investinG in vietnaM

kpmg.com.vn

MA

RIVN

01-1

011

ContentCHaPteR 1 – vietnaM – a BRieF OUtLine 1

1.1 Geography 21.2 Climate 21.3 Population and Religion 31.4 Language 31.5 Government 31.6 Infrastructure 4CHaPteR 2 – investMent OPPORtUnities 5

2.1 Vietnam Economy Overview 62.1.1 Economic Growth 62.1.2 Inflation 72.1.3 Economic Structure 72.1.4 Labour force 82.2 Vietnam's Accession to WTO 82.2.1 Goods schedule, Services Schedule and Vietnam's further liberalised market 82.2.2 Regulatory reform 8CHaPteR 3 – investMent CLiMate FOR FOReiGn DiReCt investMent 9

3.1 Investment Climate 103.2 Investment forms 113.3 Encouraged investment sectors 123.4 Investment incentives 133.5 Investment procedures 133.5.1 Licensing process 133.5.2 Licensing authorities 143.5.3 Cost and time frame of licensing procedures 143.5.4 Post-licensing procedures 14CHaPteR 4 - taXatiOn 154.1 Overview 164.2 Corporate Income Tax 164.2.1 Taxable Income 164.2.2 Deductions 164.2.3 Tax Rates 174.2.4 Tax Incentives 174.2.5 Tax Year 174.2.6 Losses Carry Forward 174.3 Value Added Tax 174.4 Special Sales Tax 174.5 Personal Income Tax 174.6 Import Duties 184.7 Foreign Contractor Tax 184.8 Relief from Tax 18

CHaPteR 5 – BanKinG anD FOReiGn eXCHanGe COntROL 19

5.1 Banking account 205.1.1 Direct investment 205.1.2 Indirect investment 205.2 Foreign Exchange Control 205.3 Rate of Exchange 215.4 The Use Of Foreign Currencies 215.5 Capital Transactions of Foreign Investors into Vietnam 225.6 Offshore Borrowing 225.7 Profit Remittance Regulations 22CHaPteR 6 – aCCOUntinG anD RePORtinG 23

6.1 Accounting Requirements 246.1.1 Vietnamese Accounting System 246.1.2 Fiscal year 246.1.3 Accounting Staff 246.2 Auditing Requirements 24CHaPteR 7 – eMPLOYMent 25

7.1 Recruitment 267.2 Labour contract 267.2.1 Notice of Termination 267.2.2 Working Hours 267.2.3 Wage Rates 267.2.4 Annual Leave 277.2.5 Severance allowance 277.3 Other issues 277.3.1 Trade Unions 277.3.2 Statutory Insurance 277.3.3 Visa/Temporary Residence Card 287.3.4 Work Permits 28CHaPteR 8 – LanD 29

8.1 Land used by foreign invested enterprises 308.1.1 Lease land from the State or other permitted lessors 308.1.2 Obtain the LUR by the way of receipt of capital contribution 318.2 LUR lease contract 318.3 LUR Transfer 328.4 LUR Mortgage 32CHaPteR 9- inteLLeCtUaL PROPeRtY 33

9.1 Protection of intellectual property 349.1.1 Types of Intellectual Property Right to be protected in Vietnam 349.1.2 Duration of protection for some IPRs 349.2 Registration of IPRs in Vietnam 35aBOUt KPMG in vietnaM 36

Chapter 1

vietnam – a Brief Outline

1.1 GeographyVietnam is located in the centre of Southeast Asia with a land area of approximately 330,363 sq km. It borders China to the north, Laos and Cambodia to the west, the East Sea and Pacific Ocean to the east and south.

Hanoi is the capital city, and Ho Chi Minh City is the largest commercial centre.

Vietnam has a beautiful long sea coast of 3,444 km, which is an ideal condition for development of maritime industry, trade and tourism in particular and for its emergence as a shipping centre for the South East Asia and the world in general.

Vietnam is predominantly a mountainous country, with mountains and forests covering three quarters of the land area. Its two main cultivated areas are the Red River Delta (15,000 sq km) in the north and the Mekong River Delta (40,000 sq km) in the south.

Diverse geographical structure together with hills, highlands and coastal areas are suitable for comprehensive economic zones.

1.2 ClimateVietnam is located in the tropical monsoon zone and has all the typical climatic features of warm weather, high humidity and abundant seasonal rainfall.

There are considerable variations in climate and rainfall patterns throughout the country. The Northern region experiences a more temperate climate with four distinct seasons: spring (from February to April); a hot and humid summer (from May to July); autumn (from August to October) and a cold and humid winter (from November to January). In the south, where the climate is more tropical, there are only two major seasons: a rainy season from May to October and a dry season from November to April.

the socialist Republic of vietnam is a south east asian country with a unique and rich history. after launching a political and economic renewal campaign (Doi Moi) in 1986, the country began to open its doors to the world’s economy, heralding a new era of transformation and challenges. today vietnam is seen as an emerging market belonging to the most dynamic economies of the world.

2

1.3 Population and ReligionVietnam’s total population is more than 87 million in 2010 with the average annual population growth rate of 1.1%, including males accounting for 49.4% and females accounting for 50.6%. The average population density is 260 people per square kilometre. Approximately 70% of the population reside in rural areas. Hanoi, Ho Chi Minh City, Hai Phong, Can Tho and Da Nang constitute 16% of the population. About 60% of the population is under the age of 25.

The population consists of 54 ethnic groups, of which 88% is Viet (Kinh) and the remaining 12% is ethnic minorities such as the Tay, Thai, Hoa (Chinese), Khmer, Hmong and others.

Literacy rate for the population aged 15 years and over is 94% in 2009. Currently, the Government has given priority to developing quality training and education system.

Major religions are Buddhism, Confucianism, Taoism and Christianity.

1.4 Language The national language is Vietnamese, which is widely spoken throughout the country by all ethnic groups. English is the most popular foreign language and widely spoken in some urban areas. English study is obligatory in most schools. Other common foreign languages are French, Chinese and Japanese.

1.5 GovernmentVietnam is a one party state where the Politburo and Central Committee of the Communist Party of Vietnam decide major policy issues, which are then implemented by the Government.

