Vietnam Briefing Issue 07, 2010

VIETNAM BRIEFINGThe Practical Application of Vietnam Business

Daily Business News Available at

www.vietnam-briefing.com/news Volume III - Number II

EstablishingRepresentative Offices

in Vietnam

In This Issue:ROs vs . Branches and WFOEsObtaining Foreign Work PermitsForeign Contractor Applications in VietnamRegional Update: Vietnam’s Service Industry Bets on Ba Ria-Vung Tau

In this issue of Vietnam Briefing, we look at the process of establishing representative offices in Vietnam. As the second best performing economy in the region this year, many foreign investors are now considering building a presence in Vietnam to take advantage of the robust

growth. A representative office is the simplest way to do so initially as a company tests the viability of the Vietnamese market.

We also cover related topics that include comparing representative offices with branch and wholly foreign-owned enterprises to determine which type is the most suited for your company; obtaining a foreign work permit in Vietnam; and regulations on applying as a foreign contractor.

This issue’s regional update will discuss the booming prospects of Ba Ria-Vung Tau Province as it develops to become a southeast economic region catering to foreign tourists and offering world-class gaming and luxury facilities.

The articles in this issue of Vietnam Briefing were written in coordination with the foreign direct investment and tax consultancy Dezan Shira & Associates based in their primary offices in Hanoi. Please contact the firm at [email protected] if you have any questions.

Best regards,

Joyce RoqueEditor, Vietnam Briefing

This issue’s cover is courtesy of Vu Pham, a freelance photographer from Hue. This photo was taken at a traditional crafts village located three kilometers from the city where incense makers display their colorful wares outside houses and shops. Vu is inspired by living in Hue and loves documenting the beauty of daily life there. He graduated with a BA in English at Hue University in 2002 and has previous experience working as the chief communications officer for a Netherlands-based NGO and a reporter for e-journals and magazines. To see more photos, please visit www.flickr.com/photos/wuinvietnam or contact [email protected].

All materials and contents © 2010 Asia Briefing Ltd.No reproduction, copying or translation of materials without prior permission of the publisher. Contact: [email protected]

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3Vietnam Briefing | 2010

Establishing Representative Offices in Vietnam

[ By Hoang Thu Huyen, Dezan Shira & Associates ]

Representative office help companies effectively g a u g e t h e b u s i n e s s environment in Vietnam; allowing them to conduct

their own market research and study the industries that interest them. They are a liaison office for the parent company that pursues business opportunities for the overseas headquarters in providing economic, t rading, scient if ic and technical services.

An RO cannot engage in business directly with local companies since it is forbidden to conduct any revenue-generating activities. It is not allowed to either promote the parent company’s goods or services or directly enter into contracts with local companies unless a written power of attorney is obtained. However, once the contract is signed between the parent company a n d Vi e t n a m e s e c o m p a n i e s a n d organizations, an RO can help ease the execution of contracts on economic cooperation, trade, scientif ic and technical commitments. This stipulation goes on further to forbid an RO to issue and use its own invoices. This is an advantage because it reduces the accounting and tax compliance burden for an RO; making it the most inexpensive entity for foreign businesses in Vietnam.

Required documentsCopies of the documents detailed below must be certified by the Vietnamese consulate in the country where the headquarters is located. It must also be translated into Vietnamese and certified by authorized agencies in Vietnam or abroad. The required documents include:

Cer t i f ica te of incorpora t ion or business registration certificate of

the parent company; in case the above document does not show the business lines of the company another government cer t i f ied document showing that information must be provided

M e m o r a n d u m a n d a r t i c l e s o f association or company charter

An audit report of the company for its latest financial year issued by an auditing company

The company mus t a l so p repa re duly signed copies of the following documents: the RO application letter and the chief representative appointment letter.

These documents must be submitted in Vie tnamese toge ther wi th the signature of authorized representative and company chop or seal. In case the company does not have a common seal, a government certified document ver i fy ing the au thent ic i ty of the authorized representative’s signature will be considered.

Rental documentsThe foreign company must submit the original copy of office lease agreement in Vietnamese to submit to authorities. It is necessary to verify that the landlord is certified to rent the office. Sometimes though it is not compulsory to submit these documents when applying for an RO establishment license.

