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Transcript of Indochina Legal - Doing Business in Vietnam
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LEGAL GUIDE TO DOING
BUSINESSIN VIETNAM
Member of
JANUARY
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INTRODUCTIONSHORT
Vietnam with its fast-growing and dynamic economy provides lucrative opportunities for foreign investors willing tounderstand the market. Indochina Legal has prepared this legal guide to assist those interested in investing in Vietnam or
otherwise dealing with generic legal questions in the course of doing business in Vietnam.
This legal guide was initially submitted as Indochina Legals contribution to Legalinks multi-country survey on legal and
business developments in each Members jurisdictions.We intend to provide relevant information on various key areas from
the countrys legal system to its applicable legal regimes for establishment and operation of businesses, employment, tax,
competition, intellectual property, commercial arrangements, e-commerce and consumer protection.
The material contained in this legal guide is intended for information purposes only. This guide is current as at December2013 and covers most but not every Vietnamese regulation scheduled to enter into force on January 2014.
Accordingly, the contents herein should not be treated nor relied upon as legal advice. For further information or clarication
in relation to any matter or legal instrument in this document, kindly contact any of our Vietnam oces or drop us an email
DISCLAIMER
Eric Le Drau
Managing Partner
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OF CONTENTSTABLE
1. What is the legal system (i.e. common law system, civil law system or both) in Vietnam? 06
2. What are the major law courts in Vietnam? 06
3. What are the sources of laws (such as constitution, statute law and common law) in
Vietnam? 08
4. What is/are the ocial language(s) in Vietnam? 10
5. Are there any restrictions faced by a foreign individual or company intending to invest in
Vietnam? 12
6. Are there any exchange control or currency regulations in Vietnam? 13
7. What grants or incentives are available to a foreign individual or company to encourage
investment in Vietnam? 16
8. What is the most common form of business vehicle used by foreign investors in Vietnam? 18
i. Registration formalities;
ii. Minimum (and maximum) share capital;
iii. Whether shares can be issued for non-cash consideration, such as assets or
services (and any formalities);
iv. Any restrictions on foreign shareholders;
v. Management structure and any restrictions on foreign managers;
vi. Directors liability;
vii. Parent company liability; and
viii. Reporting requirements (including ling of accounts).
9. What are the main laws regulating employment relationships in Vietnam? 26
27
A / LEGAL SYSTEM........................................................................................................06
B / FOREIGN INVESTMENT.............................................................................................12
E / TAX...........................................................................................................................36
C / BUSINESS VEHICLES................................................................................................18
D / EMPLOYMENT..........................................................................................................26
11. Do foreign employees require work permits and/or residency permits if they work in Vietnam?
If so, how long does it take to obtain them? 28
12. Are employees entitled to management representation and/or to be consulted in relation to 30
corporate transactions (such as redundancies and disposals) in Vietnam?
13. Are there any employment protection laws (such as minimum wage law and/or maximum 30
working hours law) in Vietnam?
14. Is there any pension system in Vietnam? Is it on a mandatory or voluntary basis? 31
15. How is the termination of individual employment contracts regulated in Vietnam? Under 32
what circumstances is the dismissal of an employee unlawful?
16. Are redundancies and mass layoffs regulated in Vietnam? 33
17. In relation to employees, what is the basis of taxation (i.e. whether territorial source principle, 36
tax residency principle or other principle is adopted) in Vietnam?
18. Under what circumstances are employees subject to taxation in Vietnam? 36
19. What income tax must be paid by: 36
i. Employees?
ii. Employers, in relation to their employees?
20. In relation to corporations, what is the basis of taxation (i.e. whether territorial source 38
principle, tax residency principle or other principle is adopted) in Vietnam?
21. Under what circumstances are corporations subject to taxation in Vietnam? 39
22. What are the main taxes that potentially apply to a corporation and what are their tax rates? 39
23. Please explain how each of the following is taxed in Vietnam: 43
i. Dividends paid to foreign corporate shareholders?
ii. Dividends received from foreign companies?
iii. Interest paid to foreign corporate shareholders?
iv. Intellectual property (IP) royalties paid to foreign corporate shareholders?
24. Are there any thin capitalization rules (i.e. restrictions on loans from foreign aliates) in
Vietnam? 44
25. Are there any controlled foreign company rules (i.e. the prots of a foreign subsidiary must
be imputed to a local parent company) in Vietnam? 44
26. Are there any transfer pricing rules (i.e. restrictions on the pricing of transaction between
a local entity and a foreign entity) in Vietnam? 44
27. How are imports and exports taxed in Vietnam? 45
Is a written contract of employment required in Vietnam, and if so, must it contain any
particular language? Are any agreements and/or implied terms likely to govern the
employment relationship?
10.
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28. Is there a wide network of double tax treaties and free trade agreements in Vietnam? 46
29. Is there any competition law in Vietnam? 48
30. Are restrictive agreements and practices regulated by competition law in Vietnam? 49
31. Is unilateral (or single-rm) conduct regulated by competition law in Vietnam? 49
32. Are mergers and acquisitions subject to merger control in Vietnam? 50
33. Please outline the main intellectual property rights that are capable of protection in Vietnam.
In each case, please state: 52
i. What is the nature of the right?
ii. How is it protected?
iii. How is it enforced?
iv. How long is it protected?
34. Are marketing agreements regulated in Vietnam? If so, please give brief details in respect
of the following arrangements: 56
i. Agency;
ii. Distribution; and
iii. Franchising.
35. Are there any laws regulating e-commerce (such as electronic signatures and distance
selling) in VIetnam? 58
36. Are there any data protection laws in Vietnam? 60
F / COMPETITION...........................................................................................................46
G / INTELLECTUAL PROPERTY.......................................................................................52
H / MARKETING AGREEMENTS......................................................................................56
I / E-COMMERCE............................................................................................................58
J / DATA PROTECTION...................................................................................................60
37. Are there any laws regulating product liability and product safety in Vietnam? 62
K / PRODUCT LIABILITY..................................................................................................62
OF CONTENTSTABLE
Glossary..........................................................................................................................64
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SYSTEMLEGAL
1. What is the legal system (i.e. common law system, civil law system or both) in Vietnam?
Vietnam has a civil law system, akin to the French legal system.
Being a one-party State under the control of the Communist Party of Vietnam, socialist orientations are often
incorporated into Vietnams legal system, as for instance, the ownership of land and natural resources by the
Vietnamese people (through the State) and the States protectionist stance towards State owned enterprises
(SOEs), Vietnamese owned enterprises and Vietnamese employees.
Under the Amended 2013 Constitution and the Law on Organization of the Peoples Courts, the court hierarchy
of Vietnam (excluding military tribunals, other tribunals provided by law and special tribunals set up by the
National Assembly under special circumstances) generally comprises 3 tiers, at the top of which is t he Supreme
Peoples Court, followed by the Provincial Peoples Courts, and then the District Peoples Courts. The nature and
jurisdiction of each Peoples Court are shown below.
2. What are the major law courts in Vietnam?
Court Nature Jurisdiction
Court Nature Jurisdiction
Supreme Peoples Court Highest judicial body of Vietnam Supervisory and/or review trials of cases
with decisions which have already taken legal
effect but have been protested against; or
Review, in limited cases, of rst-instance
decisions of the immediate lower courts,
which have not yet taken legal effect but have
been appealed or protested against
Provincial
Peoples Court
District Peoples Court1. Mainly an appellate court Court of rst instance Appellate trials of cases where the
rst-instance ruling of lower courts have
not yet taken legal effect but have been
appealed; and
Review of cases where the rulings of lower
courts have already taken legal effect but
have been protested against
Civil, commercial and labor cases within
its competence except when the Provincial
Peoples Courts deem it necessary to exert
jurisdiction over such matter
First instance trials of:
(i) cases where a concerned party to
the dispute is living abroad or the disputed
property is located abroad;
(ii) requests for recognition and
enforcement in Vietnam of foreign court
judgments;
(iii) disputes arising from business
or trade activities in cargo or passenger
transportation by air or sea; purchase and sale
of shares, bonds and other valuable papers;
investment, nancing, banking; insurance;
and exploration and exploitation of resources;
(iv) requests for recognition and
enforcement in Vietnam of foreign arbitral
awards on business or commercial matters,
and requests related to the resolution
of disputes by Vietnamese commercial
arbitrators in accordance with the Commercial
Arbitration Law; and
(v) collective labor disputes, which have
been resolved by labor arbitration boards ofprovinces and centrally-run cities
2. In certain instances, empo-
wered to hold rst-instance
trials of cases according to the
provisions of the Code of Civil
Procedure
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SYSTEMLEGAL
3. What are the sources of laws (such as constitution, statute law and common law) in
Vietnam?
