US agricultural exporters on mission to seek trade opportunities in VietNam
More than 40 US exporters and trade associations are visiting VietNam from Tuesday to Friday to seek agricultural export opportunities in “one of the fastest-growing regions in the world”, a US official said. Ted McKinney, undersecretary for trade and foreign agricultural affairs at the US Department of Agriculture, is leading the agricultural trade mission in HCM City. McKinney said that US firms were very keen on enhancing opportunities available in Asia. About 80 industry and government representatives, including the US Soybean Export Council and US Grains Council, are part of the mission. McKinney will meet with Vietnamese government officials and businesses to foster agricultural trade between the two countries. At the same time, US companies will have business to business (B2B) meetings with local firms to explore opportunities in VietNam. “The size of this trade mission speaks to the phenomenal potential that exists for US exports in VietNam and surrounding countries,” he said. “Since the US normalised relations with VietNam in 1995, our agricultural exports have grown exponentially, reaching a record US$4 billion last year." VietNam is one of the US’s fastest-growing markets, according to McKinney. Major US exports include computers and electronics, cotton, machinery, fruit and nuts, soybeans and grains. Agricultural trade between the two countries has reached $8.6 billion last year, a rise of about 25 per cent over 2017. The US exported $4.2 billion worth of farm produce and food to VietNam last year, up 50 per cent from 2017, making VietNam the US’s seventh-largest agricultural export market, according to McKinney. In addition, both countries have made joint efforts to gradually lift technical barriers to trade and make their markets more open, widening access for US agricultural products to VietNam. The potential for further trade between the two countries is high because of VietNam’s growing middle class and strong and stable GDP growth, he noted. The trade mission also includes buyer delegations from Thailand and Myanmar. The heads of six departments of agriculture from the US states of Montana, New Mexico, North Dakota, South Dakota, Texas and Wyoming are also part of the US delegation.
Vietnam’s Equitization Plans: Opportunities and Challenges for Investors
On August 15, the Prime Minister issued Decision No. 26/2019/QD-TTg, approving a new list of state-owned enterprises (SOEs) that should be equitized by the end of 2020. The list adds 93 new SOEs to the original plan of 406 SOEs to be equitized by the end of this year.Since 2016, only 162 SOEs have been equitized with a total value of over US$8.8 billion. Major Divestments in 2020The to the list include new SOEs from the agriculture and forestry sectors. In particular, the Vietnam Bank for Agriculture and Rural Development (Agribank) and Vietnam National Coal – Mineral Industries Holding Corporation Limited (Vinacomin) are included in the list of SOEs to be equitized by the end of 2020. Along with these two major SOEs, the list also includes the Vietnam Northern Food Corporation and the Mineral One Member Co., Ltd. With all four of these enterprises, the government has decided to hold at least 65 percent of the charter capital. Other major divestments planned by 2020 include at least 35 percent in Vietnam Post and Telecommunications Group (VNPT), MobiFone Corporation (MobiFone) and Vietnam National Chemical Group (Vinachem). In the energy and electricity sector, the state plans to divest at least 50 percent in Vietnam Electricity Power Generation Corporation 1 (EVN Genco 1) and Vietnam Electricity Power Generation Corporation 2 (EVN Genco 2). Under this decision, ministers and chairpersons of provincial people’s committees and council members of the SOEs will be responsible for designing equitization plans. The progress will be reported to the , the and the Steering Committee for Enterprise Innovation and Development before submission to the prime minister. Opportunities for Foreign InvestorsThe state divestment process is faced with a number of challenges but could be an , especially as large banks and corporations are also on the list of government divestment plans. For example, as large agriculture and forestry corporations are beginning their divestment projects, investors may consider investing in these sectors considering Vietnam’s comparative advantage in this industry in terms of market scale and growth, low labor cost and stable political environment. Besides the , investors may also be interested in large, profitable SOEs in the . The new list includes three leading travel businesses that own a range of luxury hotels, namely Saigontourist, Ben Thanh Group, and Hanoitourist. Most of these businesses hold impressive property portfolios, with iconic hotels such as the Continental, Rex, and Majestic, as