A GUIDE TO INVESTING IN VIETNAM

Year 2019

THE POWER OF BEING UNDERSTOODAUDIT | TAX | CONSULTING

INVESTING IN VIETNAM

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FOREWORD

It’s our great pleasure to introduce the “Investing in Vietnam” guide for 2019 published by RSM Vietnam. With natural conditions, including the differentiation in conditions of topography and soil, Vietnam has been continuing to surprise the region and the world by the depth and pace of economic integration and regulatory reforms, which led to a significant improvement in the investment environment. Today Vietnam is seen as an emerging market belonging to the world’s most dynamic economies, offering a variety of attractive business opportunities to both domestic and foreign investors.

CONTENTS

INTRODUCTION 5

1. OVERVIEW 6

2. INVESTING IN VIETNAM 12

3. TRADE 15

4. TAXATION 17

5. ACCOUNTING AND AUDITING 24

6. HUMAN RESOURCES & EMPLOYMENT LAW 26

7. BANKING AND FINANCE 28

8. LAND 29

9. TECHNOLOGY TRANSFER 30

RSM VIETNAM 33

INDUSTRY INSIGHTS 34

OUR SERVICES 34

OUR VALUES 35

CORPORATE RESPONSIBILITY 35

CONTACT US 36

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Le Khanh LamChairman, RSM VietnamHead of Tax & Consulting

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INTRODUCTION

Welcome to our guide for investing in Vietnam. Our specialists come from several backgrounds including accounting, finance and law. They work together in order to share ideas and add value to your business. In this publication, we hope to provide you with information on accounting, tax and regulatory laws when investing your business in Vietnam.

Vietnam’s dynamic environment, reflected in a young population, growing wealth, changing consumer attitudes, greater mobility and urbanization – are pushing Vietnam through a period of great change.

With position in the heart of South East Asia and along the coastline of the Pacific Ocean, Vietnam offers numerous advantages in providing access to the world’s major trade routes.

We have been seeing a shift in investments in Asia, with Southeast Asia attracting more foreign direct investments (FDIs) than China for the third consecutive year in 2016. Vietnam leads the region, surpassing Malaysia and Thailand in Greenfield FDI Performance Index (with US$24.4 billion foreign capital investment in 2016).

Vietnam’s low-cost environment and a strong economic outlook continue to make it an attractive place for investment in South East Asia.

Vietnam is recognized as having high mobile commerce penetration which is attractive to entrants wanting to establish digital businesses in Vietnam. A rising middle class and a deregulated economy bring access to exciting new opportunities including manufacturing.

Vietnam’s increasing network of free trade agreements (FTAs) are enhancing investment opportunities.

Regardless of the reasons for entry, identifying the right path into the local market can be challenging without local knowledge and experience.

This guide contains references to some common issues that investors should be aware of when operating in Vietnam, but each case is different and specific advice should always be sought.

RSM remains available to share our considerable local knowledge with you.

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Why Vietnam and Why Now?

Vietnam is at a tipping point in its economic development led by free trade agreements (FTAs) such as the EU-Vietnam FTA and an increasingly deregulated business environment.

Six major growth drivers will enhance opportunities for investors in Vietnam:

New Free Trade Agreements

Enhance Vietnam’s economic integration into the global economy, including major developed markets in North America, Europe and Asia.

Fast Growing Economy

Vietnam is one of the most dynamic economies in the world. GDP growth is expected to be between 6% and 7% from 2017 to 2019.

Cost Competitive Production Base

Labor costs in Vietnam are among the lowest in Asia. An ideal production base for companies thinking of shifting or diversifying out of China.

A stable Government Committed to Growth

Vietnam has a stable social-political environment with the government committed to creating a fair and attractive business environment for foreign investors.

A Young Digitally-Savvy and Growing Workforce

Vietnam has an educated workforce and is now in a period of golden population structure - where 40% is under 25 years of age. The smart phone penetration is 26% of the population.

Infrastructure Development

Large scale infrastructure needs create investment opportunities. Vietnam’s construction output value grew 10% in 2016.

The south has been the traditional center of manufacturing and trade, and a major logistics hub. However, the northern region has become an increasingly popular destination for foreign manufacturers looking to diversify their production bases, notably for South Korean and Japanese companies.

Demographic

Vietnam is conveniently located in the center of South East Asia and is bordered by China to the north, Laos and Cambodia to the west.

The total area of Vietnam is over 331,212 square kilometers and its geography includes mountains and plains. Vietnam’s population is spread throughout the country.

Ranked as the 15th most populous country in the world, with a population of over 96 million people and a median age of 30, Vietnam represents a huge pool of both potential customers and employees for many investors.

Hanoi in the north is the capital of Vietnam and Ho Chi Minh City in the south is the largest commercial city. Da Nang, in central Vietnam, is the third largest city and an important harbor.

This demographic bonus provides Vietnam with a unique socio-economic development opportunity to take advantage of the young labor force and push its economic growth.

Legal and Regulatory Government

Vietnam is a one party state. As the only party in the political arena, the role and influence of the Communist Party is unique.

The President, as Head of State, represents the Socialist Republic of Vietnam in internal and foreign affairs. The Government is the highest administrative state body, and responsible for executing and managing political, economic, cultural, social, national defense, security and foreign affairs of the country.

Ministries are responsible for the execution of state power in a certain industry or sector. The People’s Committee (province, district and commune) governs management affairs within its administrative location.

The People’s Committee manages, directs and operates daily activities of local state bodies, and executes policies issued by the relevant People’s Council and higher state bodies.

Vietnam joined the World Trade Organization (WTO) in 2007. Under its accession commitments, Vietnam opened up various business sectors to foreign investment, in some cases under a phased approach. These commitments are generally referred to when assessing whether foreign investment in a particular sector is allowed.

There is a hierarchy of regulations in Vietnam, with laws being passed by the National Assembly, and their implementing decrees and circulars issued by the government and its ministries, respectively. A plethora of other legal instruments/guidelines are also issued by various other authorities.

1. OVERVIEW

A key turning point was Vietnam’s accession to the World Trade Organization (WTO) in 2007, followed by its participation in the ASEAN Economic Community (“AEC”) in 2015. In addition, Vietnam successfully held APEC in November 2017, this has positioned the country to more investment opportunities.

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The Vietnamese Government recognizes the importance of an efficient infrastructure for economic development. Recent years witnessed ambitious plans from the Government to expand and upgrade the existing transportation infrastructure system.

Infrastructure

Road System

In addition to the major national road, Highway No. 1A, stretching from the border with China in the north to the Mekong Delta Provinces in the south via Ho Chi Minh City and the Trans-Asia highway, the country is also progressing with the completion of Ho Chi Minh Road (known as Ho Chi Minh Trail during war time).

This 3,167 km long road will run parallel to the existing national road No. 1A to connect the North with the South. Other notable highways linking key economic regions have also been upgraded.

Railway and Metro

Vietnam’s railway is 2,600 km long, 60% of which is in the Northern provinces. The rail network includes 15 main routes and branches connecting 35 provinces and cities, of which the North-South route is the longest and most important route. In addition, several railway lines have been proposed for construction in recent years, notably the high speed North-South Express Railway.

The Metro systems which are under construction in Hanoi and Ho Chi Minh City are expected to alleviate pressure on existing road transportation and boost economic growth. The first metro lines are expected to commence operation in Hanoi by 2020 and in Ho Chi Minh City by 2023.