Legal Document Subject
Legal Document Subject
Constitution Sets out the fundamental rights of Vietnamese citizens; the fundamental law
of the State
NA laws and resolutions
PM decisions
Resolutions and circulars
Joint Resolutions
Joint Circulars
Local resolutions, decisions and
directions
GSA decisions
Ministerial circulars
Decrees
Presidential orders and decisions
NASC ordinances and resolutions
Laws of the National Assembly (NA), the legislative arm of the State, address
fundamental issues and the rights and obligations of Vietnamese citizens
while NA resolutions reect the NAs decisions on socio-economic
development tasks and the planning, allocation and adjustment of State
budget
Issued by the Prime Minister (PM)to focus on State management relating to
Government operation, the public administrative system and working
regulations of the Governments members and chairmen of peoples
committees of provinces
Resolutions of the Justices Councils of the Supreme Peoples Court lead
courts in applying legal documents in a consistent manner; Circulars of the
Supreme Peoples Courtaim to exercise management of local peoples courts
and military courts; Circulars of the President of the Supreme Peoples
Procuracy provide methods to ensure implementation of the tasks and
authorities of local peoples procuracies and military procuracies
Issued by the NASC or between the Government and central/ socio-political
organizations to create guidelines on how to address issues related to their
respective participations in State management as stipulated by laws
Joint Circulars of the President of the Supreme Peoples Court and Director of
the Supreme Peoples Procuracy provide guidelines for the consistent
application of legal documents relating to judicial operation; Joint Circu-
lars of Ministers or Heads of Ministry-level agencies provide guidelines in the
implementation of the higher-ranking legal documents related to their
respective function
Resolutions of the Peoples Councils & decisions & directions of the Peoples
Committees provide further guidelines in the implementation of higher-
ranking legal documents at the local level of provinces, districts and
communes .
Issued by the General State Auditor (GSA)to prescribe auditing standards and
provide guidelines for detailed auditing procedures and the implementation of
such procedures
Issued by Ministers and Heads of ministry-like agencies to provide detailed
guidelines on the implementation of higher-ranking legal documents,
specify regulations on technical standards and procedures, and set techno-
economic standards of sectors they are in charge of
Issued by the Government to provide detailed guidelines on the
implementation of higher-ranking legal documents; specify tasks, authority
structure and organizational structure of ministries, ministry-like agencies
and government-aliated agencies
Issued by the State President to exercise tasks and competencies dened
in the Constitution and the laws and resolutions of the National Assembly
Ordinances of the NA Standing Committee (NASC) contain regulations on the
tasks assigned by the NA and that are proposed to be developed as laws after a
certain period of implementation; NASC resolutions aim to interpret the
Constitution, NA laws and NASC ordinances
Being a country of civil law tradition, Vietnams source of law is written legislation (or more commonly referred
to as legal documents). Under the Amended 2013 Constitution and the Law on Promulgation of Legal Documents,
Vietnams primary legal documents comprise the Constitution and the laws and resolutions of the National
Assembly, all of which set out general rules and principles. Meanwhile secondary regulations, which are issued by
executive and judicial bodies empowered to promulgate legal documents, provide details for the implementation
of the general rules and principles in the primary legal documents.
An overview of the hierarchy of Vietnams legal documents is set forth below (in descending order of legal
weight).
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SYSTEMLEGAL
In some instances, certain State bodies having competence to decide on particular matters (e.g. tax oces
or business registration oces) issue their ocial opinion to clarify some points or to provide guidelines on the
scope of application or manner of implementation of relevant regulations. Although not recognized as ocial
sources of law, these ocial letters or opinions are deemed binding upon issuance to t he requesting or addressed
parties.
4. What is/are the ocial language(s) in Vietnam?
Vietnamese (ting Vit) is the national and ocial language of Vietnam.
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INVESTMENTFOREIGN
5. Are there any restrictions faced by a foreign individual or company intending to
invest in Vietnam?
6. Are there any exchange control or currency regulations in Vietnam?
As a general matter, foreign investment in Vietnam may be subject to any or a combination of the following
restrictions:
Yes. Vietnams prevailing exchange control regulations (theFX Regulations) require that all transactions,
payments, listings, advertisements, quotations, setting prices and recording prices in contracts and agreements
and other similar forms of both residents and non-residents within the territory of Vietnam be effected in
Vietnamese Dong (VND) subject to certain exceptions permitted by regulations of the State Bank of
Vietnam (SBV), namely:
Is an approval or permit required if a foreign individual or company wants to enter a certain industry?
Yes. Under the 2006 Investment Law, a foreign investor investing in Vietnam for the rst time must have an
investment project which consists of a series of proposals for the expenditure of a determined medium and long-
term capital (equity and debt) in order to carry out investment activities from a specic registered site and for
a specied duration and which is subject to either investment registration or evaluation procedures before the
competent licensing authority in order to be granted an IC. The incorporation of a Vietnamese company by a foreign
investor takes place simultaneously with the licensing of the rst project, and the issued IC will concurrently serve
as the ERC of the newly established foreign invested enterprise (FIE) in Vietnam.
market access restrictions such as maximum percentage of foreign ownership, requirements on
corporate form such as undertaking of certain business lines through a joint venture or business
cooperation contract (BCC) with Vietnamese partner(s);
mandatory screening and evaluation procedures during incorporation and procurement of an
investment certicate (IC) for any rst investment project in Vietnam, which is granted for a limited
operation term and for the registration of the initial project only (as opposed to simpler business
registration procedures in the case of Vietnamese investors establishing wholly Vietnamese owned
companies for the procurement of an enterprise registration certicate ( ERC) containing both the
business and tax registration of the Vietnamese applicant for any proposed line of business, for any
initial and subsequent projects undertaken by the enterprise and usually for an indenite term of
operation (see item 8.i));
Vietnam residency requirement for certain corporate executives;
foreign employment restrictions (see item 8.v and 11); and
de facto restraining measures such as the State authorities sympathy towards SOEs and Vietnameseowned companies and general reluctance in recognizing or enforcing international arbitral awards.
transactions with institutions permitted to provide foreign exchange services;
internal capital transfer between a resident organization and a dependent accounting entity;
contribution of capital by a resident for implementation of a foreign investment project in Vietnam;
receipt of payment by a resident pursuant to an import or export contract or contract entrusting import
or export;
receipt of payment by resident contractors from investors or head contractors in order to make payment
and disbursement transactions to overseas subcontractors or suppliers;
receipt of payment by resident institutions providing business insurance services from insurance
purchasers for all types of goods and services which must be reinsured offshore;
receipt of payment by residents being institutions conducting business in duty free goods or providingservices in separated areas in international bordergates or providing customs bond warehouse services
for the supply of goods and services;
receipt of payment by residents being customs and police oces of international bordergates and
customs bond warehouses from non-residents for all types of taxes and fees for entry/exit visas and
fees for the provision of services;
receipt of salary, bonuses and allowances by non-resident organizations and resident foreigners;
telegraphic transfers by non-residents to other non-residents or in order to make payment to residents
for the export of goods and services; and
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INVESTMENTFOREIGN
other necessary situations after consideration by and permission from the SBV Governor.
