Doing business in_vietnam

Disclaimer

This publication contains information in summary form and is therefore intended
for general guidance only. It is not intended to be a substitute for detailed
research or the exercise of professional judgment. Neither Ernst & Young
Vietnam Limited nor any other member of the global Ernst & Young organization
can accept any responsibility for loss occasioned to any person acting or
refraining from action as a result of any material in this publication. On any
specific matter, reference should be made to the appropriate advisor.

This book is one in a series of country profiles prepared for use by clients and
professional staff. Additional copies may be obtained from:

Ernst & Young Vietnam Limited

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3 | Doing business in Vietnam

Preface
This book was prepared by Ernst & Young in Vietnam. It was written to provide a
quick overview of the investment climate, forms of business organization,
taxation, and business and accounting practices in Vietnam. While the
information contained in the book was, to the best of our knowledge, current at
the time of writing, the rapid pace of change in Vietnam means that laws and
regulations may have changed to reflect the new conditions. Making decisions
about foreign operations is complex and requires an intimate knowledge of a
country’s commercial climate with a realization that the climate can change
overnight. Companies doing business in Vietnam, or planning to do so, are
advised to obtain current and specific information from experienced
professionals. This book reflects information available as of 31 December 2009.

Doing business in Vietnam | 4

Glossary of acronyms
The following acronyms have been used in this guide.

ADSL Asymmetric Digital Subscriber Line
AFTA ASEAN Free Trade Agreement
APEC Asia-Pacific Economic Cooperation
ASEAN Association of Southeast Asian Nations
ATM Automated Teller Machine
BCC Business Cooperation Contract
BOT Build Operate Transfer
BT Build Transfer
BTA Bilateral Trade Agreement
BTO Build Transfer Operate
CDMA Code Division Multiple Access
CIF Cost, Insurance, Freight
CIT Corporate Income Tax
DTA Double Taxation Agreement
EPE Export Processing Enterprise
EPZ Export Processing Zone
EU European Union
FCWT Foreign Contractor’s Withholding Tax
FOE Foreign-owned enterprise
FIE Foreign-invested enterprise
FOB Free On Board
GAAP Generally Accepted Accounting Principles
GDP Gross Domestic Product
GSM Global System for Mobile Communications
GSO General Statistics Office
GTI Gross Taxable Income
HTZ High Technology Zone
IAS International Accounting Standards
IFRS International Financial Reporting Standards
IZ Industrial zone
MFN Most Favored Nation
MoF Ministry of Finance
MOLISA Ministry of Labor, War Invalids and Social Affairs
MPI Ministry of Planning and Investment
NTR Normal Trade Relations
PIT Personal Income Tax
PNI Produced Nation Income
SBV State Bank of Vietnam
SME Small and Medium-sized Enterprises
SOE State-owned enterprise
SSC State Securities Commission
SST Special Sales Tax
USD United States Dollar(s)
VAS Vietnamese Accounting System
VAT Value Added Tax
VND Vietnamese Dong
WTO World Trade Organization


Content
A Introduction ................................................................................. 8
A.1 Vietnam as an investment location ................................................. 9
A.2 Geography.................................................................................... 9
A.3 Population and labor force............................................................. 9
A.4 Language................................................................................... 10
A.5 Government ............................................................................... 10
A.6 Time .......................................................................................... 10
A.7 Connectivity............................................................................... 10
A.8 Climate ...................................................................................... 10
A.9 Public Holidays ........................................................................... 11
A.10 Useful contacts........................................................................... 11

B. Economy ................................................................................... 12
B.1 Economy overview ...................................................................... 13
B.2 Recent economic performance..................................................... 13
B.3 Leading industries....................................................................... 14
B.4 Major exports and imports ........................................................... 14

C. Financial system ......................................................................... 16
C.1 Money and banking ..................................................................... 17
C.2 Currency ................................................................................... 21
C.3 Foreign exchange controls ........................................................... 21
C.4 Stock exchange........................................................................... 23

D. Regulations on investment/enterprises ........................................ 26
D.1 General ...................................................................................... 27
D.2 Government owned industries and privatization............................. 28
D.3 Investment guarantees ................................................................ 28
D.4 Forms of Enterprises ................................................................... 29
D.5 Forms of direct investment .......................................................... 30
D.6 Investment incentives.................................................................. 32
D.7 Conditional sectors ..................................................................... 33
D.8 Investment licensing.................................................................... 33
D.8.1 Licensing authorities ..................................................... 33
D.8.2 Licensing procedures .................................................... 34
D.8.3 Business registration ..................................................... 34
D.8.4 Investment registration ................................................. 35
D.8.5 Evaluation procedures ................................................... 35
D.8.6 Application dossier........................................................ 36
D.8.7 Post licensing procedures .............................................. 37
D.9 Labor and recruitment regulations ............................................... 37
D.9.1 Labor recruitment by a Foreign Invested Enterprise............ 37
D.9.2 Registration of expatriate employees .............................. 37
D.9.3 0 Social Insurance (SI), Health Insurance (HI) and
Unemployment Insurance (UI) contributions for
employees..................................................................................37
D.9.4 Minimum salary ............................................................ 38
D.10 Mergers and Acquisitions............................................................. 39
D.10.1 Regulatory aspects ....................................................... 39
D.10.2 Buying shares in existing companies ............................... 39

D.11 Dispute settlement...................................................................... 40
D.12 Exit provisions ............................................................................ 41
D.13 Other investment related regulations............................................ 41
D.13.1 Foreign investment in the securities market..................... 41
D.13.2 Accession to trading service by foreign investor............... 41
D.13.3 Intellectual property rights ............................................ 42
D.13.4 Competition regulations ................................................ 42
D.13.5 Use of electronic documents .......................................... 43
D.13.6 Government inspection of Foreign Invested Enterprises ........... 43

E. Taxation ................................................................................... 44
E.1 Corporate Income Tax ................................................................. 45
E.2 Value Added Tax ......................................................................... 51
E.3 Import duty and export duty ........................................................ 53
E.4 Special sales tax ......................................................................... 54
E.5 Business license tax .................................................................... 55
E.6 Taxes on individuals: Personal Income Tax..................................... 56
E.7 Transfer pricing .......................................................................... 59
E.8 Penalties for tax offences ............................................................ 60
E.9 Double tax relief and tax treaties .................................................. 60

F. Financial Reports and Auditing..................................................... 62
F.1 Statutory requirements ............................................................... 63
F.2 Accounting principles and practices.............................................. 63
F.3 Disclosure, reporting and filing requirements ................................ 65
F.4 Audit requirements ..................................................................... 66

G. Visas and permits ....................................................................... 68
G.1 Entry visas ................................................................................. 69
G.2 Work permits .............................................................................. 69
G.3 Residence permits....................................................................... 70

H. Living in Vietnam ........................................................................ 72
H.1 Housing ................................................................................... 73
H.2 Education................................................................................... 73
H.3 Medical services.......................................................................... 73
H.4 Leisure and tourism .................................................................... 74

Appendices ............................................................................................. 75
Appendix 1: Economic Performance Indicators .................................. 75
Appendix 2: Foreign Exchange Rates................................................. 75
Appendix 3: Principal Imports And Exports........................................ 76
Appendix 4: Principal Trading Partners.............................................. 78
Appendix 5: Depreciation Periods ..................................................... 79
Appendix 6: Personal Income Tax Rates............................................. 80
Appendix 7: Double Taxation Agreements ......................................... 82
Appendix 8: Demographic Statistics .................................................. 83
Appendix 9: Comparative Data: Vietnam And Selected Countries............. 85
Appendix 10: Useful Addresses And Contact Information...................... 88


A.1 Vietnam as an investment location
Vietnam has emerged as one of the most popular investment
destinations in Asia, offering advantages, such as:

A well-educated population, which offers potential as both a
workforce and a consumer market
Under-exploited mineral resources
A central location from which to reach other markets in southern Asia
Continued support by foreign aid
A commitment by the Government for economic pragmatism; and
Significant investment incentives for selected types of businesses

A.2 Geography
Vietnam occupies the eastern coastline of the Southeast Asian peninsula, and
shares land borders with China to the north, and Laos and Cambodia to the west.
Its coastline provides direct access to the Gulf of Thailand and the East Sea.

Vietnam has a land area of 331,114 square kilometers. Most of the country is hilly
or mountainous, with flat land representing only about 20 percent. The primary
topographical features in the north are highlands and the Red River Delta and the
south includes the central mountains, coastal lowlands and the Mekong River
Delta.

Hanoi, the capital of Vietnam, is located in the north of the country and Ho Chi
Minh City, the largest city in terms of population and economic activity, is situated
in the south. Other major cities include Hai Phong, Da Nang, Hue, Vinh, Quy Nhon,
Nha Trang, Can Tho, and Da Lat.

A.3 Population and labor force
As of 1 April 2009, Vietnam had an estimated population of 86 million, 25.6
million of those reside in urban areas accounting for 29.6% of total population and
60.4 million are in rural areas that covers 70.4% of total population. The annual
average population growth rate for the period 1999 to 2009 is 1.2%. This
population is predominantly young, with approximately 27% below the age of 15
and a median age of 25.9 years. The population density is 259 persons per square
kilometer1.