well as modern properties like the Caravelle Saigon. Investing in these enterprises may not only mean tapping in Vietnam’s profitable hospitality industry, but also tapping into the of Vietnam. Regulations facilitating the sale of SOEsThe government is working to strengthen supervision and accountability of state firms as well as monitoring representatives at certain state corporations to create a healthy investment environment for foreign investors. To facilitate the sale of SOEs, especially to foreign investors, the Ministry of Finance came up with some new supportive rules in the first half of 2019. Circular No.21/2019/TT-BTC provides a framework for book building, which is the process in which an underwriter attempts to determine the price at which an initial public offering will be offered. This helps enterprises determine market interest and purchase power prior to a transaction. This is particularly helpful when it comes to major auctions that involve foreign investors as it essentially raises efficiency and effectiveness of the first public sales of the enterprises. Another circular – No.03/2019/TT-NHNN –was passed in May, allowing overseas investors to make deposits in foreign currencies when they sign up for SOE auctions. This applies to both first-time sales of SOEs and state divestments, with transactions allowed to be carried out at all approved banks. Factors behind slow equitizationThe new decision excludes some entities that were formerly scheduled to be equitized under Decision 58 by 2020.Some of these SOEs includePetrovietnam Exploration Production Corporation (PVEP);Vietnam National Tobacco Corporation (Vinataba);Hoa Lac High-tech Park Development Limited Liability Company (HHTP);Shipbuilding Industry Corporation (SBIC); andVietnam Electricity Power Generation Corporation 3 (EVN Genco 3) The equitization of the excluded SOEs may take place at a later stage, allowing firms to be better prepared for the equitization process. Some of these firms may need more time to tackle internal issues to allow the equitization to take place.For example, most of the SBIC subsidiaries suffer cumulative losses and grand negative equities. With large negative equities, companies that want to restructure their debt – an important process to restore the liquidity of a company – face deadlock. Besides SBIC, EVN is also yet to successfully restructure its debt. More broadly, privatizing SOEs is considered the main driver behind the restructuring of Vietnam’s economy. The goal of these divestment plans is to reallocate resources, and create a fair business environment while enhancing the competitiveness and improving the domestic power. However, delays in the divestment processes not only generate state budget loss but have also hampered the business efficiency of enterprises. The slow divestment process also limits the investors’ incentives: by the time some projects are approved, the price of assets has already changed due to market conditions, making it difficult for investors to go ahead with their investment plans.By the end of 2019, the government aimed to equitize 127 SOEs, but only 35 enterprises were equitized in the first half of the year. The government’s equitizing plan for 2016-2020 has only achieved 21.8 percent of its overall goals till now. Several factors have delayed the process. The introduction of stricter regulations, including the requirement to audit projects in which the government has invested more than US$73 million, adds to the administrative process time required. Another major obstacle to the equitization process is the issue related to . Land use rights are a decisive factor that makes SOEs valuable to investors. However, conflicts and overlap among legal documents on land use right certificates have added to further delays. SOEs are required to acquire provincial confirmation of their land use before equitization plans proceed; however, this sometimes can take months, often exceeding the regulated time period for the equitization process. To resolve this issue, the government may remove the requirement on evaluating the firm’s annual land lease fee so that conflicts and overlap between legal documents can be avoided.The government’s anti-corruption campaign has also delayed the process with several divestments projects between 2011 and 2016 under investigation. Government addresses slow divestmentThe government understands the challenges it has to deal with for more successful divestment projects to take place.Vietnam has also committed to creating a level playing field for all businesses under its . In particular, Vietnam has committed to cut state ownership under the (CPTPP).In addition, government leaders realize that divestment is needed to fund infrastructure projects which require capital. Such projects are critical to Vietnam’s economic growth and accelerating the divestment process will be key to funding such projects.
