Vietnam offers favorable conditions for foreign investors for many reasons: strategic location, abundant workforce with competitive labor costs and a relatively open environment for FDI to name a few- a few. However, the pandemic outbreak during the summer months of 2021 with heavy restrictions and supply chain disruptions has led to uncertainties; thus, foreign investors may remain uncertain as to whether 2022 is the right time for bold investments.
We believe 2022 is the perfect time to invest.
With a strong vision for the future, Vietnam has created a concrete base to bounce back stronger in 2022, with the amendment of a variety of important laws that help improve its business climate, in addition to the free trade network. with the EU, UK, and RCEP countries. The government is targeting GDP growth of 6 to 6.5% in 2022 despite the likely challenges the Covid-19 pandemic could pose. Help foreign companies better understand key developments in the Vietnamese FDI environment and seize emerging opportunities in the country.
Recently, Dang Trinh, International Business Advisory Associate and Thang Vu, Associate Manager, Tax for Dezan Shira and Associates shared their insights during a webinar on key developments in Vietnam with a perspective for 2022, including how and why investors should remain optimistic with market entry available. option.
While we’ve shared a few highlights below, the full webinar can be viewed here.
What is the current COVID-19 situation in Vietnam?
After initially controlling COVID-19, Vietnam has seen an increase in infections from the Delta variant. Businesses and residents were subject to strict closures with checkpoints, especially in the south, including the Ho Chi Minh City shopping center and surrounding provinces. Companies were forced to set up a three on site (work, eat and sleep at their workplace) and one route, two destinations model in order to maintain production. This resulted in disruption of supply chains and production due to different pandemic rules which sometimes varied from locality to locality.
Businesses craved a clear government roadmap because of the major disruptions. The pandemic has left significant scars on Vietnam with negative third quarter GDP growth. Around 1.8 million people have lost their jobs, a record in 10 years, with an unemployment rate of 3.98 compared to 2.73 last year. So far, around 90,300 companies have exited the market in 2021.
However, vaccination rates have increased. As of December 16, 2021, Vietnam had fully vaccinated 61.2% of its population, up from less than 3% in July, which is a huge achievement given the situation in Vietnam a few months ago. The government has also authorized booster injections for priority groups, led by Ho Chi Minh City.
To sum up, Vietnam has moved from a zero covid approach to one of living safely with a virus. Big cities like Hanoi and Ho Chi Minh City have put in place measures to live effectively with the virus. The government is also gradually reopening the economy. This includes a gradual reopening of tourism, while entry rules are simplified for businessmen.
Can you share the general overview of the Vietnamese market?
During the last 11 months of 2021, Vietnam has performed relatively well in terms of FDI despite the pandemic. There had been nearly $ 26.46 billion in FDI inflows as of November 20, 2021.
Manufacturing and processing captured the lion’s share of FDI inflows, followed by manufacturing and distribution of electricity, real estate, and wholesale and retail. Singapore, South Korea and Japan were the main investors in Vietnam. Vietnam’s main export partners are USA, China, EU, ASEAN and South Korea, while main import partners are China, South Korea, ASEAN , Japan and the EU.
Vietnam is still heavily dependent on the import of raw materials. Products made in Vietnam are mainly exported to USA, EU and China.
So, why invest in 2022?
Despite the pandemic, the fundamentals of the Vietnamese market remain solid and its economy remains resilient. Export turnover in the first 11 months of 2021 reached US $ 299.67 billion, up 17.5% from the same period in 2021. Vietnam quickly rolled out its program vaccination. Foreign investors remain bullish on Vietnam with several companies such as LG expanding manufacturing in Hai Phong, while Lego Group has also announced plans to invest a billion dollar factory in Binh Duong.
Vietnam is a center of free trade agreements such as CPTPP, EVFTA and UKVFTA. In addition, the RCEP is expected to come into force in 2022.
Vietnam has become an attractive destination due to low manufacturing costs in part due to the trade war between the United States and China. Vietnam is known for its attractive labor costs and business landscape. It has become an essential choice for regional distribution, even global importation and processing. Vietnam’s FTAs and low tariffs have further contributed to this trend. A clear roadmap for economic recovery is also being developed to acquire key objectives set out in the Socio-Economic Development Plan for 2021-2025, which includes a target of achieving an average GDP growth of 6, 5 to 7 %.
How can an investor enter the market?
There are several market entry options to enter the Vietnamese market. These are Representative Office (RO), Branch Office (BO), Foreign Investment Entity (FIE (also LLC)), Joint Stock Company (JSC) and Public Private Partnership (PPP) options. ). In our experience, the most popular investment vehicles are the RO and the FIE. RO is simple to set up and is also a good option for new investors. However, companies must have a rental agreement before creating an entity. Setup times may vary, so it’s best to start early, to avoid any setbacks and have realistic expectations.
What are the tax incentives and the latest government subsidies for businesses affected by COVID-19?
The first measure that was introduced was the deferral of tax and land lease payments in accordance with Decree 52/2021 / ND-CP. The deferral varies from three to six months and also helps individuals and business households such as SMEs. The second measure was the temporary termination of workers’ compensation benefits in accordance with resolution 68 / NQ-CP. The resolution unveiled financial incentives for employers and employees affected by the pandemic. The third was the temporary cessation of compulsory social insurance (IS) payments under the same resolution for six months.
In September, the government released Resolution 116 on supporting employees and employers through the Unemployment Insurance (UI) fund for those who participated in UI. This was one-time support ranging from US $ 79 to US $ 145 depending on the contribution period.
Last but not least was the corporate tax cut in accordance with Resolution 406. This includes a 30% cut for companies with 2021 turnover below 200 billion dong (8.8 millions of dollars). In addition, there is a 100 percent tax reduction for businesses, individuals and households for quarters Q3 and Q4. This resolution is one of the most important measures of the government.
What are the tax incentives for new investment projects?
Vietnam has offered several tax incentives to investors who wish to enter Vietnam. We will focus on the CIT incentive. There are four types: preferential tax holidays and location-based, industry-based tax holidays. Location-based incentives apply to eligible economic and high-tech areas, certain industrial areas, and areas with difficult socio-economic conditions. Industry-based incentives are applied to several industries such as education, software, high tech, renewable energy and others.
Vietnam also has preferential tax rates such as a 10% lifetime flat tax rate for socialized projects in certain areas with difficult socio-economic conditions as well as a lifetime flat tax rate of 15% for food companies. Businesses can also get tax exemptions such as four years of tax exemption and a 50% reduction for the next nine years.
Vietnam Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors across Asia from offices around the world, including Hanoi, Ho Chi Minh City and Da Nang. Readers can write to [email protected] for more help on doing business in Vietnam.
We also maintain offices or have alliance partners helping foreign investors in Indonesia, India, Singapore, The Philippines, Malaysia, Thailand, Italy, Germany and the United States, in addition to practices in Bangladesh and Russia.