The population is composed of nearly 90% ethnic Vietnamese, with Chinese,
Hmong, Thai, Khmer, Cham and mountain groups forming the remainder.

1Source : GSO, www.gso.gov.vn (Report on result of general investigation of population and
houses 2009)


A.4 Language
Vietnamese, a tonal language in the Austro-Asiatic language family, is the
official language. The modern written language uses the Vietnamese alphabet, a
Romanized representation of spoken Vietnamese.

While English is increasingly favored as a second language, other languages used to
a lesser extent in Vietnam are French, Russian, Chinese, Khmer and mountain area
languages (Mon-Khmer and Malayo-Polynesian).

The literacy rate (percentage of the population aged 15 years or older who can
read and write) was estimated at 90.3% as surveyed in 20052.

A.5 Government
Vietnam is a one-party state run by the collective leadership of the Communist Party
Secretary-General, the Prime Minister (PM) and the President. Policy is set every five
years by the Party congress and adjusted twice a year by plenary meetings of the
Central Committee. The Government and other state organs are responsible for
implementing policy.

A.6 Time
Vietnam local time is seven hours ahead of Coordinated Universal Time, or UTC. Business
hours in Vietnam are generally from 7:30 a.m. to approximately 4:30 p.m., however
international companies located in the urban areas operate from 8:00 a.m. to 5:00 p.m.
Shops tend to be open from 9:00 a.m. to 9:00 p.m.

A.7 Connectivity
Vietnam is served by several digital mobile phone networks using GSM 900 and CDMA 800
technology. ADSL, dial-up Internet services are available in the major cities. Recently, Vietnam
has awarded licenses to the first 4 operators to offer high-speed 3G mobile phone services,
promising millions of cellular phone users a better service. Vinaphone and MobiFone are the first
3G service providers in Vietnam.

A.8 Climate
Northern Vietnam has four seasons: spring, summer, autumn and winter. Spring is
from January to March, summer is from April to end of July, autumn is from
August to end of September and winter is the rest of the year. Autumn is the best
and the most beautiful weather in the north with the average temperature on the
day ranging from 27˚C to 32˚C and decreases to 24˚C or 27˚C at night. In
contrast, Central Vietnam is subject to occasional typhoons. The South is generally
warm with two seasons: dry and wet. During the hottest months at the end of the
southern dry season, March through May, temperatures reach the low 30˚C. This
period is followed by the May-October monsoon season.

2 United Nations Development Program – Vietnam at a glance 2007


A.9 Public holidays

National public holidays are listed below. Dates for the Vietnamese New Year
(Tet) vary from year to year, because they are based on the lunar calendar.

1 January – New Year’s Day
January or February – Tet. This is the most significant Vietnamese annual
holiday and is celebrated from the last day of the old lunar year to the third
day, or later, of the New Year according to the traditional lunar calendar
10th day of the 3rd lunar month – Kinh Hung’s death anniversary (Gio to
Hung Vuong)
30 April – Liberation Day
1 May – Labor Day
2 September – National Day

A.10 Useful contacts

For a list of useful addresses and other contact details in Vietnam, please see
Appendix 10.


B1. Economic overview

Vietnam is a densely populated, developing country in Southeast Asia. In the
decade after the 1976 reunification, the economy was in stagnation while the
country attempted to recover from three decades of independence wars. In
1986, Vietnam started economic reforms aimed at moving from a planned to a
market economy. Dramatic progress has been made in economic development
since then, and the country has become one of the fastest growing economies in
the world. Traditionally an agrarian society, the agricultural sector, including
forestry and fisheries, still employs about 65% of the population, but its
contribution to GDP has declined to about 20% in recent years from 40% in the
early 1990s. The industrial sector has been growing rapidly, and now accounts
for about 40% of GDP, with relatively well-diversified sub sectors including steel,
fertilizer, cement and vehicle production, whilst the private sector is now
estimated to contribute around 35% of GDP and is rapidly growing, due to the
continuing privatization of State Owned Enterprises (SOEs) and positive
underlying macroeconomic factors3.

Vietnam has continued its efforts of transition towards a market economy through
adopting more flexible, market-oriented policies that are aimed at promoting private
sector growth, improving the quality of public investment and achieving
macroeconomic stability. However, further reforms are needed to achieve long term
sustained rapid growth, and emphasis should be put on more prudent
macroeconomic policies, improving public sector financial management,
accelerating reforms of SOEs and fair and transparent laws and regulations. The
private sector will continue to grow as governmental involvement in the
management of SOEs and investment decision making in them is reduced.

B.2 Recent economic performance

Vietnam has achieved substantial progress in economic development following the
declaration by the Sixth Party Congress, in 1986, of a broad economic reform
package called “Doi Moi”, or “renovation”, which dramatically improved Vietnam’s
business environment. Vietnam became one of the world’s fastest growing
economies, averaging 8.4% annual GDP growth from 2005 to 2007, 6.1% in 2008
and 5.3% in 20094. Vietnam’s inflation rate, which stood at an annual rate of over
300% in 1987 had fallen to 12.6% in 2007 and significantly increased to 23% in
2008. In 2009, as the result of the global economic crisis, basic good prices fell
significantly and Vietnam economic growth slowed down leading to the decrease in
inflation rate to 6.9%5 . Simultaneously, investment grew three-fold and domestic
savings quintupled. Agricultural production doubled, transforming Vietnam from a
net food importer to one of the world’s top rice exporters.

Foreign trade and Foreign Direct Investment (FDI) increased significantly in 2008
and the shift away from a centrally planned economy to a more market-oriented
economic model improved business conditions and quality of life for many

3 World Bank: Taking stock (Update report on Vietnam’s recent economic development)
4 GSO, www.gso.gov.vn (December update report)
5 ADO update 2009 (ADB)


Vietnamese. In 2009, due to the global economic crisis, FDI to Vietnam was
lower than previous year. From the beginning of the year to 15 December
2009, total FDI capital was US$21.5 billion decreased by 70.0% relative to the
same period last year. The registered FDI capital of 839 new licensed projects is
US$16.3 billion (decreased by 46.1% in number of project and by 75.4% in
capital). The implemented FDI capital is estimated at US$10 billion, decreased
by 13.0% compared to 2008.

The Bilateral Trade Agreement (BTA) signed between the United States and
Vietnam on 13 July 2000 represented a significant milestone for Vietnam’s
economy. The BTA provides for the Normal Trade Relations (NTR) status of
Vietnamese goods in the US market. In turn, access to the US market will allow
Vietnam to accelerate its transformation into a manufacturing based,
export-oriented economy.

Vietnam’s economic stance following the East Asian recession emphasized
macroeconomic stability. Although the Government maintains a tight rein on
major sectors of the economy, such as financial services, telecommunications
sectors and areas of foreign trade and economic reform,
equitization/privatization of SOEs have fallen behind schedule. The Government,
however, appears committed to economic liberalization and international
integration. Vietnam’s membership of the ASEAN Free Trade Area (AFTA) and
entry into the BTA in December 2001 has contributed to this change of pace.
Vietnam achieved accession to the World Trade Organization (WTO) in January
2007 to become the 150th WTO member that brings to Vietnam’s business
community many opportunities in integrating into the international trade and
challenges at the same time.

B.3 Leading industries

Vietnam’s leading industries are oil and gas; textiles and footwear; agriculture
and fisheries, banking and construction.

B.4 Major exports and imports

In 2009, Vietnam’s total exports amounted to US$56.6 billion; decreased by
9.7% against 2008, in which export amount from local sector is US$26.7 billion,
and from FDI (including oil) is US$29.9 billion6. Since the BTA between
Vietnam and the US came into force in 2001, the US has overtaken the
European Union (EU) as Vietnam’s largest trading partner with estimated
exports of US$11.2 billion. The Association of Southeast Asian Nations
(ASEAN) and Japan rank third and fourth with US$8.5 billion and US$6.2
billion, respectively. The most impressive export increase is to the African
market with 8 times increase against in 2008 with estimated amount up to
US$1.1 billion.

In contrast, total imports in 2009 are estimated at US$68.8 billion, decreased
14.7% against same period in 2008.7 Imports from China, which has the largest
6.7 GSO, www.gso.gov.vn (Update report in December 2009)


volume with US$16.1 billion, increased by 2.7% compared to the 2008 making
China now by far, the largest source of imports into Vietnam. The US, EU, Japan,
members of ASEAN, newly industrialized countries (Korea, Taiwan and Hong
Kong) and China remain major export markets of Vietnam.

Vietnam is a major exporter of crude oil, marine products, rice, coffee, rubber,
tea, garments and footwear. In 2009, garment and crude oil exports were the
top earners and footwear and seafood were the second most significant export
products, followed by rice, coffee and wooden products. Due to the financial
crisis, exports to all major markets have declined, sometimes substantially.
Vietnam exporters have been especially active trying to win markets over in
Latin America and Middle East8.

Vietnam’s leading imports include petroleum products, steel, motorbikes and
fertilizers, with a large proportion of Vietnam’s imports coming in the form of
capital goods. Although Vietnam is an exporter of crude oil, imports of
petroleum products reached US$6.2 billion in 2009, decreased by 43.8% in
quota due to decrease in price but increases 0.6% in volume. Imports of garment
and textile material for processing also decreased by 17.8%.