Application proceduresInitially, a foreign company wanting to establish a representative office in Vietnam must first submit an application f o r a l i c e n s e t o t h e P r o v i n c i a l Department of Industry and Trade. After official approval, the new RO must publish a notice of operations in a print or online newspaper for three consecutive issues. This must be done

within 45 days from the issuance date of the license. The notice must include the RO’s name, the name of its overseas parent company, office location, and chief representative to name a few. The RO must then proceed to making a seal , opening bank account and obtaining work permit for expatriates. The RO’s chief representative should be responsible for personally obtaining the official seal for security reasons. The application process can take three to five weeks. An RO license is valid for five years with an option to renew afterwards.

Hiring staffThere is no cap on the number of local and expatriate employees that a representative office can hire for as long as their employment is properly documented. Al l expatr ia te hi res including the chief representative are required to get a work permit.

The chief representativeThe chief representative can be a local or expatriate hire. This person will not allowed to concurrently hold the following positions during tenure: head of a branch in Vietnam; legal representative of the foreign entity allowed to sign contracts without written power of attorney from such foreign entity; or being a legal representative of an enterprise established pursuant to the laws of Vietnam. A Vietnamese chief representative must submit a copy of their identity card or passport while foreign chief representative must provide a passport copy. Copies must be certified by either local or foreign authorities.

Office locationAn RO is forb idden to sub- lease office space. It is recommended that investors consider renting office space

4


Vietnam Briefing | 2010

in Grade A buildings. This guarantees the availability of modern facilities and centralized location.

Tax mattersF o l l o w i n g Vi e t n a m e s e l a w, a representative office will be responsible for declaring its employees’ personal income tax. An RO will not be liable to pay Vietnamese corporate income tax but will be liable to pay value added tax on goods and services rendered at a rate of 10 percent.

License changesIn cases wherein the RO needs to make small changes to its license that involves changing the chief representative, office name, parent company address or business registration, local address within a province or city and scope of business, it must submit documents to the provincial Department of Industry and Trade within 10 days from the date the changes were made.

License re-issuance T h e f o r e i g n b u s i n e s s h a s t o app ly fo r r e - i s suance o f l i cense for establishment of its representative office in the following cases:

Address of representative office changes from one province or city under direct central management to another

Name or address of foreign business is changed from one country to another

The company’s business lines are changed

A full set of application dossiers must be submitted for a new RO license to the provincial Department of Industry and Trade within 15 days since the day the changes were made.

Closing a representative officeRepresentative offices wishing to close operations can do so under the following conditions:

If requested by the overseas parent company

If the parent company closes down If the parent company does not apply for an extension on the expiration date of the RO license

If the RO license was revoked by Vietnamese authorities

If the government does not allow an extension of RO license

For the first three conditions stated above the parent company must submit a notice of termination to authorities at least 30 days prior to the end of operations. For the other conditions, au thor i t i es wi l l make the publ ic announcement of RO termination.

Comparing an RO with a branch or WFOE

An RO and branch office are both a type of presence for foreign businesses but not considered independent legal entities. To set up an RO, the company has to have been operated for no less than one year since legal establishment or valid business registration in the country of origin. In contrast, a branch office requires that the parent company has been operating for at least five years prior to application.

A wholly foreign-owned enterprise does not require such conditions to be set up. The investors of a WFOE can be any foreign organization or individual using capital in order to carry out an investment activity in Vietnam, provided that the investor is able to submit the proper documents to prove their legal presence or establishment in the origin country. A WFOE is always required to be attached to an investment project to be approved.

Required capitalThere is no capitalization requirement for an RO and branch. They are set up based on the business sectors on which the parent companies operate. An RO and branch run their business in Vietnam as dependants of the parent companies. They just receive money and pay for costs and expenses arising during their operation.

A WFOE in comparison has to register its investment capital to get approval from the state authority in Vietnam. When the investment is accepted, the capital will be transferred into a capital bank account opened in a authorized bank.

Permitted and prohibited activities While an RO functions as a liaison off ice for the parent company to conduct market research in Vietnam and to pursue the opportunities to do business with local partners, the branch is allowed to do business in Vietnam. This means that a branch is allowed to directly sign contracts with clients and suppliers in Vietnam as well as issue invoices. An RO is prohibited from such direct profit-generating activities.

To some extent, the operation of branch is quite similar to a WFOE. Both can issue official invoices according to the tax and accounting regulations. They have to do regular tax filing for both corporate and individual taxes. Whereas the RO is only required to file employees’ personal income tax.

