Vietnam

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Phone: 02383.218.886
Email: vietnam@1stopconsultant.com


Vietnam is a socialist republic. Until 1986, Vietnam had a centrally planned economy; however, in 1986, the country introduced a regime of economic reform, known as “doi moi”. The Government refers to this as a socialist-oriented market economy. Business in Vietnam changed in January 2007 when Vietnam acceded to the WTO, at which time, there were major changes in legislation in order for Vietnam to qualify for accession. Most commercial legislation in Vietnam is no more than six years old, and at the time it was introduced, it was considered a legislative revolution.

The National Assembly is the national legislature. It meets at least twice a year, comprises delegates from throughout the country (with various backgrounds and ethnicity) and is the only body with the power to promulgate laws.
The President (appointed by the National Assembly) is the head of the State and the representative of Vietnam in respect of internal and external issues. The President has a wide role and broad powers (although in practice many of those powers are formal) including being the head of the armed forces, and the ability to appoint and dismiss the Prime Minister and other senior appointments.
The Prime Minister is the head of the Government, which is the executive organ of the National Assembly and the highest State administrative organ in Vietnam. Currently, the Government comprises of 18 ministries and six equivalent authorities, including the State Bank of Vietnam.
 
Ministries and the Prime Minister regularly issue decrees providing regulations for the implementation of the laws.
Vietnam comprises 58 provinces and five centrally-run cities – Hanoi, Ho Chi Minh City, Haiphong, Danang and Can Tho. Each of these are administered by its provincial or city people’s committee, which are effectively a form of provincial or city government. Each province and city is divided into districts, each of which has its own people’s committee (analogous to local government).
 
The people’s committees in the various provinces administer most laws (including most foreign investment applications), however, there is often inconsistency between the application by the 63 provinces and cities.
The People’s Court including the Supreme Court, Provincial People’s Courts and People’s Courts at district level are judicial bodies.
Vietnam is a socialist republic. Until 1986, Vietnam had a centrally planned economy; however, in 1986, the country introduced a regime of economic reform, known as “doi moi”. The Government refers to this as a socialist-oriented market economy. Business in Vietnam changed in January 2007 when Vietnam acceded to the WTO, at which time, there were major changes in legislation in order for Vietnam to qualify for accession. Most commercial legislation in Vietnam is no more than six years old, and at the time it was introduced, it was considered a legislative revolution.

The National Assembly is the national legislature. It meets at least twice a year, comprises delegates from throughout the country (with various backgrounds and ethnicity) and is the only body with the power to promulgate laws.
The President (appointed by the National Assembly) is the head of the State and the representative of Vietnam in respect of internal and external issues. The President has a wide role and broad powers (although in practice many of those powers are formal) including being the head of the armed forces, and the ability to appoint and dismiss the Prime Minister and other senior appointments.
The Prime Minister is the head of the Government, which is the executive organ of the National Assembly and the highest State administrative organ in Vietnam. Currently, the Government comprises of 18 ministries and six equivalent authorities, including the State Bank of Vietnam.
 
Ministries and the Prime Minister regularly issue decrees providing regulations for the implementation of the laws.
Vietnam comprises 58 provinces and five centrally-run cities – Hanoi, Ho Chi Minh City, Haiphong, Danang and Can Tho. Each of these are administered by its provincial or city people’s committee, which are effectively a form of provincial or city government. Each province and city is divided into districts, each of which has its own people’s committee (analogous to local government).
 
The people’s committees in the various provinces administer most laws (including most foreign investment applications), however, there is often inconsistency between the application by the 63 provinces and cities.
The People’s Court including the Supreme Court, Provincial People’s Courts and People’s Courts at district level are judicial bodies.
Visas
A Vietnamese entry visa is required for all foreigners wishing to visit Vietnam, except for citizens of countries having bilateral visa exemption agreements with Vietnam.
There are two ways of obtaining an entry visa to Vietnam as follows:
    • visas issued by a Vietnam consular office outside Vietnam – foreigners may apply and collect the entry visa at a Vietnam consular office in the country in which the foreigner resides
    • visas on arrival – foreigners may collect the entry visa upon arrival at an international airport in Vietnam. A letter issued by the Vietnam Immigration Department is required to be produced for obtaining a visa on arrival.
The practice for issuing visas and renewals changed in 2009, although there was no change in the law. At the time of writing, visas are not being issued for more than three months and renewals will only be issued for one month. It is necessary to leave Vietnam to get a new visa.
 
People with work permits or who are exempt (considered below) can obtain temporary residency cards (TRC) for up to three years. Applications for TRCs are relatively straightforward.
 
Work permits
 
Virtually all foreigners working in Vietnam for three months or more are required to obtain a work permit. Exceptions exist, including for foreigners:
    • entering Vietnam to work for a period of less than three months
    • who are members of limited liability companies with two or more members
    • who are the owners of one member limited liability companies
    • who are members of the Board of Management of joint stock companies established in Vietnam
    • entering Vietnam to offer services
    • entering Vietnam to deal with issues arising from urgent situations with a work duration of less than three months, but if for more than three months then after working for three months in Vietnam the foreigner must carry out procedures to register for issuance of a work permit
    • who are lawyers licensed by the Ministry of Justice to practice as such in Vietnam
    • who are heads of representative offices, project offices, and foreigners assigned to represent all activities in Vietnam by foreign non-government organizations
    • transferred internally within an enterprise and within the List of Commitments on Services of Vietnam as specified in the WTO Schedule, comprising the following services: business services; information services; construction services; distribution services; education services; environmental services; financial services; health services; tourism services; services of entertainment culture; and transportation services
    • going to Vietnam to supply expert and technical consulting services including research, formulation, evaluation monitoring and assessment, management and implementation of a program of project using official development aid (ODA) in accordance with provisions or agreements in international treaty on ODA signed by a competent authority of Vietnam and of the foreign country
    • licensed to operate in the information and newspaper sector in Vietnam by the Ministry of Foreign Affairs
    • in other certain circumstances which are in accordance with the Prime Minister’s regulations.

Work permits are issued with the same duration as the term of the labor contracts or contracts between the Vietnamese party and the foreign party but will not exceed three years. Work permits may be renewed. Obtaining work permits is a time consuming process and employers are recommended to commence the application preparation as early as possible.

The principal law regulating companies is the Enterprise Law 2005 (EL). The EL governs all domestic and foreign-invested companies.

Types of enterprises
 
The EL provides for three types of enterprise, being:
    • limited liability companies
    • partnerships
    • private enterprises.
Limited liability companies
 
For foreign investment purposes, the main types of investment vehicles are the following:
    • one member limited liability company. These are commonly known as “One Member LLCs”
    • two members or more limited liability company. The number of members must not exceed fifty. These are commonly known as “Two Member LLCs”
    • shareholding company. These are known as “Joint Stock Companies”, or “JSCs”. The minimum number of shareholders is three and there are no restrictions on the maximum number of shareholders. Shareholding companies may issue securities to the public to attract capital in accordance with Vietnam’s legislation on securities.
In general, the first two types of limited liability companies are more common for foreign investors, although companies that are considering listing on the stock exchange will want to be a JSC as only JSCs can be listed. JSCs also provide more flexibility for transferring equity.
 
One major difference between an LLC and a JSC is that although shares are issued in a JSC, shares are not issued in an LLC. Equity is subscribed, and although it can be assigned, it is subject to pre-emptive rights in favor of the other shareholders.
 
Partnerships
 
A partnership is an enterprise in which there must be at least two unlimited liability partners who jointly own the partnership. In addition to these, there may be limited liability partners. Unlimited liability partners are liable for the liabilities and obligations of the partnership to the extent of all their assets, while limited liability partners are only liable for the debts of the partnership to the extent of the amount of capital they have contributed to the partnership.
 
Private enterprises
 
A private enterprise is an enterprise owned by one individual who is liable for all activities of the enterprise to the extent of all their assets. An individual is entitled to establish one private enterprise only.
 
Lines of business
 
When registering a company in Vietnam, the applicant must state the scope of business. If the Vietnamese company wants to undertake business outside the stated scope, it must apply for approval. The application must state precisely the proposed scope.
 
Investment Law 2005 (IL)
 
The IL governs the investment activities in Vietnam of foreign and local individuals and legal entities. The WTO Schedule (considered below) is also important for foreign investment. Under the IL, investors can invest directly or indirectly in all types of business that are not specifically prohibited or restricted. The IL provides for the following types of direct investment:
 

Establishment of a company
Investors can establish companies in accordance with the EL. These may be wholly owned or jointly owned subject to any WTO restrictions. In some industries, investors must also comply with the conditions laid down in the relevant laws (such as Law on Credit Institutions for banking and financial services, Law on Petroleum for petroleum businesses, Law on Civil Aviation of Vietnam for aviation business, Law on Education for schools, Law on Securities for securities business, and Law on Insurance Business for insurance business).

Investment under contracts
Investors are permitted to sign contracts in the forms of business cooperation contracts (BCC), build, operate, transfer (BOT), build, transfer, operate (BTO) and build, transfer (BT) for cooperation in production, sharing profits and sharing products and other forms of cooperation.