Foreign Trade in 2009 compared to 2008
(US$ billion) (%)

Imports 68.8 85.3
Exports 56.6 90.3

Major export products in 2009

Major export products in value compared to 2008 in value
US$ million (%)
Seafood 4,200 93.3
Coffee 1,700 81.0
Rice 2,700 92.0
Oil 6,200 60.0
Garment 9,000 98.7
Footwear 4,000 85.0
Source: GSO, www.gso.gov.vn (Report on 2009 economic development)

8 Taking stock report by WB June 2009


C.1 Money and banking
Until 1988, the financial system in Vietnam consisted of the State Bank of
Vietnam (SBV) and its agency network up to provincial level, which distributed
credit to SOEs and other entities under directives of the central plan, and
handled deposits of these SOEs and entities. In 1988-89, the government
initiated banking reforms that transformed the mono-banking system into a
two-tiered banking system, that is, the SBV restricted itself to acting as the
central bank, and its commercial banking activities were taken over by
sector-specialized state-owned commercial banks. In 1990, the rules on the
sectoral specialization of these banks were removed.

During the 1990s, the Government stimulated the entry of new players into the
financial sector, a policy which led to a substantial increase in the number of
representative offices and branches of foreign banks as well as so-called joint
stock commercial banks. Joint ventures between foreign banks and state-owned
commercial banks were also established, but the services they offered were
strictly circumscribed. Non-bank financial institutions, such as finance, leasing
insurance companies and later on, securities brokerage, fund management
companies have also been established.

As a young and newly developing country, the Vietnam bank-based financial
system is assessed as under developed. The Vietnamese government has
undertaken several reforms of the financial system, i.e. renovation of the legal
framework for the banking sector including en-action of the Law on the SBV,
Law on Credit Institutions and ordinance on foreign exchange as well as an
issuance of implementation guidelines. The SBV has also issued measures to
enhance the soundness of the country’s banks. These laws and measures help
secure loans granted by credit institutions and improve their financial
transparency. The SBV has also reduced its intervention in state-owned bank’s
operation to encourage their commercial orientation, leading to a diversification
of the financial system.

From 2007 to 2009, the foreign currency market has fluctuated unusually. In
2008, FDI capital increased significantly up to US$6.4 billion and decreased by
70% in 2009. At the same time, there have been many complicated fluctuations
in the international financial and foreign currency market. The value of some
strong currencies also had increased and decreased irregularly. Price of some
major products, such as oil, rice, steel, etc. changed continuously. Even though
the SBV and related government ministries have been implementing several
measurements to stabilize the foreign currency market, the VND still has been
devalued.

In 2009, while the currency market has not overcome the devaluation pressure,
the world financial crisis has continued to impact the Vietnam economy leading
to significant decrease in export quota, FDI capital and international tourists to
Vietnam. International trade balance from a surplus of US$10.17 billion in
2007, US$273 million in 2008 to a deficit of US$1.9 billion in 2009, the highest
deficit in recent years.


Share in the banking capital

The year 2009 saw significant equitization and listing of two major stated-owned banks
namely Vietinbank and Vietcombank, the largest stated owned bank in Vietnam. By the
end of 2009, there are three state-owned commercial banks, namely: BIDV, VBARD and
Mekong Housing Bank; five 100% foreign invested Banks namely HSBC, Standard
Chartered Bank (Vietnam) Ltd, ANZ, Shinhan Vietnam Bank Limited, Hong Leong
Bank Vietnam Ltd with charter capital nearly VND8,000 billion; and several branches of
foreign banks including large names, such as Citibank, Deustch Bank, Calyon, May
Bank, etc. The rest of the market is shared by joint-stock and joint venture banks. The
average charter capital of each state-owned commercial bank ranged between US$450
million to US$500 million. Most joint-stock banks have an average capital of US$150
million to US$200 million9.

Restrictions on the use of foreign currency

The Government is committed to seeing the VND secure the status of the primary
currency used in the economy. For that reason, certain restrictions were imposed on
the use of foreign currency in Vietnam.

The local foreign exchange market in Vietnam is, however, subject to regulatory controls.
While sale and conversion regulations were relaxed in 1999, foreign companies were
only given the right to convert VND into US$ to cover current payments in January
2001. The requirement for the compulsory conversion of foreign currency revenue from
current transactions, at the rate of 80%, was also introduced in September 1998. This
requirement was, however, removed in May 2003. On 13 December 2005 and 28
December 2006, the government issued the Ordinance on Foreign Exchange Controls
and Decree No.160-2006-ND-CP providing regulations for implementation of Ordinance
on Foreign Exchange Controls respectively which provides detailed regulations for
implementations of foreign exchange activities of residents and non-residents in current
transactions, capital transactions and use of foreign currency, etc.

Within the territory of Vietnam, all transactions, payments, listings and
advertisements of residents and non-residents must not be affected in foreign
exchange except for the following cases:

1. Transactions with credit institutions and other institutions permitted to provide
foreign exchange services
2. Residents being organizations shall be permitted to transfer capital internally by a
telegraphic transfer of foreign currency (as between an entity with legal status and a
dependent accounting entity or vice versa)
3. Residents shall be permitted to contribute capital in foreign currency in order to
implement a foreign investment project in Vietnam
4. Residents shall be permitted to receive payment by a telegraphic transfer of foreign
currency pursuant to a contract entrusting import or export
5. Residents being domestic or Foreign Contractors (FCs) shall be permitted to receive
payment by a telegraphic transfer of foreign currency from investors or head
contractors in order to make payment and disbursement transactions and to remit
money overseas

9 Source: GSO, www.gso.gov.vn and SBV’s news

6. Residents being institutions providing insurance business services shall be
permitted to receive a telegraphic transfer of foreign currency from insurance
purchasers for all types of goods and services which must be reinsured offshore
7. Residents being institutions conducting business in duty free goods, providing
services in separated areas in international border gates or providing customs bond
warehouse services shall be permitted to receive payment in foreign currency and
VND for the supply of goods and services
8. Residents being customs and police offices of international border gates and
customs bond warehouses shall be permitted to receive foreign currency from
non-residents for all types of taxes and fees for entry/exit visas and fees for the
provision of services
9. Non-residents being diplomatic offices and consulates shall be permitted to
collect fees for entry/exit visas and other types of fees and charges in foreign
currency
10. Non-resident and residents being foreigners shall be permitted to receive salary,
bonuses and allowances in foreign currency from residents and non-residents
being organizations
11. Non-residents shall be permitted to make telegraphic transfers of foreign currency
to other non-residents or to make payment to residents of money for the export
of goods and services
12. Other necessary cases after consideration by and permission from the Governor
of the SBV10

Use of foreign currency cash by individuals

1. Residents and non-residents being individuals with foreign currency cash shall be
permitted to store or carry such cash personally to donate or bequeath it, to sell
it to an authorized credit institution, to remit or carry it overseas to service lawful
purposes, or to pay it to entities entitled to collect foreign currency pursuant to
this Decree.
2. Residents being individuals with foreign currency cash shall be permitted to
deposit it in savings accounts at authorized credit institutions, and to withdraw
the principal in and to receive interest in foreign currency cash in accordance with
the Law on foreign currency savings accounts11.

Use of VND by non-residents

Non residents being organizations and individuals shall be permitted to open and use
VND accounts at authorized credit institutions in order to implement the following
revenue and disbursement transactions:

1. To collect proceeds from sale of foreign currency to an authorized credit
institution
2. To collect revenue from other legal sources in Vietnam
3. To make cash payments or to withdraw cash to spend in Vietnam
4. To disburse in payment of a current transaction of capital transaction in
accordance with this Decree
5. To disburse by way of gift or payment of an inheritance in accordance with law
10 Article 29, Chapter IV of Decree No. 160-2006-ND-CP on providing regulations for

implementation of ordinance on foreign exchange control. (Decree No. 160)
11 Article 32 of Decree No. 160


6. To disburse by way of purchase of foreign currency at an authorized credit
institution for remittance abroad
7. To disburse for other purposes permitted by law12

Use of currencies of countries with a common border with Vietnam

1. Residents being organizations and individuals who have lawful revenue in
currencies of a country with a common border with Vietnam from activities
of export and import goods and services or who have other lawful revenue
shall be permitted to open VND accounts at authorized credit institutions in
order to implement the following revenue and disbursement transactions:

a. To collect proceeds from the sale of goods and services
b. To collect proceeds being the purchase at an authorized credit institution of
a currency of a country with a common border
c. To collect revenue from other legal sources in Vietnam
d. To disburse by way of payment for the import of goods or services
e. To disburse by way of sale to an authorized credit institution or exchange
bureau
f. To withdraw in cash in order to pay salary, bonuses and allowances to
foreigners working for an organization or to spend in a country with a
common border
g. To disburse for other purposes permitted by law

2. The use of currencies of countries with common borders with Vietnam to
purchase or sell goods in border areas and in economic zones of border
gates must comply with regulations of the SBV13.