Airport

In recent years, the country has also witnessed a significant increase in air transportation. As the economy expands both domestically and internationally, the volume of freight and passengers carried by air transport has been increasing sharply. The government is expanding and modernizing the airport infrastructure, most notably the construction of Long Thanh airport in the southern province of Dong Nai. When completed, Long Thanh Airport will become the largest airport in Vietnam accommodating up to 25 million passengers and 1.2 million tons of cargo a year.

Seaport

Sea transportation remains a significant component of the Vietnamese infrastructure system. There are over 100 ports throughout the country, of which the major ones are located in Hai Phong, Da Nang and Ho Chi Minh City. In an effort to address the increasing demand of exporters, plans to upgrade and expand the existing capacity are underway, most notably the plan to develop the mega-port Hon Khoai in Ca Mau province, which is expected to be completed by 2020. Once completed, the port will accommodate ships with a capacity of up to 250,000 DWT.

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Foreign Direct Investment (FDI)

Vietnam is one of the leading investment destinations in Southeast Asia. With the advantages of geography, natural resources, and an affordable labor force, Vietnam attracts a large amount of capital each year. Vietnam has a number of unexplored sectors and a growing consumer market.

With a stable exchange rate and reductions in inflation (which fell from a peak of 18% in 2011 to 2.6% in 2016), the macroeconomic environment has dramatically improved in recent years.

Vietnam therefore remains one of the most attractive destinations for foreign investors in South East Asia. It received $35 billion in foreign direct investment in 2018, equivalent to 98.8% of the previous year’s figure.

The role of the private sector and foreign investors in the Vietnamese economy has increasingly been emphasized. “Business forum” meetings and dialogues between the Government and the private sector and foreign investors are frequently held, and provide great opportunities for businesses - especially in the foreign sector - to make themselves heard on important legislative issues.

Free Trade Agreements (FTAs)

Vietnam officially became the WTO”s 150th member on 11 January 2007. WTO accession has created both opportunities and challenges for Vietnam to become an attractive investment destination. Despite the uncertain fate of the Trans Pacific Partnership (TPP), Vietnam is still getting increasingly integrated to the global economy, as well as the Comprehensive and Progressive agreement for Trans-Pacific Partnership (CPTPP).

Vietnam has entered into or completed the negotiation of a number of Free Trade Agreements (FTAs) including both collective FTAs as a member of ASEAN, and bilateral FTAs (such as FTAs with the EU, Japan, Chile and Eurasian Economic Union).

The EU - Vietnam FTA is expected to be the next major milestone for Vietnam from a trade perspective. It is expected to be effective for Vietnam by 2020; and this FTA is expected to liberalize 90% of imports from both sides in a 10 to 15 year time.

Laws on Investment and Enterprises

In late 2014, the National Assembly passed a new Law on Investment (LOI) and a new Law on Enterprises (LOE), both of which come into effect on 1 July 2015. A series of implementing regulations were issued in late 2015 (including Decree 78/2015/ND-CP guiding enterprise registration, Decree 96/ND-CP guiding the implementation of the LOE, and Decree 118/2015/ND-CP guiding the implementation of the LOI). These two new laws contain major changes to the former laws (passed in 2005), and are creating more favorable conditions for investors into the future.

Economic Environment and Inflation

The Vietnamese Government recognizes the importance of an efficient infrastructure for economic development. Recent years witnessed ambitious plans from the Government to expand and upgrade the existing transportation infrastructure system. Vietnam is considered to be one of the fastest and relatively stable-growing economies in Asia over the past years. Following 6.8% growth in 2017, GDP growth accelerated to 7.1% in 2018 and is projected to moderate to 6.7% in 2019.

Over the last 20 years, GDP growth has averaged approximately 7%. As well as enjoying strong export growth, which grew at more than 8.6% year-on-year in 2016, Vietnam is becoming an increasingly large importer of capital goods which is necessary to meet its large infrastructure needs.

Vietnam’s economic growth prospects are forecast to remain positive in the forthcoming years. According to the EIU report, the growth rate is forecast to accelerate at a rate between 6.4% and 6.5% during the period of 2018-2019. The country’s economic growth will be underpinned by rising consumption, increased foreign direct investment, robust export performance, deeper integration into global economy and improvements of the regulation system.

The rapid increase in demand for goods and services, increasing credit issuance and investment from the country’s economic growth pushed up inflation rate to 4.1% in 2017. The annual inflation rate in Vietnam decreased to 2.98% in 2018.

According to the forecast, the average rate of price rises between 2016 and 2020 will be estimated to remain modest at 4% which is well below the figure of 7% in 2011-2015.

Key Sectors and Trading Partners

Located in the heart of South East Asia and along the coastline of the Pacific Ocean, Vietnam offers numerous advantages in providing access to the world’s major trade routes.

Natural resources and conditions allow Vietnam to develop the fundamental and seasonal structure of agricultural products and application of different cultivation in regions.

Vietnam continues to diversify away from agriculture. Among the industrial sectors, services account for approximately 51% of GDP followed by manufacturing at 33%. The agricultural sector made up 16% of GDP in 2016.

The growth in exports has been driven by the fast growing manufacturing, telecommunications, clothing and apparel sectors with major exports to EU (23%), US (21%), China (18%), ASEAN (12.8%) and Japan (8%).

In 2018, much of the foreign direct investment into Vietnam came from Japan (24%), Korea (20%) and Singapore (14%).

Investment

A series of regulations were issued or came into effect in 2016 in relation to the Law on Investment, including Decree 135/2015/ND-CP on overseas indirect investment, Circular 16/2015/TT-BKHDT on templates for investment registration, Decree 50/2016/ND-CP on administrative fine for violation to planning and investment regulations, and Circular 83/2016/TT-BTC on investment incentives.

Enterprises

Decree 50/2016/ND-CP above is also applied for enterprises.

Workforce and Cost of Living

The number of people of working age in employment in Vietnam totaled over 55 million representing 58.5% of total population in 2018 with an official unemployment rate of 2%.

Labor force remains a key competitive advantage of Vietnam to attract foreign investment as well as sustaining future growth. Vietnam is famous for its young, hard- working, highly a literate and easy-to-train labor force.

Wages and salaries in Vietnam vary widely across occupations and geographic locations. In 2018, the average annual income per person was over $2,900.

In comparison with other countries in Asia, the cost of living in Vietnam remains relatively low.

Better quality training provided by professional experts is required for Vietnamese workers to meet increasingly sophisticated requirements of investors.

Business Etiquette and Culture

Many Vietnamese are more comfortable using their native language rather than English. However, many English speakers can be found in Vietnam, especially in the larger cities.

Presenting business cards is an important ritual in the Vietnamese business world. Cards are exchanged at the beginning of a meeting using both hands. Translating written materials into Vietnamese shows respect for Vietnamese colleagues and business partners.

Face to face business meetings are important in Vietnam and an appropriate level of respect must be shown according to rank and seniority.

The Future

As a member of the WTO, Vietnam continues to improve its business and investment environment and bolster its legal system to meet WTO requirements. Vietnam has made significant efforts to ensure that foreign investors are not disadvantaged compared with their local counterparts, including an overhaul of the legal framework governing investments and protection of intellectual property. Furthermore, the government has taken measures to simplify

administrative procedures in areas such as import and export, company establishment and making tax payments.

According to the latest World Bank annual ratings, Vietnam is ranked 69 among 190 economies in the ease of doing business, foreign investment in Vietnam continues to grow, and the Government shows its commitment to market-oriented reforms through its ongoing efforts to attract foreign direct investment.