Investment for business expansion
– Investors are permitted to invest in the expansion of existing businesses through the:

    • expansion of the scale of business or increase of production capacity
    • renovation of technology, increase of product quality or measures for reduction of environmental pollution.

Purchase of shares or contribution of capital Investors are permitted to purchase shares or contribute capital to an economic entity operating in Vietnam at the rates stipulated by the Government.

Merger and acquisition
Investors are permitted to carry out mergers or acquisitions of a company operating in Vietnam, subject to any restrictions on foreign ownership. In addition, investors are permitted to invest indirectly by way of the purchase of bonds, investment fund certificates and other securities, and by way of the establishment of investment funds.

Conditional investment
 
Sectors in which investment is conditional include:
    • radio and television broadcasting
    • production, publishing and distribution of cultural products
    • exploration and mining of minerals
    • establishment of infrastructure for telecommunication networks, transmission and the provision of internet and telecommunication services
    • establishment of a public postal network and provision of postal services and express services
    • construction and operation of river ports, sea ports, terminals and airports
    • transportation of goods and passengers by railway, roadway and sea and inland waterways
    • fisheries
    • production of tobacco
    • real estate business
    • import, export and distribution business
    • education and training
    • hospitals and clinics
    • other investment sectors related to international treaties to which Vietnam is a member and which restrict the opening of the market to foreign investors.
Prohibited projects
 
The following projects are prohibited to foreign investment:
    • projects which are prejudicial to national security, defense or the public interest
    • projects which are detrimental to historical and cultural relics or the customs and traditions of Vietnam
    • projects that may adversely affect people’s health, spoil resources or destroy the environment
    • projects which deal with the provision of harmful waste into Vietnam, projects for the production of toxic chemicals or which utilize toxic agents prohibited under an international treaty
    • other investment projects prohibited in accordance with the provision of laws.

Recognized forms of doing business in Vietnam The most common business structures used by foreign investors in Vietnam include:

    • wholly owned subsidiaries
    • joint venture companies
    • business co-operation contracts
    • foreign contractors.

Alternatively, foreign investors may also operate by establishing:

    • representative offices
    • branches.

Foreign investors may also invest indirectly in Vietnam, in the following ways:

    • purchase of shareholding, shares, bonds and other valuable papers
    • by way of securities investment funds
    • by way of other intermediary financial institutions.

However, there are restrictions on the level of foreign ownership of shares in Vietnamese companies in various sectors including the following:

    • listed shares
    • banking
    • petroleum
    • aviation
    • general insurance
    • publishing
    • education
    • media
    • telecommunications
    • mining.
WTO Schedule
 
The WTO Schedule sets out the timing for when foreign investors may invest in a wide range of services as well as the percentage ownership that may be held. Since 2007, many restrictions have been lifted.
 
Although many restrictions on foreign investment were lifted on 1 January 2009, in practice major problems remain (and can be noted in the retail, wholesale and franchising sectors). Applications for approval are dealt with extremely slowly and are subject to extremely detailed analysis. As an example of these restrictions in practice, Vietnam is one of the few countries in which there are no McDonalds or Starbucks stores.
 
Even if a foreign investor is allowed to open one retail outlet, any other outlet will be subject to an economic needs test which gives the authorities very wide scope to reject any application.
 
Establishment of an entity
 
Foreign investors are permitted to establish enterprises in accordance with the EL through the following types of entities:
    • limited liability enterprises
    • joint stock enterprises
    • partnership enterprises
    • private enterprises.
Foreign investors directly investing in Vietnam must have an approved investment project and are not permitted to simply establish a company. Approval is given for investment in a project, and the company is merely the vehicle for the project. Typically, approval is obtained from the Department of Planning and Investment of the local provincial or city People’s Committee. If the application is successful, the People’s Committee issues an investment certificate for the project. The investment certificate also serves as the Business Registration Certificate. Domestic companies with no foreign investment are issued with a Business Registration Certificate.
 
Business Co-operation Contract (BCC)
 
A Business Co-operation Contract is a contract signed by two or more parties to carry out investment without establishing a legal entity. A BCC operates on the basis of mutual allocation of responsibilities and sharing of profits, production and losses. As defined under the IL, a BCC does not create a separate legal entity under Vietnamese law but the parties to the BCC are issued with an investment licence. To the extent that a BCC is not a legal entity distinct from its constituent partners, it is similar to a partnership. It is often known as a joint operating company (JOC), and is a structure that is commonly used in the petroleum industry.
The IL does not stipulate in detail the rights and obligations of the parties to a BCC. It is important that the rights and responsibilities of the parties be comprehensively set out in the BCC.
 
Foreign contractors
 
There are certain businesses, especially in the service sector, where foreign investors may do business in Vietnam as foreign contractors without engaging in any form of investment prescribed under the IL. The following types of activities undertaken by a foreign entity are recognised and subject to tax on income that they generate in Vietnam (foreign contractor’s tax):
    • commerce, including distribution or supply of goods, material, machinery and equipment
    • services
    • construction and installation, other production and transportation
    • lending
    • licensing.
Foreign contractors in the fields of investment and construction, provision of material, equipment and technology together with technical services in respect of construction and the provision of construction services are required to be licensed by the Ministry of Construction or the Department of Construction of the provincial People’s Committee, depending on the value of the project concerned. This licensing regime is project specific.
 
Representative offices
 
If a foreign company wishes to have a presence in Vietnam before actually investing, it may set up a representative office. The company must have operated for at least one year in its country of establishment.
A foreign representative office is not permitted to carry on any production or sales activities, nor is it permitted to earn income in Vietnam. Its main functions are to coordinate trade and transactions between the head office of the foreign company and Vietnamese businesses, to study the feasibility of investment in Vietnam and to undertake business development activities. A license for the establishment of a representative office of a foreign business entity in Vietnam has a duration of five years.
 
Branches of foreign companies
 
A license for establishment of a branch of a foreign business entity in Vietnam conducting the purchase and sale of goods, and activities directly related to the purchase and sale of goods, has a duration of five years. In some specific areas, including banking, branches are permitted under the relevant law.
 
Investment in Vietnamese companies
 
With limited exceptions (e.g., the banking and insurance sectors), foreign individuals and organizations are allowed to purchase up to a maximum of 49 percent of the issued shares of a listed Vietnamese enterprise. Further, with certain exceptions, foreign investors may invest in or acquire the whole or a part of the equity interest in unlisted Vietnamese companies, subject to the business scope of the Vietnamese company concerned.
Government initiatives and incentives Investment incentives
Investment incentives largely take the form of exemptions from or reduction of corporate income tax (CIT), land rent and import duty. Particulars of the import duty and corporate income tax concessions are set out below.
 
Investment projects which satisfy one of the following conditions are entitled to corporate income tax incentives:
    • investment in an industry and/or sector which is on the list of investment incentive sectors promulgated by the Government in accordance with the IL
    • investment in an industry and/or sector which is on the list of special investment incentive sectors promulgated by the Government in accordance with the IL
    • investment in a region which is on the list of regions with difficult socioeconomic conditions as promulgated by the Government in accordance with the IL
    • investment in a region which is on the list of regions with especially difficult socioeconomic conditions as promulgated by the Government in accordance with the IL.
Land rental
 
Preferential treatment given to foreign enterprises in respect of land rental, includes:
    • (i) Investment projects in areas where investment is especially encouraged, and which are carried out in geographical areas facing exceptional socioeconomic difficulties; and (ii) projects involving the use of land for construction of condominiums for industrial park workers under projects approved by competent authorities, covering the house-selling prices or house-leasing prices which do not include land rent expenses; (iii) projects involving the use of land for construction of students’ dormitories with State budget money, for which the units assigned to manage such dormitories may only calculate charges sufficient to cover expenses for services, electricity and water supply, for management and other relevant expenses and must not calculate land rent expenses and depreciate the houses; (iv) projects involving the use of land for construction of public facilities for business purposes in the fields of education, health, physical training, sport, science and technology.
    • A three-year exemption for projects on the list of domains where investment is encouraged; and new production or business establishments of economic organizations which are relocated pursuant to State planning or due to environmental pollution.
    • A seven-year exemption for projects in geographical areas facing socioeconomic difficulties.
    • An 11-year exemption for projects in geographical areas facing exceptional socioeconomic difficulties, projects on the list of areas where investment is especially encouraged, and projects on the list of areas where investment is encouraged which are carried out in geographical areas facing socioeconomic difficulties.
    • A 15-year exemption for projects on the list of areas where investment is encouraged which are executed in geographical areas facing exceptional socioeconomic difficulties, and projects on the list of areas where investment is especially encouraged and which are carried out in geographical areas facing socioeconomic difficulties.
Further, for cases where annual land rent is payable, the annual land rental rate is 1.5 percent of the land price based on the use purpose of the rented land. For land rental to be paid in a lump sum for the whole rent duration, the payable land rental amount is equal to the payable land use levy amount for land allocation with a land use levy payment for the same use purpose and land use duration.