Constitutional and legislative powers are vested in the National Assembly, which is “the highest organ of state power”. The National Assembly has the power to approve and revise the Constitution and Laws, make important

3

decisions on national matters (policies on internal and foreign affairs, socio-economic factors, political factors, security factors, operations of state bodies), and supervise all operations of state bodies.

The President, as Head of State, represents The Socialist Republic of Vietnam on internal and foreign affairs.

The Government is the highest administrative state body of The Socialist Republic of Vietnam, and responsible for executing and managing political, economic, cultural, social, national defence, security and foreign affairs of the state bodies.

Ministries are responsible for the execution of state power in the certain industry or sector.

People’s Committee (province, district, and commune) governs management affairs within its administrative location, manages, directs, operates daily activities of local state bodies and executes policies of the relevant People’s Council and higher state bodies.

The Judiciary is comprised of the Supreme People’s Court, headed by the Chief Justice, who is accountable to the National Assembly. Provincial and district People’s Courts execute juridical power on criminal, civil, economic, labour and administrative issues.

People’s Procuracy (province, district) checks the law obedience of all state authorities, organisations and individuals. People’s Procuracy also executes the power of prosecutor in accordance with the law.

1.6 infrastructureThe Vietnamese Government has recognised the importance of having efficient infrastructure for economic development. Accordingly, there have been various programs to upgrade and expand the existing infrastructure. The main transport and communication networks in Vietnam are road, railways, shipping lines and airlines.

The main national road is Highway No. 1A, stretching from the border with China in the north through

Ho Chi Minh City and down to Mekong Delta Provinces in the south. Construction has just been completed on the Ho Chi Minh City to Phnom Penh section of the Trans-Asia highway. Construction works has also progressed on the 1,690km Ho Chi Minh Highway. This runs inland parallel to the current Highway No. 1A, and follows the wartime Ho Chi Minh Trail for most of its length. A number of the highways linking key economic regions have been upgraded.

Vietnam has about 3,200km of railway lines, 60% of which are in the northern provinces. Vietnam’s main key cities in the world by airline networks.

Sea transport remains an important aspect of trade both domestically and internationally. The major ports are located in Hai Phong, Da Nang and Ho Chi Minh City. A number of ports have been upgraded and many others are scheduled to be upgraded.

4

Chapter 2

investment Opportunities

5

2.1 vietnam economy OverviewVietnam is one of the fastest-growing economies in the past years in Asia and weathered the crisis quite well with signs of recovery observed in 2009. In 1986 Vietnam's Communist Party adopted "economic renovation" (Doi Moi) policy, which laid the foundation for a market-based system to replace the planned economy model. In addition, its accession into WTO and establishment of securities market along with equalitisation of state owned sector has created huge opportunities ever for foreign investors to exposure their business in Vietnam market. Furthermore, the positive prospect for economic growth, dynamic, young and low cost labour force and increasing role of private sector will also contribute to the

source: the economist intelligence Unit

flood of foreign capital and flourish presence of foreign enterprises in Vietnam.

2.1.1 economic growthVietnam economy is one of the highest growths in the South-East Asia, second after China globally in period of 1991-2007 and at present its prospect remains positive despite the persisting difficulties.

Vietnam’s real GDP achieved average growth rate of 7.34% in period of 2005-2009 before it declined to 5.3% in 2009 due to the global financial crisis which started in 2008.

Vietnam’s long-term economic growth prospects remain positive. According to economists, growth will accelerate to a rate of 6.6% - 7.2% in the period 2012-14. The country’s economic growth will be underpinned by rises in consumption, investment and exports.

GDP, GDP growth, inflation

6

2.1.2 inflationKeeping inflation under control while still boosting economic growth and ensuring the macroeconomic stability is one of major challenges of Vietnam Government in coming period. Consumer price index (CPI) in period of 2004-2006 was kept single digit before rocketing to the record of 23.1% in 2008 due to the effects of global financial crash and internal imbalances. The drop in the world’s food and fuel prices after the crisis has resulted in a slower pace of CPI of 7% in 2009. In 2011, the economy is again under great inflation pressure and the year end inflation rate is expected at about 19%, despite strict policies of the Government.

Given the Government’s determination in controlling inflation, CPI in coming years is expected to gradually decline. However, increase of global fuel price, continued increase of outstanding loans, and domestic demand pressures will remain challenges to the CPI.

2.1.3 economic structureEconomic sector observes a boom in number and rising role of private sector in the economy. Number of private enterprises has risen since the Enterprise Law was passed in 2000. The changes in Enterprise Law and Investment Law in 2005 also created new opportunities for foreign investors in Vietnam via establishing partnership with local private firms.

The establishment of Vietnam stock exchange in 2000 and the Government’s policy of privatising State Owned Enterprises opened room for foreign investors to invest in Vietnam market.

Economic structure is shifting from agriculture to industry-service with industry and service output accounting for approximate of 77% GDP since 2001. This transition results in wealth growth and rising consumption which create opportunities for foreign investors in expanding business in Vietnam, especially in domestic retail market.

7

2.1.4 Labour forceLabour force is one of Vietnam’s competitive advantages and accounts for an important part of its sustaining future growth. Vietnam is famous for its young, hard working, highly literate and easy-to-train labour force. In 2010, Vietnam’s work force is around 46 million with about 1.5 million people being added to labour force every year. However, training conducted by professional experts for employees is crucial to improve its capability in order to meet the investors’ requirement.

2.2 vietnam’s accession to WtOAs an inevitable progress of Vietnam’s immersion into the global market since the Doi Moi reform, the country started negotiations in early 1995 to discuss its accession to the world’s largest economic body, the WTO. For eleven years, Vietnam had demonstrated continued efforts in achieving high GDP growth, liberalising its market and transforming its regulatory environment. The nation officially became the WTO's 150th member on 11 January 2007.

WTO accession has brought about opportunities and positive challenges for Vietnam’s economic development and further reform the economy to become an attractive investment destination in the past few years, especially in terms of the more open market and improving regulatory environment.

2.2.1 Goods schedule, services schedule and vietnam’s further liberalised marketVietnam’s WTO accession agreement on goods commitments (“Goods Schedule”) requires for most cases a 5-10 percent reduction in tariffs for imported goods by 2012, including textiles, aquiculture products; automobile, automotive spare parts, and consumer goods among others.