economic organisations established and carrying on business activities in Vietnam
diplomatic representative oces, consulate representative oces and representative oces ofinternational organizations of Vietnam in foreign countries (the Diplomatic Ofces);
representative oces in foreign countries of credit and economic institutions established and carrying
on business activities in Vietnam and Vietnamese State bodies (theRepresentative Ofces);
Vietnamese citizens residing in Vietnam; Vietnamese citizens residing overseas for a duration of less
than 12 months; and Vietnamese citizens working for any Diplomatic Oce or Representative Oce
and the individuals accompanying such citizens;
foreigners permitted to reside in Vietnam for a duration of 12 months or more; and in the case of
foreigners in Vietnam for study, medical treatment, tourism, or work for Diplomatic Oces, such duration
shall exclude any period of ineligibility as a resident; and
representative oces or branches in Vietnam of foreign economic institutions, permanent establishments
of foreign parties participating in investment or other commercial activities in Vietnam, and operating
oces of foreign contractors in Vietnam.
direct investment activities (such as receipt of capital monetary contributions and capital for
implementation of direct investment; receipt of medium or long-term foreign loan capital registered
with the local-level SBV; disbursement outside Vietnam of the principal, interest and fees on such SBV-
registered foreign medium or long-term; and remittance of dividends abroad) can be made in foreign
currency but only through a direct investment capital foreign currency account opened at 1 authorized
credit institution in Vietnam by foreign investors or parties of FIEs and BCCs in Vietnam; and
indirect investment activities (such as receipt from assignment of capital contribution and shareholding
or from the sale of securities; disbursement being a capital contribution or purchase of securities; and
disbursement for payment of expenses arising in Vietnam) shall be conducted in VND through an indirect
investment VND account opened by non-resident foreign investors at an authorized credit institution in
Vietnam.
Residents, for purposes of exchange control in Vietnam, include organizations and individuals in the following
categories (non exhaustive):
Any individual or entity not otherwise in any of the above categories shall be considered a non-resident in
Vietnam under the FX Regulations.
As a general matter, the inow of foreign currency into Vietnam and the transfer of foreign currency out
of Vietnam are subject to comprehensive FX Regulations. Revenue and disbursement transactions relating to
investment activities in Vietnam fall under one of the 2 following categories:
payment for imported goods and services;
overseas remittance by foreign investors of (i) invested and reinvested capital, (ii) prots and dividends
earned from investment activities in Vietnam, (iii) revenue from transfer of technology and (iv) principal
and interest of offshore loans;
capital transfer by a Vietnamese enterprise for an offshore investment project licensed by the Ministryof Planning and Investment (MPI); and
overseas remittance of salaries and other legal incomes of foreign employees.
Subject to submission of the relevant documentation to the bank concerned and fulllment of the nancial
obligations to the State, the outow of foreign currency from Vietnam to overseas is authorized for the purpose of
legitimate payments, including the following:
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INVESTMENTFOREIGN
investment sector: whether in any of the preferential investment sectors (e.g. bio-technology
development, environmental protection, manufacture of composite or light construction materials, etc.);
purpose of investment: whether for expansion of scale, raising output capacity or business capability,
renovation of technology or raising product quality, or reducing environmental pollution; and
labor employment requirements: whether employing more than 3,000 employees.
preferential corporate income tax (CIT) rates of (i) 10% or 20% for the entire duration of the project
of enterprises in certain sectors or (ii) from 10% to 20% from 10-15 years for enterprises engaged in
encouraged investment projects or with projects in socio-economically disadvantaged locations;
CIT exemptions or holidays for a maximum of 2 to 4 years from the rst year the business has taxableincome;
50% CIT reduction for a maximum of 4 to 9 subsequent years following the CIT exemption or holiday
period;
land rent, land use fee or land use tax exemption or reduction;
accelerated depreciation of xed assets; and
assistance with costs of site clearance, relocation and auxiliary infrastructure construction for investors
in public private partnership projects.
purchase of foreign currency to meet requirements for current, capital, and other permitted transactions
in accordance with FX Regulations;
compensation at market conditions in cases of nationalization or conscation of assets or capital by
administrative measures;
overseas remittance of prots, payments received from the provision of technology and services
and from intellectual property, foreign loan principal and interest, invested capital and proceeds from
liquidation of investments, and other monies and assets lawfully owned by the investor in accordance
with FX Regulations;
use of assets as collateral or mortgage of land use rights and assets attached to land with credit
institutions authorized to operate in Vietnam; and
access and use of public services. Investment incentives range from or may be a combination of the following and are stated in the qualied
FIEs IC:
Meanwhile, State investment guarantees are generally enjoyed by both Vietnamese owned companies and
FIEs, including the following rights:
location of the project: whether in a preferential geographical area or in an industrial park, export
processing zone, economic zone or high-tech zone.
Both qualied Vietnamese companies and FIEs may be entitled to certain investment incentives depending
on, inter alia, the following considerations:
7. What grants or incentives are available to a foreign individual or company to encourage
investment in Vietnam?
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VEHICLESBUSINESS
8. What is the most common form of business vehicle used by foreign investors in
Vietnam?
ii. Minimum (and maximum) share capital;
The most common form of business vehicle used by foreign investors is a limited liability company (LLC) (cng
ty trch nhim hu hn), which can be set up by 1-50 investors or members (i.e. 1 member in the case of single
member LLCs (SLLCs) or 2 or more members in the case of multiple member LCCs (MLLCs)) and which can either
be a 100% FIE or a joint venture between local and foreign investors.
Foreign investors ( like local investors) intending to issue, list or trade shares are required under Vietnamese
law to be in the form of a shareholding company or joint stock company (JSC) (cng ty c phn), with at least 3
shareholders with no limit on their maximum number.
A JSC in Vietnam can either be private or public. As dened under the Amended Securities Law, a public
company is a JSC that has (i) made a public offer of shares, or (ii) shares listed on the stock exchange or a
securities trading center, or (iii) shares owned by at least 100 investors excluding professional securities investors,
and a paid-up charter capital of VND 10 billion or approximately USD 474,000 or more.
Generally, there are no minimum and maximum capital requirements for an FIE; it must, however, have enough
capital resources to successfully implement its investment project and realize its business goals for the licensing
authority to issue an IC. The capital structure of the company, including its total investment amount or charter
capital, is then stated in the IC.
In certain sectors, certain capital thresholds (or legal capital) are required to be satised in order for the
company to be able to do business. For instance, the following amounts are required as minimum capital for thefollowing sectors:
The total amount of capital contributed or undertaken to be contributed by members or shareholders in a
certain period as stipulated in the enterprises charter (i.e. the Vietnamese equivalent of articles of association in
other jurisdictions) is referred to as the charter capital of an enterprise in Vietnam, and may either be:
divided into shares, in the case of JSCs; or
based on the total amount of the capital contributions made by the members, in the case of LLCs (i.e.
LLCs not being allowed by law to issue shares).
By law, an IC shall be issued within 15 working days (in case of investment registration) or 45 days (in
case of investment evaluation). In practice, however, the licensing procedure may take longer, with the licensing
authorities often seeking the opinions of certain central or local authorities and requesting further clarication
or supporting documentation. In contrast, an ERC for wholly Vietnamese owned companies is issued within 5
business days.
Please provide details on:
i. Registration formalities;
A foreign investor having a new investment project in Vietnam must perform either investment registration
procedures for projects under VND 300 billion or approximately USD 14.3 miliion and not in conditional business
sectors or investment evaluationprocedures for projects over VND 300 billion or in any of the conditional business
sectors.
Such FIEs business registration will be carried out at the same time as its investment registration or
evaluation formalities before the competent licensing authority for the latters issuance of an IC.Sector Minimum Legal Capital
Real estate businessVND 6 billion or approximately USD 287,000
Real estate developmentNot less than 15%-20% (depending on the land area usage of the project)
of the total investment capital of the approved project for infrastructure
projects (being urban, residential or industrial zones developments)
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Sector Minimum Legal Capital
Form Other restrictions
Aviation
SLLC
Education
MLLC
JSC
Depending on (i) whether for international or domestic air transportation
business or general aviation business for commercial purposes and (ii) the
number of aircrafts operated, from VND 100 to 1,300 billion or approximately
USD 4.75 to 61.73 million
A company owner may withdraw capital only by way of assignment of a part or all of the charter
capital to other organizations and individuals; and the company must then register for conversion into
a MLLC if the company becomes owned by 2 or more organizations and/or individuals as a result of
such assignment.