Exchange rates

The foreign exchange rate is set by averaging rates from the previous day’s
inter-bank transactions. This crawling peg system has established a trading band
that allows VND/US$ exchange deals to be executed within a tight band. The
Government is, however, planning to move towards a more market-determined
exchange rate in coming years.

Daily spot exchange rates are announced by the SBV based on the previous
day’s average rate on the interbank market. Other banks must then trade within
+/- 3% of this official rate.

Government assistance on foreign currency matters to enterprises with
foreign owned capital

Enterprises with foreign owned capital and parties to Business Cooperation
Contracts (BCCs) may buy foreign currency from commercial banks to meet the
demands of their current transactions and other allowable activities.

12 Article 33 of Decree No. 160: Use of VND by non-residents
13 Article 35 of Decree No. 160: Use of currencies with a common border with Vietnam


The Government has given assurance to provide assistance in meeting the
foreign currency balance of particularly significant investment projects in
accordance with Government programs during a specific period. In addition, the
Government assures its assistance in the foreign currency balance for projects to
construct infrastructure facilities and certain other significant projects where
commercial banks do not provide sufficient foreign currencies.

The SBV’s role on interest rates

The SBV has intervened in local currency interest rates since May 2008 apart
from setting the base rate. Commercial banks are therefore required to set their
own mobilizing and lending rates lower than 150% of the base rate.

C.2 Currency
The official currency of Vietnam is the VND. In 2003, the SBV released coins
denominated in VND200, VND500, VND1,000, VND2,000 and VND5,000
following a 20-year hiatus. Vietnam has completed the conversion of paper
banknotes to Polymer banknotes denominated in VND10,000, VND20,000,
VND50,000, VND100,000, VND200,000 and VND500,000 which were issued
from 2004 to 2006.

Access to cash is now becoming more convenient with the presence of
Automated Teller Machines (ATMs) network throughout the country. Traveler’s
checks and charge or credit cards, such as American Express, MasterCard and
Visa are now widely accepted by travel agencies, hotels, and major restaurants
and shops.

C.3 Foreign exchange controls
The inflow of foreign currency into Vietnam is generally welcomed with minimum
restrictions, although the transfer of foreign currency out of the country is still
controlled. Enterprises with foreign owned capital must open accounts
denominated in a foreign currency or VND at a bank located in Vietnam and
approved by the SBV. All foreign exchange transactions, such as payments or
overseas remittances, must be in accordance with policies set by the SBV.
Enterprises with foreign owned capital and foreign parties to BCCs may buy
foreign currency from a commercial bank to meet the requirements of current
transactions or other allowed transactions, subject to the bank having available
foreign currency. The Government may guarantee foreign currency to significant
investment projects or assure the availability of foreign currency to investors in
infrastructure facilities and other significant projects.

Under current regulations, all foreign currency income generated in Vietnam
from exports, services and any other sources must be deposited at or sold to
licensed banks in the country, except in special cases approved by the SBV.
Before May 2003, Vietnamese companies, foreign-invested enterprises, parties
to BCCs, FCs and foreign branches were required to sell at least 30% (lowered
from 40% in May 2002) of their current foreign-currency earnings upon receipt
of foreign currency. From May 2003, the compulsory conversion percentage was
reduced to 0%.


Generally, banks prioritize the sale of foreign currency to companies that need it
to import materials and supplies for the production of exports.

Foreign investors are allowed to repatriate the following:

Profits made from business operations
Payments received for service provision and technology transfer
Principal and interest from offshore loans and credits
Invested capital
Other sums of money and assets legally owned by the foreign partner

Foreign exchange is regulated by the Foreign Investment Law of Vietnam. Whilst the
self-sufficiency rule has been in effect for some time, the SBV has, in the past, been
flexible on currency conversion. A substantial trade imbalance may lead the SBV to
enforce the self-sufficiency requirement in the future.

Opening of bank accounts by foreign invested enterprises

Enterprises with foreign owned capital and foreign parties to business co-operation
contracts must open a direct investment capital foreign currency account at an
authorized credit institution in order to implement the following revenue and
disbursement transactions:
1. Receipt of charter capital monetary contributions, receipt of capital for
implementation of direct investment and receipt of medium and long-term
foreign loan capital
2. Receipt of foreign currency from a foreign currency savings account of a
resident being an enterprise with foreign owned capital or a foreign party to a
business co-operation contract
3. Disbursement of foreign currency remitted into a foreign currency
savings account of a resident being an enterprise with foreign owned
capital
4. Disbursement to outside Vietnam of principal, interest and fees on a foreign
medium or long term loan
5. Disbursement to outside Vietnam of capital, profit and other legal revenue of
a foreign investor
6. Other revenue and disbursement transactions relating to direct foreign
investment activities14

In addition, Foreign Invested Enterprises (FIEs) may open current accounts in a
foreign currency and VND at authorized banks in Vietnam for their business
transactions.

Registration of overseas borrowings

All medium and long-term loans from foreign sources must be registered with and
periodically reported to the SBV. The borrower is required to comply with several
other requirements in purchasing foreign currency from financial institutions to repay
the loan, e.g. the repayment must be in line with the repayment schedule.

14 Article 11: Decree No. 160


C.4 Stock exchange
Vietnam’s stock market was established in July 2000 in Ho Chi Minh City with
two listed companies. The market trades in company issued shares and bonds
issued by the Government, credit institutions and corporate. By the end of
December 2009, there are 443 companies listed on the Hanoi and Ho Chi Minh
stock exchange with total market capitalization of nearly VND210 trillion.

The Government has taken measures to develop the market by amending
regulations relating to the capital market, reorganizing authority structures,
accelerating and linking the SOE equalization process to the stock market.

In order to enhance the role of regulators, Decree No. 66/2004/ND-CP placed
the SSC under the direct supervision of the Ministry of Finance (MoF) on 19
February 2004. This represents a rational step to the process of stock market
development in Vietnam. The MoF is the governing body responsible for the
macro-finance policies and development of the financial market, therefore is
able to enforce these policies efficiently and effectively. First and foremost, it
will increase the volume of high-quality securities in the stock market - a crucial
element to the development of the market, and in addition to that, other
financial policies by the MoF (i.e. issuing bonds, taxes and fees) would deliver
coherence and unification between the stock market and other financial
markets, hence ensuring safety for these markets.

In September 2005, the PM increased the cap on total foreign shareholdings on
domestic companies listed on the securities market from 30% to 49% of the total
shares of a listed company, except for listed banks, of which the cap still remains
at 30%. Foreigners purchasing or selling shares in Vietnam’s securities market
must, however, register for a foreign investment management code with the
Stock Exchange Department through a depository bank as prescribed by the
SSC. In respect of bonds listed on the stock exchange, foreign investors are
allowed to buy unlimited units.

Foreign securities institutions who wish to engage in securities businesses in
Vietnam must establish a joint venture company with a Vietnamese partner in
accordance with a SSC-issued license. The maximum foreign holding allowed in
such a joint venture is 49% of the charter capital. Similarly, a foreign investment
fund that wishes to invest in the Vietnamese securities market must be licensed
by the SSC.

Representative offices of foreign securities companies and fund management
companies in Vietnam15

1. Foreign securities companies and foreign fund management companies shall
be permitted to establish a representative office in Vietnam after they have
registered its operation with the SSC.

2. An application file for registration of the operation of a representative office

15 Article 78 of Law on Securities passed by Legislature XI of the National Assembly

of the Socialist Republic of Vietnam at its 9th Session on 29 June 2006.


of a foreign securities company or foreign fund management company in
Vietnam shall contain the following documents:
a. Application for registration of the operation of a representative office
b. Copy of the operation license of the foreign securities company or foreign
fund management company
c. Copy of the charter of the foreign securities company or foreign fund
management company
d. Curriculum vitae of the person proposed to be appointed as head of the
representative office in Vietnam and a list of the staff (if any) proposed
to work in the representative office

3. Within a time-limit of seven (7) days from the date of receipt of a valid
application file, the SSC shall issue a certificate of registration of the operation
of the representative office of the foreign securities company or foreign fund
management company in Vietnam. In a case of refusal, the SSC shall provide a
written notice specifying its reasons for the refusal.

4. The operational scope of a representative office may comprise one, a number,
or all of the following items:
a. Implementation of the function of a contact office and the conduct of
market research
b. Promotion and formulation of co-operative projects in the securities and
the securities market sector in Vietnam
c. Advancement and supervision of the performance of contracts already
agreed and signed between a foreign securities company or foreign fund
management company on the one hand and economic organizations of
Vietnam on the other
d. Advancement and supervision of the performance of projects which the
foreign securities company or foreign fund management company
finances in Vietnam

5. A representative office shall not be permitted to conduct securities business
activities.

6. A representative office shall be subject to administration and supervision by
the SSC.

100 % foreign invested securities firms will be permitted to be established in
Vietnam once Vietnam complies with WTO regulations.

At the beginning of 2007, governing agencies launched several measures to
establish a legal basis to help develop a stable and healthy market, including:

Issuance of the Laws on Securities (which are validated from 1 January
2007), Decree No. 14/2007/NÐ-CP providing detailed regulations on the
implementation of a number of articles on the Law on Securities. Decision
No. 27/2007/QD-BTC promulgating regulations on the organization and
operation of securities companies, Decision No. 35/2007 QD-BTC on the
organization and operation of fund management companies, Decision No.
45/2007/QD-BTC on establishment and management of securities
investment funds, Decision No.