In retail sector, after 1 January 2009, foreign companies can wholly own and operate retail companies with very few restrictions on products. The successful and rapid expansion of large retail groups, such as Espace Bourbon Group, Parkson, and Metro Cash and Carry in Vietnam for the past years are among the

most convincing examples of the more open Vietnam market to date thanks to Vietnam’s WTO commitment.

On the other hand, Vietnam’s commitment on services, (“Services Schedule”) describes in which services it is giving access to foreign service providers and any additional conditions, including limits on foreign ownership in the service sectors. The WTO services schedule is quite specific on timeframes for increased participation of foreign investors.

2.2.2 Regulatory reformPrior to joining WTO, Vietnam revamped much of its legal system, making revisions of major legal frameworks, specifically Labour Code, Land Law, Civil Code, Law on Securities, Law on Competition, Enterprise Law and Investment Law, in order to make the investment environment more transparent. As a matter of fact, WTO accession with the challenges associating with MNC’s market entries has helped to revolve Vietnam’s legal environment to be more transparent and more conform to international standards in all aspects.

8

Chapter 3

investment Climate For Foreign Direct investment

9

3.1 investment ClimateVietnam has emerged as one of the most attractive destinations for foreign investments. Foreign investors are beginning to regard Vietnam as a key strategic investment location to achieve cost-effectiveness of their global supply chains. Already over half of the US Fortune 100 companies have establishments in Vietnam. Vietnam is becoming more attractive with its continuing tax incentives, low-cost labour, and long coastline with increasingly modern and sophisticated port infrastructure.

Vietnam Government has made considerable effort in recent years towards improving the country’s business and investment climate by issuing positive legislative measures. These legislative changes, combined with Vietnam’s accession to the World Trade Organisation (WTO) in January 2007, have significantly paved the way for increased foreign direct investment (FDI) in the country. In 2007, Vietnam’s FDI increased to more than US$21 billion from US$12 billion in 2006. The country’s FDI hit a record in 2008, trebling 2007’s figure, reaching almost US$72 billion. Due to the global financial crisis, FDI registered in 2009 and 2010 was decreased, yet the disbursement, both in terms

source: General statistics Office of vietnam, Ministry of Planning and investment

Foreign Direct investment

10

3.2 investment FormsForeign investors shall carry out the following forms of investment in Vietnam:

Direct investment indirect investment

• Establish economic organisations such as shareholding companies or limited liability companies;

• Invest in the contractual forms of: Business Cooperation Contract (BCC), Build Operate Transfer (BOT), Build Transfer Operate (BTO), and Build Transfer (BT) Agreements;

• Purchase shares or contribute capital in order to participate in management of business entities;

• Invest by way of mergers and acquisitions

• Purchase of shares, share certificates, bonds and other valuable papers traded on the stock exchanges;

• By way of securities investment funds • Investing through other intermediary financial

institutions

The forms of commercial presence that foreign investors can set up in Vietnam are presented as follows:

• Representative Office;

• Branch

• Wholly foreign invested enterprise

• Joint venture with Vietnamese partner(s).

of value and percentage, improved compared to that of 2007, which shows the retained confidence of foreign investors in Vietnam market.The role of the private sector and foreign investors in the economy has been increasingly emphasised. “Business forum” meetings and dialogues are frequently held between the Government and the private sector and foreign investors. Those are great opportunities for businesses, especially the foreign

sector raise their voice over the important legislative issues, for example: investment impediments imposed by Vietnamese law and regulation as well as by improper implementation.

There have been certain positive trends in the attraction of FDI into Vietnam. Most notably, together with the lift of ban on foreign investment in retail distribution sector, FDI into Vietnam is now directed not only at export processing industries,

but has also diversified and shifted fundamentally into highly value-added services, high technology and energy-saving industries sectors.

The integration into the world’s largest economic organisation, in general, has liberalised further the country’s trade regime, renovated the regulatory environment to foster a safe and attractive investment environment simultaneously.

11

3.3 encouraged investment sectorsThe Government of Vietnam is seeking to attract increased investment across a wide array of sectors. According to the Law on Investment, the following sectors are encouraged:

• Production of new materials and of new energy; manufacture of products of high-technology, of bio-technology and of information technology; mechanical production.

• Breeding, growing and processing agricultural, forestry and aquaculture products; salt production; creation of man-made varieties, new plant and animal varieties.

• Use of high technology and advanced techniques; protection of the ecological environment; research, development and creation of high-technology.

• Labour intensive industries. • Construction and development

of infrastructure facilities and important industrial projects with a large scale.

• Professional development of education, training, health, sports, physical education and ethnic cultures.

• Development of traditional crafts and industries.

Also, foreign investors are encouraged to invest in specific areas:

• Areas with difficult socio-economic conditions; areas with specially difficult socio-economic conditions.

• High-tech zones and economic zones.

12

3.4 investment incentivesUnder the current laws of Vietnam, there are various investment preferences and incentives to investors who have investment projects in the preferential investment sectors and/or areas as follows:

• Corporate Income Tax (“CIT”) exemption and CIT reduction from the first profit making year.

• A preferential CIT rate of 10% to 20%.

• Import duty exemption on the importation of equipment, materials, means of transportation and other goods for implementation of investment projects in Vietnam in accordance with the Law on Export and Import Duties;.

• Land rental exemption or reduction.

• Accelerated depreciation of fixed assets.

• Losses carry forward.

3.5 investment procedures3.5.1 Licensing processForeign investors who invest in Vietnam for the first time must apply for an investment certificate with the licensing authorities. The investment certificate for a foreign investment project in Vietnam can be granted by either of the following processes:

• Registration of an investment certificate application; or

• Appraisal of an investment certificate application.

Generally, the registration process only applies to projects with investment capital less than three hundred billion dong (approximately USD 16 million) and does not belong to the list of business sectors in which investment is conditional or prohibited. Under the registration process, the application documentation is simpler and the

time frame for issuing an investment certificate is shorter (within 15 working days upon the authority’s receipt of complete application).