Vietnam’s Tax Administration Law Reform TO TAKE EFFECT IN JULY 2020
In June, Vietnam’s National Assembly approved a new new Law on Tax Administration 38/2019/QH14. Under the new law, tax authorities have been granted additional enforcement powers. At the same time, the new law has made it a little bit easier for both individuals and entities to file taxes. The new law will take effect from July 2020. The authorities will provide circulars and decrees with details and guidance for the new law ahead of its implementation. While implementation procedures remain forthcoming, taxpayers can begin to prepare by reviewing the law with their local advisors now. Seven big changes for taxpayers1. Increased enforcementUnder the new law, tax authorities will have additional power to collect tax, particularly in instances where individuals or companies attempt to evade tax.This will include instances where companies fail to abide by and transactions where entities intentionally attempt to avoid paying tax.To help ensure compliance, Vietnamese tax authorities will increase cooperation with international jurisdictions through information exchanges. 2. Tax registrationTax registration certificates will be issued in three days. This process currently takes 10 days. 3. Filing personal income tax (PIT) return deadlines have been extended to 120 days from the current 90 days of the calendar year end.The new rules allow corrected returns to be filed if mistakes are found for up to 10 years. However, this must be done before any audit by the tax authorities.Individuals will be able to use their citizenship code to file once it has been implemented. At present, individuals are required to have and an identity card number for filing taxes. 4. Legal representatives of an entity in Vietnam will need to ensure their companies are tax compliant. Under the new law, authorities may prevent legal representatives from leaving the country if their employer has not paid due taxes. 5. AuditsBusiness organizations will be allowed to submit additional tax declaration documents after the tax authorities have announced an audit or inspection decision.The draft law has also introduced two types of audit: tax inspection and tax examination. A tax inspection is longer and focusses on a specific issue. A tax examination is shorter but covers wider issues or anomalies.The tax examination period has also been increased from five to 10 days. 6. Penalties against entitiesEntities that want to appeal a decision are required to pay the full tax amount as well as any penalties and late payment interest. However, if the entity wins the appeal it can request the tax authorities to pay an interest of 0.03 percent per day on the refunded amount. 7. E-commerce, E-tax, and E-invoicesThe new law stipulated that tax rules related to will be implemented in July 2022. Regulations on e-commerce activities still require clarification in the present state; however, some notable highlights include: Commercial banks will be required to withhold and pay taxes on behalf of e-commerce companies that do business abroad, but earn income from Vietnam;E-commerce companies that do business on digital platforms without a permanent establishment in Vietnam will be required to register for tax in Vietnam or authorize another entity to do so.Business entities that qualify for conducting e-tax transactions will be required to conduct e-tax transactions for tax purposes. This includes tax authorities as well. Further details on e-tax transactions can be found in in Circular 110/2015.E-invoices will be mandatory for all enterprises from November 2020. The new law will also affect non-resident businesses that sell goods and services into Vietnam via online platforms. Further details on e-invoices and e-commerce activities can be found in Decree 119/2018/ND-CP.
Personal Income Tax in Vietnam: Exemptions and Reductions
For foreigners working in Vietnam, determining the applicability of (PIT) involves decoding a number of rules. Following this, foreign workers need to calculate their precise liability and any applicable deductions. Consulting with an in-country tax specialist can help individuals’ optimize their tax exposure, while employers’ may be able to identify more competitive salary packages with an advisor. Below we introduce the basics of PIT, before explaining tax-exempt incomes (employment benefits that are not subject to PIT) and tax reductions for dependents. Residency status and PIT exposureVietnam’s recognizes ten different categories of income, with a host of different deductions, tax rates, and exceptions applying to each of them. A tax resident is defined as someone residing in Vietnam for 183 days or more in either the calendar year or a period of 12 consecutive months from the date of arrival. Tax residents are subject to PIT on their worldwide employment income, regardless of where the income is paid or earned, at progressive rates from five percent to a maximum of 35 percent. Non-resident taxpayers are subject to PIT at a flat rate of 20 percent on their Vietnam-sourced income. In general, a typical monthly salary package in Vietnam will include gross salary and . PIT is levied on the balance after deducting mandatory social insurance contributions. Companies conduct PIT finalization on behalf of their employees at the beginning of the year for taxable income arising from the previous year. Tax-exempt incomesVietnam’s tax authorities have singled out a number of incomes that are exempt from PIT. These include:Income from transfer of residential houses by individuals who possess only one residential house or land plot;Interest earned on deposit from the bank or from life insurance contracts;Overseas remittance, retirement pension, scholarship;Income from compensation for insurance contracts or from charity funds;Wages paid for night shift or overtime work, which are higher than those paid for day shifts or prescribed working hours in accordance with the law; andIncome received from governmental or non-governmental foreign aid for charity or humanitarian purposes approved by competent state agencies.A resident taxpayer is allowed to deduct from his taxable income US$388 (VND9,000,000) every month or US$4,700 (VND108,000,000) every year. The yearly amount can be fully deducted, regardless of whether the taxpayer had an income every month. Tax exemptionsIn Vietnam, foreign individuals can be exempted from taxation for certain employment