The land rental rate applicable to each project was to be kept unchanged for five years. At the end of this period, if the land price prescribed by the provincial-level People’s Committee increases by less than 20 per cent from the land price for calculating the land rental rate at the time of determining the land rental rate applicable to the preceding period, the land price bracket prescribed by the provincial-level People’s Committee at the time of adjustment of the land rental rate will apply for calculating the land rental rate applicable to the subsequent five year period which must not be lower than the land rent rate applicable to the preceding stabilization period.
 
If the land price prescribed by the provincial-level People’s Committee increases 20 percent or more from the land price for calculating the land rental rate at the time of determining the land rental rate applicable to the preceding period, the provincial-level Finance Department has prime responsibility for determining the land price adjustment co-efficient and propose it to the provincial-level People’s Committee for decision. This co-efficient serves as a basis for the provincial Department of Finance to adjust the land rental rate applicable to the subsequent five-year period. At the end of the five-year period, if the land rental rate has not been adjusted due to objective reasons, the land rental rate applicable to the preceding five-year period will apply for temporary payment of land rentals for the subsequent period. When a competent authority adjusts the land rental rate for each adjustment, the policy on and the land price for collection of the land rental corresponding to such adjustment will apply and the payable land rental deficit amount (if any) shall be retrospectively collected.
 
Land and housing

Land
 
One of the principal matters that an investor must decide at the outset is the location of its investment project. The investor must, therefore, understand how it may acquire the right to use land in Vietnam.
 
General outline of Vietnamese land law
 
Under the Vietnamese Constitution, all land in Vietnam belongs to the Vietnamese people and its use is administered on their behalf by the State. Private ownership is not possible, although the right to use land can be allocated by the State. Accordingly, under the Vietnamese legal system, “land is the property of the entire people” but buildings erected on the land can be privately owned.
 
The individual title over the land upon which a building has been erected is acknowledged by law as the “Right of Land Use”. A certificate known as the Certificate of Land Use Right, Ownership of Residential Housing and other Property attaches to the Land (Certificate), and defines the rights related to the use of the land.
 
Land use is governed by the Land Law 2003 and related regulations. Unfortunately, these regulations do not provide a clear system of land use and related issues.
 
Organizations being holders of land use rights may contribute the land use rights to form the capital of a joint venture (JV). This means that for a foreign investor entering into a joint venture arrangement with a Vietnamese partner, the Vietnamese partner can contribute its share of capital by way of land. This can be a major benefit due to the general inability of foreigners to obtain land use rights. If an investor requires the use of existing premises, it may rent such premises from entities and individuals that have the right to lease premises.

 
Certificate of Land Use Right, Ownership of Residential Housing and other Property attached to the Land. The fundamental document evidencing the right to use land is the Certificate. After the State has allocated or leased land to a user, the land user must apply to the People’s Committee of the District in which the land is situated for the Certificate if the land user is an individual, family household, community of citizens or an overseas Vietnamese who purchases a residential house. In other cases, the provincial People’s Committee is responsible for the issue of the Certificate. The Certificate is valid only for the time for which the State allocates the land as set out in the Certificate. Moreover, the grantee of the Certificate may only use the land for the purpose stated in the Certificate and is required to pay land use fees or land rent to the State (usually on an annual or semi-annual basis).
 
Land lease by JVs and 100 percent Foreign Owned Enterprises (FOEs)
 
Under the prevailing legislation on land, JVs and 100 per cent FOEs can lease land in Vietnam from the State under a lease contract for, amongst other things, the purpose of construction on the land according to the investment certificate granted to them and to own the buildings they construct on the land during the term of the lease.

 
JVs and 100 percent FOEs may lease land from the State for the term set out in the lease contract, which is usually also for the term set out in their investment certificate. Upon expiry of the term of the lease, if extension of the lease contract is not approved by the relevant Vietnamese authority, the land use right terminates and reverts to the State and the foreign investor must then dispose of its interest in the building (if any). As such rights are relatively new, it is not clear what attitude the authorities will take upon the expiry of a lease if a foreign owned company wants to renew the lease.
 
Foreign companies (as distinct from JVs and 100 percent FOEs) are not permitted to lease land from the State. They may, however, lease premises from landlords who are licensed to conduct leasing activities, provided that the office of the foreign company in Vietnam is duly licensed by the competent authority of Vietnam. This usually means that they have established a representative office.
 
Housing and construction works
 
On 23 June 2010, Decree No. 71/2010/ND-CP, on implementation of the Law on Residential Housing 2005, was issued. Under this decree, local individuals and organizations, overseas Vietnamese and foreign individuals and organizations who are entitled under Vietnamese law to own construction works will be issued with the ownership certificate of construction works (depending on the purpose of use of such property).
 
Under the Law on Residential Housing 2005 dated 29 November 2005, Vietnamese persons residing overseas, who return to Vietnam to make long-term investments and whose work has contributed to the country, cultural activists and scientists with a requirement to return to Vietnam for regular activity aimed at serving the cause of national development, persons permitted to live stably in Vietnam and other persons stipulated by the Standing Committee of the National Assembly, are entitled to own a residential house in Vietnam. Even if a non-resident Vietnamese does not satisfy any of the above conditions but returns to reside in Vietnam for a permitted duration of six months or more they are entitled to own one individual residential house or one apartment.
 
The newly adopted Resolution No. 19/2008/ND-QH12 permits foreign organizations and individuals to buy and own apartments on a pilot basis for a term of five years commencing on 1 January 2009.

 
 The Law on Real Estate Business 2006 was passed on 29 June 2006 and came into force as of 1 January 2007. Based on this Law, foreign organizations and individuals, and Vietnamese persons residing overseas are permitted to conduct real estate business and real estate business services within the following scopes:
    • investment in the creation of houses and buildings for sale, lease out or grant of hire purchase
    •  Subject to this Resolution 19, there are five groups of foreigners eligible to purchase apartments, including:
    • foreigners who invest directly in Vietnam under the IL or are employed by enterprises doing business activities in Vietnam under EL, including domestic enterprises and foreign invested companies
    • foreigners who have made contributions to Vietnam and have received medals awarded by the President of Vietnam, or foreigners who have made great contributions to Vietnam and as decided by the Prime Minister
    • foreigners who are working in eco-social fields and hold bachelor degrees or higher degrees and foreigners who have special knowledge or skill that meet Vietnam’s requirements
    • foreigners who are married to Vietnamese nationals
    • foreign invested enterprises doing business in Vietnam under the IL which are not operating in the real estate business, who have the need to purchase apartments for housing their employees.
Foreign organizations and individuals investing in the construction of residential properties for lease in Vietnam are issued with Certificate of Land Use Right, Ownership of Residential Housing and other Property attached to the Land with respect to such houses by the competent State body. The duration of ownership of the residential house is the duration specified in the investment certificate. The duration of ownership is recorded in the Certificate. Foreign organizations and individuals investing in the construction of residential houses for sale, after completion of the construction pursuant to a project, are entitled to sell such residential houses to purchasers permitted to own residential houses in Vietnam. Purchasers of residential houses are issued with Certificate of Land Use Right, Ownership of Residential Housing and other Property attached to the Land.
 
The Law on Real Estate Business 2006 was passed on 29 June 2006 and came into force as of 1 January 2007. Based on this Law, foreign organizations and individuals, and Vietnamese persons residing overseas are permitted to conduct real estate business and real estate business services within the following scopes:
    • investment in the creation of houses and buildings for sale, lease out or grant of hire purchase
    • investment in upgrading land and to invest in infrastructure works on the leased land in order to lease out land with completed infrastructure
    • provision of real estate business services, such as real estate: — brokerage services — valuation services — trading floor services — consultancy services — auctioning services — advertising services — management services.
Tax system
Indonesia’s taxation system is based on broad-based value-added tax on revenues combined with a self-assessment system. Taxes are imposed at regional and national levels. The Indonesian tax system classifies taxes into:
    • national taxes: including income tax, value-added tax, sales tax on luxury goods, stamp tax, property tax (on land and buildings), and fiscal departure tax
    • regional taxes: including development tax, motor vehicles tax, other minor taxes (household, entertainment, road, advertisement, radio and television taxes)
    • customs and excise taxes: including export duty, import duty, tobacco, sugar, beer and alcohol, and gasoline taxes.
The Ministry of Finance and the Director General of Taxation regulate compliance with the main taxation rules. Unfortunately, the Tax Court, which is the court of appeal on tax matters, does not make its decisions readily available. The Tax Court is a judicial institution with jurisdictional authority for taxpayers or tax guarantors seeking settlement of tax disputes. A request for re-examination of a decision of the Tax Court by the Supreme Court will only be granted where certain conditions are fulfilled.

A Large Taxpayer Tax Service Office was established in Jakarta in July 2002 and responsibility for “large” taxpayers were transferred to this office. It is common practice for the financial year of companies to follow the calendar year.

In September 2008 the Parliament passed a new income tax law which reduced the number of income tax brackets (from five to four) and lowered the maximum rate of income tax from 35 per cent to 30 per cent (for salaries of Rp500 million or greater). In addition, the then current corporate tax rates of 10 per cent, 15 per cent, and 30 per cent disappeared in 2009 in favor of a single corporate tax rate of 28 per cent. In 2010, this corporate tax rate fell to a flat 25 per cent.
 