For projects that do not qualify for registration, the appraisal process will apply (e.g projects with investment capital more than three hundred billion dong and/or projects belong to the list of business sectors in which investment is conditional). Accordingly, the application documentations required are more sophisticated, the time frame for issuing the investment certificate is prolonged (legally, up to 30 working days upon the authority’s receipt of complete application and may be further delayed). In appraisal cases, the authority reserves the right to reject the project.

13

3.5.2 Licensing authoritiesUnder the Law on Investment, with the exception of important national projects in specific sectors (such as construction and operation sea ports, air ports, casinos, universities and other projects) and certain investment projects with investment capital from VND1.5 trillion (approximately USD75 million) or more which must be approved by the Prime Minister, the authority for approving foreign investment is generally given to the People’s Committee (PC) of the province/city where the foreign invested enterprise (FIE) is proposed to be located.

If the FIE is located in a special-purpose zone/area (Export Processing Zone, Industrial Zone, Special Economic Zone, or High Tech Zone) the licensing authority will be the Zone’s Board of Management who has full rights and obligation to grant an Investment Certificate to the FIE.

3.5.3 Costs and time frame of licensing proceduresThere will be no government fees for the assessment of the application documents and issuance of the investment certificate.

According to the current regulations, depending on whether appraisal or registration is required, the licensing authority will have 30 or 15 working days respectively to approve or reject the project. The new Law on Investment explicitly provides that in all cases, the time frame for approval must not exceed forty five (45) days. However, delays should be expected in practice.

3.5.4 Post-licensing proceduresAfter the investment certificate is issued to the FIE, there are a number of statutory post-licensing procedures that the FIE needs to complete before it can commence commercial operations stipulated by the laws of Vietnam.

14

taxation

Chapter 4

15

4.1 OverviewThe Vietnamese taxation system has undergone many (and expected to continue) major transformations that includes major changes in: Corporate Income Tax, Value Added Tax, Foreign Contractor Tax and Law on Personal Income Tax. The changes generally occur frequently and although with good intention, the enforcement mechanism as well as the ruling process is often limited in capacity.

The main categories of tax imposed in Vietnam are as follows:

• Corporate Income Tax • Value Added Tax • Personal Income Tax • Foreign Contractor Tax • Special Sales Tax • Import and Export Duties

4.2 Corporate income taxThe Corporate Income Tax (“CIT”) Law applies to all domestic and foreign entities that invest in Vietnam. The CIT Law expands the taxpayer pool to include all foreign enterprises having income from Vietnam regardless they have a permanent establishment in Vietnam or not.

4.2.1 taxable incomeTaxable income is defined as income derived from production, operation, and other sources from all business sectors and industries.

4.2.2 DeductionsIn general, deductible expenses for corporate income tax purposes are reasonable expenses incurred related to income-producing activities of the business with supporting legal documentation.

16

4.2.3 tax RatesThe corporate tax rates are classified into three categories as follows:

4.2.4 tax incentivesPreferential tax treatments such as tax exemption, tax reduction, and preferential rates (10% and 20%) are limited to:

• Encouraged sectors such as: healthcare, education, high-tech, infrastructure development, and software;

• Encouraged special economic zones or areas with difficult socio-economic conditions.

The taxpayer must self-assess the applicable incentives in accordance with the current tax regulations.

4.2.5 tax YearCorporate taxpayer can elect to adopt calendar or fiscal year ending on a quarter of a calendar year as the basis for the tax year.

imposed on a selected number of goods and services, either at the stage of production, provision of services or import. Export products are exempted from SST. The tax is calculated based on the selling price at the place of production excluding this tax and VAT, or CIF price plus import duty with respect to import products.

4.5 Personal income taxBoth foreigners working in Vietnam and Vietnamese citizens are subject to PIT.

For tax resident, a progressive taxing system, where the marginal rate range from 5% to 35%, is applied on the worldwide income.

For non-tax resident, a flat rate of 20% is applied on the income derived from Vietnam.

In general, a tax resident is a person:

• Present in Vietnam for at least 183 days; or

• Having a regular resident location in Vietnam; or

• Cannot be a tax resident of another country (subject to applicable double tax agreement).

A tax resident is allowed VND 4M as a personal deduction from his/her employment or business income and VND 1.6M per dependant as qualified dependant deduction.

4.2.6 Losses Carry FowardTax losses are allowed to carry forward for a period of (5) consecutive years. Tax loss must carry forward and offset against the first year making profit (i.e. the taxpayer cannot elect to skip offsetting loss in the profitable year)

4.3 value added taxThe VAT system in Vietnam applies to goods and services used for production, business and consumption in Vietnam. Two methods can be used to calculate VAT payable/refund. Taxpayers meeting the requirements can apply the credit method. VAT payable/refund under the credit method is the difference between VAT Output (VAT collected for sales) and VAT Input (VAT paid for purchases). Taxpayer not qualified for the credit method can apply the direct method. Under the direct method, taxpayer will pay VAT by applying a deem rate on the added value of the transaction. Corporate taxpayer is required to file and pay VAT on a monthly basis. The standard VAT rate is 10%, but the rates are classified into four groups: exempt, 0%, 5%, and 10%.

4.4 special sales taxSpecial Sales Tax (“SST”) is

Standard Tax Rate 25%

Preferential Tax Rates

20% or 10%

Other Tax Rates (e.g. oil & gas operations; natural resources industry)

32% - 50%

17

4.6 import DutiesAll goods entering Vietnam are generally subject to import duty. Import duty rates vary depending on the nature of goods involved and origin of the goods. There are three import duty rates applicable (ordinary, preferential and especially preferential), based on the trading relationship between Vietnam and the exporting country.

A partial or full exemption from import duty may be granted on application. Raw materials and components imported into Vietnam for the manufacture of goods for export are usually exempt from import duty provided that the goods are exported within 275 days. Enterprises with foreign-invested capital and parties to a BCC in specially encouraged projects are exempt from import duty in respect of certain imported goods which form part of their fixed assets.