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2. INVESTING IN VIETNAM

Forms of Business

Limited-Liability Company

A limited-liability company is a legal entity established by its “members” (i.e. owners) through capital contributions to the company. The capital contribution of each member is treated as equity (charter capital). The members of a limited-liability company are liable for the financial obligations of the limited-liability company to the extent of their capital contributions.

The management structure of a limited-liability company would normally consist of the “members” council”, the chairman of the members” council, the general director and a controller (or board of supervisors where the limited-liability company has more than 11 members).

A limited-liability company established by foreign investors may take the form of either:

• A 100% foreign-owned enterprise (where all members are foreign investors); or

• A foreign-invested joint-venture enterprise between foreign investors and at least one domestic investor

Joint-Stock Company

A joint-stock company is a limited liability legal entity established through a subscription for shares in the company.

Under Vietnamese law, this is the only type of company that can issue shares. The charter capital of a joint-stock company is divided into shares and each founding shareholder holds shares corresponding to the amount of capital the shareholder has contributed to the company.

A joint-stock company is required to have at least three shareholders. There is no limit on the maximum number of shareholders in such companies.

The governance of a joint-stock company includes the general meeting of shareholders, the board of directors, the chairman of the board of directors, the general director and a board of supervisors (where the joint stock company has at least 11 shareholders, or if a corporate shareholders holds more than 50% of the shares of the joint-stock company).

A joint-stock company may either be 100% foreign-owned or may take the form of a joint venture between both foreign and domestic investors.

Partnership Company

A partnership is a very rare form of business. It may be established between two individual general partners. The general partner has unlimited liability for the operations of the partnership.

Public and Private Partnership Contract

A Public and Private Partnership (“PPP”) contract is an investment form carried out based on a contract between the government authorities and project companies for infrastructure projects and public services.

PPP contracts include Build-Operate-Transfer (BOT), Build-Transfer (BT), Build-Transfer-Operate (BTO), Build- Own-Operate (BOO), Build-Transfer- Lease (BTL), Build -Lease-Transfer (BLT) and Operate-Manage (O&M) contracts.

Both public and private investors are encouraged to participate in PPP contracts. The rights and obligations of the foreign investor will be regulated by the signed PPP contracts and the applicable regulations governing such contracts. Investment sectors include:

• Transportation infrastructure and relevant services

• Lighting systems, clean water supply systems, water drainage systems, water/waste collection and treatment systems, social/resettlement houses, cemeteries

• Power plants and power transmission lines

• Infrastructure for healthcare, educational and training, cultural, sport and relevant services, offices for government authorities

• Infrastructure for commerce, science and technology, hydrometeorology, economic zone, industrial zone, high- tech zone, centralized information technology zone, information technology application

• Infrastructure for agriculture and rural development, services for enhancing the correlation of agricultural production with processing and consumption of agricultural products

• Other sectors according to the Prime Minister’s decisions

Legal Entity Selection

Depending on the business industry, the number of investors, and whether there is any intention to list the entity, a foreign entity may establish its presence in Vietnam as a limited-liability company, a joint-stock company, or a partnership.

Branch

Technically speaking, a branch of a foreign business entity in Vietnam is a dependent unit of the foreign business entity, established and conducting commercial activities in Vietnam in accordance with the laws of Vietnam or an international treaty to which Vietnam is a member.

However, this is not a common form of foreign direct investment and is only permitted in a few sectors. A branch is not an independent legal entity. Branches of foreign companies are different from representative offices in that a branch is permitted to conduct commercial activities in Vietnam.

Representative Office

Representative office is a common form of early or initial establishment for foreign organizations looking to invest or to do business in Vietnam. Foreign companies with business relations or investment projects in Vietnam may apply to open representative offices in Vietnam.

A representative office may not conduct commercial or revenue-generating activities (i.e. the execution of contracts, receipt of funds, sale or purchase of goods, or provision of services).

A representative office is only permitted to:

• Act as a liaison office

• Conduct market research

• Promote its parent company’s business and investment opportunities

The key limitation of the scope of activities of representative office is that it’s not allowed to engage in any “direct profit-making” activities.

Thus representative offices can provide a wide range of ancillary support to their foreign-based parent companies. This is a very common form of registered legal presence in Vietnam, particularly those in the first stage of a market entry strategy.

Business Cooperation Contract (BCC)

A BCC is a cooperation agreement between foreign investors and at least one Vietnamese partner in order to carry out specific business activities.

This form of investment does not constitute the creation of a new legal entity. The investors in a BCC generally share the revenues and/or products arising from a BCC and have unlimited liability for the debts of the BCC.

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Liquidation and Bankruptcy

A company can only be voluntarily liquidated if it is solvent and all creditors can be paid. The process generally takes 12 months or more and requires a final tax audit.

For insolvent companies, a new Bankruptcy Law came into effect on 1 January 2015. The new law sets out, inter alia, which parties can instigate bankruptcy proceeding, procedures for the appointment of a liquidator, organization of creditors meetings and priority of creditor payments.

Setting Up a Business

• Limited-liability company/ Joint stock company/ Partnership

• Branch

• Representative office

• Public-Private Partnership (PPP) project (such as BOT/BTO/BT project)

Following Vietnam’s accession to the WTO in 2007, the market was liberalized in certain areas, including the trading of goods.

Under Vietnamese law, the trading of goods by foreign invested enterprises covers the following areas:

“Right to import” refers to the right to import goods into Vietnam for sale to business entities that themselves have the right to distribute the goods in Vietnam. The import right does not include the right to organize or participate in the distribution of goods in Vietnam.

“Right to export” refers to the right to purchase goods in Vietnam for export. The export right does not include the right to organize a network of collecting and purchasing goods in Vietnam for export.

“Distribution right” means the right to directly undertake activities of distribution, consisting of:

• being an agent for the purchase and sale of goods

• wholesale distribution

• retail distribution

• franchising

Vietnamese enterprises are free to carry out trading activities in Vietnam and are permitted to directly export and import all goods, except for certain restricted goods where a special business license must be obtained from the relevant State authorities.

Foreign invested enterprises in Vietnam may directly distribute or set up distribution networks to sell the products they manufacture in Vietnam and may export their products directly. However, various sectors are still subject to restrictions.

In practice, as the Vietnamese government wishes to protect domestic distribution enterprises, retail distribution by foreign investors in Vietnam is still restricted and subject to an approval process. For more than one retail outlet, the approval must be considered by the licensing authorities based on an Economic Needs Test (“ENT”), which considers the following criteria:

• existing service suppliers in a particular geographic area

• stability of market

• geographic scale

In April 2013 the Ministry of Industry and Trade issued a new regulation which provides an exemption from the ENT procedures for retail outlets that are less than 500m2 in size and located in facilities constructed for the purpose of selling goods (although the establishment of such an outlet is still subject to approval of the licensing authority).

3. TRADE

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THE POWER OF BEING UNDERSTOOD

4. TAXATION

General Overview

Most business activities and investments in Vietnam will be affected by the following taxes:

• Corporate Income Tax (“CIT”)

• Value Added Tax (“VAT”)

• Personal Income Tax (“PIT”)

• Foreign Contractor Tax (“FCT”)

• Special Sales Tax (“SST”)

• Import and Export Duties (“IED”)

There are various other taxes that may affect certain specific businesses, including:

• Natural resources tax

• Property taxes

• Environment protection tax

• Social insurance, unemployment insurance and health insurance contributions

All taxes are national taxes and administered locally. There are no local, state or provincial taxes in Vietnam.