From VND 30 million to 150 million minimum investment cost per student
depending on the level of course/training provided (e.g. nursery, secondary
education, short-term training, vocational, professional education, and higher
education)
Part of the contributed capital may be returned to members in proportion to their respective shares of
contributed capital if: (i) business operation has been carried out continuously for more than 2 years
from the date of business registration; and (ii) the enterprise is able to pay in full all its debts and other
property obligations after returning part of the contributed capital to members.
Within 3 years from the date of issuance of the IC, the shares of founding shareholders cannot be sold
except to other founding shareholders unless the sale is approved by the remaining shareholders.
iii. Whether shares can be issued for non-cash consideration, such as assets or services (and any formalities);
iv. Any restrictions on foreign shareholders;
Under the Amended 2013 Enterprise Law, members of LLCs and shareholders of JSCs can make a capital
contribution or pay for shares respectively in any of the following forms (in addition to cash in VND) as valued in
VND by either the members or shareholders or by professional valuation organizations depending on the asset/s
concerned:
Depending on their corporate form, enterprises (both Foreign and Vietnamese owned) may be subject to
certain lock-up periods or other restrictions to the transfer of equity as follows:
Under prevailing regulations, foreign entities and individuals may either set up an enterprise in Vietnam or
contribute capital and purchase shareholding in a Vietnamese enterprise subject to the following restrictions:
cash in a freely convertible foreign currency;
gold;
land use rights;
intellectual property rights;
technology or technical know-how; and
other assets as recorded in the charter of the company as forming the capital of the company.
49% foreign ownership cap in publicly listed companies (currently proposed to be increased to 60%) ;
relevant foreign ownership ratio in the banking, petroleum, civil aviation, publishing, press, education,
securities, and insurance sectors;
relevant foreign ownership ratio in SOEs undergoing equitization or otherwise converting into another
form; and
relevant foreign ownership ratio for sectors set out in Vietnams commitments to the World Trade
Organization (WTO).
VEHICLESBUSINESS
Banking VND 3,000 billion or approximately USD 143 million
Insurance VND 300 billion or approximately USD 14.3 million for a non-life insurance
company; VND 4 billion or approximately USD 190,000 for an insurance
brokerage company
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Form Management structure
Form Management structure
SLLC
MLLC
If the owner appoints only 1 AR:
chairman being the AR
general director or director
1 to 3 inspectors or controllers
Chairman of the enterprise or GD (as stated in the
charter) serves as Legal Rep.
If the owner appoints 2 or more ARs:
members council and chairman of the
members council
general director or director
1 to 3 inspectors or controllers
Chairman of the members council or GD (as
stated in the charter) serves as Legal Rep.
Members council
General director or director
3 to 5 inspectors or controllers for MLLCs having more than 11 members (optional for MLLCs
with 2-11 mem bers, depending on its corporate administration requirements)
Chairman of the members council or GD (as stated in the charter) serves as Legal Rep. An individual
may concurrently be an AR, t he chairman of the enterprise or of the members council, GD, and Legal
Rep, unless otherwise stated in the charter.
An individual may concurrently be an AR, the chairman of the enterprise or the members council, GD,
and Legal Rep, unless stated otherwise in the charter.
Vietnams current policy on the recruitment and employment of foreigners generally allows the hiring or
transfer into Vietnam of foreign directors, executive directors or m anagers subject to the following requirements
and restrictions (in addition to the work permit requirement as discussed in item 11):
Employers, excluding contractors in Vietnam, must le an annual plan, for submission to and approval
by the chairman of the peoples committee in the locality of the head oce (the PC Chairman), explaining
the need to employ foreigners for each working position. Employers are also required to report to the P C
Chairman any change in their need to employ foreigners.
Only the managers listed in item 11 are exempted from the work permit requirement in Vietnam.
The Legal Rep of an enterprise must reside in Vietnam, and if absent from Vietnam for more than 30
days then he must provide a written authorization to another person who will perform the rights and
obligations of the Legal Rep.
VEHICLESBUSINESS
v. Management structure and any restriction s on foreign managers;
The management structure of an enterprise in Vietnam generally comprises the (i) authorized representatives
(AR) of the owner (for SLLCs), members (for MLLCs) or shareholders (for JSCs), who all comprise the members
council or general meeting of shareholders, the highest decision-making body of a LLC and JSC respectively; (ii)
general director (GD) or director, who serves as the chief executive ocer of the enterprise; and (iii) inspectors
or controllers, who oversee the running and management of the enterprise. In the case of JSCs, the board of
management serves as the JSCs management body. The chairman of the enterprise or the members council or
the board of management or the GD (as the case may be) is stated in the charter to be the legal representative
of the enterprise (the Legal Rep), who is the person authorized to represent, sign for, and bind the enterprise. The
table below sets forth the management structure of an enterprise in Vietnam according to its corporate form:
vi. Directors liability;
The Amended 2013 Enterprise Law provides the general duciary obligations of the managers of an enterprise,
who as dened under the same law include the chairman of the enterprise or of the members council, members of
the board of management, GD and other managerial positions as stipulated in the charter. Also, board members
of listed and unlisted public companies have f urther specic obligations provided by other regulations.
JSC General meeting of shareholders
Board of management, comprising 2-11 members, unless otherwise stated in the charter
GD or director
3-5 inspectors or controllers if the JSC has more than 11 individual shareholders or has corporate
shareholders owning more than 50% of the total shares of the enterprise.
Chairman of the board of management or GD (as stated in the charter) serves as Legal Rep; and
unless otherwise stated in the charter, an individual may concurrently be an AR, the chairman or a
member of the board of management, the GD, and Legal Rep, except that the GD of a JSC may not
currently be a GD of another enterprise.
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breach of law;
conduct of business or other transactions not in the interests of the subsidiary and causing damage to
other persons; and
nancial and accounting matters such as submission of audited annual nancial statements within 90
days from the closing of the nancial year, registration under the Vietnamese Accounting System (VAS)
with the Ministry of Finance (MOF), MOF approval to use an accounting system other than VAS or a
foreign currency as currency accounting unit; and
labor and related employment matters such as registration of labor use and labor books, report on the
changes in the labor contracts of employees, FIEs report on foreign employees, registration of written
internal labor regulations, and submission of social insurance participation dossier and quarterly
reconciliation of social insurance.
vii. Parent company liability; and
As a general rule, a parent company is only accountable for the debts, liabilities and property obligations of its
subsidiary to the extent of its capital contribution to the subsidiary. The Amended 2013 Enterprise Law, however,
provides for the lifting of the corporate veil and for liability to be directly imputed to the parent company when the
parent company performs the following acts in the name of its subsidiary:
VEHICLESBUSINESS
In case of a managers breach of his duties, he may be held personally liable under the law and the companys
charter for any resulting loss. Depending on the nature and gravity of the breach, an offender may be subject to
administrative, civil and even criminal liability.
The Amended 2013 Enterprise Law also provides instances where legal proceedings can be instituted by
(i) a LLC member, in its own or in the companys name, against the chairman of a members council and/or GD,
and (ii) a shareholder or group of shareholders holding at least 1% of the total number of ordinary shares for
a consecutive period of 6 months, in its/their own or in the companys name, against a member of a board of
management and the GD.
premature payment of debts in c ases where the company is likely to be in nancial danger.
general post-licensing matterssuch as publication of announcement on establishment, registration of
commencement of operation, registration with the Police Department of the ocial seal of the enterprise,
setting up of the register of members (for MLLCs) and register of shareholders (for JSCs), and tax code
registration;
organizational and business registration matters such as registration of additions and changes to the
enterprises lines of business, head oce, name, charter capital or capital contribution ratio, founding
shareholders (for JSCs), members (for MLLCs), ARs, and Legal Rep, any of which require the amendment
of the IC or ERC;
viii. Reporting requirements (including ling of accounts).
Reporting requirements of enterprises in Vietnam generally relate to any of the following matters and are to
be completed according to the specic time frame provided by law:
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Vietnamese and foreign employees, trainees and apprentices working in Vietnam;
employers (whether Vietnamese owned or an FIE) in Vietnam; and
other agencies, organizations and individuals directly related to the labor relationship. an indenite term labor contract with no xed term or time of t ermination;
a denite term labor contract for a period between 12-36 months; and
a seasonal or specic job labor contract with a duration of less than 12 months.Vietnamese workers sent by their Vietnamese employers to work abroad must comply with Vietnamese
law and the law of the foreign country concerned, unless an international treaty of which Vietnam is a
member contains some other provision.