A branch is limited to business activities stated in the business license of its parent company. WFOE is allowed to

International Cost ComparisonsIN U.S. DOLLARS*

LOCATION FULL-TIME MONTHLY MINIMUM

WAGE

AVERAGE RENTAL FOR

GRADE A SPACE PER

SQUARE METER, PER MONTH **

CHINA

Beijing 141.70 29.12

Guangzhou 151.54 13.81

Shanghai 165 30.63

Shenzhen 162 17.65

VIETNAM

Danang 61.88 16

Haiphong 61.88 15***

Hanoi 69.68 39.66

Ho Chi Minh City

69.68 37.51

*Based on the exchange rate US$1=RMB6.77 and US$1=VND 19,230**Based on figures reported by real estate consultancy firm CBRE***According to CBRE, there are only Grade B buildings in Haiphong

5


Vietnam Briefing | 2010 5Vietnam Briefing | 2010

do all business activities which are not limited or prohibited under Vietnam laws. They are free to pursue profit by choosing the most suitable business sectors for them in the location or whenever they want.

Duration Like the RO, the duration of a branch is limited at five years for each licence of establishment. If they want to get renewal of license, they have to submit a set of dossiers to the state authority of Vietnam who will examine if the RO or branch makes any violation during their operation or not, then to decide to re-grant the licence for another five years. Violations can include engaging in business activities not stated in their license of establishment or non tax compliance.

The duration of a WFOE is dependent w i th t he du ra t i on o f i nves tmen t project and will not exceed 50 years as regulated by law; typically from 30 to 50 years. The government can allow a longer duration when necessary; for a maximum of 70 years.

Office choices A Grade A office building is a good choice for housing an RO or branch. Serviced business centers have also developed in Hanoi and Ho Chi Minh City that allows staff to move in right away. A company is prohibited to set up in an apartment building. Otherwise, it can choose any office building or even a private house for their office provided the landlords are licensed. For a WFOE,

office location will be dependent on the nature of their business.

Application procedures and timingAs the establishment of an RO or branch office is not considered an investment projec t . Appl ica t ion doss iers a re submitted to the provincial Department of Industry and Trade which is in charge of supervising the operation of ROs and branches in Vietnam. The license of establishment for an RO or branch will normally be granted within 25 days.

In comparison, the establishment of a WFOE is always attached with an investment project. The application doss iers wi l l be submit ted to the provincial Department of Planning and Investment and the investment license granted by the provincial People’s Committee. For WFOEs located in industrial parks, the application dossiers will be submitted to the provincial Management Board of Industrial Parks.

T h e t i m i n g r e q u i r e d t o g e t t h e investment license for WFOE is varied depending on the investment project’s scale, business sector, the amount of capital. Typically, it will take one to three months before an investment license is released.

LaborRepresentative offices, branches and WFOEs have the r ight to direct ly employ both Vietnamese and foreigners to work for them. There is no restriction on the number of employees . Al l

f o re igne r s work ing fo r ROs and branches are required to obtain a work permit.

There are a number of work permit exemptions for WFOEs such as the member of a limited liability company with two or more members, the owner of a one member l imited l iabi l i ty company and members of the board of management of a share holding company. Besides these exceptions, all foreigners have to get a work permit, even if they are the legal representative or director of the company.

Tax and accounting issuesA n R O i s t h e s i m p l e s t k i n d o f establishment in terms of tax and accounting. No corporate tax filing is required, only personal income tax for employees working for RO. Regarding taxes, branches and WFOEs are quite similar to each other. They have to file taxes, including corporate income tax, value added tax or personal income tax monthly and annually. Representative offices, branches and WFOEs can legally open bank accounts, RO may only receive money direct ly from its parent company to pay for costs. Branches and WFOEs can either receive or transfer money abroad after fulfilling its tax obligations in Vietnam.

For more i n fo rma t ion o r adv i ce on es tab l i sh ing a represen ta t i ve of f ice in Vie tnam, please contact D e z a n S h i r a & A s s o c i a t e s a t vie tnam@dezshira .com o r v i s i twww.dezshira.com.