4.7 Foreign Contractor taxForeign organisations and individuals carrying on permitted businesses in Vietnam without a legal entity are subject to Foreign Contractors Tax (“FCT”) comprising VAT and CIT. Applicable taxation rates will vary depending on whether a foreign contractor

registers to use the Vietnamese Accounting System (“VAS”). The standard FCT rate is 10% but different rates can apply depending on the transactions and taxpayer’s filing status.

4.8 Relief from taxAs of June 2011, Vietnam has signed DTAs with more than 60 countries, out of which 50 DTAs are currently in force. Generally, these DTAs follow the basic principles contained in the OECD Model Convention.

For a country which has a DTA with Vietnam, a foreign tax credit is also available to resident taxpayers in respect of foreign taxes paid. Generally, provisions of DTAs prevail over the domestic tax laws.

The amount of credit given is the lower of the tax suffered in the foreign country or Vietnamese CIT attributable to the foreign income. There is no provision in Vietnamese tax law allowing excess foreign tax credits to be carried forward.

The application of a DTA clause is not automatic. An official approval for tax relief must be obtained from the tax authorities.

18

Chapter 5

Banking and Foreign exchange Control

19

5.1 Bank account

5.1.1 Direct investmentForeign invested enterprises and foreign parties to business co-operation contract must open a foreign currency account at an authorised credit institution to undertake the following transactions:

• Receipt of charter capital contributions, receipt of other capital and receipt of foreign loan

• Disbursement outside Vietnam of principle, interest and fees on a foreign medium or long-term loan.

• Disbursement outside Vietnam of capital, profit and other legal revenue of a foreign investor.

• Other revenue and disbursement transactions relating to foreign direct investment activities.

Of note, all transfer of capital for a direct investment project in Vietnam and to overseas must be conducted via a capital account in foreign currency opened at an authorised credit institution.

Foreign invested enterprises may open current accounts/transaction accounts in foreign currency and Vietnamese Dong at authorised banks in Vietnam for their business transactions.

In addition, foreign invested enterprises may be permitted to open offshore foreign currency bank accounts subject to approval granted by the State Bank of Vietnam (SBV).

5.1.2 indirect investmentNon-resident foreign investor must open a capital Vietnamese Dong account at an authorised credit institution to conduct indirect investment in Vietnam. Investment capital in a foreign currency must be converted to Vietnamese Dong before the indirect investment is

carried out.

An indirect investment capital Vietnamese Dong account shall be used to implement the following transaction:

• Receipt from a sale of foreign currency to an authorised credit institution;

• Receipt of salary, bonus and other lawful items of income by a non-resident being a foreign investor;

• Receipt from the assignment of capital contribution and shareholding, from the sale of securities, dividends and other items of revenue arising from indirect investment activities;

• Disbursement being a capital contribution, purchase of shareholding, purchase of securities or payment of other expenses relating to indirect investment activities;

• Disbursement for purchase of foreign currency at an authorised credit institution in order to remit it overseas;

• Disbursement being payment of other expenses arising in Vietnam;

• Other revenue and disbursement transactions relating to indirect investment in Vietnam.

5.2 Foreign exchange ControlGenerally speaking, the inflow of foreign currencies into Vietnam is less constrained by the SBV compared to the outflow, which has been restricted to certain transactions such as payment for imports of goods and services, repayment of loans contracted abroad and payment of interest accrued thereon.

Only banks, non-bank credit institutions and other authorised institutions are eligible to provide foreign exchange services.

20

5.3 Rate of exchangesThe inter-bank average exchange rate against the United States Dollar (“USD”) is announced by the SBV. Credit institutions authorised to engage in foreign exchange activity shall determine their own buying and selling rate within a 1% difference of the average exchange rate as stipulated by law. In the

context of continued devaluation pressure of Vietnam Dong (“VND”), the inter-bank average exchange rate shall be adjusted by SBV more regularly to reflect market demand and supply; hence improve the liquidity of currency market. For all other foreign currencies, the credit institutions authorised to engage in foreign exchange activity shall determine their own buying and selling rate.

5.4 the Use of Foreign CurrenciesThe VND is the country’s official currency, and may be chosen as a mean of payment and remittance. However, other currencies such as USD may also be nominated as a mean of payment and remittance in certain situations (hereby called current transactions). Payment and remittance of money for current transactions comprises:

• Payment and remittance of money relating to import and export of goods and services

• Short term commercial credit loans and bank loans

• Income generated from direct and indirect investments

• Money transfers when the decrease of direct investment capital is permitted

• Payments of interest on and instalment repayments of principal of foreign loans

• One-way payments for consumption purposes

• Other similar transactions.Source: The Economist Intelligence Unit

exchange rate vnD:UsD (end-period)

21

Residents and non-residents shall be responsible to present supporting documents in accordance with regulations of credit institutions when the former purchase, remit or carry foreign currency overseas in service of current transactions and shall be legally liable for the authenticity of all types of documents which they present to the credit institutions.

In order to buy foreign currencies from banks to settle current transactions and other permitted transactions, individuals and enterprises must submit relevant documents to prove their real demand for foreign currencies for such transactions. Based on the customers’ demand and the banks’ foreign currency capability, the banks will decide the amount of foreign currency to be provided to customers.

If VND is used to pay current transactions, both residents and non-residents shall be permitted to remit it via a VND bank account.

5.5 Capital transactions of Foreign investors into vietnamGenerally, capital transaction means a transaction for the purpose of transferring capital between a resident and a non-resident in the following sectors:• Foreign direct investment• Investment in valuable papers• Borrowing a foreign loan and

repayment of a foreign loan• Providing and recovery of a

foreign loan.

5.6 Offshore BorrowingIn theory, legal entities and individuals residing in Vietnam shall be permitted to borrow and repay foreign loans as long as they comply with the conditions on borrowing and repayment of foreign loans as stipulated by the State Bank of Vietnam (SBV).

On repayment, residents shall be entitled to purchase foreign currency at authorised credit institutions on presentation of proper documents for repayment of principal, interest and fees relating to the foreign loan.

5.7 Profit Remittance RegulationsLawful revenue in VND derived from Foreign Direct Investment as well as Foreign Indirect Investment shall be permitted to be converted into foreign currency for the remittance abroad via authorised credit institutions. There is no profit remittance tax.Prior to remitting profits abroad, residents shall notify the tax office directly managing the enterprise in which such foreign economic organisation or individual has invested capital. Enterprises can expect that this may initiate a tax audit, further questioning or investigations.