Vietnamese citizens working in FIEs in Vietnam, in foreign agencies and organizations or in
international bodies in Vietnam, or working for individuals being foreign nationals in Vietnam, must
comply with and shall be protected by Vietnamese law.
Foreign nationals working in Vietnam must comply with Vietnamese labor law unless an international
treaty of which Vietnam is a member contains some other provision, and they shall be protected by
Vietnamese law. This means that mandatory rules and requirements under Vietnamese labor law mayapply regardless of the choice of law in the employment contract.
As a general matter, the parties to a labor contract may only stipulate that a foreign law shall govern a
labor contract to the extent that it is not contrary to Vietnamese labor law.
9. What are the main laws regulating employment relationships in Vietnam? 10. Is a written contract of employment required in Vietnam, and if so, must it
contain any particular language? Are any agreements and/or implied terms likely to
govern the employment relationship?The Labor Code of June 18, 2012 (the 2012 Labor Code) serves as the main law governing employment
relationships in Vietnam, and applies to:
A contract of employment in Vietnam shall be entered into in writing (in 2 copies) except for temporary work of
less than 3 months, and is generally made in accordance with the standard form of the Ministry of Labor, Invalids
and Social Affairs (MOLISA).
Under Vietnamese labor law, a labor contract is classied based on its t erm, as follows:
Any labor contract for employment relations in Vietnam must be consistent with Vietnamese labor law and
cannot grant to employees fewer benets than due under Vietnamese labor law. Thus, mandatory rules and
requirements under Vietnamese labor law may apply to foreign nationals working in Vietnam regardless of the
choice of law in the labor contract (see item 9).
In addition to the labor contract, certain aspects of the employment relationship are also covered by the
following agreements:
As to the governing law of employment relationships, the 2012 Labor Code provides (see also item 10):
IN VIETNAMEMPLOYMENT
Employers employing more than 10 employees must establish internal labor regulations, which determine,
among other matters, working hours and breaks, labor safety rules, protection of assets and businesssecret and disciplinary labor procedure, and is subject to (i) prior consultation with the Executive
Committee of the Grassroots Trade Union (ECGTU) within the concerned enterprise or its direct superior
level, (ii) registration with the provincial DOLISA and (iii) posting or display within the company premises.
Also, a collective labor agreement can be signed between the ECGTU and the employer. This agreement
sets out working conditions and employee benets, which must be at least equal to or greater than
those stipulated by law, and must meet these conditions: (i) all matters subject to collective negotiation
have been agreed and recorded in the minutes of the collective negotiation sessions executed by the
ECGTU and the employer and (ii) 50% of the employees have voted in favor of the negotiated matters. The
agreement, when signed, is required to be publicly announced to all employees for information purposes.
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a foreigner issued with an operational license in the information and press sector in Vietnam by the
Ministry of Foreign Affairs;
a teacher in a foreign agency or organization who is appointed by the competent authority of a foreign
country to come to Vietnam to teach in an international school managed by a foreign diplomatic oce
or international organization in Vietnam;
a foreign volunteer working in Vietnam without entitlement to a salary in order to implement an
international treaty of which Vietnam is a member;
a foreigner with a masters degree or higher or similar qualication providing consultancy, teaching, or
conducting scientic research at a university or vocational college for a period not exceeding 30 days;
a foreigner conrmed to be coming to Vietnam to implement an international agreement by a central or
provincial State agency or a central socio-political organization; and
a foreigner covered by other cases as decided by the P rime Minister on a proposal from MOLISA.
The employer must lodge an application le requesting issuance of a work permit with the DOLISA where
the foreign employee will work on a regular basis or where the employer has its head oce, at least 20 days prior
to the date on which it is proposed that the foreigner will commence working in Vietnam. By law, the DOLISA shall,
unless there are valid grounds for refusal, issue a work permit within 10 working days from submission of a valid
application le. In practice, however, the process may take longer.
Work permits currently have a shorter maximum duration of 2 years (compared to the previous maximum
duration of 36 months), but may be renewed for further term(s) subject to certain conditions. Foreigners working
in Vietnam without a work permit may be penalized (e.g. by way of administrative nes) or, if unable to meet work
permit requirements, deported back to their home countries.
In the case of foreign employees who are not required to obtain a work permit, Decree 102 now requires
employers to submit, at least 7 days before the date on which a f oreign employee will commence work in Vietnam,
a request to the local DOLISA to conrm that such foreign employee is not required to procure a work permit to
work in Vietnam.
IN VIETNAMEMPLOYMENT
an intra-corporate transferee in any of the following 11 service sectors under Vietnams WTOcommitments: business, communications, construction, distribution, education, environment, nance,
health, tourism, recreational culture, and transport services, in accordance with provisions of an
international treaty of which Vietnam is a member;
a capital contributing member of a MLLC or the owner of a SLLC;
a member of the board of management of a JSC;
the head of a representative oce or of a project of an international organization or non-governmental
organization in Vietnam;
a foreigner entering Vietnam for a period under 3 months to resolve an incident breakdown or technically
or technologically complex situation arising and affecting, or with the risk of affecting production or
business with which Vietnamese experts or foreign experts currently in Vietnam are unable to deal;
a foreign lawyer issued with a foreign lawyer practicing certicate in Vietnam;
a foreigner exempted from procuring a work permit in accordance with the provisions of an international
treaty of which Vietnam is a member;
a foreigner studying in Vietnam but the employer must provide a 7 days advance notice to the Department
of Labor, Invalids and Social Affairs (DOLISA);
a foreigner coming to Vietnam to provide expert and technical consultancy services or to undertake
other tasks in the research, formulation, evaluation, monitoring and assessment, management and
implementation of a program or a project using ocial development aid ( ODA) in accordance with the
provisions of the relevant ODA agreement;
11. Do foreign employees require work permits and/or residency permits if they work in
Vietnam? If so, how long does it take to obtain them?
Yes. Under the 2012 Labor Code and Decree No. 102/2013/ND-CP dated September 5, 2013 and effective
November 1, 2013 (Decree 102), any foreigner working in Vietnam must obtain a work permit, unless such f oreigner is
any of the following:
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Yes. In general, an employer must hold discussions at the workplace once every 3 months or on one-off
occasions at the request of one of the parties. In particular, the 2012 Labor Code requires an employer to
notify in advance and seek the opinion of its employees or the organization representing the labor collective of its
employees in the following cases:
Article 104.1 of the 2012 Labor Code meanwhile requires normal working hours not to exceed 8 hours in a
day and 48 hours in a week except for workers who perform extremely heavy, toxic or dangerous work whose work
hours shall not exceed 6 hours in a day. Where work is agreed to be stipulated on a weekly basis, Article 104.2
of the 2012 Labor Code provides that working hours must not exceed 10 hours in a day and 48 hours in a week.
Overtime working hours shall not exceed 50% of the normal working hours in one day except for the following
cases: (i) manufacturing or processing of export textiles, leather, footwear, agricultural, forestry and aquatic
and (iii) other cases where urgent work must be resolved. However, in such cases the maximum overtime working
hours may not exceed 300 hours per year.
Yes. Employers and employees in Vietnam are by law required to participate in social, health, and unemployment
or job loss insurance at the following rates:
Social and unemployment insurance contributions do not apply to foreign expatriates but only to Vietnamese
employees; however, as from 1 October 200 9, a foreign expatriate who signs an employment contract for 3 months
or more with an entity in Vietnam shall be subject to the statutory health insurance payments at the same rates
applicable to Vietnamese employees.
The compulsory social insurance contributions are based on the employees salary and wages as stated in the
labor contract, subject to a cap of 20 times the minimum salary or wage as declared by the Government. These
income tax purposes (see enumerated deductions in item 19.i).
