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PwC
Speakers profile
2
Bee Han Theng
PartnerAssurancePwC Vietnam
Tel: +84 28 3823 0796Email: [email protected]
Hock Yee Ting
DirectorTaxPwC Vietnam
Tel: +84 28 3823 0796 (ext. 1505)Email: ting. [email protected]
PwC
Content
3
1 Overview of Vietnam
2 Macroeconomic overview
3 Legal and regulatory environment
4 Advantaged and challenges
5 Tax environment
PwC
Overview of Vietnam
With 94 million of population, Vietnam ranked third in Southeast Asia after Indonesia and the Philippines, and ranked 14th in the world.
5
Overview Economy
2017 GDP size: 220 USD bn
GDP growth: 6.8% (2017); 7.1% (2018); 6.5% (to 2020f) GDP per capita: 2,385 USD (2017); 3,000 USD (2020f)2017 official unemployment rate: 2%Inflation: 3.5% (2017) 3.4% (2020F)
Territorial area330,900 km²
CapitalHa Noi
Population94 million
CurrencyVND and USD
PwC
Why Vietnam?
Some factors making Vietnam an attractive investment destination (listed in no particular order):
5. Young population & large workforce, with high literacy rate
2. Stable & high-growth economy
3. Large market with increasing purchasing power, emerging middle class
1. Political stability
9. Rich in natural resources4. Increasing integration intoglobal economy
6. Low cost of starting up a business
7. Low labour cost & increasing productivity
PwC
Vietnam political structure
Nguyen Xuan Phuc was elected as the new Prime Minister in 2016, but thus far, there have been few changes to Vietnam’s business environment/ direction
7
• Single party leadership, VCP• National Congress of VCP held every 5
years, recently in 2016• National assembly chairwoman:
Nguyen Thi Kim Ngan• Prime Minister: Nguyen Xuan Phuc• President & General Secretary:
Nguyen Phu Trong
* Only key ministries are mentioned
Nguyen Phu Trong
Nguyen Thi Kim Ngan
Nguyen Xuan Phuc
National assembly
18 Ministries (*)
Ministry of Finance
Ministry of Industry &
Trade
Ministry of Planning & Investment
Government Supreme Court
Supreme People's
Procuracy
President
PwC
Vietnam has curbed inflation and maintained positive GDP growth in recent years, with significant expansion in the industrial and service sectors
9
Source: PwC Research and Analysis
Strong economic recovery since 2011… …driven by the industrial and service sectors
GDP Per capita
1614 15
GDP
20172011
Inflation
1312
Growth rate per year, % USD Billion
0
200
100
80
220
40
60
120
140
160
180
20
186.2
135.5
12
Others
Industrial
Agriculture
14
155.8
13
193.6
171.2
16152011
Services
201.3
2017
219.2
CAGR11 - 17
4.0%
8.9%
10.5%
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22,352
49%
51%16,348
39%
61%
15,598
71%
29%
增资占比
直接投资占比20,860
24%
76%
24,115
40%
60%
21,922
44%
56%
36,000
23%
77%
In 2017, there were 2,591 FDI cases, with amount of $21.3 billion, and 1,182 capital increase cases, with amount of $8.4 billion. The total number of investments was 3,779, with a total investment amount of about $36 billion
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FDI and Capital Increase Ratio Analysis(USD MN)
Source: Euromonitor, BMI, PwC Analysis
Number of FDI
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Trade — Vietnam is an export-oriented economy
Vietnam is an export-oriented economy mainly to the United States. The main export products are mostly electrical appliances, textiles, seafood and petrochemical products.
11
Total Import & Export Amount (USD MN) Main Export Countries (2017)
Main Import Products (USD MN)
Main Export Products (USD MN)
Source: PwC research & analysis
20172016
Import
Export
174 177211 214
Import
Export
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Southeast Asia-Population and GDP
Vietnam ranked third in Southeast Asia after Indonesia and the Philippines, which lowers its GDP per capita.