Tax Incentives

Preferential CIT rates of 10%, 15% and 20% for 15 years, 12 years and 10 years, respectively. From 1 January 2016, enterprises previously entitled to the preferential CIT rate of 20% will enjoy a rate of 17% instead. When the preferential rate expires, the CIT rate reverts to the standard rate. Certain socialized sectors (e.g. education, health) enjoy a 10% rate for the life of the project.

Tax holidays with a complete exemption from CIT for a certain period generally beginning after the enterprise first makes profits, followed by a period where tax is charged at 50% of the applicable rate:

• 4 years of tax exemption and 9 subsequent years of 50% reduction

• 4 years of tax exemption and 5 subsequent years of 50% reduction

• 2 years of tax exemption and 4 subsequent years of 50% reduction

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Corporate Income Tax (“CIT”)

Tax Rates

Currently, the CIT standard rate is 20%. For enterprises with total revenues of less than VND20 billion, a 17% CIT rate shall be applied.

The companies which are classified into the following certain industries are liable to a higher tax rate:

• Companies operating in the oil and gas industry are subject to rates ranging from 32% to 50%, depending on the location and specific project

• Any companies engaging in prospecting, exploration and exploitation of mineral resources are subject to CIT rates of 40% or 50% depending upon location

CIT may be reduced under investment incentive schemes.

Tax Incentives

Preferential tax treatments such as tax exemption, tax reduction, and preferential rates (17%, 15% or 10%) are limited to:

• Encouraged sectors such as: healthcare, education, training, sports, art activities, environment, scientific research, high-tech, infrastructure development and software

• Economic zones, industrial zones with favorable conditions or locations with difficult socio-economic conditions

In particular, CIT rate of 10% for 15 years will be applied to:

• Income of enterprise from performance of new investment project in the area with extremely difficult socio-economic conditions

• Income of enterprise from performing new investment project in the high technology field

• Income of enterprises from performing new investment projects in the field of environmental protection

• High-tech enterprises and agricultural enterprises applying high-tech

The income of an enterprise from the implementation of a new investment project in production if the conditions on scale of investment, disbursement time and total annual revenue or labor usage are satisfied.

Enterprises currently applying a CIT rate of 20% as mentioned above will apply a CIT rate of 17% from 1 January 2016. Tax exemption for 4 years and a 50% reduction of tax payable for 9 subsequent years will also be applied in certain cases.

And, a CIT rate of 17% for 10 years will be applied to:

• Income of an enterprise from performing a new investment projects in the areas with difficult socio-economic conditions

• Income of an enterprise from performing a new investment project in production of equipment, high-quality steel and other products

Tax exemption for 2 years and 50% reduction of tax payable for the 4 subsequent years will be applied in certain cases.

Effective from 1 January 2012, following Vietnam’s WTO commitments, export-based tax incentives are no longer available to exporters. Exporters who have lost export-based tax incentives may elect an alternative tax incentive scheme (if eligible) and must notify the tax authorities of the election. The taxpayer must self-assess the applicable incentives in accordance with the current tax regulations.

Calculation of Taxable Profits

Taxable profit is calculated as the difference between total taxable revenue, whether domestic or foreign sourced, and deductible expenses, plus other assessable income.

Taxpayers are required to prepare an annual CIT return which includes a section for making adjustments to accounting profit to arrive at taxable profit.

Deductible Expenses

In general, deductible expenses for corporate income tax purposes are reasonable expenses actually incurred that relate to the activities of production and business of the enterprise and are accompanied by legal and complete invoices and vouchers as required by law.

Non-Deductible Expenses

The non-deductible expenses include following items:

• Depreciation of fixed assets which is not in accordance with the prevailing regulations

• Employee remuneration expenses which are not actually paid, or are not stated in a labour contract or collective labour agreement

• Staff welfare (including certain benefits provided to family members of staff) exceeding an annual cap of one month’s average salary

• Reserves for research and development not in accordance with the prevailing regulations

• Provisions for severance allowance and payments of severance allowance in excess of the prescribed amount per the Labour Code

• Overhead expenses allocated to a PE in Vietnam by the foreign company’s head office exceeding the amount under a prescribed revenue-based allocation formula

• Interest on loans corresponding to the portion of charter capital not yet contributed

• Interest on loans from non-economic and non-credit organizations exceeding 1.5 times the interest rate set by the State Bank of Vietnam

• Provisions for stock devaluation, bad debts, financial investment losses, product warranties or construction work which are not in accordance with the prevailing regulations

• Unrealized foreign exchange losses due to the year-end revaluation of foreign currency items other than accounts payable

• Donations except certain donations for education, health care, natural disaster or building charitable homes for the poor

• Administrative penalties, fines, late payment interest

• Contributions to voluntary life, pension insurance funds for employees exceeding VND 3 million per month per person

• Certain expenses directly related to the issuance, purchase or sale of shares

• Creditable input value added tax, corporate income tax and personal income tax

For certain businesses such as insurance companies, securities trading and lotteries the Ministry of Finance provides specific guidance on deductible expenses for CIT purposes.

Losses

Tax losses may be carried forward for a maximum of five (5) consecutive years.

Losses arising from incentivised activities can be offset against profits from non-incentivised activities, and vice versa. Losses from the transfer of real estate and the transfer of investment projects can be offset against profits from other business activities, but not vice versa.

Carry-back of losses is not permitted. There is no provision for any form of consolidated fi ling or group loss relief.

The Law on CIT applies to all domestic and foreign entities that invest in Vietnam. The Law expands the taxpayer pool to include all foreign enterprises that have income from Vietnam, regardless of whether they have a permanent establishment in Vietnam or not.

A Corporate Tax-payer can elect to adopt a calendar year, or a fiscal year ending on a quarter of a calendar year, as the basis for the tax year.

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Administration

CIT taxpayers are required to make quarterly provisional CIT payments based on estimates. If the provisional quarterly CIT payments account for less than 80% of the final CIT liability, any shortfall in excess of 20% is subject to late payment interest (currently as high as 11% per annum), applying from the deadline for payment of the Quarter 4 CIT liability.

CIT returns are filed annually. The annual CIT return must be filed and submitted not later than 90 days from the fiscal year end (typically 31 December). The outstanding tax payable must be paid at the same time.

The standard tax year is the calendar year. Enterprises are required to notify the tax authorities in cases where they use a tax year (i.e. fiscal year) other than the calendar year.

Taxpayers must pay tax in the province where their main head office is located. If an enterprise has a “dependent accounting production establishment” in another province or city, then the amount of CIT assessable and payable will be determined in accordance with a ratio of expenses incurred by each manufacturing establishment over the total expenditure of the company.

Profit Remittance

Foreign investors are acceptable to remit their profits annually at the end of the financial year or upon termination of the investment in Vietnam. Foreign investors are not permitted to remit profits if the investee company has accumulated losses.

The foreign investors or the investee enterprises are required to notify the tax authorities of the plan to remit profits at least 7 working days prior to the scheduled remittance.

Transfer Pricing

Vietnam’s transfer pricing (“TP”) regulations are governed by Decree 20/2017/ND-CP which came into force on 1 May 2017, replacing the previous Circular 66/2010/TT-BTC.

Decree 20 extends the interpretation of existing provisions and introduces additional concepts and principles from the Transfer Pricing Guidelines of the Organization for Economic Cooperation and Development (OECD) and BEPS Action Plan.

Related Party Definition

The ownership threshold required to be a “related party” under Decree 20 is 25%, higher than the 20% under Circular 66. In addition, Decree 20 removes from the related party definition of Circular 66 two entities having transactions between them accounting for more than 50% of their sales or purchases. Vietnam’s transfer pricing rules also apply to domestic related party transactions.