Income taxes
 
The wide definition of income tax in Indonesia’s taxation law applies equally to both individuals and businesses operating through corporate structures. This definition of income tax includes such income sources as:
    • wages and salaries
    • interest and dividends
    • compensation for work performed
    • compensation for use of assets
    • commissions and bonuses
    • rent
    • pensions and royalties
    • lottery prizes and awards
    • bonuses and awards
    • foreign exchange gains
    • insurance and reinsurance premiums
    • capital gains on property.

Taxpayers are classified as:

    • resident taxpayers: this includes companies, partnerships and cooperatives domiciled or incorporated in Indonesia. If a foreign business has a “permanent establishment” (that is, an “establishment regularly used to carry on business in Indonesia by an organization or enterprise not set up or domiciled in Indonesia”), it is considered a resident for tax purposes. Any individual present in Indonesia for more than 183 days in any 12-month period or a person who intends to reside in Indonesia is also classified as a tax resident of Indonesia
    • non-resident taxpayers: a non-resident taxpayer is one who receives benefit from activities in Indonesia. Double tax treaties that Indonesia has signed with various countries can provide some relief.
Withholding taxes
Withholding taxes apply to:
    • payments made for a range of services performed within Indonesia
    • payment of fees to partnerships or individuals
    • payment to offshore funds (these include interest, royalties, technical service fees, dividends)
    • certain classes of income, including transfer of title to land/buildings, rent paid on land/ buildings and income from construction and construction consulting services.
Other taxes
 
Other taxes of relevance to foreign investors include:
    • land and building tax which is an annual tax on land, building and permanent structures. Taxpayers are those with the rights over the land or those who possess or control structures to obtain benefit from them
    • value-added tax applies to the supply of most goods and services in Indonesia
    • stamp duty on execution of certain documents (this is nominal and not an ad valorem tax)
    • foreigners’ tax, which is payable by companies for expatriate employees
    • fiscal tax on departure from the country (currently Rp1 million on each departure of Indonesians and foreign residents). From 2009, any person with an Indonesian tax file number (Nomor Pokok Wajib Pajak (NPWP)) is exempted from fiscal exit tax.
Workplace relations Legislation
 

The Labor Code applies to all employees, including foreign workers, working in Vietnam and generally sets out the rights and obligations of both employers and employees.

Issues relating to workplace relations are highly regulated in Vietnam, including the form of employment contract, term, probationary period, minimum salary, working hours, rest breaks, overtime, annual and other statutory leave entitlements, special benefits for female employees, social and health insurance contributions, internal labor regulations, collective labor agreements, and safety and hygiene.

Employment relations

The Code requires that all employment relationships (with a few exceptions) must be evidenced by labor contracts in the Vietnamese language entered into between employers and employees, including foreign employees, in duplicate and contain prescribed contents. Labor contracts for foreign employees must be registered.

Collective agreements

FIEs established in Vietnam and foreign and international organizations permitted to operate in Vietnam which have a trade union or temporary executive committee of the trade union are required to enter into collective labor agreements with their Vietnamese employees, in addition to the individual labor contracts between the employer and each employee.

The principal provisions of a collective labor agreement include undertakings of the parties in respect of employment and guarantees of employment, working hours and rest breaks, salaries, bonuses, allowances, labor protection, occupational safety and social insurance for employees.

The terms of a collective labor agreement must be accepted by more than 50 percent of the employees and registered with the local labor department.

Internal labor regulations

Enterprises employing ten or more workers are required to adopt internal labor regulations in writing and register the internal labor regulations with the local labor department. Internal labor regulations stipulate the work hours, rest time, order in the enterprise, labor safety, hygiene, protection of assets and technology secrets of the enterprise. Specific forms of disciplinary measures must be included in the internal labor regulations.

Recruitment

FIEs are entitled to recruit Vietnamese employees directly or through labor supply agencies. Foreign organizations and agencies which are licensed to operate in Vietnam must employ Vietnamese employees through labor supply agencies. If the labor supply agency is not able to identify a suitable candidate within 15 days, the foreign organization or individual is entitled to recruit directly. In practice, certain provinces and cities have abolished this requirement with respect to representative offices of foreign companies and such offices are permitted to employ Vietnamese employees directly.

Dismissal

It is very difficult to dismiss employees in Vietnam, even for serious breaches.

The Code provides for limited term contracts for 12 months and up to three years. It is important to ensure that wherever possible all employees are on limited term contracts so that the employer has the option of not renewing the contract upon maturity. It is very difficult to dismiss an employee who is employed on an indefinite term contract.

Definite term contracts automatically convert into indefinite term contracts if the parties do not sign a new definite term contract within 30 days following the expiry of the contract.

Sickness and disability pension and life assurance

Social insurance

Vietnamese employees on employment contracts of a duration of three months or more or for an indefinite term are subject to the compulsory social insurance scheme. Employers must contribute 17 percent of the salary and the employee must contribute seven percent. Both amounts will increase to 18 percent and eight percent respectively as from 1 January 2014.

There is also a compulsory contribution to an unemployment fund. Employees must contribute one per cent of monthly salary, and employers must contribute one per cent of monthly payroll, to the unemployment fund every month.

Employees are entitled to social insurance benefits and allowances in the event of illness, work-related accidents and occupational diseases, pregnancy, retirement, unemployment and death.

Medical insurance

Medical insurance is compulsory and is applicable to Vietnamese and foreign employees employed by and working for foreign invested enterprises, export processing zones and industrial parks and foreign and international organizations operating in Vietnam, except otherwise stipulated by international treaties executed or entered into by the Socialist Republic of Vietnam amongst others.

Premiums paid to the medical insurance fund for such Vietnamese and foreign employees are equal to 4.5 percent of their monthly wages and salaries and allowances (if any) as specified in the labor contract, of which the employer is required to contribute three per cent and the employee 1.5 percent. For foreign workers the contribution is usually insignificant as it is capped at 20 times the minimum wage.

Industrial relations

Trade unions

The establishment of a trade union in the workplace is to be carried out by the employees themselves or by the trade union at provincial level. Although employers are not required to set up trade unions, they are required to provide support for the establishment and operation of the trade unions. Trade unions are established and regulated pursuant to the Law on Trade Unions 1990 issued by the National Assembly, dated 7 July 1990. The trade union of an enterprise is set up to protect the rights and benefits of employees during the employment and represents employees in negotiation with the employer.

The Vietnam General Federation of Labor and trade unions in general are charged principally with the responsibility of discussing and resolving issues related to labor relations.

Settlement and mediation proceedings

The Labor Code 1994 provides for the resolution of labor disputes in the case of an individual labor dispute and also in the case of a collective labor dispute. A collective labor dispute can be classified as a collective labor dispute about rights and a collective labor dispute about benefits.

A party to an individual dispute may request the local labor conciliation council or, if there is none, a local labor conciliator to resolve the dispute.

For certain individual disputes, either party may bring the dispute directly to the Labor Court. If an individual dispute cannot be resolved satisfactorily by the local labor conciliation council or the conciliator (as the case may be), either party may refer the dispute to the Labor Court.

In the case of a collective dispute, either party has the right to request the labor conciliation council or a local labor conciliator as selected by both parties to resolve the dispute. If no satisfactory solution is found, either party may refer the dispute to the Chairman of the relevant People’s Committee of a district, town or provincial city regarding a collective labor dispute about rights, or the labor provincial arbitration council regarding a collective labor dispute about benefits for further settlement. If a collective labor dispute about rights is not resolved by the Chairman of the People’s Committee of district, town or provincial city, either party may refer the dispute to a Labor Court for final resolution or the Labor Collective may go on strike in accordance with the procedure set down in the relevant regulations. While if a collective dispute about benefits is not resolved by the labor provincial arbitration council, the dispute may not be further referred to the court, the Labor Collective however may go on strike in accordance with the procedure set down in the relevant regulations.

Dispute resolution
 
Under Vietnamese laws, there are two dispute resolution methods, namely courts and arbitration procedures.
 
Courts
 
Court procedures have two stages, first instance and appeal.

First instance procedures
In principle, the People’s Court which has jurisdiction to settle civil cases is the court having jurisdiction over the locality in which the defendant’s head office is located. Parties to a contract are, however, able to agree in the contract to submit any disputes for settlement to the People’s Court of the locality in which the plaintiff’s head office is located, but this must be expressly provided for in the relevant contract or in other written agreements between the parties.

Legal proceedings are commenced by a petition submitted to the competent court within the limitation period. The limitation period is generally two years from the date the benefits and interest of the plaintiff are breached, unless otherwise provided to by specific laws.
The first instance procedures typically last four months (or six months in complicated cases). However, in practice, this usually takes longer. During this time, the court investigates the case by requiring evidence from the parties. Prior to trial, the parties are required to attempt conciliation to reach an amicable resolution of the dispute. Conciliation meetings will be organized by the court which require the participation of the parties. If conciliation is successful, the mutual written agreement of the parties will be recognized under a decision of the court as final and binding on the parties. If conciliation fails, the parties will proceed to court trial.
 
The first instance trial is chaired by a judgment committee consisting of one judge and two jurors that will adjudicate on the dispute based on the principle of majority vote. A secretary of the court is in charge of preparing the minutes of the trial.