12
Total Population in 2017 (‘ooo) 2017 GDP Per Capita (USD)
VietnamMalaysiaSingapore Indonesia PhilippinesThailand
71%70%
7%
106,51295,412
63%
67%
Vietnam
5%
263,991
18%
32%
Indonesia Philippines
5.35%
27%
16%32,040
69,037
Malaysia
Age15-64
Age 0-15
72%11%Age 65+5,70869%
12%
Thailand Singapore
24%
6%
23%
16%
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Vietnam's population is aging at a faster rate than any other country in the world
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83%
2029
17%
91%
2019
88%
26%
2049
74%
12%
2009
9%
1999
92%
8%
1989
93%
7%
1979
93%
7%21%
2039
79%
Age Over 60
Age Under 60
Population Distribution by Age
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Exchange rate
14
End of period exchange rate (VND/USD)
20,000
25,000
15,000
17,483
15,918
19,498
16,017
21,388
18,479
+5%
+1%
22,698
Reasonably stable since 2011
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Increase of household income
The household’s median income in Vietnam grew steadily over past years, although it is still lower than that of other South-East Asian countries
15
*Note: Middle class household is defined as household with income between 75% and 125% of the median incomeSource: Euromonitor, PwC Research & Analysis
SingaporeMalaysiaVietnam Indonesia PhilippinesThailand
Per household median disposable income (USD)
SingaporePhilippines
65,95566,015
48,091
MalaysiaIndonesiaVietnam Thailand
20172007 2012
Middle class as % of total No. of Household29.8%
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SOE reform
Equitisation of SOEs, one of the most important measures in Vietnam’s economic reforms, has only been progressing slowly
16
Number of SOEs over years since equitisation implementation
Source: GSO, PwC Analysis
Although the number of SOEs has decreased drastically since 1996, the actual progress made is less impressive, as many SOEs have gone through mergers and acquisitions
12,300
5,655
1,309 1,066 1,032 600 300
1996 2000 2011 2012 2013 2015 target
2020 target
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Public Private Partnerships (PPP) and BOT
PPPs are becoming increasingly important to Vietnam’s economy, as they help to fill gaps in the country’s budget
17
Number of projects
1,740
Mong Duong II Thermal Power 1,950
S-Fone Network (cancelled) 773
Hutchison Telecommunication Vietnam 784
Nam Con Son Gas Pipeline 1,300
Vinh Tan 1 Coal Plant
Top Projects (USD mil)
ElectricityAirports Water and sewerage
RoadsPortsNatural GasICT
Source: PPI Database
Projects reaching financial closure by sector
65
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Hot investment opportunities
18
Real estateRetail
Tourism (e.g. luxury hotels)
Restaurant chains, mid to lower end or fast food
Pharmaceuticals and healthcare
Modern agribusiness and food
Manufacturing
Local companies looking to sell off their businesses or looking for partners across all sectors
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Various areas restricted for FDI
20
“Pure” holding companies
Retail (via ENT requirement)
WTO commitments are key
Specific sectors, e.g. financial services, online gaming, pharmaceutical distribution
Listed companies
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Company forms
21
Joint stock company
Minimum 3 shareholders
Issues shares
Can be listed
Limited liability company
Different capital gains tax treatment
No minimum number of investors
Has charter capital, not shares
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Licensing procedures
22
• Generally at local provincial level- Department of Planning & Investment- Management board of industrial zone
• For encouraged, manufacturing sector — fast
• But can be very slow for “conditional” sectors
• Conditional sector application may be referred to relevant ministries in Hanoi
31
PwC
Vietnam
24
Advantaged and challenges
• Public infrastructure needs outside investment
• Lengthy administrative procedure- Uncertainty- Bribe
• Training• Overseas resources • Increasing labor cost • Employment rights and
interests• Working environment and
benefits
• Recent news• Led by overseas MNCs
• Employees- Salary cost and lack of
labor- Trust and loyalty- Working efficiency- Focus
• Tax allowance
• Public infrastructure
Creating Competitive Advantages
Government Investment Human Capital Continuity
PwC
General tax environment
26
Self assessment Tax audits Unstable, inconsistent
Form over substance,
documentation prevails
Practice varies
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Corporate income tax
28
• Standard rate 20%
• Various incentives- very complex- unstable
• No dividend WHT, currently
• Generally in line with standard international practice
PwC
Tax incentive regimes
Sector
• High technology, including IoT, VR, scientific R&D
• Agricultural sector applying high technology
• Infrastructural development• Clean energy,
environmental protection• Education, healthcare,
sports / culture
Location
• Qualifying economic and high tech zones
• Difficult socio-economic areas
Large Scale
• Large manufacturing projects in terms of:- Investment capital- Revenue- Headcount
Industrial Products
• Manufacturing of industrial products that meet one of the following:
• Supports high technology sector
• Products support the garment, textile, footwear, IT, automobiles assembly, or mechanics sector, provided not currently produced locally, or local products not met international quality standard
29
Factors to consider
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Attractive tax incentiveFor high-tech and supporting industries
Preferential CIT rate
Tax Holidays
Potential PIT reduction
• preferential tax rate is 10 % for 15 years* • commencing from the year revenue first earned
• 4 years of tax exemption; and • 9 years of 50% preferential tax rate reduction
• 50% PIT reduction for high-skilled employees working in IT sector
* Potentially may be extended by another 15 years, subject to meeting conditions
30
PwC
An illustration of tax incentive regime For high-tech and supporting industries
Subsequent 9 yrs5%
15 years preferential tax rate
First 4 yrs
0%
Bal 2 yrs
10%20%?
31
PwC
Transfer pricing
32
How to be prepared?• Annual compliance – submission of TP form 90 days following
financial year • TP documentation – adopting international standards with local
flavors• Major focus of attention now• Increasingly sophisticated audit activities• New cap on interest deductibility
– 20% of EBIDTA
PwC
Other taxes
33
• Personal income tax- Broad scope- High rates- No de minimis for short term visitors
• Withholding taxes- Broad scope- Only to cross border payments- In place of PE regime
• VAT- Standard rate 10%- No refunds, generally
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Tax audits
34
Taxpayers have to expect more aggressive tax audits in future
• Sporadic, random• 10 year statute of limitations• “Closed years” sometimes re-opened• Customs audits increasing• High penalties and interest
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• Extends to overseas investors selling companies in Vietnam
• Previously only applied to direct transfers
• Now extended to include indirect transfers:
• Major issue for M & A transactions as risk lies with
Vietnam
Overseas
A
B
C
A sells BVN CGT now applies
Capital gains tax – an area to watch out in M&A transactions
C
35
pwc.com
Thank you!
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.© 2019 PricewaterhouseCoopers Limited. All rights reserved. PwC refers to the China member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. CN-20190103-8-C1