03/2007/QD - NHNN on 19/1/2007, Decision No. 18/2007/QD-NHNN on
25/4/2007 and Directive No. 03/2007/CT-NHNN regulating the
management of loan portfolios for securities investment
Decision No. 12-2007-QD – BTC dated on 13 March 2007 of the Ministry of
Finance to promulgating regulations on corporate governance applicable to
companies listed on the stock exchange or a securities trading center,
Decision No. 15-QD-TTLK dated 2 April 2008 of SSC issuing regulations on
exercise of shareholders rights; and
Special coordination between the MoF, the SSC and the SBV which will help
to gradually improve the supervision over the market in terms of
registration, custody, publicity and transparency, etc.

In 2008, the global crisis and the turbulence of the domestic economy placed
pressure on the stock market. During the first few months of the year, inflation
increased unexpectedly leading to the concerns on the liquidity and vulnerability
of the banking system. The monetary market was expanding with interest rates
increasing dramatically. As a result, the SBV was adopting a
monetary-tightening policy. The stock index plunged continuously and a wide
range of investors suffered from losses and capital shortage. Many investors left
for real estate or gold investments while the stock market attracted few new
investors. Consequently, the Vietnamese stock market was on a decreasing
trend in the first 6 months of 2008 and witnessed the lowest point in June
2008. In the second half of 2008, the Vietnam stock market had suffered from a
continuous decrease trend.

The year 2009 is continued to be recognized as a turbulent year with securities
stock exchange. At the beginning of the year, VN-Index decreased significantly
from 303.21 to 235 on 24 February 2009. With positive information on a better
future for Vietnam and global economy, the VN-Index increased to over 600
points in middle of October and HNX- Index also increased to over 200 points
successfully with significant increase of banking securities. However, after
successful transactions, VN-Index continued to decrease in the last two months
of the year. Many analysts concluded that the turbulent change in Vietnam stock
market was partly caused unstable sentiment of investors due to recent
tightening of credit policies17.

Currently, there are about 103 securities firms in operation with an average
chartered capital at more than VND200 billion. Their main activities are
brokerage and proprietary trading. In addition, there are 43 funds management
companies and 8 custody/deposited banks.18 With the gradual improvement of
the legal framework along with the expertise and experience of the managers
and investors, the Vietnamese stock market has strongly adjusted and achieved
certain development.

17 Source: www.dantri.com.vn (Dan Tri’s analysis on most outstanding economic events of
Vietnam in 2009)
18 Mekong Capital, www.mekongcapital.com (Updated information from SSC department

managing securities firms and funds on 28 Dec 2009)


D. Regulations on
investment/enterprises

D.1 General
All investment activities in Vietnam are regulated by the Law on Enterprise (LOE)
passed by the National Assembly dated 29 November 2005 and the Law on
Investment (LOI) passed by the National Assembly dated 29 November 2005. Both
laws became effective as of 1 July 2006.

The LOE addresses the types of companies and business establishments permitted to
operate in Vietnam, their governance, liability and way of operation.

The LOI includes provisions on investment activities, rights and obligations of
investors, the registration and evaluation of investment projects, investment
incentives, investment guarantees and State management of investment. This Law
replaces the old Law on Foreign Investment in Vietnam and the Law on
Encouragement in Domestic Investment and is commonly applicable to both foreign
and domestic investors.

Vietnam has signed and acceded to various bilateral and multilateral arrangements on
investment, such as agreements for the promotion and protection of investments with
47 countries and territories, the ASEAN Framework Agreement on Investment (AIA),
the BTA with the United States of America containing an investment charter, the
Convention on the Establishment of the Multilateral Investment Guarantee Agency
(MIGA), and other related international investment agreements.

Where the international agreements contain provisions inconsistent with the
provisions of the legal instruments on FDI, the provisions of those international
agreements shall be applied.

In 1995, Vietnam became a member of ASEAN and three years later it joined
Asia-Pacific Economic Cooperation (APEC). In 2000, Vietnam signed a Bilateral
Trade Agreement (BTA) with the United States. This trend towards regional and
global integration is expected to promote socio-economic stability, better mobilization
of domestic resources, and improve efficient allocation of these resources. Moreover,
the Government has embarked on and prioritized a long-term reform program for the
administrative and regulatory framework governing foreign investment. This
combination of internal and external factors should serve to improve the general
investment climate.

Vietnam officially joined the WTO on 7 November 2006 and put its commitments into
force from 11 January 2007.

The accession of Vietnam to WTO has brought a positive impact to Vietnam’s market
and economy, including:

The considerable reduction of import duties on goods for domestic production
as well as for private and government consumption
The liberalization of Vietnam’s services market. Under the WTO’s classification,
provision of services is divided into four modes: (i) cross-border (e.g.,
electronic money transfer services between countries; (ii) services consumed
abroad (e.g., tourist services); (iii) commercial presence (e.g., FDI in services
in Vietnam); and (iv) people (e.g., foreigners providing services in Vietnam).
The liberalization of the services sector, especially in


modes (i) and (iv), will affect FDI flow in Vietnam. The services sub-sectors
that used to be closed or restricted to foreign investment (such as distribution,
transport, telecommunication, finance, etc.) is largely liberalized from the year
2009 (despite some limited conditions and a transitional period of three or five
years)

D.2 Government owned industries and privatization
The Government is working towards improving the investment environment for the
private sector despite a high degree of state control of the key sectors of the
economy. The privatization process is proceeding slowly, and from 4,700 SOEs in
2001, the Government intends to divest them all by 2010: a process which involved
the equalization of 350 SOEs in 2006 and 116 in 2007. Additionally, the State will
reduce its holding in the equitized SOEs to 51% or 35%. The State has established
the State Capital Investment Corporation (SCIC) which holds the majority of the
State’s share in equitized and privatized enterprises, in addition to conducting other
activities, akin to other sovereign wealth funds like Singapore’s’ Temasek. Large
SOEs operating in key areas, such as electricity, cement, metallurgy, chemicals,
construction, transportation, banking, telecommunication, the airlines and
insurance industries are being equitized. One major example is the December 2007
Bank for Foreign Trade of Vietnam (Vietcombank) share issue – supported by
newly-issued Government regulations.

To promote this, the Government has fulfilled the conditions of economic reform
that were necessary for its WTO entry and in efforts to meet its obligations under
the bilateral trade agreement with the US.

The new laws streamlining the formation and operation of private companies have
resulted in an increase in the number of Small and Medium-sized Enterprises
(SMEs). This process is being encouraged by the World Bank structural adjustment
processes and by reform in the banking sector.

D.3 Investment guarantees
The Vietnamese Government guarantees fair treatment for investors. Investors’
capital and other legal assets will not be expropriated or confiscated by law or
administrative measures, and businesses with foreign-invested capital will not be
nationalized. Foreign investors are allowed to remit abroad investment capital and
profits, loan principal and interest, and other legal proceeds and assets.

Expatriates working for businesses with foreign-invested capital or for a BCC are
allowed to remit their income abroad.

The interests of foreign investors are satisfactorily guaranteed in the event of
adverse effects caused by a change in law through the application of a number of
measures. The LOI warrants that such changes will be disregarded or that
disadvantages to the investor stemming from a change in law will be compensated
by permission to amend its operations, the granting of compensatory tax
exemptions or by other means of compensation for damages.

Moreover, where more favorable provisions are enacted, existing investors will be
able to reap those benefits.


Upon the completion of company liquidation procedures, foreign investors may
transfer abroad any remaining capital.

D.4 Forms of enterprises
Limited liability company

Under the LOE, the following forms of enterprise exist in Vietnam:

Limited liability company with one member (one-member LLC)
Limited liability company with more than one members

A limited liability company is a legal entity established by its members by way of
capital contribution to the limited liability company. The capital contribution of
each member is treated as equity. The members of a limited liability company are
liable for the financial obligations of the limited liability company to the extent of
their capital contributed – or undertaken to be contributed - to the limited liability
company.

A limited liability company established by one or more foreign investors may take
the form of either a 100% Foreign Owned Enterprise (FOE) (where all members
are foreign investors) or of a foreign-invested joint-venture enterprise between
one or more foreign investors and one or more domestic investors.

Joint stock company/shareholding company

A joint stock company is a legal entity established by its founding shareholders
on the basis of their subscription of shares of the joint stock company. The
charter capital of a joint stock company is divided into shares and each founding
shareholder holds a number of shares corresponding to their subscribed and paid
up shares in the joint stock company.

A joint stock company is required to have at least three shareholders (with no
maximum number of shareholders).

Partnerships

A partnership is required to have at least two members and the unlimited liability
partners are liable for the obligations to the extent of all their assets.

Private enterprise

A private enterprise is owned by one individual who is liable for all activities of
the enterprise to the extent of all his/her assets. Private enterprises may not
issue any type of security. An individual may only establish one private
enterprise.

The LOE does not address the establishment of a private enterprise of a foreign
investor. It will be regulated by separate regulations issued by the Government
which are not available at this time.