benefits. These exemptions include:One-off relocation allowance for foreigners to relocate to Vietnam;Round-trip airfares paid once a year by employers for foreign employees who are on annual leave; andGeneral education school fees or tuition paid by the employer for the expatriates’ children studying in Vietnam. Additionally, other benefits can be treated as non-taxable income if certain conditions are met. These include:Employee housing costs exceeding 15 percent of the total taxable income (excluding housing benefit from employers);Expenses for means of transportation for a group of employees to and from work;Training fee for employees relevant to employees’ profession and/or in accordance with the employers’ plan;Mid-shift meal allowances if the employers directly cater such meals for their employees; andPresumptive expenditures for telephone, stationery, per diem, working outfit, etc. are not subject to tax if the amounts are within the levels set out under relevant regulations. Tax reductions for dependentsThe tax reduction for each dependent is pegged at US$155 (VND 3,600,000) per month. Qualified dependents are children aged below 18 years old, or children over 18 years old but earning a low income, which does not exceed US$21 (VND 500,000) per month. In addition, spouses or parents of taxpayers who are unable to work or have low income are also qualified dependents. Only one person can claim the reduction for each dependent. The dependent allowance is not automatically granted, and the taxpayer needs to register the qualifying dependent and provide the supporting documents to the tax authority. Tax payment (FIEs) have to conduct PIT finalization on behalf of their employees at the beginning of the year for taxable incomes arising from the previous year. If an employee has more than one source of income and wishes to conduct tax finalization on their own, FIEs can issue a certificate of deduction at the request of the employee. If an expatriate’s labor contract in Vietnam expires before the end of a calendar year, they should conduct tax finalization before their departure. The taxpayer pays PIT to the state treasury in one of two ways: cash or bank transfer. The taxpayer can pay cash directly to the state treasury to receive the voucher from state officials. Otherwise, they can transfer money to a tax office bank account at the state treasury. The deadline for tax payment is the same as tax finalization, meaning no later than 90 days from the end of the calendar year. Conversion of taxable incomeIf the taxable income is received in a foreign currency, it must be converted into Vietnamese dong at the average trading exchange rate on the inter-bank foreign currency market published by the State Bank of Vietnam on the date when the income arose. Note: This article was first published in April 2015, and has been updated to include the latest developments.
Investing in Vietnam’s Consumer Market: An Overview
Vietnam’s consumer market is constantly evolving, driven by changing consumer lifestyles, income, and behavior. The country has experienced a steady progression of disposable income in recent years, which can be seen in its rapid growth of total consumer expenditure from US$80 billion to US$171 billion between 2010 and 2018. This shows that Vietnamese consumers have more money to spend. In fact, within the first nine months of 2018, the country experienced an 11.3 percent of increased spending. This growth in consumer activity has undoubtedly created openings for businesses to provide new services and products that are available for consumers. Evolution of the consumer market in VietnamThe steady flow of foreign investment into Vietnam has, and will continue to, propel economic growth. This growth has significantly increased local spending power, with an increase in the expenditure for both urban and rural consumers. Vietnam’s consumer base is a young demographic between the ages of 25 and 54 years old, accounting for 45.56 percent of the population in 2017. Vietnam’s consumer demographic is similar to other countries in the region, such as Singapore with 50.53 percent of its population within the age range of 25-54 years old in 2017. However, it is still relatively younger than developed markets, such as Japan, which has 37.5 percent of its population between 25-54 years in 2017. Assessing industry opportunitiesConsumer spending in Vietnam has seen growth in numerous industries, which has changed the market. For example, there is growing demand for high quality education; students enrolled in higher education went from 16 percent in 2005 to 29 percent in 2015. The needs of Vietnamese people are changing and can be seen in their demand for higher standards across not only education, but health and leisure, to name a few. In 2017, Vietnam’s healthcare expenditure was approximately US$16.1 billion and is projected to grow by US$22.7 billion by 2021. Further, the Ministry of Industry and Trade predicts Vietnam will be among of the top three countries in Asia for the highest growth rate of the food and beverage industry by 2020. This shows people are more willing to indulge in simple everyday pleasures. Evaluating locations for investmentInvestors should consider a multitude of factors when surveying a potential investment site. Spending habits are influenced by region because of various levels of wealth and disposable income, as well as cultures and preferences in each area. Ho Chi Minh City, for example, is made up of seven urban districts, all with varying demographics. Role of e-commerceThe rising role of e-commerce in Vietnam is reshaping consumption – with the number of internet users rising, people are turning to online retailers. Currently, of Vietnam’s 92 million population and 55.19 million internet users, 35.4 million people use e-commerce as a method of shopping. The total revenue for e-commerce transactions has reached US$2.2 billion and is expected to reach US$4 billion by 2021. Doing business in VietnamThe urbanization of Vietnam’s population has generated greater spending power in the country. However, there are a few key factors that pose a challenge when doing business in Vietnam. It is important to understand cultural barriers that affect contract negotiations and enforcement, conducting appropriate partner vetting within opaque operating conditions, and being mindful of time delays when transporting goods due to infrastructure difficulties.