Items Representative Office Branch WFOE

Parent company At least 1 year operation At least 5 year operation N/A

Capital required No No Depending on scope of business

Business scope Liaison office, market research

Trading, import-export Manufacturing, trading, import-export

Duration 5 years 5 years 30-50 years

Location Commercial building Commercial building Commercial building or Industrial Parks

Licence-issuing body

Provincial Department of Industry and Trade

Provincial Department of Industry and Trade

Provincial Department of Planning and Investment, Provincial Management Board of Industrial Parks

Setup timing 25 days 25 days 1 – 3 months

Recruiting staff Hire/pay directly Hire/pay directly Hire/pay directly

Taxation Personal income tax Corporate income tax, value added tax, personal income tax

Corporate income tax, value-added tax, personal income tax

Invoicing Cannot issue invoices Can issue invoices Can issue invoices

6 Vietnam Briefing | 2010

Obtaining Foreign Work Permits [ By Hoang Thu Huyen, Dezan Shira & Associates ]

Work permi t s fo r f o r e i g n e r s i n Vietnam are valid for a maximum of three years.

There are currently around 60,000 foreign employees in the country with valid work permits and around 20,000 illegal employed foreigners using tourist visas. Authorities are now becoming stricter when it comes to foreigners w o r k i n g i n t h e c o u n t r y w i t h o u t obtaining a proper work permit. Persons who violate the regulations will be penalized or even deported back to their home countries if they cannot meet the work permit requirements.

ConditionsForeign nat ionals working in the country for companies, organizations, or individuals must comply with certain conditions to qualify for a work permit. These include the following:

Must be at least 18 years of age Must be in good health as necessary to satisfy the job requirements

Must be a manager, executive director or expert with technical skills and knowledge applicable to the job

Must not have a criminal record and currently not subject to criminal prosecution or any criminal sentence in Vietnam or overseas

An employer is permitted to recruit foreign workers who fully satisfy the above conditions in order to work as managers, executive directors and experts where local hires are not yet able to meet production and business requirements. Foreign employees in the country are required to present their work permit during immigration procedures and when required by authorized state agencies. Illegally employed foreign employees will be

automatically deported from the country and the hiring company penalized.

ExemptionsForeign nationals are exempted from obta ining a work permit in cases wherein:

The foreign national is working in Vietnam for less than three months

The foreign national is a member of limited liability company with two members and above

The foreign national is the owner of a limited liability company with only one member

The foreign national is a member of the board of a joint stock company

The foreign national is coming to Vietnam to market products and services

The foreign national is coming to Vietnam within three months to resolve an emergency s i tuat ion o r t e c h n o l o g i c a l l y c o m p l e x s i t u a t i o n t h a t r i s k s a f f e c t i n g production business which Vietnamese experts or foreign experts currently in Vietnam are unable to solve

Foreign lawyers granted a professional permit in Vietnam.

Referring to the list above, one should be aware that the following would still be required to obtain a work permit in Vietnam:

Chief representative of ROs Director of branches General director or director of foreign-invested companies in Vietnam, regardless if companies are LLCs or JSCs

As mentioned above, a foreigner who is member of a company in Vietnam is exempted from a work permit. Under the Enterprise Law of Vietnam, a member of a company can be either an individual or a corporate.

As for Decree 34/2008/ND–CP, i t is unclear whether a foreigner who is appointed by a foreign corporate member of a LLC in Vietnam will still be exempted from obtaining a work permit or not. From practical experience, a work permit is still required from such foreigners as cited by the Department of Labor, Invalids and Social Affairs (DoLISA) Hanoi and Ho Chi Minh City.

A work permit is not necessary when the foreigner comes to Vietnam to offer services. However, in this case, the

Obtaining a Foreign Work Permit in Vietnam


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person must submit a seven day advance notice to the provincial Department of Labor, War Invalids and Social Affairs prior to working in Vietnam.

Termination of work permitA work permit may be terminated in the following circumstances:

Expiration of work permit Termination of labor contract The content of labor contract is not consistent with the granted work permit

Expiration or termination of the business, trade, finance, banking, insurance, science and technology, culture, sports, education, or medicine contracts

When foreign employer announced the termination of the foreign national working in Vietnam

Wi thd rawa l o f work pe rmi t by authorized state agencies

Terminat ion of operat ion of the company, organization, and partners in Vietnam

The foreigner is sentenced to prison, dies or is proclaimed missing by court

FeesWork permit related fees include:

A work license: VND400,000/permit R e n e w i n g a w o r k l i c e n s e : VND300,000/permit

E x t e n d i n g a w o r k l i c e n s e : VND200,000/permit

Application proceduresApplication dossiers need to include the following:

Application for issuance of work permit of the labor users

Registration slip on proposed foreign recruitment based on the standard form prescribed by the Ministry of Labor, War Invalids and Social Affairs