22

Chapter 6

accountingand Reporting

23

6.1 accounting Requirements6.1.1 vietnamese accounting systemEnterprises with foreign-owned capital, foreign parties to business co-operation contracts and foreign contractors having resident base in Vietnam (collectively “FIEs), are required to adopt the Vietnamese Accounting System (“VAS”), Vietnamese Accounting Standards and their interpretive guidance (“VAS”)

The requirements of VAS include:

• The use of Vietnamese language or both Vietnamese language and another widely used language approved by the Ministry of Finance in the preparation of accounting records.

• Vietnam Dong as the currency unit in accounting. Only in limited cases can FIEs use a “foreign currency” as the currency unit in their accounting records.

• VAS chart of accounts must be complied with.

• All reports must be printed on a monthly basis

• Numerous reports must be produced as specified in the VAS regulations.

6.1.2 Fiscal yearThe fiscal year applicable to FIEs in Vietnam is normally the 12 months, commencing on 1 January and ending on 31 December of each calendar year. FIEs may apply to the local tax authority for permission to adopt its own 12-month fiscal year, commencing

from the first day of a quarter and ending on the last day of the previous quarter in the following year.

Where the first fiscal year is of shorter duration than 90 days, it shall be permitted to add such period to the following fiscal year in order to make up 1 one fiscal year provided the first fiscal year must be shorter than 15 consecutive months.

6.1.3 accounting staffThe enterprise is required to employ a Chief Accountant who must satisfy the criteria and conditions stipulated by the Law on Accounting. A foreigner may be appointed to act as the Chief Accountant of the enterprise, provided that he/she must has a certificate of accounting expertise or an accounting/auditing certificate issued by a foreign organisation recognised by the MOF; or an accounting/auditing professional practising certificate issued by the MOF; or a Chief Accountant certificate obtained after having passed the chief accountant's training course as prescribed in regulations of the MOF.

6.2 auditing RequirementsThe annual financial statements of FIEs have to be audited once a year in accordance with Vietnamese regulations. The audit must be carried out by an independent auditing company that is permitted to operate in Vietnam. The enterprise is legally responsible for providing timely and sufficient information, as well as explanations to the auditor.

24

Chapter 7

employment

25

7.1 RecruitmentUnder the Labour Code, a FIE may either directly recruit Vietnamese employees or recruit via an authorised labour agency. The FIE is then required to register the list of recruited employees with the local labour department, and submit reports on the utilisation of and changes to staff to the labour department on a periodic basis.

7.2 Labour contractAccording to Vietnamese Labour Code, labour contracts signed by and between employer and employee must be made in one of the following forms:

(i) Labour contract with indefinite term;

(ii) Labour contract with definite term; and

(iii) Labour contract for seasonal jobs or specific jobs with a term of fewer than 12 months.

An employer will be entitled to sign a maximum two subsequent definite labour contract with an employee. After that, if that employee continues to work for the employer, an indefinite labour contract must be signed.

7.2.1 notice for terminationEmployers shall be entitled to unilaterally terminate the labour contracts in the following cases:

• The labourers regularly fail to finish the contractual jobs;

• The labourers are disciplinarily dismissed; and

• The labourers got sick and have undergone medical treatment for a long time;

• Enterprises have to downscale production and cut jobs due to natural calamities, fires or other force majeure reasons;

• The enterprises terminate their operation

When unilaterally terminating the labour contracts with indefinite

term, definite term or the labour contract under 12 months for seasonal or specific jobs, except for the case of the labourers are disciplinarily dismissed , employers must inform the employees in advance at least 45 days, 30 days or three days respectively.

7.2.2 Working HoursNormal working hours are eight hours per day (or 48 hours per week based on a six-day working week). Enterprises are entitled to schedule the working hours daily or weekly but must notify the employees in advance. For heavy, noxious or dangerous jobs, work hours per day shall be shortened by one or two hours.

Overtime hours shall not exceed four hours per day or 200 hours per year. In case a company would like the overtime granted more than 200 hours a year, it must seek the approval from the local Department of Labour, Invalid and Social Affair (“DOLISA”). However, any approval is still in the cap of 300 hours a year.

7.2.3 Wage RatesThe wage costs in Vietnam are generally low, however the cost of PIT and other mandatory contributions such as social security and health insurance, as mentioned below, may significantly increase total labour costs.

In respect of expatriates, these costs depend on the residency status and the remuneration structure of the expatriate. There are other administrative costs associated with the employment of expatriate staff such as work permits, residency registration, insurance, etc.The minimum wages of Vietnamese employees working for FIEs or other foreign organisations will vary depending on different zone classifications set forth by the government.

26

7.2.4 annual Leave

In addition to having fully paid days off on public holidays, an employee is entitled to a fully paid annual leave of 12 days with one additional day for every five years of service. Employees working in certain areas, of a certain age, or who have been with an enterprise for a certain time, may be eligible for greater periods.

7.2.5 severance allowance

Under current labour regulations, when an employee who has been regularly employed by an employer for twelve (12) months or more is terminated their employment, they are entitled to receive a severance allowance from the employer at half of one month salary plus wage allowances (if any) for each year of employment1.

The period of employment service used as the basis for the calculation of the severance allowance will be the total length of various labour contracts signed between the Company and each employee, including probation period and verbally-concluded contracts. Odd lengths of employment period will be calculated as follows2:

• Period of under one month will not be counted;

• Period of over one month but less than six months will be counted as 6 months; and

• Period of from six full months but less than 12 months will be counted as a full year.

From the 1st January 2009, the new Law on Social Insurance has introduces the unemployment insurance scheme to replace for severance payment, therefore, the severance allowance is only calculated until 31 December of 2008.

Contributed By

si

Hi Ui2011 2012-

20132014

Onwards

Employee 6% 7% 8% 1.5% 1%

Employer 16% 17% 18% 3% 1%

total 22% 24% 26% 4.5% 2%

7.3 Other issues7.3.1 trade UnionsWithin six months after an enterprise commences operation, trade unions shall be organised to represent and protect the legitimate rights and interests of individual labourers and labour collectives.