D.5 Forms of direct investment
The LOI provides for the following basic forms of direct investment: joint
ventures, 100% FOEs and BCC.

Joint venture

Fundamentally, the foreign investor and its Vietnamese partner jointly apply to
establish a company. The investor has two ways to create a joint venture: (i)
create a new enterprise (including merger & acquisition); or (ii) participate in an
existing enterprise via the purchase of a proportion of the company’s shares.

There is no requirement on the minimum amount of foreign equity, unless it is a
joint venture between the State or its bodies and the foreign investor.

A joint venture may be established as a limited liability company with more than one
member, as a joint stock company or as a partnership and is a legal entity with
limited liability established on the basis of a joint venture contract between:

(1) A Vietnamese party and a foreign party
(2) A Vietnamese party and a 100% FOE
(3) A joint venture enterprise and a foreign party
(4) A joint venture enterprise and a 100% FOE; or
(5) Two joint venture enterprises.

100% FOEs/wholly foreign-owned

A 100% FOE is a legal entity set up by one or more foreign investors under a form
of enterprise as set out above. The common form of 100% FOE is a limited
liability company or a joint stock company, except in cases where a partnership is
a compulsory form.

Foreign investors are prevented from engaging in certain sectors in form of 100% FOE.

Foreign investors are not subject to minimum investment capital restrictions as
Vietnam does not have thin capitalization rules. It previously had a maximum
70:30 debt to equity limit; however, this was removed in 2006, and the debt to
equity structure of the company will be subject to, negotiation with, and approval
of, the licensing authority, except certain sectors where a fixed amount of legal
capital (equity) is regulated.

Business cooperation contract

A BBC is an agreement between one or more foreign investors and one or more
Vietnamese partners with the objective of cooperating to operate one or more
specific business activities. This form of investment does not constitute a new legal
entity and the investors have unlimited liability for the debts of the BCC. This form
of investment is generally only chosen by foreign investors with respect to projects
where investment is restricted to a BCC, such as certain telecommunications
projects or projects in relation to airlines, railways or sea transportation. A BCC
provides, however, more flexibility than a joint venture or a 100% FOE. Within the
framework of Vietnamese law, the parties involved are


free to decide on the subject, content, interests, obligations and responsibilities of and
relations among the parties, and to specify these in the contract.

Build operate transfer, build transfer, build transfer operate or build operate
arrangements

Build Operate Transfer (BOT), Build Transfer Operate (BTO), Build Transfer (BT) and
Build Operate (BO) investments are recognized under the Law on Foreign Investment,
but are largely governed by a separate legislation. Foreign investors may sign a BOT,
BT and BTO contract with a competent state body to implement infrastructure
construction projects in Vietnam. These are often in the areas of traffic, electricity
production and trade, water supply or drainage, and waste treatment. The rights and
obligations of foreign investors will be regulated by the signed BOT, BT and BTO
contracts.

Under BOT, the investor is fully in charge of construction and management of a project
for a specific duration, after which the project is to be transferred to the state without
any compensation.

Under BTO, the title has to be transferred to the state immediately upon completion of
construction; however, the state will allow the investor to operate the project over the
period of time agreed by both parties in the contract so that the investor can recover
capital and reasonable profits.

Under BT, the project is transferred to the state on completion of construction and the
State pays the investor by either granting the right to implement another project or
making payment as agreed in the BT contract.

Other facilities for business and investment in Vietnam

Branch

A branch office is a dependent unit of a foreign entity and may conduct commercial
activities for direct profit-making purposes in line with international treaties to which
Vietnam is a signatory.

This is not a common form of foreign direct investment but banks, tobacco companies,
airlines, law firms, and foreign companies operating in the fields of culture, education
and tourism are allowed to establish branches in Vietnam. Foreign companies may also
establish branches in Vietnam to conduct trading activities and activities directly
related to trading of goods.

The establishment of a foreign company branch is simpler than the establishment of a
100% FOE (i.e. time frame for granting branch license is within 15 days), with the
difference that a 100% FOE is a Vietnamese legal entity separate from its parent
company while a branch still holds foreign legal entity status and is dependent on its
parent company.

Representative office

In addition to obtaining investment licenses for establishment of a legal entity in
Vietnam, foreign companies which have business relations with Vietnam, or investment
projects in Vietnam, can apply to open representative offices in Vietnam.

A Representative Office (RO) is not an independent legal entity and is not
permitted to conduct direct commercial activities (such as execution of contracts,
direct payment or receipt of monies, sale or purchase of goods, or provision of
services). However, a RO can:

Act as a liaison office to study the business environment
Search for trade and/or investment opportunities and partners
Act on behalf of its head office to negotiate and sign contracts for the supply
or purchase of goods and services at the authorization of the parent company
(care needs to be taken for tax purposes)
Supervise and accelerate the implementation of contracts
Act on behalf of the parent company to supervise and direct the
implementation of investment projects in Vietnam; and
Publicize and promote its company’s goods and/or services
A RO is allowed to hire local Vietnamese and expatriate staff and conduct
various administrative functions on behalf of its company

A representative office may, however, not engage in any profit generating activities.

D.6 Investment incentives
The system of tax and other incentives offered to foreign investors and domestic
businesses is relatively complex. Standard benefits include reduced corporate tax
rates, tax-free periods or tax reductions during the start-up phase, land-rent
reductions and import-duty exemptions. As a general guide, the following
incentives are available to investors:

BOT projects

Incentives offered to BOT projects include the following:

Reduced Corporate Income Tax (CIT) rates e.g. 10% or 20% relative to the
statutory rate of 25%
Tax holiday for 4 years from the first profit-making year and a 50% reduction
in the applicable rate for the following 9 years
Exemption from certain import and export duties; and
Exemption from paying land use fees

Location in special zones

The Government encourages Vietnamese enterprises in all economic sectors,
foreign economic organizations and FIEs to invest in IZs, Economic and
High-Technology Zones (HTZs).

In Ho Chi Minh City, there are over 10 IZs which are in operation, covering a total
area of about 3,000 hectares. The city’s master plan for IZs until 2020 envisages
21 zones (17 IZs, 3 EPZs and 1 HTZ) covering a total area of 7,100 hectares.
There is a high-tech zone in Ho Chi Minh City.

These zones have the following infrastructure conditions:

Location: situated on a primary road transportation artery, or next to the port,
5km to 8km from the city center

Power source: directly connected to the national power network
Water source: connected to the city’s water system
Land rental: ranging from US$100 to US$250 per square meter, depending on
the leased area, its location, lease term, payment terms and infrastructure
conditions

Indirect investment

In addition to carrying out direct investment activities, foreign investors may
conduct indirect investments by way of purchasing shares, bonds and other valuable
papers; investing through securities investment funds and investing through other
intermediary financial institutions, where the investor does not participate directly
in the management of the investment activity.

D.7 Conditional sectors
Under the LOI, certain sectors are subject to particular conditions for investment. In
order to engage in these sectors, a foreign or local investor must meet certain
conditions set by the Vietnam Government including the conditions regarding forms
of investment, the conditions applicable to establishment of economic organizations
and conditions on market access.

In addition, a number of investment sectors are unconditional for Vietnamese
enterprises but conditional for foreign investors (e.g., exploitation and processing
of mineral resources, and investment in the fields of importing, exporting, trading
and distribution, etc.). The LOI and its guiding Decree No. 108/2006/ND-Cp
dated 22 September 2006 provide for such list of investment sectors, however,
relevant sectoral legislation shall provide the "conditions" that foreign investors
are required to meet. In certain industries, this may mean that the FOE may only
operate in the form of a foreign-invested JVE with the majority or minority
participation of a Vietnamese enterprise. In other sectors, FOEs operating in
conditional investment sectors may nevertheless operate as 100% FOEs but must
meet certain conditions of capital structure, project-specific experience and so
forth.

The List of Conditional Investment Sectors include the following sectors: television,
production and publishing of cultural products, telecommunications, transportation
by all means, cigarette manufacturing, exploring and processing natural resources,
real-estate business, education, and medical services distribution.

D.8 Investment licensing
D.8.1 Licensing authorities

The authorities who are authorized to issue establishment licenses to Vietnamese
and foreign-owned companies include (i) the PM of the Government whose
approval is limited to “investment policy”, (ii) the People’s Committees (PCs) in
the provinces and cities under the central state administration and (iii) the
management authorities of industrial zones, export processing zones, high-tech
zones and economic zones in the provinces and cities under the central state
administration (Management Authorities (MAs)).


The hierarchy of the investment approval and licensing authority is as follows:

Prime Minister:

Projects regardless of capital source or capital amount within specific
sectors (airports, seaports, mining, oil & gas, TV broadcasting, casinos,
cigarette manufacturing, universities, development of IZs, EPZs, HTZs
and ECs (Zones)
Projects regardless of capital source with capital amount over
VND1,500 billion within specific sectors (electricity, metallurgy, alcohol
and beer production, trading, etc.)
FDI projects regardless of capital amount within specific sectors (sea
transportation, post, telecom and internet networks, printing, etc.)