At the court hearing, in addition to the parties involved in the dispute, there may be other attendees including the prosecutor, interpreters, witnesses and experts. On conclusion of the court hearing, the court will issue its first instance judgment on the dispute. The court may also issue other decisions in respect of particular issues arising from the trial.

Appeal procedures
 
Appeals may be lodged with the court higher than the first instance court within 15 days from the date of the lower court’s judgement.
 
An appeal trial is conducted on a similar basis to a first-instance trial except that the panel consists of three judges. The appeal court will reconsider the case.
 
Special procedures following the first-instance trial and appeal
 
After the judgement of the first instance court or any appeal court becomes effective, the judgment may still be subject to appeal by the administration authority of the People’s Courts or the People’s Procuracies at the provincial level or higher under the special procedures for supervision and review as prescribed by law. However, the parties to the proceedings have no right to initiate such appeal procedures.
 
Court fees
 
The plaintiff must deposit 50 percent of the prescribed court fees when submitting its claims, except in some special cases. The losing party is responsible for payment of these fees at the time the judgment is issued.
 
Foreign court judgements are unenforceable in Vietnam in the absence of a bilateral agreement for mutual recognition. Vietnam has entered into bilateral agreements with countries including Russia, the Czech Republic, Slovakia, Cuba, Hungary, Bulgaria, Poland, Laos, China, France, Ukraine, Mongolia, Belarus and the People’s Democratic Republic of Korea. However, Vietnam has not made any agreement on the reciprocal recognition of judgments with the United States, Australia, any other Asian country or any western European country.
 
Arbitration procedures
 
The law provides for arbitration in Vietnam. However, it is very seldom used in Vietnam, partly because of the inexperience of the arbitrators in complicated commercial disputes. A dispute will be resolved by arbitration if the parties have entered into an arbitration agreement before or after the occurrence of the relevant disputes. A dispute between the parties can be resolved by an arbitration tribunal established by an arbitration center or by an ad-hoc arbitration tribunal established by the parties.
 
An arbitration tribunal consists of three arbitrators or of a sole arbitrator as agreed by the parties. In Vietnam, there are only seven arbitration centers, and it is generally considered that the most reputable arbitration center is the Vietnam International Arbitration Centre.
 
In order to commence proceedings, the parties must enter into an arbitration agreement. An arbitration agreement can be an arbitration clause in a contract or a separate agreement. An arbitration agreement or clause is independent from the underlying contract. Any modification, extension, termination or invalidity of a contract does not affect the validity of the arbitration clause. The arbitration clause should include provisions on how to establish an arbitration tribunal, how to appoint arbitrators, arbitration rules for settlement of dispute, venue of the arbitration, applicable laws and the language used in the procedures. Each party shall bear its own legal costs and disbursements relating to any dispute or arbitration, unless otherwise agreed between the parties.
 
Vietnam is a party to the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards but only a very limited number of foreign arbitral awards have been recognized and enforced in Vietnam to date.
Business environment
 
Vietnam promulgated its first Law on Foreign Investment in 1987. In 1994, diplomatic relations with the United States resumed. In 1995, Vietnam was admitted into the Association of Southeast Asian Nations and was accorded favored-nation trading status by the European Union. In 2001 a Bilateral Trade Agreement with the United States took effect. Vietnam became a permanent member of the WTO on 7 January 2007.

There are almost over 14,000 active foreign investment projects licensed in Vietnam, and despite the global financial crisis, its GDP has grown in recent years. Growth in 2010 was 6.78 percent and 6.3 percent for 2011. Over the past decade, Vietnam has averaged GDP growth of 7.5 percent a year.

Vietnam is an attractive investment destination to foreign companies for many reasons. It has a substantial population (over 87 million people), with the majority below the age of 30, presenting a tremendous domestic market for goods and services. The country also enjoys a very high literacy rate of over 90 percent.

In addition, the Vietnamese Government provides investment incentives to foreign investors in certain industries and where investment is undertaken in low socioeconomic regions. The industries include certain areas of technology, biotechnology, education, infrastructure, and agriculture. Incentives are also available for investment in industrial zones, high tech zones, export processing zones, and economic zones. Incentives can include long term low tax rates, import tax, VAT, corporate income tax (CIT) and personal income tax (PIT) concessions, and concessions for land use fees and rent.
 
Currency
 
The Vietnamese Dong (VND) is the national currency of Vietnam. The Dong is not freely convertible in the international money market. The exchange rate between Dong and United States Dollars is set daily by the State Bank of Vietnam (SBV), the Vietnam central bank, and has been devalued four times since 2009.

United States Dollars are still widely used in the economy, despite the SBV’s regulations on the circumstances in which they may be used in trade and business. It is common for those dealing in foreign exchange to offer better rates for buying US dollars than the maximum authorized rate.
 
Competition
 
Monopolies exist in certain sectors, such as electricity supply and the supply of aviation fuel. In other sectors such as oil distribution, SOEs dominate the market. Monopolies and market domination are not prohibited in Vietnam. Competition is increasing although there are occasions when the need to protect SOEs or Vietnamese companies leads to obstacles arising when foreign investors try to introduce competition.

The Competition Law 2004 (Competition Law) deals with the restraint of competition, abuse of dominant market position, economic concentration and other “unhealthy” anti-competitive practices. It also sets out procedures for the resolution of anti-competition cases and measures for dealing with breaches of the Competition Law.

The Competition Law applies to organizations and individuals conducting business in Vietnam, including enterprises engaged in the production or supply of public utility products or services, State monopolies and industry associations.

Price control
 
Rates for utilities (for example, electricity, water and fuel) are set by the Vietnamese authorities. Prices of certain key commodities are regulated by the Vietnamese Government.

Re-organization of State-owned enterprises (SOEs) The Government has pursued a policy of selling interests in SOEs through a process known as equalization. This normally involves the allotment of parcels of shares to long-term strategic investors and to employees. A minority of shares may be issued on the stock exchange, although the Government maintains a majority shareholding.

Under the EL, SOEs were obliged to be equitized by 1 July 2010. While many small SOEs have now been equitized, most of them (more than 1,300) have not been.
 
Rules governing equalization include that:
    • the sale of shares to strategic investors (up to three) and other investors must not be less than 25 percent of the charter capital of the relevant enterprise
    • the sale of shares to other investors must not be less than 50 percent of the 25 percent referred to
    • with respect to enterprises on a large scale with State owned capital above 500 billion VND or conducting business in specialized sectors and industries (insurance, banking, posts and telecommunications, aviation, rare mineral exploitation), the ratio of shares auctioned to investors must be considered and specifically decided upon by the Prime Minister or competent authority authorized by the Prime Minister.

Vietnam promulgated the Intellectual Property Law 2005 on 12 December 2005. This Law is consistent with international practice. Accordingly, protection is available for the following types of intellectual property:

    • copyright and copyright related rights
    • inventions
    • industrial designs
    • layout-designs of semi-conductor integrated circuits
    • business secrets
    • trademarks
    • trade names
    • geographical indications
    • rights to plant varieties.
Copyright
 
Vietnam is a party to the Berne Convention for the Protection of Copyright in Respect of Literary and Artistic Works under Decision No.332/QD-CTN dated 7 June 2004 of the President of Vietnam. In addition, the Law on Intellectual Property 2005 also protects copyright with respect to certain scientific works, irrespective of form, language and quality. Copyright in Vietnam may be protected without any legal recognition.
 
Trade marks
 
Vietnam is a signatory to the Paris Convention for the Protection of Intellectual Property (Paris Convention) and Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks. Priority registration may be claimed in respect of marks registered in other countries within the previous six months. Protection is granted for a period of ten years from the date of filing or the priority date and can be renewed for successive ten year periods.
 
The specification of the goods will determine the ambit of protection for the mark. The classes for registration of trade marks in Vietnam are based on the International Classification of Goods and Services under the Nice Agreement.

Patents, inventions and utility solutions
 
Vietnam is a signatory to the Paris Convention and Patent Cooperation Treaty (PCT). Priority registration may be claimed in respect of inventions registered in other countries within the previous twelve months for registration under Paris Convention, twenty-one months for registration under Chapter I of PCT, and thirty-one months for registration under Chapter II of PCT from the priority date, respectively.

Protection for an invention is granted for twenty years from the filing date or the priority date. For “utility solutions” (or technical solution/ technological development), protection is granted for ten years from the filing date or the priority date.

Industrial designs
 
Where protection of inventions and utility solutions relates to technical aspects of a product, protection of industrial designs relates to the outer appearance of a product manifested by means of contours, three-dimensional forms or colors, or a combination of such elements, which is new in character throughout the world and may be used as a model for manufacturing handicrafts or industrial products.

The duration of protection is five years and renewable for two further five year periods.

Semiconductor integrated circuit layout designs Semiconductor integrated circuit layout designs are defined as a three-dimensional description of circuit elements and their interconnections in semiconductor integrated circuits. Under the laws of Vietnam, protection of a layout design is valid for the following periods, whichever ends earlier:
    • ten years from the date of grant of a certificate of protection
    • ten years from the date of filing by an authorized person or the date that person permits commercial exploitation of the design anywhere in the world
    • 15 years from the date of producing the design.
Trade secrets
Vietnam law states that a trade secret is protected if it is:
    • not common knowledge
    • applicable in business activities whereupon its holder is given advantages in comparison with others
    • protected by the owner with necessary measures to avoid disclosure and access.