Criminal record form issued by the competent authority from the foreign countries they lived; in cases where the foreigners have resided in Vietnam for over six months, they should also submit the form of criminal record issued by the Department of Justice in the locality where they are residing

Curriculum vi tae of the foreign applicant following the format set by the Ministry of Labor, War Invalids and Social Affairs, including an attached photograph of the foreigner

Medical certificate issued overseas; if the laborer is residing in Vietnam, the health certificate must be granted under the regulations of the Health Ministry

Legal copies of certificates as proof of professional skills such as: bachelor, master, doctor and certificates on qualifications granted overseas. If the applicant is a craftsman of traditional

crafts or a person having experience, but no formal certificate, written documents provided by authorized agencies in their home countries must be submitted attesting to their qualifications and experience of at least five years

Three color photos (3cm x 4cm) of the applicant

The application process is highlighted below:

Labor users take responsibility of preparing a dossier following law provisions and submit to Department of Labor, War Invalids and Social Affairs

The work permit shall be granted 15 working days from the date of receipt of the completed application dossier.

One is advised to seek professional help when applying for an expatriate work permit in Vietnam. Many foreign applicants have been confused about the procedure and requirements when applying; leading to unnecessary delays and penalties.

For professional advice on applying for work permits in Vietnam, please contact Dezan Shira & Associates at vie tnam@dezshira .com o r v i s i twww.dezshira.com.


Foreign Contractor Applications in Vietnam

[ By Hoang Thu Huyen, Dezan Shira & Associates ]

Fo r e i g n b u s i n e s s e s a r e c o n s i d e r e d f o r e i g n contractors if they conduct business or earn income in the country under contract

with local organizations and individuals. Usually, foreign contractors are the winners of auctions organized by the Vietnamese government or organizations and may be principal contractors, genera l con t rac to rs , pa r tnersh ip contractors or subcontractors.

There are regulations covering the activities of foreign contractors in Vietnam. Depending on the nature of business, contractor activities shall be subject to specific sector regulations, including construction, and technology transfer.

RequirementsTo become a foreign construction contractor or subcontractor in Vietnam, an applicant must satisfy the following conditions:

Win a project bid in Vietnam Commit to employ Vie tnamese subcontractors to complete the project

Be financially stable in the last three years

Have access to stable facilities and manpower

Construction contractor license applicationForeign businesses have to register to the state authority to become foreign contractors or subcontractors. The appl icat ion must be submit ted to different government groups depending on the scale and scope of the projects. For example:

The Ministry of Construction for Group A projects or projects to be carried out in two provinces or more

T h e p r o v i n c i a l D e p a r tm e n t o f Construction for Group B and C projects

Dossiers of application for contracting license include three sets – one original and two copies – of the following documents:

Application letter The bidding result or the decision on selection of the contractor or the lawful contract

Documents related to the contractor’s legal status; including the business r e g i s t r a t i o n c e r t i f i c a t e , t h e incorporation license and company charter

Report on experiences related to contracted work and a financial audit

report in the last three years The partnership contract with a Vietnamese contractor or the written commitment to employ Vietnamese subcontractors

Authorization letter for persons other than the contractor’s representative at law

Applications for contracting licenses m u s t b e m a d e i n Vi e t n a m e s e . Documents in foreign languages must be translated into Vietnamese and the translations notarized following Vietnamese regulations.

Other foreign papers and documents must be verified by the consulate, unless otherwise specified by Vietnamese laws or international agreements.

Foreign Contractor Applications in Vietnam


The contractor license will be issued w i th in 20 days f rom the da t e o f submission of completed documents.

Application for project officeOnce the construction contractor license is received, the contractor must submit one set of the application file to the provincial Department of Construction to register its project office. Required documents include:

Application letter Ce r t i f i ed copy o f cons t ruc t i on

contractor license

After filing, the project office license will be issued within five days from the date of submission.

Permitted activitiesOnce licensed, foreign construction contractors are allowed to do the following:

Lease office Have a seal of project office Open bank accounts with local banks Use the Vietnamese accounting system Employ local and foreign laborers a c c o r d i n g t o t h e Vi e t n a m e s e labor legislation; for expatriates,

the contractor can only register managerial and technical experts and highly skilled laborers for entry into Vietnam

The foreign contractor will be held responsible for filing the PIT documents for all its employees.

Taxation Foreign contractors and sub-contractors in Vietnam are liable to pay the same tax rates applicable to local companies including import-export duties, personal income tax (PIT) and other taxes required by authorities.

