By eliminating tariffs and providing geographical indications (GI) protections, the EVFTA could provide an avenue for more Spanish products to be exported to Vietnam in the future.

In this article, we look at the latest data on bilateral trade and investment and provide an overview of the various tax and investment treaties signed by Spain and Vietnam.

Vietnam-Spain diplomatic relations

Vietnam established diplomatic relations with the European Union (EU) in 1990, with the signing of a Cooperation Agreement under the Spanish EU Council presidency in 1995. The European Parliament ratified this agreement in 1996, showing support for Vietnam’s economic reforms and integration into ASEAN.

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Spain and Vietnam had already normalized diplomatic relations in 1977, two years after Vietnam’s reunification. The first official visit of a Vietnamese Minister of Foreign Affairs to Spain occurred in 1994, leading to the signing of a Joint Declaration to strengthen friendship and increase exchanges in various fields.

Diplomatic representations were established in both countries, with Spain opening its Economic and Commercial Office in Ho Chi Minh City as its first official presence in Vietnam. Bilateral relations progressed with the appointment of the first resident Ambassador of Spain in Vietnam in 1997.

Important milestones include the inauguration of a Cervantes Classroom in Hanoi in 2001 and the opening of Vietnam’s Embassy in Madrid in 2002. A state visit by the King and Queen of Spain to Vietnam in 2006 further solidified ties, and in 2009 during a state visit by then-President Nguyễn Minh Triết, the two sides signed a Joint Action Plan, marking a ‘strategic partnership’ between the two countries. Spain became the first European nation to achieve this status, signaling Vietnam’s recognition of privileged bilateral relations.

High-level exchanges continued, including ministerial visits and meetings between heads of government, such as those in 2017 and 2022. These interactions demonstrate the ongoing strengthening of ties between Spain and Vietnam.

Bilateral trade and investment

Bilateral trade in goods between Spain and Vietnam in 2022 reached a total of €4.57 billion (US$4.85 billion), surging almost 29 percent year-on-year, according to data from Spain’s Ministry of Economy, Trade and Enterprise (MINECO). Between January and November 2023, bilateral trade reached a total of €4.6 billion (US$4.88 billion), with growth slowing to just 6.4 percent year-on-year during this period. However, this growth was recorded despite overall foreign trade in both Spain and Vietnam plummeting in 2023.

Vietnam’s exports to Spain have grown at a higher rate due in part to the relocation of many multinational companies as part of the broader China+ strategy, in which companies relocate manufacturing to countries with lower labor and operational costs, primarily in southeast Asia, of which Vietnam is a key destination.

In 2022, Vietnam’s exports surged 44.1 percent year-on-year, while in the first 11 months of 2023 they maintained a strong 10.8 percent year-on-year growth rate to reach €4.13 billion (US$4.38 billion). Spanish exports to Vietnam, meanwhile, grew by 2 percent year-on-year to reach a total of €486.4 million (US$516.29 million). Spain had a trade deficit of €3.65 billion (US$3.87 billion) with Vietnam in the first 11 months of 2023.

Spain’s main goods and services exported to Vietnam in 2022 by added value were pigments, medicines, suits, radar devices, and food preparations, according to the Spanish Ministry of Foreign Affairs and Cooperation. 

Meanwhile the main goods exported from Vietnam to Spain were electrical machinery and equipment, footwear, and apparel, according to data from ICT Trade Map.

In addition to the trade in goods, Vietnam has become an increasingly popular tourist destination for Spaniards in the last decade. In 2019, 83,000 Spanish tourists visited Vietnam. However, the numbers have yet to recover fully since the COVID-19 pandemic, with only 22,511 visiting in 2022.

Foreign direct investment

FDI flows from Spain to Vietnam have steadily risen over the last few decades as the country becomes an increasingly attractive destination for foreign companies.

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Gross Spanish FDI into Vietnam in 2023 reached a total of €3.4 million (US$3.6 million), a decrease of 73.6 percent year-on-year. In 2022, Spain’s FDI flows to Vietnam reached €12.97 million (US$13.77 million), up 5.6 percent from the previous year. Vietnamese FDI flows into Spain remain minimal.

Spanish FDI stock in Vietnam is concentrated in industries, such as machinery and equipment manufacturing, wholesale trade and trade intermediaries, and chemicals. Other Vietnam industries that have received Spanish investment include the manufacturing of rubber and plastic products, food production, and furniture manufacturing, although the amounts have been relatively small.

Trade and investment treaties

The EU-Vietnam Free Trade Agreement

While Spain and Vietnam have not signed any bilateral trade agreements, being an EU country, Spain is a party to the EU-Vietnam Free Trade Agreement (EVFTA).