Further, a geographical indication is a sign used to indicate a product originating from a specific area, locality, region or country. Vietnamese law allows a geographical indication to be eligible for protection if it meets the following conditions:

    • the product having the geographical indication originates from the area, locality, territory or country corresponding to such geographical indication
    • the product having the geographical indication has a reputation, quality or characteristics essentially attributable to the geographical conditions of the area, locality, territory or country corresponding to such geographical indication.
A certificate of registered geographical indication shall have indefinite validity starting from the grant date.

Trade name
 
A trade name is a designation of an organization or individual used in business to distinguish the business entity bearing such designation from other business entities acting in the same field and area of business. The area of business shall be the geographical area where a business entity has business partners, clients or reputation. Protection will be afforded to trade names only where the trade name is used in connection with an on-going business.
 
Rights to plant varieties
 
A plant variety is a plant grouping within a single botanical tax on of the lowest known rank, uniform of morphological, stability in the propagation circle, which can be distinguished by the phenotype expressed by a genotype or the combination of genotypes and distinguished from other plant grouping in at least one genetic phenotype. Rights to new plant varieties shall be established on the basis of the competent state authority’s decision on the grant of Plant Variety Protection Title.

Franchising Law
 
The franchising industry in Vietnam has been gradually developing over the past few years with the products and services of a number of well-known local and foreign brand names achieving higher market profile. However, this development has taken place in the absence of any regulations directly governing franchising activities. The franchising industry in Vietnam had relied on regulations on related issues, such as those relating to the licensing of intellectual property rights and technology transfer, coupled with regulations relating to general contractual obligations.
 
In June 2005, the National Assembly of Vietnam passed the new Commercial Law 2005 (Commercial Law) (and effective from 1 January 2006), which includes eight articles dealing with franchising activities (Articles 284 – 291). The Government also issued Decree No.35/2006/ND-CP (Decree) guiding the implementation of the Commercial Law with respect to franchising activities on 31 March 2006, which was followed by Circular No.09/2006/TT-BTM dated 25 May 2006 of the Ministry of Trade on registration of franchising activities.

In practice there are restrictions under the application of the WTO Schedule as described above.

Franchisors
 
Under the Decree, a franchisor must satisfy the following conditions:
    • the business system to be franchised has been operating for at least one year. In a case where a foreign franchisor grants a franchise to a primary franchisee being a Vietnamese business entity, such Vietnamese business entity must operate the franchise business for at least one year in Vietnam before sub-franchising
    • the business entity has registered the franchising activity with the competent authority
    • the goods and services of the franchise are not on the list of goods and services in which business is prohibited.
Franchisees
 
A franchisee must have a license to carry out the franchised business. Under the Decree, only goods and services which are not subject to any transactional prohibitions may be franchised. Further, for franchise of goods and services which are subject to certain conditions, franchising can only be carried out if these conditions are satisfied.

Registration of franchising agreements
 
Under the Decree, all franchising agreements must be registered. The Ministry of Industry and Trade is the authority for registration of:
    • franchising activities from overseas into Vietnam including those from export processing zones, non-tariff zones and other separate customs areas into Vietnamese territory
    • franchising activities from Vietnam to overseas, including those from Vietnamese territory into export processing zones, non-tariff zones or separate customs areas.

The Department of Industry and Trade where the proposed franchisor registers its operations will carry out registration of domestic franchising activities, except those transferred across the borders of export processing zones, non-tariff zones or separate customs areas in accordance with the laws of Vietnam.

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Vietnam is a socialist republic. Until 1986, Vietnam had a centrally planned economy; however, in 1986, the country introduced a regime of economic reform, known as “doi moi”. The Government refers to this as a socialist-oriented market economy. Business in Vietnam changed in January 2007 when Vietnam acceded to the WTO, at which time, there were major changes in legislation in order for Vietnam to qualify for accession. Most commercial legislation in Vietnam is no more than six years old, and at the time it was introduced, it was considered a legislative revolution.

The National Assembly is the national legislature. It meets at least twice a year, comprises delegates from throughout the country (with various backgrounds and ethnicity) and is the only body with the power to promulgate laws.
The President (appointed by the National Assembly) is the head of the State and the representative of Vietnam in respect of internal and external issues. The President has a wide role and broad powers (although in practice many of those powers are formal) including being the head of the armed forces, and the ability to appoint and dismiss the Prime Minister and other senior appointments.
The Prime Minister is the head of the Government, which is the executive organ of the National Assembly and the highest State administrative organ in Vietnam. Currently, the Government comprises of 18 ministries and six equivalent authorities, including the State Bank of Vietnam.
 
Ministries and the Prime Minister regularly issue decrees providing regulations for the implementation of the laws.
Vietnam comprises 58 provinces and five centrally-run cities – Hanoi, Ho Chi Minh City, Haiphong, Danang and Can Tho. Each of these are administered by its provincial or city people’s committee, which are effectively a form of provincial or city government. Each province and city is divided into districts, each of which has its own people’s committee (analogous to local government).
 
The people’s committees in the various provinces administer most laws (including most foreign investment applications), however, there is often inconsistency between the application by the 63 provinces and cities.
The People’s Court including the Supreme Court, Provincial People’s Courts and People’s Courts at district level are judicial bodies.
Visas
A Vietnamese entry visa is required for all foreigners wishing to visit Vietnam, except for citizens of countries having bilateral visa exemption agreements with Vietnam.
There are two ways of obtaining an entry visa to Vietnam as follows:
    • visas issued by a Vietnam consular office outside Vietnam – foreigners may apply and collect the entry visa at a Vietnam consular office in the country in which the foreigner resides
    • visas on arrival – foreigners may collect the entry visa upon arrival at an international airport in Vietnam. A letter issued by the Vietnam Immigration Department is required to be produced for obtaining a visa on arrival.
The practice for issuing visas and renewals changed in 2009, although there was no change in the law. At the time of writing, visas are not being issued for more than three months and renewals will only be issued for one month. It is necessary to leave Vietnam to get a new visa.
 
People with work permits or who are exempt (considered below) can obtain temporary residency cards (TRC) for up to three years. Applications for TRCs are relatively straightforward.
 
Work permits
 
Virtually all foreigners working in Vietnam for three months or more are required to obtain a work permit. Exceptions exist, including for foreigners:
    • entering Vietnam to work for a period of less than three months
    • who are members of limited liability companies with two or more members
    • who are the owners of one member limited liability companies
    • who are members of the Board of Management of joint stock companies established in Vietnam
    • entering Vietnam to offer services
    • entering Vietnam to deal with issues arising from urgent situations with a work duration of less than three months, but if for more than three months then after working for three months in Vietnam the foreigner must carry out procedures to register for issuance of a work permit
    • who are lawyers licensed by the Ministry of Justice to practice as such in Vietnam
    • who are heads of representative offices, project offices, and foreigners assigned to represent all activities in Vietnam by foreign non-government organizations
    • transferred internally within an enterprise and within the List of Commitments on Services of Vietnam as specified in the WTO Schedule, comprising the following services: business services; information services; construction services; distribution services; education services; environmental services; financial services; health services; tourism services; services of entertainment culture; and transportation services
    • going to Vietnam to supply expert and technical consulting services including research, formulation, evaluation monitoring and assessment, management and implementation of a program of project using official development aid (ODA) in accordance with provisions or agreements in international treaty on ODA signed by a competent authority of Vietnam and of the foreign country
    • licensed to operate in the information and newspaper sector in Vietnam by the Ministry of Foreign Affairs
    • in other certain circumstances which are in accordance with the Prime Minister’s regulations.

Work permits are issued with the same duration as the term of the labor contracts or contracts between the Vietnamese party and the foreign party but will not exceed three years. Work permits may be renewed. Obtaining work permits is a time consuming process and employers are recommended to commence the application preparation as early as possible.

The principal law regulating companies is the Enterprise Law 2005 (EL). The EL governs all domestic and foreign-invested companies.

Types of enterprises
 
The EL provides for three types of enterprise, being:
    • limited liability companies
    • partnerships
    • private enterprises.
Limited liability companies
 
For foreign investment purposes, the main types of investment vehicles are the following:
    • one member limited liability company. These are commonly known as “One Member LLCs”
    • two members or more limited liability company. The number of members must not exceed fifty. These are commonly known as “Two Member LLCs”
    • shareholding company. These are known as “Joint Stock Companies”, or “JSCs”. The minimum number of shareholders is three and there are no restrictions on the maximum number of shareholders. Shareholding companies may issue securities to the public to attract capital in accordance with Vietnam’s legislation on securities.
In general, the first two types of limited liability companies are more common for foreign investors, although companies that are considering listing on the stock exchange will want to be a JSC as only JSCs can be listed. JSCs also provide more flexibility for transferring equity.
 
One major difference between an LLC and a JSC is that although shares are issued in a JSC, shares are not issued in an LLC. Equity is subscribed, and although it can be assigned, it is subject to pre-emptive rights in favor of the other shareholders.
 