All acts of obstructing the setting up and operation of trade unions at enterprises are strictly forbidden.

7.3.2 statutory insurance • Under current regulations,

both the employer and the Vietnamese employee are required to make statutory Social Insurance (SI), Health Insurance (HI) and Unemployment Insurance (UI) contributions.

• Expatriates contractually employed by the local entity for 3 (three) months and more are required to make statutory HI contribution only.

• Income for statutory SI, HI and UI contributions is based on the salary and wages stated in the employment contract and is capped at 20 (twenty) times of the statutory minimum monthly salary (which is normally lower than the above mentioned minimum salary).

• Statutory SI, HI and UI contributions should be deducted, withheld and paid to the local social insurance authority on a monthly basis by the employer.

• The rates for statutory SI, HI and UI contributions are as below:

1 Article 42.1 of Labour Code2 Circular No.21/2003/TT-BLDTBXH dated 22/09/2003, amended by Circular No.17/2009/TT-BLDTBXH dated 26/05/200927

7.3.3 visa/temporary Residence CardTo visit Vietnam, foreigners are required visas which must be obtained in advance from an overseas Vietnamese embassy or consulate. Visas are only issued on entry to the country in exceptional circumstances, such as for funerals of relatives, for visits to seriously ill relatives, urgent technical support for programs, projects or departure from a country that does not have a Vietnamese consulate or diplomatic representative.

Citizens of the following countries do not require a Vietnamese entry visa for stays of specified periods, ranging from 15 to 30 days: Denmark, Finland, Norway, Sweden; Russia; Japan, Korea (South); Laos, Indonesia, Malaysia, Singapore, Thailand, Philippines,

and Cambodia. Moreover, those entering Vietnam with diplomatic, official and special passports enjoy entry visa exemption for up to 90 days in accordance with bilateral treaties.

Foreigners who temporarily reside in Vietnam for more than 1 (one) year are able to apply for the temporary residence cards which will be issued by the Immigration Department of Department of Public Security (DOPS). The duration of each temporary residence card will be from 1 (one) to 3 (three) years. A foreigner who has the temporary residence card shall be exempted from applying for a visa when entering and leaving Vietnam during the period of validity of the temporary residence card.

7.3.4 Work PermitsForeigners working for business entities and organisations in Vietnam must obtain a work permit, except the specific cases as stipulated by the current laws of Vietnam.

To apply for work permit, an application dossier must be submitted to the local DOLISA where the company locates it head office for approval. It takes 10 business days to process the application for issuance of the work permit. The work permit is valid for up to 36 months and may be extended under the specific circumstances stipulated by the current regulations of Vietnam.

In the case of being entitled to exemption from application for work permits, the foreigners are still required to make notification to the local DOLISA for administrative management purpose.

28

Chapter 8

Land

29

8.1 Land used by foreign invested enterprisesIn Vietnam, land belongs to all people with the State being the representative owner. As such, private ownership of land is not permitted but the ownership deriving from land use right (“LUR”) is recognised. LUR is evidenced by a LUR Certificate (“LUR Certificate”) which set out the term and purpose of the land use.

Issues in relation to the use of land are mostly governed by the Land Law and its guiding regulations. In addition, the Civil Code as the principal source of law also covers issues relating to land.

The prevailing law does not allow foreign invested enterprises (“FIEs”) to purchase the LUR while the domestic enterprises are allowed to do so. In Vietnam, foreign investors could obtain the LUR by the way of either (i) leasing land from the State or other permitted lessors or (ii) Receipt of capital contribution in the form of value of the LUR from the Vietnamese parties to joint venture companies (“JVC”).

8.1.1 Lease land from the state or other permitted lessorsIn case leasing land directly from the State, the FIE can choose to pay land rental either annual payment or lump-sum payment method. Under the annual payment method, the FIE only has right to use the land, transfer assets attached to the land but not permitted to transfer, sub-lease or mortgage the LUR. Whereas, with the lump-sum payment method, the FIE is entitled to transferring, sub-leasing, contributing, mortgaging and guaranteeing LUR and assets attached to the land.

In case of lease land from other permitted lessors rather than the State, the FIE may lease land form the following organisations or individuals provided that the lessors satisfy some conditions stipulated by the laws :

• Vietnamese economic organisations;

• Overseas Vietnamese; or • An existing FIE which leases

land from the State and develops infrastructure facilities on land provided that this existing FIE has paid land rental for the entire lease term.

30

8.2 LUR lease contractThe current law provides that the lease term shall be determined based on the term of investment projects, but not exceed fifty (50) years. In some special circumstances, the term may be extended up to seventy (70) years. Upon the expiration, the lease term may be extended if the lessee wishes to continue using the land.

To lease the LUR, the lessee and the lessor must made a contract. The LUR lease contract must be in written form and notarized by the State notary public. In the case of contracts of lease of LUR of family households and individuals, certification may be effected by either the State notary public or the People's Committee of the commune, ward or township where the land is situated. In addition, application dossier for LUR lease must be submitted to the LUR Registration Office for approval.

8.1.2 Obtain the LUR by the way of receipt of capital contributionUnder the current regulations, the Vietnamese party to a JVC is permitted to make capital contribution in the form of value of the LUR if it is in any of the following circumstances:

• It has obtained the land under the allocation regime and fully paid the land use fee; or

• It has obtained the land under the lease regime and fully paid the land rental for the entire lease term or for the majority of the term and the remaining prepaid term is of at least 5 years.

Upon the issuance of the Investment Certificate, the JVC shall be issued the LUR Certificate as the result of the capital contribution.

31

8.3 LUR transferAs mentioned above, the LUR owner paid land rentals in lump-sum for the whole lease terms shall be entitled to transfer LUR and assets attached to the land to others.

Similar to the case of lease of LUR, contract for transfer of LUR must be in written form, notarised by the State notary public and registered at the LUR Registration Office for approval.

The transferor shall be taxed on the income derive from the LUR transfer and the transferee shall be required to pay LUR transfer fee.

8.4 LUR MortgageThe current laws permit the LUR owners to mortgage a part or whole of their LURs and assets attached to the land at credit institutions licensed to operate in Vietnam.