In particular, corporate income tax (CIT), and value-added tax (VAT) for foreign contractors are different depending on the methods of payment. There are two methods available as follows:

Ordinary method: VAT and CIT payments will be filed at the same m a n n e r a n d t a x r a t e s a s l o c a l companies; foreign contractors will be allowed to follow the ordinary method if they satisfy the following conditions

Having a permanent establishment or resident status in Vietnam

The business duration in Vietnam under a contractor or sub-contractor

contract is 183 days or more from the effective date of the contract

Must apply the Vietnamese accounting system to their business S t r a igh t me thod : Th i s me thod i s app l i cab le when the fo re ign cont rac tors do no t meet one of conditions mentioned above; the base to calculate VAT and CIT is the taxable revenue

VAT r a t e s v a r y f r o m 3 0 t o 5 0 percent subject to the business line: services, production, transportation o r c o n s t r u c t i o n w i t h o r w i t h o u t supplies. The VAT rate is calculated by multiplying the taxable revenue with the rates found in the accompanying chart.

Payable CIT varies between 0.1 percent and 10 percent of the taxable revenue, subject to the business line: trading, services, construction, and production, among others.

For more information on applying for a foreign contractor license in Vietnam, please contact [email protected] visit www.dezshira.com.

VAT RATESNo. Business line Percentage (%) of added value to turnover for VAT calculation

1 Services, machinery and equipment lease, insurance 50

2 a/ Construction, installation with materials or machinery, equipment attached to construction works

30

b/ Construction, installation without materials or machinery, equipment attached to construction works

50

3 Transportation, production, other business 30

CIT RATESNo. Business line CIT rate (%) based on turnover for CIT calculation

1 Trade: distribution and supply of goods, raw materials, supplies, machinery and equipment accompanying services in Vietnam

1

2 Services, machinery and equipment lease, insurance 5

3 Construction 2

4 Other production and business activities, transportation (by sea and air) 2

5 Lease of aircraft, aircraft engines, spare parts of aircraft, ships 2

6 Reinsurance 2

7 Securities transfer 0.1

8 Loan interests 10

9 Copyright incomes 10


Vietnam’s Service Industry Bets on Ba Ria-Vung Tau

[ By Joe Drury ]

The winds of change are sweeping across Ba Ria-Vung Tau Province in Vi e t n a m ’s b o o m i n g s o u t h e a s t e c o n o m i c

region, and they are fragrant with the scent of gambled winnings and Dom Pérignon.

Traditionally an industrial center of Vietnam, a recent flood of service sector investment hopes to transform the local economy into an international tourist’s dream of luxurious living and gambling.

What is happening in Ba Ria-Vung Tau’s i s happening in the res t of Vietnam, where nearly 77 percent of total foreign direct investment (FDI) is now committed to the service sector, a drastic shift from the steady seven percent ratio in the last decade.

Unclear FDI standards and difficulties c lear ing land have led to capi ta l disbursement delays, forcing many projects to a standstill and imperiling the province’s future.

Ba Ria-Vung’s predicament provides a cautionary test for this country’s former centralized economy as it strives to avoid the extremes of bureaucracy.

Welcome to Ba Ria-Vung TauVietnam’s southeast economic region is the powerhouse of the country’s invigorated economy. Thanks to a coordinated infrastructure replete with highways, railroads, ports and airports linking Vietnam’s special economic zones and industrial parks to the outside world, the region produces 47.4 percent of the country’s industrial output and is responsible for 61 percent of total foreign invested projects in Vietnam.

An important player in this activity is Ba Ria-Vung Tau Province. With an area of 1,982 square kilometers and a population of 995,000, it shares the border with Dong Nai Province to the north, Binh Thuan Province to the east and Ho Chi Minh City to the west.

Ba Ria-Vung Tau connects Vietnam to the world with a developed network of deep seaports, and fires its industry with an extensive natural gas supply system. Not surprisingly the province’s key industrial sectors are in industry and gas including petroleum, steel, fertilizer, mechanical manufacturing, electricity and construction materials.

The coastal city of Vung Tau is a hub for Vietnam’s rich offshore oil industry and is conveniently located next to ports with direct shipping lines to the United States. Within the Tan Thanh industrial park, the Phu My electricity

plants generate 40 percent of the nation’s electricity and construction for Vietnam’s largest steel mill recently broke ground.