Partnerships
 
A partnership is an enterprise in which there must be at least two unlimited liability partners who jointly own the partnership. In addition to these, there may be limited liability partners. Unlimited liability partners are liable for the liabilities and obligations of the partnership to the extent of all their assets, while limited liability partners are only liable for the debts of the partnership to the extent of the amount of capital they have contributed to the partnership.
 
Private enterprises
 
A private enterprise is an enterprise owned by one individual who is liable for all activities of the enterprise to the extent of all their assets. An individual is entitled to establish one private enterprise only.
 
Lines of business
 
When registering a company in Vietnam, the applicant must state the scope of business. If the Vietnamese company wants to undertake business outside the stated scope, it must apply for approval. The application must state precisely the proposed scope.
 
Investment Law 2005 (IL)
 
The IL governs the investment activities in Vietnam of foreign and local individuals and legal entities. The WTO Schedule (considered below) is also important for foreign investment. Under the IL, investors can invest directly or indirectly in all types of business that are not specifically prohibited or restricted. The IL provides for the following types of direct investment:
 

Establishment of a company
Investors can establish companies in accordance with the EL. These may be wholly owned or jointly owned subject to any WTO restrictions. In some industries, investors must also comply with the conditions laid down in the relevant laws (such as Law on Credit Institutions for banking and financial services, Law on Petroleum for petroleum businesses, Law on Civil Aviation of Vietnam for aviation business, Law on Education for schools, Law on Securities for securities business, and Law on Insurance Business for insurance business).

Investment under contracts
Investors are permitted to sign contracts in the forms of business cooperation contracts (BCC), build, operate, transfer (BOT), build, transfer, operate (BTO) and build, transfer (BT) for cooperation in production, sharing profits and sharing products and other forms of cooperation.

Investment for business expansion
– Investors are permitted to invest in the expansion of existing businesses through the:

    • expansion of the scale of business or increase of production capacity
    • renovation of technology, increase of product quality or measures for reduction of environmental pollution.

Purchase of shares or contribution of capital Investors are permitted to purchase shares or contribute capital to an economic entity operating in Vietnam at the rates stipulated by the Government.

Merger and acquisition
Investors are permitted to carry out mergers or acquisitions of a company operating in Vietnam, subject to any restrictions on foreign ownership. In addition, investors are permitted to invest indirectly by way of the purchase of bonds, investment fund certificates and other securities, and by way of the establishment of investment funds.

Conditional investment
 
Sectors in which investment is conditional include:
    • radio and television broadcasting
    • production, publishing and distribution of cultural products
    • exploration and mining of minerals
    • establishment of infrastructure for telecommunication networks, transmission and the provision of internet and telecommunication services
    • establishment of a public postal network and provision of postal services and express services
    • construction and operation of river ports, sea ports, terminals and airports
    • transportation of goods and passengers by railway, roadway and sea and inland waterways
    • fisheries
    • production of tobacco
    • real estate business
    • import, export and distribution business
    • education and training
    • hospitals and clinics
    • other investment sectors related to international treaties to which Vietnam is a member and which restrict the opening of the market to foreign investors.
Prohibited projects
 
The following projects are prohibited to foreign investment:
    • projects which are prejudicial to national security, defense or the public interest
    • projects which are detrimental to historical and cultural relics or the customs and traditions of Vietnam
    • projects that may adversely affect people’s health, spoil resources or destroy the environment
    • projects which deal with the provision of harmful waste into Vietnam, projects for the production of toxic chemicals or which utilize toxic agents prohibited under an international treaty
    • other investment projects prohibited in accordance with the provision of laws.

Recognized forms of doing business in Vietnam The most common business structures used by foreign investors in Vietnam include:

    • wholly owned subsidiaries
    • joint venture companies
    • business co-operation contracts
    • foreign contractors.

Alternatively, foreign investors may also operate by establishing:

    • representative offices
    • branches.

Foreign investors may also invest indirectly in Vietnam, in the following ways:

    • purchase of shareholding, shares, bonds and other valuable papers
    • by way of securities investment funds
    • by way of other intermediary financial institutions.

However, there are restrictions on the level of foreign ownership of shares in Vietnamese companies in various sectors including the following:

    • listed shares
    • banking
    • petroleum
    • aviation
    • general insurance
    • publishing
    • education
    • media
    • telecommunications
    • mining.
WTO Schedule
 
The WTO Schedule sets out the timing for when foreign investors may invest in a wide range of services as well as the percentage ownership that may be held. Since 2007, many restrictions have been lifted.
 
Although many restrictions on foreign investment were lifted on 1 January 2009, in practice major problems remain (and can be noted in the retail, wholesale and franchising sectors). Applications for approval are dealt with extremely slowly and are subject to extremely detailed analysis. As an example of these restrictions in practice, Vietnam is one of the few countries in which there are no McDonalds or Starbucks stores.
 
Even if a foreign investor is allowed to open one retail outlet, any other outlet will be subject to an economic needs test which gives the authorities very wide scope to reject any application.
 
Establishment of an entity
 
Foreign investors are permitted to establish enterprises in accordance with the EL through the following types of entities:
    • limited liability enterprises
    • joint stock enterprises
    • partnership enterprises
    • private enterprises.
Foreign investors directly investing in Vietnam must have an approved investment project and are not permitted to simply establish a company. Approval is given for investment in a project, and the company is merely the vehicle for the project. Typically, approval is obtained from the Department of Planning and Investment of the local provincial or city People’s Committee. If the application is successful, the People’s Committee issues an investment certificate for the project. The investment certificate also serves as the Business Registration Certificate. Domestic companies with no foreign investment are issued with a Business Registration Certificate.
 
Business Co-operation Contract (BCC)
 
A Business Co-operation Contract is a contract signed by two or more parties to carry out investment without establishing a legal entity. A BCC operates on the basis of mutual allocation of responsibilities and sharing of profits, production and losses. As defined under the IL, a BCC does not create a separate legal entity under Vietnamese law but the parties to the BCC are issued with an investment licence. To the extent that a BCC is not a legal entity distinct from its constituent partners, it is similar to a partnership. It is often known as a joint operating company (JOC), and is a structure that is commonly used in the petroleum industry.
The IL does not stipulate in detail the rights and obligations of the parties to a BCC. It is important that the rights and responsibilities of the parties be comprehensively set out in the BCC.
 
Foreign contractors
 
There are certain businesses, especially in the service sector, where foreign investors may do business in Vietnam as foreign contractors without engaging in any form of investment prescribed under the IL. The following types of activities undertaken by a foreign entity are recognised and subject to tax on income that they generate in Vietnam (foreign contractor’s tax):
    • commerce, including distribution or supply of goods, material, machinery and equipment
    • services
    • construction and installation, other production and transportation
    • lending
    • licensing.
Foreign contractors in the fields of investment and construction, provision of material, equipment and technology together with technical services in respect of construction and the provision of construction services are required to be licensed by the Ministry of Construction or the Department of Construction of the provincial People’s Committee, depending on the value of the project concerned. This licensing regime is project specific.
 
Representative offices
 
If a foreign company wishes to have a presence in Vietnam before actually investing, it may set up a representative office. The company must have operated for at least one year in its country of establishment.
A foreign representative office is not permitted to carry on any production or sales activities, nor is it permitted to earn income in Vietnam. Its main functions are to coordinate trade and transactions between the head office of the foreign company and Vietnamese businesses, to study the feasibility of investment in Vietnam and to undertake business development activities. A license for the establishment of a representative office of a foreign business entity in Vietnam has a duration of five years.
 
Branches of foreign companies
 
A license for establishment of a branch of a foreign business entity in Vietnam conducting the purchase and sale of goods, and activities directly related to the purchase and sale of goods, has a duration of five years. In some specific areas, including banking, branches are permitted under the relevant law.
 
Investment in Vietnamese companies
 
With limited exceptions (e.g., the banking and insurance sectors), foreign individuals and organizations are allowed to purchase up to a maximum of 49 percent of the issued shares of a listed Vietnamese enterprise. Further, with certain exceptions, foreign investors may invest in or acquire the whole or a part of the equity interest in unlisted Vietnamese companies, subject to the business scope of the Vietnamese company concerned.
Government initiatives and incentives Investment incentives
Investment incentives largely take the form of exemptions from or reduction of corporate income tax (CIT), land rent and import duty. Particulars of the import duty and corporate income tax concessions are set out below.
 