To be eligible for executing this right, it should be noted again that the land users are required to pay land rentals in lump-sum in advance for the whole lease terms.

The mortgage of LUR and assets attached to the land is currently listed into secured transactions and is required to be registered at the Land Use Right Registration Offices at provincial-level, district-level or communal People Committees.

32

Chapter 9

intellectual property

33

9.1 Protection of intellectual property9.1.1 types of intellectual Property Right to be protected in vietnamUnder the Law on Intellectual Property, Intellectual Property Rights (“IPRs”) means right of an organisation or individual (either Vietnamese of foreign organisation/individual who satisfy the conditions stipulated by the laws) to intellectual assets comprising copyright and copyright related rights, industrial property rights and rights to plant varieties. Intellectual property is protected under the prevailing Vietnamese laws include:

• Copyright in literary, artistic, and scientific works; and copyright-related rights in performances, sound recordings, video recordings, broadcasting programs, satellite signals carrying encrypted programs.

• Industrial property including inventions, industrial designs, layout-designs of semi-conductor integrated circuits, business secrets, trademarks, trade names, and geographical indications.

• Rights to plant varieties including reproductive and harvested materials.

9.1.2 Duration of protection for some iPRsa) PatentPatent means a technical solution in the form of a product or process which is intended to solve a problem by application of natural laws. The patent shall be protected within 20 years from the date of application.b) CopyrightCopyright means rights of an organisation or individual to works which such organisation or individual created or owns. Work means a creation of the mind in the literary, artistic or scientific sector, expressed in any mode or form.Copyright shall comprise moral rights and economic rights. The copyright shall enjoy the following terms of protection:

(i) Copyrights to cinematographic works, photographic works, applied art works and anonymous works shall have a term of protection of 75 years from the date of first publication. If a cinematographic work, photographic work, applied art work has not been published within 25 years from the date of its formulation, the term of protection shall be 100 years calculated from the date of its formulation.

34

(ii) Copyright to any work which is not subject to the above list (i) shall be protected during its author’s life plus 50 years after his/her death. In the case of a work of joint authors, the term of protection shall expire in the 50 years after the death of the last surviving co-author.

c) trade nameTrade name means the designation of an organisation or individual used in business activities in order to distinguish the business entity bearing such trade name from other business entities in the same business sector and area. The protection of trade name is the entire duration of use.

d) MarkMark means any sign used to distinguish goods or services of different organisations or individuals. A certificate of registered mark shall be valid from the grant date until the end of 10 years after the filing date and may be renewed for many consecutive terms, each of 10 years.

e) industrial design patentIndustrial design means the outward appearance of a product embodied in three dimensional configurations, lines, colours or a combination of such elements. An industrial design patent shall be valid from the grant date until the end of 5 years after the filing date and may be renewed for two consecutive terms, each of 5 years.

Under the prevailing laws, each type of intellectual properties which to be protected under the laws of Vietnam, must satisfy the appropriate conditions provided by the laws.

9.2 Registration of iPRs in vietnamTo be protected against IPRs infringement, the IPR holders are required to register their IPRs with the competent authority, except for copyright.

Copyrights shall be protected under the principle of automatic protection. This means that the

copyrights shall arise at the moment when a work is created and expressed in a certain material form regardless its content, quality or form and whether or not is has been published or registered. However, to protect their works effectively, authors or copyright owners still register the works at the Department of Copyright of the Ministry of Culture, Sports and Tourism.

For other IPRs, the holders are only protected by the law when they have submitted registration dossiers to appropriate licensing authorities. In Vietnam, the Ministry of Science and Technology shall be responsible before the Government to carry out State administration of Industrial Property, the Ministry of Culture and Sports and Tourism shall, within the scope of its duties and powers, carry out State administration of copyright and related rights and the Ministry of Agriculture and Rural Development shall be responsible to plant varieties.

35

KPMG is the largest professional service firm in Vietnam. Partners in the Firm have been active in Vietnam since the country opened its doors to foreign investors in the 1990s and the Vietnam member firm was incorporated in 1994.

KPMG has active offices in Hanoi, Ho Chi Minh City and Phnom Penh. With more than 800 professional employees in Vietnam, KPMG is proud of its ability to deliver international standard professional services encompassing:

• audit • tax • advisory • Market entry

KPMG is recognised by the Ministry of Finance (MOF) and Vietnam Association of Certified Public Accountants (VACPA) as Vietnam’s largest Audit and Advisory firm in the terms of revenue, Partner numbers and overall human resources.

KPMG Vietnam was awarded ”Vietnam Tax Firm of the Year 2010” by International Tax Review.

As a leader in the professional services industry, KPMG is an active participant in the reform programme, and regularly advises the Government and international organisations in support of Vietnam’s reform and integration programme.

As you focus on building an organisation that is fit for the future, KPMG's global network of 140,000 professionals is ready to assist.Our high performing people use their expertise and insight to cut through complexity and deliver informed perspectives and clear solutions that clients and stakeholders value.Our commitment to excellence, our global mindset and consistent delivery have helped our member firms build trusted relationships which are at the core of our business and reputation.

about KPMG

KPMG in vietnam

36

Contact us

For more information about investing in Vietnam, please contact the following KPMG professionals

Warrick CleineCEO - Vietnam and CambodiaManaging Partner - TaxT: +84 8 3821 9266E: warrickcleine@kpmg.com.vn

Nguyen Cong AiPartnerTax & Corporate ServicesT: +84 8 3821 9266E: acnguyen@kpmg.com.vn

KPMG Limited

Ho Chi Minh City10th Floor, Sun Wah Tower115 Nguyen Hue StreetDistrict 1, VietnamTel: +84 8 3821 9266Fax: +84 8 3821 9267e-Mail: kpmghcmc@kpmg.com.vn

Hanoi16th Floor, Pacific Place83B Ly Thuong Kiet StreetHoan Kiem District, VietnamTel: +84 4 3946 1600Fax: +84 4 3946 1601e-Mail: kpmghanoi@kpmg.com.vn

kpmg.com.vn

MA

RIVN

01-1

011

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

© 2011 KPMG Vietnam Ltd., a Vietnam limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International Cooperative (“KPMG International”).