It is no great surprise then that the province attracts a lot of attention from international investors. In the first 11 months of 2009, Ba Ria-Vung boasted the largest foreign investment of any province or ci ty in Vietnam, with US$6.73 billion in newly registered capital and increased capital, far ahead of second place Quang Nam Bing Duong at US$4.1 billion.

The province has so far managed to repeat this success in 2010. According to Vietnam’s Foreign Investment Agency, Bao Ria-Vung Tau attracted US$2.16 billion of FDI for 20 projects in January-May 2010, 30 percent of Vietnam’s total and the highest of any province in Vietnam.

What happens in Vietnam, stays in Vietnam As great as its industrial achievements stand, Ba Ria-Vung Tau’s foreign direct investment is now increasingly channeled into the service sector following Vietnam’s accession into the World Trade Organization (WTO) in 2007.

In order to integrate Vietnam into the global economy, WTO commitments r e q u i r e d o p e n i n g t h e m a r k e t t o exported foreign goods and services. New regulations included phasing out industrial subsidies and allowing foreign companies to establish foreign-owned subsidiary banks and brokerages.

Results have been swift. Registered FDI in Vietnamese manufacturing represented 62.9 percent between 1988 and 2006 before dropping to 51.5

Mekong

Red

Yu Jiang

Black

Mekong

Mekong

Lam NamChi

Mae Nam Mun

Xe Kon

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Tonle Srepok

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Mek

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T h a i l a n d

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Cu Lao Thu

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Dao PhuQuoc

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Cu Lao Re

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Dao BachLong Vi

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C H I N ASimao

Mengzi

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Son La

Yen Bai

BeihaiZhanjiang

Haikou

Jiaji

Sanya

Basuo

HoaBinh

Nam Dinh

HaDong

LouangNamtha

Phongsali

Xam Nua

Wenshan

HaGiang

TuyenQuang

Qinzhou

Guixian

Yulin

Xuwen

Jingxi

Pingxiang

Hong Gai

Vinh

Hue

Tam Ky

QuangNgai

Ninh Hoa

Xiangkhoang

Nan

Loei

Udon Thani(Udorn)

Sakon Nakhon

Sisaket

Aranyaprathet

SattahipPouthisat

StoengTreng

DaLat

Ho ChiMinh City

SvayRieng

KampongSpoe

Kampot

HaTien

LongXuyen

Ca Mau

BacLieu

CanTho

Tan An

TraVinh

SocTrang

RachGia

SaDec

Batdambang

NakhonRatchasima

(Korat)

KhonKaen

ThanhHoa

HaiDuong

Haiphong

Dien Chau

Muang Pakxan

Nong KhaiMuangKhammouan

Savannakhet

Phitsanulok

Ky Son

BanBan

Ron

Dong Hoi

Quang Tri

Da Nang

Saravan

Attapu

PakxeWarinChamrap

UbonRatchathani

Surin

Sara Buri

Sisophon

KrongKaoh Kong

Siemreab

Kracheh

Lumphat

Buon MaThuot

DakNongLoc

Ninh

Kampong Thurn

KampongCham

Trat

Rayong

Dac To

Kon Tum

Pleiku

Qui Nhon

Tuy Hoa

Nha Trang

Cam Ranh

Phan Rang-Thap Cham

Phan Thiet

Vung TauMy Tho

Ben TreVinhLong

Bien HoaThu Dau Mot

TayNinh

Ha Tinh

Louangphrabang

Thai BinhNinh Binh

Bac Giang

VietTri

ThaiNguyen

Nanning

Ba Ria - Vung Tau

Vientiane

Hanoi

Phnom Penh

Bangkok

108˚104˚

12˚

16˚

20˚

108˚104˚

20˚

16˚

12˚

Vietnam

Road

River

International Boundary

National Capital

Regional Updates


percent in the three years after Vietnam joined the WTO. Foreign investment to the service sector jumped from 30.7 percent to 48.1 percent during the same time.

On Jan. 1, 2009, HSBC Holdings opened a wholly-foreign owned subsidiary in Ho Chi Minh City with chartered capital of US$180 million, the first overseas bank to incorporate in Vietnam.

Hotel and restaurant projects garnered the most fore ign capi ta l in 2009, attracting 40.9 percent of the country’s total pledged FDI after lingering at just 4.2 percent in 2006.

Management and consultant projects also drew impressive results, accounting for 36 percent of national FDI in 2009 compared with 15.2 percent in 2006.

