Why more and more foreign investors expand the business into Vietnam

Vietnam has been well-known to foreign investors for its ideal location for investments and businesses. Strategically situated right in the center of Southeast Asia, Vietnam shares borders with the new economic giant China, is close to international shipping routes and big markets in Asia, boasts a long coastline and has two major cities, namely Hanoi and Ho Chi Minh City. But, there is more to Vietnam than just a strategic investment destination. It is also a perfect place to register your business in Vietnam.

Throughout the years, Vietnam has been crowned one of the fastest growing economies not only in Southeast Asia but also in the world. Furthermore, while many of the countries have suffered from economic recession due to the COVID-19 pandemic, Vietnam appears to be unaffected. Successfully combating the crisis, during the first eight months of 2021, foreign investment registered in Vietnam, at 19.12 billion USD.

This article discusses the top reasons Vietnam should be your market to expand in 2021.

More and more investor-friendly policies for foreign investors

According to a report by the World Bank, Vietnam ranked 70 out of 190 economies in total, with the overall score of 69.8 in terms of ease of doing business in 2020. This is not without reasons. Two of the biggest initiatives that have been implemented by the government are related to business capital and taxes.

Related: It has never been easier to start a business in Vietnam as foreigner

Unlike many other countries around the world, Vietnam requires no minimum capital contribution in most business sectors. This has resulted in lower entry barriers and cost-effective, flexible investments throughout the country.

What is more, when it comes to taxes, the General Department of Taxation in Vietnam has significantly improved its IT infrastructure, making it much quicker and easier for businesses to settle their tax obligations.

Added investment incentives

Currently, based on industry, large-scale manufacturing companies with total investment value of more than 500 million USD or more than 250 million USD with conditions as well as high-tech companies focusing on information technology (IT), software production, automation, scientific research, material technology and biotechnology can enjoy tax holidays and lower corporate income tax (CIT).

Starting in January 2021, there will be more industries or sectors that are eligible for tax incentives, in accordance with the newly enacted law, The Law on Investment 2020 of Vietnam, such as higher education, medical equipment production and goods production or service provision that has high value.

Also read: The best legal structure for a foreign business in Vietnam

There are also incentives for businesses based on location. Areas that are far away from Ho Chi Minh City and Hanoi are categorized as economically disadvantaged. As such, foreign investors who establish businesses in these areas can enjoy decreased tax rates. Location-based incentives. Businesses in economically disadvantaged areas are eligible for tax exemption for between two and four years as well as lower CIT for up to nine years. Businesses in extremely economically disadvantaged areas are eligible for 4-year tax exemption as well as 5% CIT for nine years followed by 10% CIT from the 13th year.

Competitive labour costs and growing population and young workforce

As of 2020, Vietnam has a population of more than 97 million people. The number is equivalent to 1.25% of the world’s total population and is expected to grow even bigger in the upcoming years. A huge population means a strong purchasing power, making Vietnam a heavenly investment destination for businesses to generate profits, especially since the middle class is also growing.

In addition to the growing population and emerging middle class, the majority of Vietnam’s population are made up of people under 35 years old. Furthermore, according to the Ministry of Education and Training in Vietnam, 97% of the golden population are literate. The most important point about the working population is that the government has put its focus on training and educating them. In other words, foreign companies will have access to talents with excellent skills that are ready to provide support for business growth.

Another important thing is the labour costs. Compared to other countries in Asia such as Indonesia, the Philippines and China, the monthly minimum wage in Vietnam is the lowest, with the average of 192 USD. With competitive labour costs, Vietnam offers a more cost-effective solution for running a business, especially in the manufacturing industry that is known for being labour intensive.

Trade agreements with foreign nations

The government of Vietnam always strives to make it easier and more convenient for foreign investors from around the world to do business in the country. One of the initiatives to encourage more foreign investments is through a trade agreement. A trade agreement can also support economic growth of a country.

Until now, Vietnam has had several trade agreements, including the Free Trade Agreement with South Korea (came into effect in 2015), the Economic Partnership Agreement with Japan (signed in 2009) and agreements with other countries such as India, China, New Zealand, Australia and Russia.

The most notable trade agreements that just came into effect recently in 2019 are the EU-Vietnam Free Trade Agreement (EVFTA) and the ASEAN-Hong Kong, China Free Trade Agreement (AHKFTA). Furthermore, Vietnam is also a member of the ASEAN Free Trade Area (AFTA).

As of 2019, Vietnam was the European Union’s largest trading partner, recording an import value amounting to 34.4 billion EUR, a significant growth compared to 2009 with 6.7 billion EUR. Investors from the European countries who want to invest in Vietnam can enjoy noteworthy benefits such as elimination of up to 99% import tax, bureaucracy and repeating red tape reduction, trade barrier lowering and low-risk and safe trades with Vietnam.

Similar to the EVFTA, the AHKFTA also brings benefits for investors from Hong Kong, including tariff reduction, restriction reduction for service trade, prolonged business stay period and more secured investments. In 2019, Hong Kong was the second biggest investor in Vietnam with an investment value of 7.8 billion USD.

Upgraded infrastructure across the country

When the infrastructure of a country is upgraded, convenient transportation and easy shipping are guaranteed. This is what Vietnam is all about. With convenient transportation and easy shipping, doing business will be a lot more efficient. The most notable infrastructure in Vietnam is airports, ports and expressways. Currently, Vietnam has three international airports, namely Tan Son Nhat International Airport in Ho Chi Minh City, Noi Bai International Airport in Hanoi and Da Nang International Airport in Danang. As for ports, some of the most popular and busy ones are Saigon Port, The Lach Huyen International Port and Vung Tau Port. To travel between regions and neighboring counties, expressways are the best transportation method. There are several expressways such as Ho Chi Minh City-Moc Bai Expressway and Hanoi-Lang Son Expressway.

A series of infrastructure projects are now on their way or will be implemented in the near future. Some of the ongoing projects include the construction of the 124m My Thuy 3 bridge in Ho Chi Minh City, the North–South Expressway and the first metro Cat Linh-Ha Dong metro line in Hanoi.

Start your business in Vietnam with Company formation

It requires a deep understanding of local regulations and requirements related to business formation in Vietnam. As a foreign investor, this can be a challenge.

If you need any assistant in forming a company in Vietnam, acquiring the necessary licenses and incorporating your business altogether, contact GBS via email: info@gbs.com.vn, Mobile/ WhatsApp/ Viber: +84903189033