People committees (which almost all of the technical issues, i.e. receiving
application, reviewing application, etc. are handled by local Department of
Planning and Investment):

Projects outside Zones and not under PM’s approval authority
Projects for development of infrastructure in Zones in localities with no
MA

MAs:

Projects in zones and not under PM’s approval authority
Projects for development of infrastructure in Zones

All investment certificates (previously called “investment licenses”) are now
issued by either the relevant PCs or MAs. However, in specialized sectors, such
as banking or insurance, the relevant line ministries are still empowered with the
approval and licensing authority.

D.8.2 Licensing procedures
Depending on the size and the sector of investment, different licensing and
registration procedures will be applied:

Business registration
Investment registration; or
Investment evaluation

D.8.3 Business registration

Domestic projects of less than VND15 billion (approximately US$830,000),
and which are not included in conditional sectors are subject to business
registration procedures.

However, these projects shall be subject to investment registration where (i) they fall
within a conditional sector, or (ii) if they wish to apply for investment incentives
recorded in their license.


D.8.4 Investment registration

Registration procedures under the LOE and LOI apply to foreign investment projects
which have an invested capital of less than VND300 billion (approx. US$16.75 million)
and are not in a conditional investment sector.
Domestic invested projects with total invested capital of between VND15 billion to
VND300 billion (approx. US$16.75 million) are also subject to this registration
procedure. Local investors tend to set up their corporate entity separately and then file
for registration of any project without receiving an investment certificate.
Enterpriserises can register additional investment projects without the need to create a
legal entity.

D.8.5 Evaluation procedures

Apply to foreign and domestic invested projects which are:

Invested capital of VND300 billion or more; or
Included in the list of conditional investments

Foreign investors investing in Vietnam for the first time must have an investment
project and carry out either registration or evaluation procedures, in order for an
investment certificate to be issued.

What investment What investment
Who is entitled? process applies? document is issued?
Business Domestic investment None, unless None, Business
registration projects with invested investment Registration Certificate
(only) capital below VND15 incentives are issued under the (new)
billion (i.e. desired. LOE
US$830,000)
excluding conditional
projects

Investment Domestic investment Registration of For foreign projects,
registration projects with invested investment on sample Investment License (which
capital from VND15 form at provincial is also Business
billion to VND300 State administrative Registration Certificate) in
billion; foreign invested body for investment, the case of initial
projects with invested accompanied by establishment of economic
capital below VND300 prescribed organization to undertake
billion (approx. documentation first investment project);
US$16.7 million), (more onerous for For domestic projects,
excluding conditional foreign projects) Investment Certificate and
projects Business Registration
Certificate (a one-step but
two-part process)


What investment What investment
Who is entitled?
process applies? document is issued?
Investment Project which are in The Application For foreign projects,
evaluation/ conditional sectors; Dossier varies from Investment License
certification Projects with invested (i) projects below (which is also Business
capital of VND300 VND300 billion Registration Certificate
billion (approx. which are in in the case of initial
US$16.7 million) or conditional sectors, establishment of
more (ii) projects over enterprise to undertake
VND300 billion first investment
which are in project); For domestic
conditional sectors, projects, Investment
and (iii) projects Certificate and Business
over VND300 Registration Certificate
billion which are (a one-step but
not in conditional two-part process).
sectors.

Note: See the exchange rate at Appendix 2, page 75.

D.8.6 Application dossier

In general, the following documents are required for the establishment of a 100% FOE:

Request for the issuance of an investment certificate in the prescribed form
A draft charter of the company to be established
A list of investors in the prescribed format
A report of the financial capability of the investors
An economic and technical explanation of the project “Feasibility Study”
An explanation of how the conditions will be satisfied
The investor’s Certificate of Incorporation

Depending on particular case and during the evaluation process, the licensing
authority may request the investors to provide additional documents (such as
audited financial reports or banker letter of comfort) or further clarifications.


D.8.7 Post licensing procedures

Upon obtaining the Investment Certificate, a FOE is required to conduct certain
administrative formalities, including, but not limited to:

(i) Obtaining the seal and the seal registration
(ii) Placing an announcement of its establishment in a print or electronic
newspaper permitted to be circulated in Vietnam in three consecutive
issues
(iii) Opening a bank account
(iv) Registering the tax code
(v) Arranging accounting team/policy
(vi) Recruitment/register employees with relevant labor authorities

D.9 Labor and recruitment regulations
D.9.1 Labor recruitment by a FIE

Under the revised Labor Code, a FOE may either directly recruit Vietnamese
employees or recruit via an authorized labor agency. The FOE is then required to
register the list of recruited Vietnamese employees with the local labor
department, and submit reports on the utilization of and changes to staff to the
labor department on a periodic basis.

D.9.2 Registration of expatriate employees

All expatriates working for a Vietnamese employer for a period of more than
three (03) months are required to obtain a work permit. The employer is
required to submit applications to the local labor department to obtain work
permits for its expatriate employees.

D.9.3 Social insurance, health insurance and unemployment
insurance contributions for employees

The Law on Social Insurance (SI) became effective on 1 January 2007 which
providing guidance of SI and Unemployment Insurance (UI). The Law on Health
Insurance (HI) became effective on 1 July 2009. SI, UI and HI contributions are
compulsory for Vietnamese employees.

The SI contributions, 15% by the employer and 5% by the employee, are required
with respect to Vietnamese employees.

The UI contributions, 1% by the employer and 1% by the employee, are required
with respect to Vietnamese employees. It is only required for the employer that
has 10 employees or more.

HI contributions, which are 2% by the employer and 1% by the employee, are
also required to be made with respect to Vietnamese employees and also foreign
employee (effective from 1 October 2009). HI contributions, which will
increase to 3% by the employer and 1.5% by the employee effective from 1
January 2010. These contributions are calculated based on the contracted basic
salary, but capped at 20 times the minimum salary.


D.9.4 Minimum salary

Under the Decree No. 97/2009/ND-CP dated 30 October 2009 of the
Government, the current monthly minimum salary applicable to government
staff, employees working for SOEs and domestic enterprises from 1 January
2010 is divided into four levels depending on the location of the enterprises,
detail as follows:

For enterprises located in urban districts of Hanoi and Ho Chi Minh City
(Area I), the minimum salary paid for Vietnamese employees is
VND980,000
For enterprises located in Hanoi and Ho Chi Minh City’s rural districts, and in
certain districts of surrounding provinces, such as Hai Phong, Quang Ninh,
Vung Tau, Binh Duong, Dong Nai etc. (Area II), the minimum salary paid to
Vietnamese employees is VND880,000
For enterprises located in the rest of Hanoi, Ho Chi Minh City, Hai Phong,
Binh Duong, Dong Nai’s rural districts, and in certain districts of
surrounding provinces, such as Bac Ninh, Bac Giang, Hung Yen, Hai Duong,
Khanh Hoa, etc. (Area III), the minimum salary paid to Vietnamese
employees is VND810,000; and
The minimum salary of VND730,000 for Vietnamese employees shall apply
for enterprises located in other localities which are not defined above (Area
IV).

The monthly minimum salary for Vietnamese employees working for FOEs is
also divided into similar four levels depending on the location of the
enterprises, provided in Decree No. 98/2009/ND-CP dated 30 October 2009
which will be effective on 1 January 2010 detail as follows:

For enterprises located in Area I the minimum salary paid monthly for
Vietnamese employees is VND1.34 million
For enterprises located in Area II, the minimum salary paid to Vietnamese
employees is VND1.19 million monthly
For enterprises located in the Area III the minimum salary paid monthly to
Vietnamese employees is VND1.04 million
The minimum monthly salary of VND1 million for Vietnamese employees
shall apply for enterprises located in Area IV


D.10 Mergers and acquisitions
D.10.1 Regulatory aspects

During the process of investment within Vietnam, businesses with
foreign-invested capital and BCC are allowed to restructure their investment by
way of division, separation, merger or consolidation, or foreign investors may
convert their investment into a different legal form. Foreign investors can also
transfer their interest to other entities.

The LOI provides that investors are permitted to (i) contribute capital to; and
(ii) purchase shareholding in companies and branches operating in Vietnam.
However, the LOI also provides that the ratio of capital contribution and
purchase of shareholding by foreign investors in a number of sectors, industries
and trades will be regulated by the Government.

The Government Decree No. 108/2008/ND-CP issued on 22 September 2006,
stated that investors who intend to acquire an interest in businesses in Vietnam
must implement the provisions in the international treaties of which Vietnam is
a member with respect to the ratio of capital contribution, form of investment
and schedule for opening market; comply with the provisions in Law on
Competition and LOE and other related regulations.

D.10.2 Buying shares in existing companies

Foreign investors who intend to acquire an interest in a joint venture company or
a FOE 100% may do so by acquiring the capital contribution portion of another
existing foreign investor. A new foreign investor may acquire some or all of the
shares in an offshore company that holds the interest of an existing FOE, or the
foreign party in a joint venture may acquire the capital contribution portion of
its Vietnamese partner to convert the joint venture to a 100% FOE. A
Vietnamese party to a joint venture may also buy the foreign investors’ interest
to become a 100% local entity.