TP Methodologies

Acceptable methodologies for determining arm’s length pricing are analogous to those espoused by OECD in the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, i.e. comparable uncontrolled price, resale price, cost plus, profit split and comparable profits method.

TP Documentation

Compliance requirements include an annual declaration of related party transactions and transfer pricing methodologies used, and a taxpayer confirmation of the arm’s length value of their transactions (or otherwise the making of voluntary adjustments), which is required to be fi led together with the annual CIT return.

Decree 20 requires that the TP method applied must ensure that there is no loss of tax revenue to the State Treasury, which could imply that no downward adjustments are allowed. Decree 20 also introduces a new TP declaration forms which requires disclosure of more detailed information, including segmentation of profit and loss by related party and third party transactions.

Decree 20 gives the tax authorities the power to use internal databases for TP assessment purposes in cases where a taxpayer is deemed noncompliant with the requirements of the Decree.

Taxpayers engaged in related party transactions with domestic related parties may be subject to different rules.

Year 2015 to 2018 saw significant developments in transfer pricing initiated by the tax authorities. In July 2015, a Transfer Pricing Audit Department was established within the

General Department of Taxation (“GDT”). Soon afterwards, in November 2015, local Transfer Pricing Audit departments were also established in the Hanoi, Binh Duong, Dong Nai, and Ho Chi Minh City tax authorities.

In July 2016, the GDT announced the establishment of a BEPS Working Group which is responsible for preparing action plans to implement the OECD BEPS Initiatives and overseeing the implementation process.

Foreign Contractor Tax (“FCT”)

Foreign organizations and individuals carrying out permitted businesses in Vietnam without a legal entity are subject to Foreign Contractors Tax (“FCT”) comprising VAT and CIT/ PIT.

Applicable tax rates vary depending on whether a foreign contractor registers to use the Vietnamese Accounting System (“VAS”) or not. The standard FCT rate is 10% but different rates can apply depending on the transactions and taxpayer’s tax filing status.

There are three methods of FCT payment at the FC”s selection:

Deduction Method

This method allows the FC declaring: (i) VAT under the approach of crediting the input VAT against the output VAT, and (ii) CIT based on the declaration of revenue and expense similar to the local enterprises” application. Of note, FC is required to meet some criteria, including FC”s adoption of the Vietnamese Accounting System.

Direct Method

Under this method, FCT is the mechanism to withhold taxes. The FC”s VAT and CIT/ PIT will be withheld by the Vietnamese customers at prescribed rates from the payments made to the FC. Various FCT rates are regulated under the nature of activities performed.

Hybrid Method

This method is a mixed-up between the deduction method and direct method, i.e. allows the foreign contractor declares VAT based on the creditable approach and CIT at direct method.

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Special Sales Tax (SST)

Special Sales Tax is 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.

Special sales tax is a form of excise tax levied on the production or import of certain goods and the provision of certain services:

• Goods generally subject to SST include: cigarettes, cigars and other products processed from tobacco; spirits and beer; certain passenger vehicles; two-wheel motor vehicles with a cylinder capacity above 125cm3; aircraft and yachts; various types of petrol; air-conditioners with a capacity of 90,000 BTU or less and playing cards

• Businesses subject to SST include: dancehalls, massage lounges and karaoke parlors, casinos, slot machines and other similar types of machines, betting businesses, golf and lotteries

Taxpayers producing SST goods from SST inputs are entitled to claim a credit for the amount of SST paid on the materials imported or purchased from local suppliers.

Natural Resources Tax (NRT)

Natural Resources Tax (also known as royalty tax) is imposed on the exploitation of Vietnam’s natural resources including petroleum, mineral resources, forest products, seafood and natural water. Tax rates vary depending on the specific classification of natural resource and are applied to the production output at a specified taxable value per unit.

Property Tax

Foreign investors generally pay rental fees for land use rights. The range of rates is wide depending upon the location, infrastructure and the industrial sector in which the business is operating. In addition, owners of houses and apartments have to pay land tax under the law on non-agricultural land use tax which is charged on a square meter basis at progressive rates from 0.03% to 0.15%.

Environment Protection Tax

Effective from 1 January 2012, Vietnam introduced Environment Protection Tax (“EPT”) which is aimed to impose tax on goods that may cause damage to the environment.

EPT is in effect an indirect tax applicable to the production and importation of certain goods such as petroleum, coal, plastic bags and restricted chemicals.

Double Taxation Agreements (DTAs)

The application of CIT (including via FCT rules) may be affected by a relevant DTA. For example, the 5% CIT withholding on services supplied by a foreign contractor may be eliminated under a DTA if the foreign contractor does not have profits attributable to a PE in Vietnam.

Vietnam has signed more than 70 DTAs and there are a number of others at various stages of negotiation. Notable is the signed DTA with the United States of America, although this is not yet in force.

There are various guidelines on the application of DTAs. These include regulations relating to beneficial ownership and general anti-avoidance provisions. DTA entitlements will be denied where the main purpose of an arrangement is to obtain beneficial treatment under the terms of a DTA (treaty shopping) or where the recipient of the income is not the beneficial owner.

The guidance dictates that a substance over form analysis is required for the beneficial ownership and outlines the factors to be considered, which include:

• Where the recipient is obligated to distribute more than 50% of the income to an entity in a third country within 12 months

• Where the recipient has little or no substantive business activities

• Where the recipient has little or no control over or risk in relation to the income received

• Back to back arrangements

• Where the recipient is resident in a country with a low tax rate

• Where the recipient is an intermediary or agent

Value Added Tax (VAT)

The 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. Taxpayers meeting the requirements can apply the credit method. VAT payable under the credit method is calculated on the difference between output VAT (VAT collected for sales) and input VAT (VAT paid on purchases). Taxpayers that do not qualify for the credit method can apply the direct method.

Under the direct method, the taxpayer will pay VAT by applying a deemed rate on the added value of the transaction. A Corporate Tax-payer is required to file and pay VAT on a monthly basis, or on a quarterly basis if relevant conditions are met. The standard VAT rate is 10%, but the rates are classified into four groups: exempt, 0%, 5% and 10%.

Import and Export Duties

All 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 actually exported within 275 days. Enterprises with foreign-invested capital and parties to a Business Cooperation Contract in especially encouraged projects are exempt from import duty in respect of certain imported goods which form part of their fixed assets.

Most exports are duty-free, except for a certain natural resources such as sand, chalk, marble, granite, ore, crude oil, forest products and scrap metal.

Personal Income Tax (PIT)

Both foreigners working in Vietnam and Vietnamese citizens are subject to PIT. For tax residents, a progressive taxing system, where the marginal rate ranges from 5% to 35%, is applied to worldwide employment income.

For tax non-residents, a flat rate of 20% is applied to the employment income derived from Vietnam. In general, a tax resident is a person:

• Present in Vietnam for at least 183 days in a tax year; or

• Having a regular place of abode in Vietnam, i.e. an individual rents a house in Vietnam according to legislation on housing under a contract that lasts 183 days or longer in the tax year; or

• Not a tax resident of another country (subject to applicable double tax agreement)

If an individual has a regular place of abode in Vietnam, but is actually only present in Vietnam for less than 183 days in the tax year and fails to prove their residence in any other country, that individual will be considered to be a tax resident of Vietnam.

Social, Health and Unemployment Insurance Contributions

Social insurance (“SI”), Health insurance (“HI”) and Unemployment insurance (“UI”) contributions are applicable to Vietnamese and foreign individuals that are employed under Vietnam labor contracts.