With respect to pension, employees who have paid social insurance contributions for 20 years or more and
being of retirement age (in general, 60 years old for men and 55 years for women) shall be entitled to a monthly
Yes. The wage rate of private employees must not be lower than the minimum wage rates stipulated by the
areas and industries and determined according to minimum living conditions of employees and family households,
socio-economic conditions and wage rates on the labor market. MOLISA has set the current minimum wage levels
for the private sector effective January 1, 2014 from VND 1,900,000 to 2,700,000 (equivalent to US$ 90 to 128),
depending on the region where the employer is located and/or operates from.
retrenchment of employees in cases of restructuring, change of technology, or changes for economic
reasons;
formulation of wage scales, wage tables and labor rates; and promulgation of rules on payment of bo-
nuses;
drafting or amending internal labor rules;
dealing with a breach of labor discipline including temporary suspension of an employee;
formulation and implementation of occupational safety and hygiene plans;
decisions on matters relevant to the rights and interests of women or disabled employees; and
issuing other regulations relevant to the rights and obligations of employees.
13. Are there any employment protection laws (such as minimum wage law and/or
maximum working hours law) in Vietnam?
14. Is there any pension system in Vietnam? Is it on a mandatory or voluntary
basis?
IN VIETNAMEMPLOYMENT
12. Are employees entitled to management representation and/or to be consulted
in relation to corporate transactions (such as redundancies and disposals) in Vietnam?
Employee
Social
Insurance
Health
Insurance
Unemployment
Insurance
Trade Union
Fee
Employer
8%
18%
1.5%
3%
1%
1%
N/A
2%
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the employees repeated failure to perform work in accordance with his labor contract;
the employees inability to work after having been ill or injured and treated for 1 2 consecutive months (for
indenite term labor contracts), 6 consecutive months (for denite term labor contracts) or more than
half the duration of the contract (for seasonal or specic job labor contracts of less than 12 months);
the employers need to narrow production and reduce the number of jobs as a result of a natural disaster
or force majeure;
the employees failure to work at the workplace on the 15th day from expiry of the term of suspension
of performance of his labor contract; and
the employers retrenchment of employees as a result of restructuring, change of technology, for
economic reasons, or due to merger, consolidation or separation of the enterprise (see item 16).
IN VIETNAMEMPLOYMENT
Termination of employment is strictly regulated under Vietnamese labor law. An employer can only unilaterally
terminate an individual labor contract under the following specic circumstances provided by the 2012 Labor
Code:
15. How is the termination of individual employment contracts regulated in Vietnam?
Under what circumstances is the dismissal of an employee unlawful?
salary on which social insurance premiums are based, corresponding to 15 years of having paid social insurance
premiums, plus an additional 2% for men or 3% for women for each further year of having paid social insurance
premiums; with the maximum rate equaling 75% and the lowest monthly retirement pension being equal to the
general minimum salary or wage.
Employees who have paid social insurance premiums for more than 30 years in the case of men and 25 years in
the case of women shall also, upon retirement, be entitled to a lump sum allowance in addition to t heir retirement
pension. This lump sum social insurance benet shall be calculated on the number of years of the period of
having paid social insurance premiums, for each year of which period, employees shall be entitled to 1.5 times the
average monthly salary or remuneration on which social insurance premiums are based.
An employer that unilaterally terminates a labor contract must provide advance notice to the employee
according to the prescribed period under the law (from 3 to 45 days depending on the term of the labor contract
and the circumstances under which the labor contract is terminated).
In case of an illegal unilateral termination by an employer (i.e. termination other than according to the
abovementioned grounds), the employer must:
The employer must formulate and implement a labor usage plan and if new jobs are created, then the
employer must prioritize retraining for employees in order to continue to employ them.
receive the employee back to work in accordance with the signed labor contract;
pay wages, social insurance and health insurance for the period during which the employee did
not work, plus at least 2 months wages (the prescribed amount);
in addition to the prescribed amount, pay an allowance equal to 1/2 of 1 months wage for each year of
employment (if the employee has regularly worked for 12 months or more) or at least 2 months wages
(if so agreed by the parties in order to terminate the labor contract) in case the employer does not wish
to continue to work (the allowance);
pay the prescribed amount and amend or supplement the labor contract of the employee concerned in
case there is no longer the working position or job for which the labor contract was signed and the
employee wishes to continue to work; and
in addition to the prescribed amount and the allowance, pay the employee an amount equivalent to his
wage for the period during which advance notice was not provided in accordance with the prescribed
period.
16. Are redundancies and mass layoffs regulated in Vietnam?
Yes. Employers can only make redundancies and layoffs as a result of restructuring, change of technology,
for economic reasons, or due to merger, consolidation or separation of the enterprise.
In case of retrenchment due to restructuring, change of technology, or economic reasons:
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If the employer is unable to provide new jobs but must retrench employees, then t he employer may only
retrench employees after (i) discussion with the organization representing the labor collective at the
grassroots level, (ii) 30 working days advance notice of its planned retrenchment to the DOLISA, and (iii)
payment of allowance for job loss to employees equivalent to 1 months wages for each working year
but at least 2 months salary.
IN VIETNAMEMPLOYMENT
The succeeding employer shall be responsible to continue to e mploy the current number of employees
and to amend their labor contracts.
When the succeeding employer is unable to employ all current employees, then such employer
must prepare and implement a labor usage plan.
On transfer of ownership or right to use assets of an enterprise, the previous employer must prepare a
labor usage plan.
In case of retrenchment of employees, the employer must pay allowance for job loss equivalent 1
months wages for each working year but at least 2 months salary.
In case of merger, consolidation, division or separation of an enterprise:
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IN VIETNAMTAX
17. In relation to employees, what is the basis of taxation (i.e. whether territorial source
principle, tax residency principle or other principle is adopted) in Vietnam?
18. Under what circumstances are employees subject to taxation in Vietnam?
19. What income tax must be paid by:
i. Employees?
Personal income tax (PIT) is paid on an individuals taxable income, comprising:
Employees who are considered as tax residents of Vietnam are taxed on their worldwide income (subject
to the provisions of any double tax treaty (DTA) entered into by Vietnam with the relevant country) while non-tax
resident employees are only taxed on their Vietnam-source income.
A non-tax resident is an individual who does not meet the abovementioned criteria for tax residency in
Vietnam. However, if an individual has a permanent living place available for more than 183 days but has actually
been present in Vietnam for less than 183 days, and can prove to be a tax resident of another country, he shall be
considered as a non-tax resident in Vietnam for such tax assessment year.
An individual is considered to be a Vietnamese tax resident and thus taxable on his worldwide income if he:
spends 183 days or more in the aggregate in Vietnam as calculated within 1 calendar year or within 12
consecutive months starting from the date of his arrival in Vietnam;
maintains a residence in Vietnam (e.g. has been granted a permanent or tem porary residence card); or
has leased a residential housing in Vietnam for a total term of 1 83 days or more.
income from activities of production and business in goods and services and independent professional
practice (the business income);
income from salaries, wages, and most employment benets, whether in cash or in kind (the employment
income); and
For both employment income and business income, progressive rates (see table of rates below) ranging from
5% to 35% apply to tax residents (i.e. both Vietnamese and expatriate resident employees). In the case of non-tax
residents, their Vietnam-sourced employment income is subject to a at rate of 20%. While their business icome
is treated as non-employment income that is subject to the 1% to 5% rate. Non-employment income meanwhile
is taxed (depending on whether the individual is a resident or non-resident of Vietnam for tax purposes) at ratesranging from 0.1% to 25%.
income from capital investment, capital and real property transfers, royalties and franchising, winnings
prizes, and inheritances and gifts (the non-employment income).
Residents employment income and business income:
Vietnams PIT Law allows, among other tax deductions:
Annual taxable income (million VND) Monthly taxable income (million VND) Tax rate
Up to 60
Over 60 up to 120
Over 216 up to 384
Over 624 up to 960
Over 120 up to 216
Over 384 up to 624
Over 960
Up to 5
Over 5 up to 10
Over 18 up to 32
Over 52 up to 80
Over 10 up to 18
Over 32 up to 52
Over 80
5%
10%
20%
30%
15%
25%
35%
contributions to mandatory social, health and unemployment insurance schemes;
up to VND 1 million or approximately USD 50 for monthly contributions to voluntary pension schemes
set up in accordance with the guidance of the MOF;
contributions to certain approved charities;
personal tax allowance of VND 9 million or approximately USD 450 per month effective July 1, 2013;
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IN VIETNAMTAX
dependent tax allowance of VND 3.6 million or approximately USD 180 per month per dependent
effective July 1, 2013, subject to the registration by the taxpayer of, and procurement of a tax code for,
such qualied dependent(s) with the relevant tax authority; and
for foreigners working in Vietnam: a one-off relocation allowance for moving to Vietnam as determined
based on the terms of the labor contract, cost of 1 return air ticket paid by the employer for a foreign
employee to return home for holiday once a year, and school fees in Vietnam paid by the employer for
the children of a foreign employee from primary school up to high school level. Accommodation of a
foreign employee that is paid by the employer is taxable based on the actual rental but not exceeding
15% of total other taxable income.