Gains from transfer of shares shall be subject to income tax on capital gains.
Transfer/purchase of assets (Assets deal)

In addition to purchasing shares from an existing company, the buyer buys the
assets of the target company. The cash the target receives from the sell-off is
paid back to its shareholders by dividend or through liquidation. This type of
transaction leaves the target company as an empty shell, if the buyer buys out
the entire assets. A buyer often structures the transaction as an asset purchase
to "cherry-pick" the assets that it wants and leave out the assets and liabilities
that it does not. This can be particularly important where foreseeable liabilities
may include future, unquantified damage awards, such as those that could arise
from litigation over defective products, employee benefits or terminations, or
environmental damage.

Asset deals have not been common in practice to date. The transaction is likely
to involve the following main steps:

Conduct a due diligence
Enter into a Memorandum of Understanding (MOU)

Obtain an approval in principle from the licensing authority for the proposed
transaction
Establish the FOE and obtain a tax code
Enter into a formal Asset Assignment Contract
Conduct procedures for transferring the Land Use Rights (LURs) and the
ownership of the factory

Tax treatment in this case shall differ from transfer of shares.

Sellers must charge output VAT (capital gains are VAT exempt). The gain and
loss derived from the sale of assets is taxable and deductible, respectively, for
EIT purposes.
Buyers must pay registration fees for assets of which the ownership is required
to register (i.e. housing, land, vehicles, boats or vessel). The applicable rate is
1% for housing, land, boats and ships, and 2% for other specified assets (such as
motor vehicles). However, registration fees are capped at VND500 million per
asset per transaction.

D.11 Dispute settlement
In Vietnam, legal disputes may be settled by negotiation, in court or by domestic
or foreign arbitration.

The judiciary

The hierarchy of Vietnamese courts include: (i) Supreme People’s Court; (ii)
Provincial People’s Courts; and (iii) District People’s Courts. The courts operate
in five divisions: (i) Criminal; (ii) Civil; (iii) Administrative; (iv) Economic and
(v) Labor.

Unlike common law countries, Vietnam does not follow the doctrine of
precedence under which cases decided by judges in the past are used as
authority for later cases. Judgments are based only on legislation and
principles of interpretation of the laws.

Running parallel to the court systems is the People’s Procuracy which is
responsible for supervising the operation of judicial authorities and exercising
the power of public prosecution. The People’s Procuracy can lodge protests
against a judgment and ask for its review.

Arbitration and dispute resolution

To supplement the court system, Vietnam has a system of independent
arbitration centers, established under the Commercial Arbitration Ordinance
(2003). An arbitral award given by an arbitration center or an arbitration panel
established by the parties in accordance with the provisions of the Ordinance
will be enforceable in Vietnam without need for prior recognition.

Disputes involving foreign investors may be also settled by foreign arbitration. In
1995, Vietnam became a member of the 1958 New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards. An arbitral award


given by a foreign arbitration will be enforceable in Vietnam after it is
recognized by a Vietnamese court.
Accordingly, where a dispute occurs:

Between parties in a BCC, between parties in a joint venture contract, or
between enterprises with foreign-owned capital or parties in a BCC and
Vietnamese economic enterprises: these shall firstly be resolved through
negotiation and conciliation. If the negotiation is not successful, the parties
involved in the dispute can agree to use one of the following methods to
settle:

The Vietnamese court
A Vietnamese arbitration body (the Vietnam International
Arbitration Center or an Economic Arbitration Center)
An international arbitration body; or
An arbitration tribunal as agreed by the parties, etc.

D.12 Exit provisions
The termination, liquidation, or dissolution of a FOE or a BCC shall occur in the
following circumstances:

Term of operation stated in investment license has expired
In accordance with JV contract, charter of company, etc.
In accordance with the decision by the investors
The licensing authorities decide to terminate the operation of a FOE or a
BCC
Relevant FOE or BCC is responsible for establishing a liquidation committee
to liquidate the assets of the enterprises or of the BCC
Where the liquidation process is complete, the FOE or BCC must submit a
report on the liquidation to licensing and other relevant authorities

D.13 Other investment related regulations
D.13.1 Foreign investment in the securities market

Foreign organizations and individuals are allowed to buy shares and other types
of securities (listed or non-listed) in the Vietnamese securities market.

D.13.2 Accession to trading service by foreign investor

Under WTO’s commitments, from 2009, 100% FOE on trading is allowed. Trading
activity and activities directly related to trading are defined under the
Commercial Law as exportation, importation, distribution, etc.

The importation right under Decree No. 23/2007/ND-CP dated 12 February
2007 (Decree No. 23) on trading and related activities of foreign-invested
companies in Vietnam is the right to import goods into Vietnam for sale to
dealers who have the right to distribute such goods in Vietnam. The right to
import, however, does not include the right to organize or take part in the
distribution of goods in Vietnam.


Based on Decree No. 23, a foreign invested company in Vietnam can carry out
importation activities, provided that the imported goods are sold to licensed
distributors.

Decree No. 23 sets out procedures for a foreign invested company to obtain a
trading license. Depending on the location of the company to be established and
the activity to be carried out, the licensing authority may be the Ministry of
Industry and Trade (a merger of former Ministry of Trade and Ministry of
Industry), the Management Board of Industrial Zones or the Provincial Peoples’
Committees.

D.13.3 Intellectual property rights

In recent years the Government has taken various measures to increase the
legal protection of intellectual property, and created an environment of respect
for intellectual property. Intellectual property rights are protected by the Civil
Code (1995 and 2005), the Law on Intellectual Property (2005) and a host of
subordinate legislation.

Vietnam is a long time signatory to the Paris Convention, the Madrid Agreement
on International Trademark Registration, and the Patent Cooperation Treaty
(PCT) and became a member of the World Intellectual Property Organization in
1976. On 27 June 1997, Vietnam entered into an Agreement on Copyright with
the US. According to the Vietnam - US Bilateral Trade Agreement, Vietnam is
also obliged to adhere to the Berne Convention.

The National Office of Industrial Property (NOIP) is the authority responsible for
the registration of industrial property and the resolution of disputes with regard to
industrial property in the first instance. Foreign organizations and individuals who
seek to register their industrial ownership should file their applications through an
authorized agent, who will transfer their application to the NOIP. Also, trademark
license agreements must be registered with the NOIP. The Office of Copyright
Protection under the Ministry of Culture and Information has also been established
and is responsible for the protection of copyright. Works may be registered with the
Ministry of Culture and Information; registration is however, not a prerequisite for
copyright protection.

Currently, patents are protected for a period of 20 years. A certificate of utility
solutions may be granted for 10 years. A certificate of industrial design is granted
for five years and may be renewed every five years; however, the total
effective period of a certificate cannot exceed 15 years. Certificates of
trademarks are granted for 10 years with no restrictions on the number of
renewals. Some moral rights of copyrighted works are protected indefinitely, and
other rights are protected up to 50 years for post mortem actors.

D 13.4 Competition regulations

With the Government’s committed and continuous efforts, Vietnam is
transforming from a centrally planned, socialist economy into a more
competitive market. On the one hand, SOEs continue to occupy monopoly
positions in key industries like electricity generation and distribution and
telecommunications with a market share of at least 80%. Other heavily regulated
industries tend to have some foreign and private sector participation but are

dominated by a state owned oligopoly where several large firms have a market
share of 10% to 40% each. These industries include cement, sugar, minerals and
petroleum, in which prices tend to be high and most firms are neither efficient
nor competitive.

On the other hand, the Government sees the merits of market competition and
as a result, the long-awaited Competition Law was passed in November 2004 by
Vietnam’s National Assembly. This law applies to business individuals and
organizations, professional associations, including foreign enterprises operating
in Vietnam, public utilities and state monopoly enterprises. If measures in other
laws contradict the Competition Law, the latter will prevail. The Competition Law
prohibits the following four broad types of anti-competitive activity:

Agreements that substantially restrict competition
Abuse of a dominant or monopoly market position
Concentrations of economic power that substantially restricts competition; and
Acts of unhealthy competition

An enterprise in a dominant or monopoly market position is prohibited from
carrying out the following practices aimed at maintaining or strengthening that
market position:

Deliberately (either directly or indirectly) increasing prices or temporarily
reducing prices to below production cost
Limiting production or distribution, or restricting the market or technical or
technological developments
Applying discriminatory commercial conditions
Imposing conditions for signing contracts for the purchase and sale of goods
and services, or forcing other enterprises to agree to obligations that are
not directly related to the object of the contract; or
Preventing market entry by new competitors

D.13.5 Use of electronic documents

Under the Law on Electronic Transaction issued on 29 November 2005 and the
Decree No. 26/2007/ND-CP dated 15 February 2007of the Government
Electronic documents are valid for implementing financial operations, account
entry or checking purposes only. They are not valid for transactions or
payments if they have been converted from written documents. An electronic
signature on an electronic document bears the same validity as a signature on a
written document.

D.13.6 Government inspection of FIEs

FOEs may be inspected by the following entities:

Investment license issuing bodies are entitled to carry out periodic checks
and inspections of FOEs
Other organizations as stipulated by law, may undertake random inspections
relating to their area of jurisdiction (i.e. tax authorities, labor authorities)

Procedures for inspection are defined by regulations.


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