Tax Audits and Penalties

Tax returns are filed on a self-assessment basis and are subject to tax audit at later years.

Tax audits are carried out regularly and often cover a number of tax years. Prior to an audit, the tax authorities send the taxpayer a written notice specifying the timing and scope of the audit inspection.

There are detailed regulations setting out penalties for various tax offences. These range from relatively minor administrative penalties through to tax penalties amounting to various multiples of the additional tax assessed. For discrepancies identified by the tax authorities (e.g. upon audit), a 20% penalty will be imposed on the amount of tax under-declared. Late payment of tax is subject to interest of 0.03% (it was 0.05% prior to 1 July 2016) of the tax liability for each day late.

The general statute of limitations for imposing tax and late payment interest is 10 years (effective 1 July 2013) and for penalties is up to 5 years. Where the taxpayer did not register for tax, there is no statute of limitation for imposing tax and late payment interest.

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5. ACCOUNTING AND AUDITING

Accounting Framework

Accounting Standards

There are currently 26 Vietnamese Accounting Standards (VAS) which were issued from 2001 to 2005. All standards were adopted from and primarily based on the International Accounting Standards (IAS). Key differences between IFRS and VAS include terminology, applied valuation methods or disclosure requirements due to the continuing changes and amendments to IFRS.

Vietnam is on the way to close the gap between VAS and IFRS and it is expected that full adoption of IFRS will be made by 2025.

Accounting Law and Applicable Implementation Guidance

In Vietnam, Accounting Law is the highest accounting regulation issued by the National Assembly. Various applicable implementation guidance is then issued by the Government and the Ministry of Finance (MoF) in respect of implementing a Decree or Circular, respectively.

The accounting framework in Vietnam is mainly rules-based accounting rather than a principles-based one. The Vietnamese Accounting System is seen as the book keeping and financial reporting manual that provides a standard chart of accounts, financial statements template, accounting books and voucher templates, as well as detailed guidance on accounting double entries for specific transactions in each individual account.

There are industry-specific accounting guidelines for credit institutions, insurance companies, securities companies, fund managers and funds. Out of these sectors, the accounting guidelines for credit institutions are issued by the State Bank of Vietnam.

Financial Reporting

The basic set of financial statements prepared under VAS comprises the following:

• Balance sheet

• Income statement

• Cash flow statement

• Notes to the financial statements, including a disclosure on changes in equity

An enterprise is required to appoint a Chief Accountant who must satisfy the criteria and conditions stipulated by the Law on Accounting and guiding regulations. The annual financial statements must be approved by the Chief Accountant and the Legal Representative and a copy of the financial statements must be submitted to the local authorities within 90 days of the end of the financial year.

For those enterprises operating in export processing zones (EPZs) or industrial zones (IZs), Annual Financial Statements may be required to be filed with the management board of the respective EPZs or IZs.

Audit Requirements

Vietnam has issued 47 auditing standards which are primarily based on International Standards of Auditing with certain customizations to fit Vietnam’s circumstances.

The annual financial statements of all foreign-invested entities must be audited by an independent auditing company operating in Vietnam. Audited annual financial statements must be completed within 90 days of the end of the financial year. These financial statements should be filed with the applicable licensing body, Ministry of Finance, local

tax authorities, Department of Statistics and other relevant authorities.

Audit contracts should be signed with the independent auditing companies no later than 30 days before the end of the enterprise’s fiscal year. The enterprise is legally responsible for providing timely and sufficient information, as well as explanations to the auditor.

There is a requirement to rotate audit firms after five consecutive years for credit institutions operating in Vietnam. For entities other than credit institutions, the signing auditors are required to be rotated off after three consecutive years.

Heading to International Financial Reporting Standards (IFRS)

There are certain key differences between IFRS and VAS, mainly including terminology, accounting treatment and presentation and disclosure requirements. It should be noted that IFRS has been changing continuously with a number of revisions and amendments made to date. However, there are still a number of key accounting standards such as regarding financial instruments and impairment of assets that have not been issued yet in Vietnam.

It should be noted that Accounting Law 2015 introduces the concept of Fair Value for the first time, with further specific guidance expected to be issued by the MoF in the near future.

Vietnam is expected to align with IFRS in its efforts to enhance comparability and improve transparency. Businesses should put in place accounting-auditing human resources as well as upgrading technologies, systems and processes which are all decisive factors in successfully adopting IFRS.

Accounting Records

• Framework: Vietnamese Accounting System

• Language: Vietnamese

• The company can use electronic documents as accounting records, but must print and file those electronic papers in hardcopy

• Records retention: five (5) years for accounting documents; ten (10) years for accounting data, accounting books and permanently for documents that are significant in term of economics, national security and defense

• Currency: Accounting records are generally required to be maintained in Vietnamese Dong (“VND”). Foreign invested entities are allowed to select and use another currency in recording transactions and maintaining their accounting records, provided that they can clearly demonstrate that the receipts and disbursements are mainly denominated in such other currency. However for statutory reporting, entities using another currency as functional currency must convert their financial statements prepared under such other currencies into VND under certain prescribed regulations

• Accounting period: The accounting period is generally 12 months in duration. The first accounting period must not be longer than 15 months from the license date. The last accounting period must also not be longer than 15 months

• Seal: Enterprises are permitted to actively decide the form, quantity and contents of their seal. The management, use and retention of the seal shall comply with the entities’ charter. The seal shall be used in the cases prescribed by law or agreed by the parties

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6. HUMAN RESOURCES & EMPLOYMENT LAW

Employment Law

Vietnam’s population is over 92 million and is expected to grow at an annual rate of 1.3%. Around 40% of the population is under 25 years of age. Approximately 22% of the population is considered to be trained or skilled (with elementary qualifications or higher).

The new Labour Code, which became effective 1 May 2013, creates a legal framework that sets out, inter alia, the rights and obligations of employers and employees with respect to working hours, labour agreements, payment of social insurance, overtime, strikes, and termination of employment contracts. In addition, there are some new implementing decrees guiding the provisions of the new Labour Code, for example the decrees on labour contracts and disputes.

The law provides an 8-hour working day and a 48-hour working week. An employer and an employee may agree that an employee works overtime, provided that the total overtime worked does not exceed 200 hours per year. In special circumstances and with notification to the relevant authorities, the maximum overtime can be increased to 300 hours per year.

In a labour contract with Vietnamese workers, wages and salaries must be set in Vietnamese dong. The wages of employees are subject to minimum rates determined by the Government from time to time.

Foreigners working in Vietnam must generally have a work permit issued by the labour management authority. In order to obtain a work permit, foreigners assigned to work in Vietnam are required to show a degree of proprietary knowledge, a special skill or a manager/ executive-level skill not readily available in the domestic labour market.

Under the new Labour Code, the maximum duration of a work permit is 24 months (which can however be extended subject to certain conditions).

Immigration

Foreigners coming to Vietnam must obtain a visa (with certain exceptions under treaties or other reciprocal agreements) from the Vietnamese Immigration Department or Vietnamese embassies/consulate offices in foreign countries.

A business visa is issued to foreign individuals who conduct business in Vietnam.

Vietnam averagemonthly wages(updated 06/2019)

24 months

$5.622VND Million/Month

A foreign worker can only have maximum duration of a work permit being

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All monetary transactions in Vietnam must be made in Vietnamese Dong, except for a limited number of transactions allowed by law to be made in foreign currencies (e.g. salary payment to foreign employees). Foreign invested enterprises may, subject to certain conditions, buy foreign currency from banks to carry out a number of obligations in foreign currencies from their transactions.