In respect of tax residents who have overseas income, PIT paid in a foreign country is creditable.
As a general matter, employers must withhold the relevant percentage of income tax from income paid to its
employees and remit the tax withheld from such employment income to the State Treasury no later than the 20th
of the following month.
Personal income tax returns are due by 30 March in the year following the assessment year. E mployers
nalize PIT on behalf of its employees, provided that the employees have income only from the same employer
and authorize such employer to nalize tax on their behalf.
In addition, employers must make the social security contributions for its employees (see discussion in item
14).
ii. Employers, in relation to their employees?
In relation to business vehicles, taxation is based on the principle of tax residence in Vietnam. Residence is
not dened under Vietnamese tax regulations but a corporation is generally considered to be a resident if it is
incorporated in Vietnam, or if it is incorporated under foreign law but has a permanent establishment in Vietnam
and/or if it conducts production and business activities that generate taxable income in Vietnam.
A permanent establishment of a foreign enterprise in Vietnam means a place for production and/or the entitys
business activities, which can be in the form of:
20. In relation to corporations, what is the basis of taxation (i.e. whether territorial
source principle, tax residency principle or other principle is adopted) in Vietnam?
branches, operational oces, plants, workshops, mines, gas elds, other locations in Vietnam where
natural resources are mined;
construction sites;
establishments providing services, including consultancy services;
agents of foreign enterprises; and
representatives in Vietnam that either have the authority to sign contracts in the name of the foreign
enterprise or regularly deliver goods or provide services in Vietnam.
21. Under what circumstances are incorporations subject to taxation in Vietnam?
An enterprise established under the law of Vietnam must pay tax on its worldwide income. Foreign-source
income derived by residents is subject to tax in the same way as Vietnamese-source income, and is creditable in
Vietnam if already paid in the relevant foreign country.
A foreign enterprise with a permanent establishment in Vietnam must pay tax on all income arising in Vietnam
(including income not relating to the operation of the resident establishment but arising in Vietnam) and on foreign
income that relates to the permanent establishment.
A foreign enterprise without a permanent establishment in Vietnam must pay tax only on income arising in
Vietnam.
A permanent establishment of a foreign enterprise in Vietnam means a place for production and/or the entitys
business activities, which can be in the form of:
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IN VIETNAMTAX
Tax Nature Rate
Special sales
tax (SST)
Capital
assignment
prots
tax (CAPT)
A form of excise tax applicable to the
production or import of certain goods such
as cigarettes, cigars, spirits, beer, certain
automobiles, assorted types of petrol, air
conditioners; and the provision of certain
services such as dance halls, massage
parlors, casinos, golf clubs and lotteries
Imposed on gains from transfers of interests
and securities
Ranges from 10% to 70% depending on the type
of goods or services
Transfers of interests in a FIE or Vietnamese
enterprise: 22% CIT with the target enterprise
being required to withhold the tax due and
account for this to the tax authorities within 10
days from the approval of sale
Transfers of securities (bonds, shares of both
listed and unlisted JSCs pursuant to Circular
No. 111/2013/TT-BTC dated August 15, 2013):
CIT on a deemed basis at 0.1% of the total
disposal proceeds or 20% on the net gain
Tax Nature Rate
Corporate
ncome
ax (CIT)
Imposed on the companys prots, which
include prots of aliates and branches
(dependent units); taxable revenue includes
income from the sale of products, provision of
services, leasing or sale of assets, transfer of
property or shares, business or joint venture
operations with other economic entities and
nancial operation
Standard rate: 22% effective as from January 1,
2014 then 20% by January 1, 2016
Rate for enterprises with total annual turnover
not exceeding VND 20 billion or approximately
USD 1 million: 20% by January 1, 201 4
Oil & gas/natural resources: 32% to 50%,
depending on the project
Preferential tax rates: (i) 10% or 20% for the
entire duration of the project of enterprises in
certain sectors or (ii) 10% for 15 years or 20 % for
10 years for taxpayers engaged in encouraged
investment projects or with projects in socio-
economically disadvantaged locations
Value added tax
VAT)
Applies to goods and services used for
production, trading and consumption in
Vietnam (including goods and services
purchased from abroad), and on the duty paid
value of imported goods
0%: exported goods/services, goods processed
for export
5%: applies generally to areas of the economy
concerned with the provision of essential goods
and services
10%: the standard rate to activities not
specied as not subject to VAT, VAT-exempt, or
subject to 0% or 5% VAT
Foreign
contractor
withholding tax
(FCWT)
A system of withholding tax (CIT and VAT)
applicable to foreign entities carrying
on business in Vietnam or engaging in a
transaction with a Vietnamese contracting
party but not having any legal entity or
licensed presence in Vietnam
Total combined CIT and VAT rate from 0.1% to
15%
Stamp duty or
registration fee
Applies on the required registration of
ownership of certain assets, including land,
buildings, transportation vehicles and guns;
there is no registration fee on transfer of
shares
Rates vary between 0.5% and 20%
22. What are the main taxes that potentially apply to a corporation and what are their
tax rates?
A tax resident corporation will be subject to the following taxes:
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IN VIETNAMTAX
Tax Nature Rate
Natural
resources tax
NRT) or
production
royalty tax
Land use fee to those allocated land by the
State for long term stable use to develop
infrastructure for sales or lease
Land rental to those leasing land from the
State, which is settled either through one offpayment or annually
Non-agricultural land use tax on residential
land and non-agricultural land used for
business purposes
Imposed on the exploitation and use of
natural resources including metallic or non-
metal lic minerals, crude oil, natural gas, coal
gas, natural forest products, natural marine
products, natural water, and other natural
resources
Rates vary from 1% to 35% depending on the
specic classication of natural resources and/or
production
Tax Nature Rate
Business
icense tax
BLT)
Based on the registered capital of the
enterprise in its IC or ERC and is payable upon
registration of the business for tax purpose
and subsequently on an annual basis
Rates vary from VND 1 million to VND 3 million
per year based on the amount of registered
capital of the enterprise
Land use fees rates vary depending on the
location of the land.
Land rental rates vary depending upon the
location, value of the land, infrastructure andsector in which the business is operating.
Non-agricultural land use tax is charged on a
square meter basis with progressive tax rates
ranging from 0.03% to 0.15%
Environmental
protection
ax (EPT) and
environmental
protection fee
EPF)
EPT is an indirect tax applicable to the
production and importation of certain goods,
which may cause damage to the environment,
such as gasoline, oil and grease, coal and
certain chemicals.
EPF is aimed at businesses engaging in
mining natural resources including crude oil,
natural gas, coal gas, and both metallic and
non-metallic minerals.
Rates vary as follows depending on the type of
mineral or resource:
Goods Unit VND
Petro,diesel, grease litre/kg 300 - 1,000
Coal ton 10,000 - 20,000
HCFCs kg 4,000
Plastic bags kg 40,000
Resticted use kg 500 - 1,000
chemical
Import and
export duties
Applicable to goods imported to and exported
from Vietnam.
Duty rates vary depending on the category of
goods and any applicable international treaty
or agreement (see item 27).
23. Please explain how each of the following is taxed in Vietnam:
i. Dividends paid to foreign corporate shareholders?
ii. Dividends received from foreign companies?
iii. Interest paid to foreign corporate shareholders?
Dividends paid by a company in Vietnam to its foreign corporate shareholders are not subject to tax, provided
that the paying entity has fullled all its tax obligations before payment.
