The rule of law in Vietnam is undeveloped. It could take five to 10 years to get a case to court and the legal process is not corruption free. If it is important try to develop other ways to protect your investment. Vietnamese law may not give you a fair hearing.

It is essential to get well-informed legal advice before signing any contracts or legal documents.

Vietnam ranked out 49th of 133 countries for the efficiency of its legal framework in settling disputes in the World Economic Forum’s 2009-10 Global Competitiveness Report.

Get general advice on how to build an advisory team in the Export guide. 

There are a number of New Zealanders and/or New Zealand trained lawyers working in Vietnam. One of the largest foreign law firms, Frasers, is owned by a New Zealander, Mark Fraser.

There are also some excellent Vietnamese law firms in Vietnam which have lower cost structures than the international firms.

Your legal advice must come from a lawyer who has excellent language skills and extensive experience working with foreign companies already in-market. This would almost certainly be a locally based lawyer.

Vietnam is on the Office of the US Trade Representative’s Watch List of problem countries for intellectual property (IP) protection.

The US Government says Vietnam has taken significant steps to improve IP protection. However, deficiencies remain in existing legislation regarding copyright, data protection and patents. Additionally, piracy and IP infringement are still widespread in Vietnam and enforcement remains ineffective.

Get general advice on protecting your intellectual property in the Export guide. 

In Transparency International’s 2009 corruption perception index, Vietnam ranked 120th of 180 countries. It was 121st in 2008.

Main taxes

The standard Corporate Income Tax (CIT) rate is 25 percent. Preferential rates of 15 and 20 percent and exemptions apply to investment projects. These incentives are based on very sophisticated criteria such as investment in certain lines of business and/or encouraged geographical locations.

For personal income tax, resident taxpayers are classified as a person

• being present in Vietnam for 183 days or more within the calendar year or within 12 consecutive months from the first date of arrival in Vietnam;
  or
  
• having a permanent residence in Vietnam, including the registered permanent residence or rented house in Vietnam under a definite rent contract.

A non-resident taxpayer is a person who does not satisfy the conditions of tax residency. A flat tax rate is imposed on income of non-resident taxpayers. For employment income in Vietnam, a tax rate of 20 percent is applicable regardless of where the income is received.

Marginal tax rates for tax residents’ business income and employment income are:

Other taxes

Value Added Tax (VAT) applies to the supply of goods and services for use in production, business or consumption in Vietnam. The rates are 5 percent (for a number of encouraged essential goods and services) and 10 percent (applicable to most goods and services). Exports are zero rated. Some goods and services are exempt from VAT, for example unprocessed agricultural products sold by the producer. Foreign invested projects are exempt from VAT for machinery, equipment or specialised means of transportation and construction materials which are not yet able to be produced domestically.

Special Consumption Tax is applied to the production or import of goods and the provision of certain services, which are either luxury or discouraged for consumption such as alcohol.

Withholding tax applies to foreign organisations and individuals that have business incomes sourced in Vietnam, even though they do not have a physical presence in Vietnam.

Apart from taxation incentives, foreign investors may enjoy others such as refunds of VAT and import duty for exported goods or exemption of import duty or VAT for imported fixed assets.

Incentives

Deloitte Touche Tohmatsu says the tax and incentive systems are complex. Incentives include reductions on corporate tax rate, tax-free periods, land rent reductions and import duty exemptions.

All enterprises must use the Vietnamese Accounting System. Foreign-invested enterprises must have their annual financial statements audited by an independent auditing company.

Accounting reports and records must be kept for up to 20 years, depending on the type of reports or records.

Vietnam ranked 108th out of 133 countries for the strength of its auditing and reporting standards in the World Economic Forum’s 2009-10 Global Competitiveness Report.

The vast majority of international payments are made by letters of credit – this is also the recommended form. Locally signed contracts often include an advanced payment which (depending on the two sides’ relationship) would cover production costs.

Export-focused enterprises get preference when remitting profits.

Foreign investors in Vietnam are not subject to any tax when transferring dividends out of Vietnam. However, the licensing fees and service incomes (including interest on overseas borrowings) of foreign companies without legal status in Vietnam are subject to withholding tax at various rates.

Foreigners working in Vietnam may receive salaries, bonuses and allowances in foreign currency, but they must be deposited in interest-bearing foreign currency accounts in Vietnam.

A special, separate foreign currency bank account is needed to conduct certain capital transactions, including offshore transfers of legal capital, profits and revenue; offshore medium and long-term loan repayments; and foreign-currency withdrawals and deposits.

Another special account, known as a foreign currency deposit account, may be opened to receive foreign loans.

There is strict control of foreign exchange in Vietnam. The circulation of foreign exchange is not permitted except through the banking system or authorised enterprises. However, in practice foreign currencies, particularly the US dollar, are widely used.

There is no limit on the amount of foreign currencies brought into the country, (although if in cash it must be declared at the airport). All inward remittances must either be converted to Vietnamese dong or be deposited into a foreign-currency bank account.

Thirty percent of all foreign currency earnings must be converted into dong.

For foreign visitors the amount taken out of the country should not exceed the amount brought in, and without a special permit should not exceed US$7,000.

There are as yet no credit bureaus in Vietnam. Networks and relationships become important when assessing the financial standing of a company.

Get general advice on managing commercial risk including doing due diligence in the Export guide.

Get general advice on becoming a responsible exporter in the Export guide.

(Additional sources used on this page: STT Audit & Advisory Partnership, Economist Intelligence Unit, Deloitte Touche Tohmatsu)

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