The EVFTA was signed along with an Investment Protection Agreement on June 30, 2019. The EVFTA came into force on August 1, 2020, while the Investment Protection Agreement will come into force when it has been ratified by all EU member countries. As of the end of October 2023, 16 EU Member States had ratified the agreement.

The EVFTA aims to promote economic integration, enhance trade relations, and foster economic growth and job creation in both regions.

Key features of the EVFTA include:

1. Tariff reductions: The agreement requires Vietnam to eliminate tariffs on 99 percent of all goods imported from the EU. The remaining 1 percent will be partially removed through limited zero-duty quotas. Meanwhile the EU will be required to eliminate tariffs on nearly all remaining tariff goods imported from Vietnam by 2030 (as of August 1, 2020, 84 percent of goods imported from Vietnam to the EU were already tariff-free).
2. Regulatory cooperation: The EVFTA seeks to reduce regulatory barriers and streamline customs procedures, making it easier for businesses to navigate trade regulations and access each other’s markets. This will include increasing transparency of rules on pricing and industry regulation, reducing technical barriers to trade (TBT), and participating in the setting of international standards.
3. Services and public procurement: The agreement opens up markets for services and public procurement, allowing businesses in both regions to access new opportunities and markets.
4. Geographical indications: The EVFTA includes provisions to protect GIs, which are names that identify products as originating from a specific region and possessing qualities, reputation, or characteristics unique to that region. This will help to protect the property rights of specialty products from both countries.
5. Enforcement mechanisms: The agreement includes mechanisms to ensure that the agreed rules and provisions are enforceable, providing a framework for resolving disputes and addressing non-compliance issues.

Spanish companies will be able to benefit from the tariff reductions, regulatory improvements, and increased cooperation in the same way that other EU companies will. The GI provisions have the potential to boost exports of famed Spanish products by providing an additional layer of protection, at a time when demand for high-quality imported goods is growing thanks to Vietnam’s expanding middle class. Spanish companies producing products with geographical indications, such as wines, cheeses, and olive oil, benefit from the protection provided under the EVFTA, as it will ensure that their products are recognized and protected in the Vietnamese market, safeguarding their reputation and potential market share.

Spain-Vietnam bilateral investment agreement

Spain and Vietnam signed a bilateral investment agreement (BIT) in 2006, which came into force in 2011.

The Spain-Vietnam BIT establishes an environment conducive to investment, ensuring legal security and protection for investors from both countries and encouraging mutual economic collaboration.

The agreement incorporates several key provisions. Firstly, it ensures the protection of investments, safeguarding against actions such as expropriation, nationalization, and discriminatory treatment. Secondly, the BIT establishes mechanisms for dispute resolution, providing avenues for investors to address conflicts through negotiation, mediation, or arbitration. The BIT includes an investor-state dispute settlement (ISDS) clause.

Moreover, the BIT works to promote investment flows by offering incentives, guarantees, and support to investors. It also upholds principles of non-discrimination, ensuring that investors from one country are treated fairly and equitably compared to others. Transparency and adherence to the rule of law are emphasized, ensuring clear and consistent investment regulations and access to legal remedies.

Spain-Vietnam double tax avoidance agreement

In addition to the BIT, Spain and Vietnam have also signed a double tax avoidance agreement (DTA).

The DTA prevents companies and individuals from being required to pay tax on income in both countries. The Spain-Vietnam DTA applies to income taxes levied by the governments of Spain and Vietnam, “irrespective of the manner in which they are levied”.

This includes taxes on total income, or elements of income, such as gains from movable or immovable property, wages or salaries, and capital appreciation.

Specifically, in Vietnam, the DTA applies to:

1. Personal income tax;
2. Business income tax; and
3. Profit remittance tax.

In Spain, the DTA applies to:

1. Income tax on individuals;
2. Corporation tax;
3. Income tax on non-residents; and
4. Local taxes on income.

The DTA also outlines the definition of “resident” and “permanent establishment” with respect to tax liability in one of the contracting countries.

In Vietnam, double taxation is eliminated by allowing Vietnam-resident companies or individuals that derive income in Spain to credit an equal amount of tax paid on income in Spain against their tax on income, profits, or gains in Vietnam. However, the amount of credit cannot exceed the amount of the Vietnamese tax on that income, profits, or gains calculated in accordance with the taxation laws and regulations of Vietnam.

Meanwhile, in Spain, double taxation is eliminated by allowing a tax deduction equal to the amount of income tax paid in Vietnam on the income of a Spanish resident company or individual.

READ: Vietnam Double Tax Avoidance Agreements

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