The national switch from manufacturing to services is dramatically transforming Vietnam’s economy, and Ba Ria-Vung Tau is no exception.

“In the service sector, investors are not only developing tourism services but also spending more in financial and banking services,” said Le Kim Huong, director of Ba Ria-Vung Tau’s Department of Planning and Investment in a 2008 interview with the Saigon Times.

Based on the 2008’s investment trends, Huong expects the service sector to represent 40 percent of the local economy by 2015, up 30 percent from 2008.

Tourism will lead this transition, as investors are keen on Vietnam’s still underdeveloped tourism industry that will transform the country into a world-class travel destination.

In 2009, the province attracted US$4.6 billion in tourism projects according to the Vung Tau Promotion Investment Center, a diverse array ranging from animal parks and tourist complexes to five-star hotels with flower gardens and golf courses.

By April of 2010, the province continued to show strong numbers with a total of 159 tourism projects spread over 6,000 hectares and investment capital reaching US$11.9 billion. Foreign investors finance an overwhelming 94 percent of these projects.

Emblematic of the province’s new economy is the largest of these new developments: the MGM Grand Ho Tram, a luxury Las-Vegas style casino to be located 130 kilometers from Ho Chi Minh City on the pristine Ho Tram beach strip. Vancouver-based Asian Coast Development Ltd. will develop the US$4.2 billion project, whereas MGM Mirage will manage the property after completion.

In 2013, the resort will complete the first phase of development, opening its doors to 550 luxury guest rooms, five-star amenities, and a gaming area of 90 live tables, 500 electric games and VIP facilities. The second phase of development will add 550 guest rooms, 14 high-end private villas and 500 more electronic games.

“I believe firmly that supply has not met demand in Asia,” said Lloyd Nathan former president of MGM Mirage Global Gaming Development in an Apr. 2010 interview with Bloomberg. Nathan, tapped to run the new Vietnam resort, argues, “Vietnam is going to thrive as an alternative to Singapore or Macau.”

Aside from the MGM Grand Ho Tram, other ambitious projects include U.S. company Good Choice USA-Vietnam’s Tung Tau Wonderful World Theme Park, to include an 88-story tower, conference center, shopping malls and entertainment centers, a US$120 million Chinese international five-star hotel with 50 luxury villas, and a US$1 billion project by Korea’s JQ Urban Development.

Fear and loathingDespite these rosy projections, the past two years have exposed weaknesses in Vietnam’s investment system. Many investors in the tourism sector, local and foreign, complain about projects being delayed due to problems of site clearance and land allocation. On the other hand, top-level government officials worry about lax FDI approval and licensing procedures leading to bungled investments and ineptly delayed construction.

These obstacles have resulted in low levels of capital disbursement and construction setbacks, pushing the average completion time for projects in Ba Ria-Vung Tau from eight or nine years. Of the province’s 159 new projects, only ten projects are in operation or under construction; 38 projects have just started construction and the rest are in the midst of the licensing procedure or drawing plans for construction.

On a national level, Vietnam seems to be sorting out its capital disbursement problems. The Foreign Investment A g e n c y r e p o r t e d t h a t c a p i t a l d isbursement in fore ign invested projects rose by 7.1 percent year on year in the first five months of 2010 to US$4.5 billion.

As Ba Ria-Vung Tau continues to attract more FDI throughout 2010, it remains to be seen whether this national trend will wind its way to this southeastern province. With a better-enforced system of government oversight and land clearance, the region may see its stellar FDI figures drop as quality of investment becomes favored over quantity. But such is necessary to uncork the bottled up slowdown in development, assisting the local market’s transition from oil to champagne.

F o r m o re i n f o r m a t i o n o n d o i n g b u s i n e s s i n V i e t n a m , p l e a s e e - m a i l v i e t n a m @ d e z s h i r a . c o mor visit www.dezshira.com.

Top Regional FDI (Jan-Nov 2009)

Ba Ria-Vung Tau

Quang Nam

Binh Duong

Dong Nai

Ho Chi Minh City

$1.58 bln

$2.35 bln

$2.5 bln

$4.1 bln

$6.73 bln

Please contact our offices for business advisory, due diligence, tax, accounting and bookkeeping, payroll advice related to foreign direct investment in Vietnam or e-mail [email protected].

www.dezshira.com

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Vietnam Briefing Issue 07, 2010

Documents

Transcript of Vietnam Briefing Issue 07, 2010