Generally speaking, the flow 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 authorized institutions are eligible to provide foreign exchange services.

Banking System

Vietnam’s banking system was divided into a two-tier structure in 1988 when the State Bank of Vietnam (SBV) assumed the regulatory and supervisory roles for the banking sector, with commercial activities shifting to credit institutions.

The SBV acts as both the Central Bank and as a Government Agency of the Socialist Republic of Vietnam. Operating under the tight direction of the Government, the SBV is subject to the Government’s or the Prime Minister’s approval for key areas of operation.

Since dividing into a two-level system, the Vietnam banking system has expanded rapidly. Vietnam’s credit institutions comprise state-owned commercial banks (SOCBs), joint-stock commercial banks, joint-venture banks, 100% foreign-owned banks, branches of foreign banks, credit cooperatives, finance leasing companies and finance companies.

Four SOCBs dominate the domestic banking sector, the Bank for Foreign Trade of Vietnam (Vietcombank), the Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), the Bank for Investment and Development of Vietnam (BIDV), and the Vietnam Bank for Agriculture and Rural Development (Agribank). The SOCBs currently account for around 70 percent of total banking system assets; however the domination of these banks has been on a significant downward trend.

The second phase of bank restructuring process (2016 – 2020) follows the first phase ending in 2015 (2011 – 2015). The merger of several banks and the buying of underperforming banks, banks unable to self – restructure by the State Bank has brought about several achievements including improvement in the performance of banks and reduction of total bad debt ratio of the banking system to 2.7%.

Over the last decades, foreign banks have expanded their presence in Vietnam. There are about 51 foreign bank

branches; two joint-venture banks, and six 100 percent foreign-owned banks as of 30 June 2016.

Current legislation states that the total foreign shareholdings, in local Vietnamese banks, is not to exceed 30 percent. Within this limit the maximum shareholding permitted to a foreign bank as a strategic partner is 20 percent, while a non- strategic investor can own 15 percent. Individual investors may hold no more than 5 percent of the shares.

While the banking industry developed rapidly, Vietnam is still a largely cash-based society. This is evidenced through the fact that only about 20 percent of Vietnam’s population of 90+ million held bank accounts at the end of 2015.

8. LAND

The Vietnamese Constitution stipulates that land in Vietnam belongs to the people with the State acting as the representative owner and exerting its control over the land in practice on the people’s behalf.

Although private ownership of land is technically not permitted, legal ownership can in essence be derived through the right to use land (i.e. the land use right (“LUR”)). The State may allocate or lease LURs to individuals, households and organizations to use land for a defined or undefined term.

Vietnam’s legal framework for the management and administration of LURs is composed of: various key laws and in particular the Land Law which was amended in 2014 for some important reforms relevant to Foreign Invested Enterprises (FIE’s); supplementing laws including the Civil Code which provide clarity on areas not specifically addressed in the key laws and including areas relating to foreign investment; and, auxiliary rules and regulation.

The ownership of LUR and other assets attached to land is evidenced by the Certificate of Land Use Right, Ownership of House and Other Assets Attached to Land (the “LURC”). This LURC sets out fundamental information on the land use, including the term and purpose of the land use, and the assets attached to the land (if any).

The State’s power over land construction activities is exercised by the following government bodies: at the national level, by the Ministry of Natural Resources and Environment, an administrative body of the State for land management, and the Ministry of Construction, an administrative body of the State for construction activities; and, at local level by the People’s Committees, supported by their administrative bodies such as the Department of Natural Resources and Environment and the Department of Construction.

In late 2016, the SBV issued a new regulation on CAR which will be effective from 2020. In accordance with this new regulation, CAR is required to be maintained at a minimum requirement of 8% and its calculation methodology was changed to be aligned with Basel II, which not only takes into account credit risk but also operational risk and market risk. This new regulation is considered a step forward to safety and effectiveness in Vietnam’s operation of the banking industry.

Basel II

In 2015, the SBV selected ten domestic commercial banks to pilot the application of Basel II standards from February 2016 to the end of 2018, with an aim to apply Basel II standards for all banks by 2020. Commercial banks are required to maintain a CAR of at least 8% from January 2020.

Internal Controls and Internal Audit

Credit institutions and foreign banks’ branches operating in Vietnam are required to set up an internal control system and internal audit function to comply with the SBV’s applicable regulations.

Every year, credit institutions and foreign banks’ branches must review and assess the adequacy, validity, effectiveness and efficiency of internal controls. Accordingly, a report on the self-assessment of internal controls containing risk updates, a summary of the main operations, relevant risks and checks and controls at an organization-wide level, unit level and department level of the credit institutions and foreign banks’ branches must be prepared. That report shall be submitted to the key stakeholders of the credit institutions and foreign banks’ branches as required and the State Bank of Vietnam within 30 days from the end of the fiscal year.

Independent Auditor Requirements

The annual statutory financial statements and operating effectiveness of the internal control system of credit institutions and foreign banks’ branches are required to be audited by an independent auditor. Credit institutions are also required to rotate auditing companies every five years.

Before the end of each fiscal year, credit institutions and foreign banks’ branches must select an independent auditing company from the List of Authorized Auditing Companies published by the SBV to audit their financial statements and operation of the internal controls for the subsequent fiscal year.

Foreign Exchange Control

The Vietnamese Dong is not freely convertible and the market is still heavily dependent on foreign currencies, especially the U.S. dollar. The Government has implemented measures to gradually reduce its reliance on the dollar.

7. BANKING AND FINANCE

Capital Management

Minimum Legal Capital Requirement

A minimum legal capital requirement applies for credit institutions operating in Vietnam. Accordingly, minimum legal capital levels for commercial banks, foreign banks’ branches, finance companies and financial leasing companies are VND3,000 billion, US$15 million, VND500 billion and VND150 billion, respectively.

Foreign Ownership

Total foreign ownership in a local bank is capped at 30%. Subject to approval by the Prime Minister on a case by case basis, foreign investors can own more than 30% of the total shares in a local bank.

Capital Adequacy Ratio (CAR)

CAR under the SBV’s guidance is required to be maintained at the minimum regulatory requirement of 9%. The existing CAR calculation methodology is based loosely on Basel I with respect to credit risk and does not take into account other risks, such as operational risk and market risk charges.

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Technology transfer in Vietnam is regulated by the following:

• Law on Technology Transfer (“LTT”) 2018 which took effect from 1st July 2018

• The LTT has seven chapters with 61 articles, dealing with objects eligible for transfer; technologies encouraged for, restricted to, and prohibited from transfer; technology transfer agreements; technology transfer services (including technology transfer brokerage, appraisal, evaluation, assessment and promotion); measures for encouraging and boosting technology transfers; approval and registration of technology transfers; and handling disputes, claims, denouncements and breaches in technology transfers

General Principles

The LTT defines technology as solutions, processes and know-how, which may or may not be associated with tools and means, to turn resources into products.

The term “transfer of technology” refers to either the transfer of the right to own the technology or the licensing/sublicensing of the right to use the technology either by an individual or a corporation.

Governing Law

The parties are allowed to agree on foreign governing law, together with other terms and conditions which are not contrary to Vietnamese law. Article 776 of the Civil Code 2005 provides that technology transfer with a foreign element (i.e., between a Vietnamese entity and foreign entity and technology transfer from any

foreign country into Vietnam or from Vietnam to any foreign country) must comply with (i) provisions of the Civil Code 2005 and other legal documents of Vietnam concerning technology transfers; (ii) international treaties to which Vietnam is a contracting party; or (iii) foreign law, if the application of such foreign law or the consequence of its application does not contradict “the basic principles of the law of Vietnam.