Gross dividends (before tax) received by a company in Vietnam from a foreign company are treated as taxable
income of the company in Vietnam. Any foreign tax amount that has been paid overseas (i.e. on the worldwide
revenue of the foreign company before distribution of the dividends) will be deductible against the CIT of the
company in Vietnam.
If the recipient foreign corporate shareholder is not a tax resident or does not have a permanent e stablishment
or a licensed presence in Vietnam, a withholding tax on CIT of 5% shall apply unless the rate is reduced under a
tax treaty. There is no withholding tax on VAT on such paid interest.
Property taxes
iv. Intellectual property (IP) royalties paid to foreign corporate shareholders?
If the recipient foreign corporate shareholder is not a tax resident or does not have a permanent establishment
or a licensed presence in Vietnam, a 10% royalty withholding tax shall apply unless the rate is reduced under a tax
treaty.
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24. Are there any thin capitalization rules (i.e. restrictions on loans from foreign al-
iates) in Vietnam?
25. Are there any controlled foreign company rules (i.e. the prots of a foreign subsidiary
must be imputed to a local parent company) in Vietnam?
26. Are there any transfer pricing rules (i.e. restrictions on the pricing of transaction
between a local entity and a foreign entity) in Vietnam?
27. How are imports and exports taxed in Vietnam?
Currently, there are no specic tax-driven thin capitalization rules in Vietnam. However, certain restrictions to
that effect are provided on foreign loans and CIT (e.g. permitted borrowing capacity and excessive interest rates)
and apply to some sectors (e.g. in the power industry, the leverage ratio for power plants must be at least 70:30
debt-to-equity for the investment project to be issued with an IC).
Yes. Vietnams transfer pricing regulations outline various situations where transactions will be considered
as being between related parties, and the mechanism for determining the market arms length transaction value
(e.g. comparable uncontrolled price, cost plus, resale price, comparable prots and prot split).
Under the wide ranging denition of related parties, the control threshold is lower than in many other countries
(20%) (i.e. one party holds directly or indirectly at least 20% of the investment capital in the other party, or the
two parties hold at least 20% of the investment capital of a third party). The denition also extends to certain
signicant supplier, customer and funding relationships between otherwise unrelated parties.
Compliance requirements include an annual declaration of related party transactions and transfer pricing
methodologies used, which is required to be led together with the annual CIT return. Companies with related
party transactions must also prepare and maintain contemporaneous transfer pricing documentation. Where
companies fail to do so, the tax authorities have the right to impose deemed pricing, prots or tax.
There are currently no controlled foreign company rules in Vietnam.
Except for goods stipulated by the Government as non-taxable, goods imported to or exported from Vietnam
are subject to import or export duties, including:
goods which are imported or exported across the bordergates of Vietnam;
goods which pass between the domestic market and a non-tariff zone (e.g. export processing zones
and enterprises, bonded warehouses or warehouse zones, special economic or commercial-industrial or
other economic zones) and vice versa; and
other goods purchased, sold or exchanged which are deemed to be imported or exported goods.
Import duty rates are classied into the following 3 categories:
Category Description Rate
Ordinary rate Applicable to imported goods that are not
subject to preferential or special preferential
rates or to imported goods not accompanied
by an appropriate Certicate of Origin (C/O).
Based on the Most Favored Nation (MFN)
(or Normal Trade Relations) rate plus a 50%
surcharge.
Preferential
rate
Special
preferential rate
Applicable to imported goods from countries
that have MFN status with Vietnam or from
other countries of the WTO.
Applicable to imported goods from
countries that have a special preferential
trade agreement with Vietnam (e.g. ASEAN
members, Japan, China, India, Australia and
New Zealand).
Based on rates in accordance with Vietnams
WTO commitments.
Based on rates in accordance with the relevant
treaty or trade agreement entered into by
Vietnam.
In principle, Vietnam follows the WTO Valuation Agreement with certain variations. The taxable value of
imported goods is typically based on the transaction value (i.e. the price paid or payable for t he imported goods,
and where appropriate, adjusted for certain taxable or non-taxable elements). Where the transaction value is not
applied, alternative methodologies for the calculation of the customs value will be used.
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machinery and equipment, specialized means of transportation and materials (which cannot be produced
in Vietnam) comprising the xed assets of certain projects or imported to use for oil and gas activities;
Export duties meanwhile are charged only on a few items, basically natural resources such as sand, chalk,
marble, granite, ore, crude oil and forest products, among others. Rates range from 0% to 40% based on the free
on board (FOB) price (i.e. the selling price of goods at the port of departure as stated in the contract), excluding
freight and insurance costs.
Yes. As of the end of 2013, there are 58 double tax treaties signed by Vietnam with various countries and
territories, including most of its signicant trading partners (except for the US) that are in force.
To date, Vietnam is party to 8 bilateral and multilateral FTAs that are in force, namely: Asean FTA, Asean
- Australia-New Zeland FTA, Asean - India Comprehensive Economic Cooperation Agreement, Asean - Japan
Comprehensive Agreement Economic Partnership, Asean - Korea Comprehensive Economic Cooperation
Agreement, Asean - China Comprehensive Economic Cooperation Agreement, Vietnam -Chile FTA and Vietnam -
Japan Economic Partnership Agreement.
Vietnam is presently in the process of negotiating 7 bilateral and multilateral FTAs, namely: Trans-Pacic
Partnership (TPP), Asean - EU FTA, Vietnam - Korea FTA, Regional Comprehensive Economic Partnership, Vietnam
- EU FTA, Vietnam - EU Free Trade Associations Trade Agreement and Vietnam - Customs Union of Russia, Belarus
and Kazakhstan FTA.
raw materials, spare parts, accessories, other supplies, samples, machinery and equipment imported for
the processing of goods for export and nished products for use in the processed goods; and
movable assets.
28. Is there a wide network of double tax treaties (DTA) or Free Trade Agreements
(FTA) in Vietnam?
Import duty exemptions are provided for projects which are listed as encouraged sectors and goods imported
in certain circumstances, including:
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Yes. Vietnams Competition Law establishes 2 broad categories of prohibited conduct, namely, practices
in restraint of competition and unfair business practices; and creates 2 competition authorities namely, the
Vietnam Competition Administration Department (VCAD) and the Vietnam Competition Council to administer the
Competition Law.
Vietnams Competition Law denespractices in restrain of competitionas practices of enterprises which reduce,
distort or hinder competition in t he market, including:
Unfair business practices meanwhile comprise the following practices which are contrary to general standards
of business ethics and cause or may cause damage to the interests of the State or to the legitimate rights and
interests of other enterprises or of consumers:
29. Is there any competition law in Vietnam?
agreements in restraint of competition,
abuse of dominant market position and m onopoly position, and
economic concentration.
misleading instruction,
infringement of business secrets,
coercion in business,
defamation of another enterprise,
causing disruption to the business activities of another enterprise,
advertisement aimed at unfair competition,
promotion aimed at unfair competition,
discrimination by an association,
Yes. The Competition Law of Vietnam prohibits the following agreements or collusion irrespective of the
market share of the relevant parties:
illegal multi-level selling of goods, and
other unfair competitive practices determined in accordance with certain criteria stipulated under the
competition laws.
30. Are restrictive agreements and practices regulated by competition law in Vietnam?
to prevent or impede other enterprises to participate in the market or develop business;
to exclude from the market other enterprises which are not parties to the agreement; and
to win a tender for supply of goods and services.
directly or indirectly x the price of goods and services;
divide consumption markets or sources of supply of goods and services;
restrict the amount and quantity of goods and services produced, purchased or sold;
restrain technical or technological developments or investment; and
impose on other enterprises conditions for signing contracts for the purchase and sale of goods or
services or to force other enterprises to accept unrelated conditions and obligations (third line forcing).
Meanwhile parties having a combined market share of 30% or more of the relevant market cannot make
agreements to, among other things:
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The test for a dominant market position is based on market share (of 30% or more in the relevant market for
an individual enterprise, 50% or more in the relevant market for 2 enterprises together, 65% or more in the relevant
market for 3 enterprises and 75% or more in the relevant market for 4 enterprises) and, in the case of individual
enterprises, the ability to restrain competition.
Yes. Vietnams Competition Law also regulates econom