Registration

Beside some cases where the Technology Transfer Contracts (“TTCs”) are compulsorily required to register with the Government such as technology transfer from a foreign country to Vietnam and vice versa, the LTT also provides the right of the parties to register on a voluntary basis with respect to “unrestricted” TTCs in order to set the ground for the parties to enjoy incentives given in this Law and other relevant laws. It is therefore suggested that parties register TTCs in order to enjoy incentives under the LTT and other laws.

The LTT requires that “restricted” technology transfers are subject to approval by the technology management authority (the “Technology Authority”) before the TTC is entered into by the parties, and then a permit is issued after the TTC’s execution.

Confidentiality

Competent authorities responsible for the issuance of technology transfer permits and certificates of registration of TTCs are obligated to maintain confidentiality of the technologies and business secrets in application files for issuance of technology transfer permits and registration of technology transfer contracts.

9. TECHNOLOGY TRANSFER

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RSM VIETNAM

RSM Vietnam is one of the leading mid-tier accounting and advisory firms in Vietnam, which was established in July 2001. RSM Vietnam has become a member of RSM network since 2012. Under its core purpose of being the firm of choice for growing businesses looking for high quality and personalized services, RSM Vietnam assists clients in achieving their goals through audit, tax, advisory and outsourcing services. RSM Vietnam has more than Vietnam 300 professional staff in Vietnam serving mid to large public-listed, multi-national and private companies in various industries. RSM is the 6th largest provider of tax services and audit and accounting services worldwide (based on International Accounting Bulletin in Jan 2018) and the 5th largest supplier in USA. RSM has 750 offices in over 116 countries and more than 41,000 people internationally. The network’s annually total fee income is above US$5.4 billion.

RSM Vietnam was founded by the group of the certified public auditors (CPAs) and accredited consultants, who had worked in the field of the auditing and consulting since the very first days of this industry in Vietnam. With these advantages, RSM Vietnam has possessed the valuable manpower resources to confidently provide professional services requiring full understanding of Vietnam business climate and with international quality standards. With RSM’s Purpose being to deliver The Power of Being Understood to our clients, colleagues and communities through world-class audit, tax and consulting services focused on middle market businesses, we endeavor to provide our clients with professional services following international quality standards adapted to Vietnam business environment.

Currently, RSM Vietnam have the offices in Ho Chi Minh City, Hanoi and Da Nang, encompassing the total of employees close to 300 people (of which 40 professionals holding CPAs issued by the Ministry of Finance). RSM Vietnam is currently the 8th largest provider of tax services and audit and accounting services in Vietnam based on the ranking of Vietnam Ministry of Finance (MoF).

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INDUSTRY INSIGHTS

Our teams are organized by business areas to provide focused support on issues specific to any given industry. We have expertise in the following industries, amongst others:

• Agriculture

• Energy

• Financial Services

• Industrial Manufacturing

• Computer and IT Services

• Real Estate and Construction

• Retail and Consumer

• Insurance

• Education

• Pharmaceuticals and Healthcare

OUR SERVICES

RSM Vietnam provides clients with professional and high quality services including Audit, Tax, Accounting, Deal Advisory and Consulting by bringing solutions in order to truly understand your needs and go to success for your business.

We have rich specialist resources from our network, combined with extensive knowledge of the Vietnamese market, RSM ensures capabilities to provide an unrivalled level of support to our clients in the following services:

• Audit & Assurance Services

• Tax Services

• Transaction Support Services

• Transfer Pricing Services

• Business Process Solutions & Outsourcing Services

• Risk Advisory Services

• Business Consulting Services

• IT Advisory Services

We also provide tailored support to special groups of clients with service packages such as Private Business Services, Japanese Business Services, Korean Business Services, and Chinese & Taiwanese Business Services.

OUR VALUES

As a network, we underpin our brand with the following values that are integral to the way we act with each other and with clients: Respect, Integrity, Teamwork, Excellence, and Stewardship.

Respect – Treat others as we would like to be treated

We display respect in each interaction with: clients, employees, and partners

Integrity – Do the right thing

We stay true to our beliefs: in decisions, in negotiations, in communications

Teamwork – Work together effectively

We cultivate genuine collaboration: in work groups, across member firms, across functions, amongst leaders

Excellence – Be the best in everything we do

We achieve distinction through: our standards, our operations and the work we deliver

Stewardship – Better our network, members and our people

We make RSM a better place by: developing our people, building our brand, supporting our communities

CORPORATE RESPONSIBILITY

At RSM Vietnam, we believes the core of Corporate Responsibility (CR) is a real commitment to corporate social responsibility unites an organization, strengthens its reputation and creates vital links with the communities in which it operates.

We understand that we all have an obligation as business leaders, not only to do the right thing by embedding good social, environmental and economic practices into our everyday business, but also to be a catalyst for change by promoting these ethical and transparent business practices to the marketplace as well.

rsm.global/vietnam

The aim of this publication is to provide general information about doing business in Vietnam and every effort has been made to ensure the contents are accurate and current. However, tax rates, legislation and economic conditions referred to in this publication are only accurate at time of writing. Information in this publication is in no way intended to replace or supersede independent or other professional advice. No responsibility for any errors or omissions nor loss occasioned to any person or organisation acting or refraining from acting as a result of any material in this publication can, however, be accepted by the author(s) or RSM International. You should take specific independent advice before making any business or investment decision.

This Guide includes information obtained or derived from a variety of publicly available sources. RSM has not sought to establish the reliability of these sources or verified such information. The materials contained in this document were assembled in July 2019 and were based on the law enforceable and information available at the time.

RSM Vietnam is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network.

Each member of the RSM network is an independent accounting and advisory firm each of which practices in its own right. The RSM network is not itself a separate legal entity of any description in any jurisdiction.

The network is administered by RSM International Limited, a company registered in England and Wales (company number 4040598) whose registered office is at 50 Cannon Street, London EC4N 6JJ.

The brand and trademark RSM and other intellectual property rights used by members of the network are owned by RSM International Association, an association governed by article 60 et seq of the Civil Code of Switzerland whose seat is in Zug.

© RSM International Association, 2019

RSM VIETNAM OFFICESHo Chi Minh City5th Floor, Sai Gon 3 Building140 Nguyen Van Thu StreetDa Kao Ward, District 1Ho Chi Minh City, VietnamT: +84 28 3827 5026E: contact_hcm@rsm.com.vn

Hanoi7th Floor, Lotus Building2 Duy Tan StreetCau Giay DistrictHanoi, VietnamT: +84 24 3795 5353E: contact_hn@rsm.com.vn

Da Nang3th Floor142 Xo Viet Nghe Tinh StreetHai Chau DistrictDa Nang, VietnamT: +84 23 6363 3334E: contact_dn@rsm.com.vn

KEY CONTACTSDang Xuan CanhManaging Partner, RSM VietnamHead of Audit & AssuranceT: +(84) 28 3827 5026 - Ext: 183E: canh.dang@rsm.com.vn

Le Khanh LamPartner, RSM VietnamHead of Tax & ConsultingT: +(84) 28 3827 5026 - Ext: 227E: lam.le@rsm.com.vn

Nguyen Thanh LamPartner, RSM VietnamHead of Hanoi OfficeT: +(84) 24 3795 5353 - Ext: 110E: lam.nguyen@rsm.com.vn

Tran Duong NghiaPartner, RSM VietnamHead of Da Nang OfficeT: +(84) 23 6363 3334E: nghia.tran@rsm.com.vn