Investment projects which satisfy one of the following conditions are entitled to corporate income tax incentives:
    • investment in an industry and/or sector which is on the list of investment incentive sectors promulgated by the Government in accordance with the IL
    • investment in an industry and/or sector which is on the list of special investment incentive sectors promulgated by the Government in accordance with the IL
    • investment in a region which is on the list of regions with difficult socioeconomic conditions as promulgated by the Government in accordance with the IL
    • investment in a region which is on the list of regions with especially difficult socioeconomic conditions as promulgated by the Government in accordance with the IL.
Land rental
 
Preferential treatment given to foreign enterprises in respect of land rental, includes:
    • (i) Investment projects in areas where investment is especially encouraged, and which are carried out in geographical areas facing exceptional socioeconomic difficulties; and (ii) projects involving the use of land for construction of condominiums for industrial park workers under projects approved by competent authorities, covering the house-selling prices or house-leasing prices which do not include land rent expenses; (iii) projects involving the use of land for construction of students’ dormitories with State budget money, for which the units assigned to manage such dormitories may only calculate charges sufficient to cover expenses for services, electricity and water supply, for management and other relevant expenses and must not calculate land rent expenses and depreciate the houses; (iv) projects involving the use of land for construction of public facilities for business purposes in the fields of education, health, physical training, sport, science and technology.
    • A three-year exemption for projects on the list of domains where investment is encouraged; and new production or business establishments of economic organizations which are relocated pursuant to State planning or due to environmental pollution.
    • A seven-year exemption for projects in geographical areas facing socioeconomic difficulties.
    • An 11-year exemption for projects in geographical areas facing exceptional socioeconomic difficulties, projects on the list of areas where investment is especially encouraged, and projects on the list of areas where investment is encouraged which are carried out in geographical areas facing socioeconomic difficulties.
    • A 15-year exemption for projects on the list of areas where investment is encouraged which are executed in geographical areas facing exceptional socioeconomic difficulties, and projects on the list of areas where investment is especially encouraged and which are carried out in geographical areas facing socioeconomic difficulties.
Further, for cases where annual land rent is payable, the annual land rental rate is 1.5 percent of the land price based on the use purpose of the rented land. For land rental to be paid in a lump sum for the whole rent duration, the payable land rental amount is equal to the payable land use levy amount for land allocation with a land use levy payment for the same use purpose and land use duration.

The land rental rate applicable to each project was to be kept unchanged for five years. At the end of this period, if the land price prescribed by the provincial-level People’s Committee increases by less than 20 per cent from the land price for calculating the land rental rate at the time of determining the land rental rate applicable to the preceding period, the land price bracket prescribed by the provincial-level People’s Committee at the time of adjustment of the land rental rate will apply for calculating the land rental rate applicable to the subsequent five year period which must not be lower than the land rent rate applicable to the preceding stabilization period.
 
If the land price prescribed by the provincial-level People’s Committee increases 20 percent or more from the land price for calculating the land rental rate at the time of determining the land rental rate applicable to the preceding period, the provincial-level Finance Department has prime responsibility for determining the land price adjustment co-efficient and propose it to the provincial-level People’s Committee for decision. This co-efficient serves as a basis for the provincial Department of Finance to adjust the land rental rate applicable to the subsequent five-year period. At the end of the five-year period, if the land rental rate has not been adjusted due to objective reasons, the land rental rate applicable to the preceding five-year period will apply for temporary payment of land rentals for the subsequent period. When a competent authority adjusts the land rental rate for each adjustment, the policy on and the land price for collection of the land rental corresponding to such adjustment will apply and the payable land rental deficit amount (if any) shall be retrospectively collected.
 
Land and housing

Land
 
One of the principal matters that an investor must decide at the outset is the location of its investment project. The investor must, therefore, understand how it may acquire the right to use land in Vietnam.
 
General outline of Vietnamese land law
 
Under the Vietnamese Constitution, all land in Vietnam belongs to the Vietnamese people and its use is administered on their behalf by the State. Private ownership is not possible, although the right to use land can be allocated by the State. Accordingly, under the Vietnamese legal system, “land is the property of the entire people” but buildings erected on the land can be privately owned.
 
The individual title over the land upon which a building has been erected is acknowledged by law as the “Right of Land Use”. A certificate known as the Certificate of Land Use Right, Ownership of Residential Housing and other Property attaches to the Land (Certificate), and defines the rights related to the use of the land.
 
Land use is governed by the Land Law 2003 and related regulations. Unfortunately, these regulations do not provide a clear system of land use and related issues.
 
Organizations being holders of land use rights may contribute the land use rights to form the capital of a joint venture (JV). This means that for a foreign investor entering into a joint venture arrangement with a Vietnamese partner, the Vietnamese partner can contribute its share of capital by way of land. This can be a major benefit due to the general inability of foreigners to obtain land use rights. If an investor requires the use of existing premises, it may rent such premises from entities and individuals that have the right to lease premises.

 
Certificate of Land Use Right, Ownership of Residential Housing and other Property attached to the Land. The fundamental document evidencing the right to use land is the Certificate. After the State has allocated or leased land to a user, the land user must apply to the People’s Committee of the District in which the land is situated for the Certificate if the land user is an individual, family household, community of citizens or an overseas Vietnamese who purchases a residential house. In other cases, the provincial People’s Committee is responsible for the issue of the Certificate. The Certificate is valid only for the time for which the State allocates the land as set out in the Certificate. Moreover, the grantee of the Certificate may only use the land for the purpose stated in the Certificate and is required to pay land use fees or land rent to the State (usually on an annual or semi-annual basis).
 
Land lease by JVs and 100 percent Foreign Owned Enterprises (FOEs)
 
Under the prevailing legislation on land, JVs and 100 per cent FOEs can lease land in Vietnam from the State under a lease contract for, amongst other things, the purpose of construction on the land according to the investment certificate granted to them and to own the buildings they construct on the land during the term of the lease.

 
JVs and 100 percent FOEs may lease land from the State for the term set out in the lease contract, which is usually also for the term set out in their investment certificate. Upon expiry of the term of the lease, if extension of the lease contract is not approved by the relevant Vietnamese authority, the land use right terminates and reverts to the State and the foreign investor must then dispose of its interest in the building (if any). As such rights are relatively new, it is not clear what attitude the authorities will take upon the expiry of a lease if a foreign owned company wants to renew the lease.
 
Foreign companies (as distinct from JVs and 100 percent FOEs) are not permitted to lease land from the State. They may, however, lease premises from landlords who are licensed to conduct leasing activities, provided that the office of the foreign company in Vietnam is duly licensed by the competent authority of Vietnam. This usually means that they have established a representative office.
 
Housing and construction works
 
On 23 June 2010, Decree No. 71/2010/ND-CP, on implementation of the Law on Residential Housing 2005, was issued. Under this decree, local individuals and organizations, overseas Vietnamese and foreign individuals and organizations who are entitled under Vietnamese law to own construction works will be issued with the ownership certificate of construction works (depending on the purpose of use of such property).
 
Under the Law on Residential Housing 2005 dated 29 November 2005, Vietnamese persons residing overseas, who return to Vietnam to make long-term investments and whose work has contributed to the country, cultural activists and scientists with a requirement to return to Vietnam for regular activity aimed at serving the cause of national development, persons permitted to live stably in Vietnam and other persons stipulated by the Standing Committee of the National Assembly, are entitled to own a residential house in Vietnam. Even if a non-resident Vietnamese does not satisfy any of the above conditions but returns to reside in Vietnam for a permitted duration of six months or more they are entitled to own one individual residential house or one apartment.
 
The newly adopted Resolution No. 19/2008/ND-QH12 permits foreign organizations and individuals to buy and own apartments on a pilot basis for a term of five years commencing on 1 January 2009.

 
 The Law on Real Estate Business 2006 was passed on 29 June 2006 and came into force as of 1 January 2007. Based on this Law, foreign organizations and individuals, and Vietnamese persons residing overseas are permitted to conduct real estate business and real estate business services within the following scopes:
    • investment in the creation of houses and buildings for sale, lease out or grant of hire purchase
    •  Subject to this Resolution 19, there are five groups of foreigners eligible to purchase apartments, including:
    • foreigners who invest directly in Vietnam under the IL or are employed by enterprises doing business activities in Vietnam under EL, including domestic enterprises and foreign invested companies
    • foreigners who have made contributions to Vietnam and have received medals awarded by the President of Vietnam, or foreigners who have made great contributions to Vietnam and as decided by the Prime Minister
    • foreigners who are working in eco-social fields and hold bachelor degrees or higher degrees and foreigners who have special knowledge or skill that meet Vietnam’s requirements
    • foreigners who are married to Vietnamese nationals
    • foreign invested enterprises doing business in Vietnam under the IL which are not operating in the real estate business, who have the need to purchase apartments for housing their employees.
Foreign organizations and individuals investing in the construction of residential properties for lease in Vietnam are issued with Certificate of Land Use Right, Ownership of Residential Housing and other Property attached to the Land with respect to such houses by the competent State body. The duration of ownership of the residential house is the duration specified in the investment certificate. The duration of ownership is recorded in the Certificate. Foreign organizations and individuals investing in the construction of residential houses for sale, after completion of the construction pursuant to a project, are entitled to sell such residential houses to purchasers permitted to own residential houses in Vietnam. Purchasers of residential houses are issued with Certificate of Land Use Right, Ownership of Residential Housing and other Property attached to the Land.
 
The Law on Real Estate Business 2006 was passed on 29 June 2006 and came into force as of 1 January 2007. Based on this Law, foreign organizations and individuals, and Vietnamese persons residing overseas are permitted to conduct real estate business and real estate business services within the following scopes:
    • investment in the creation of houses and buildings for sale, lease out or grant of hire purchase
    • investment in upgrading land and to invest in infrastructure works on the leased land in order to lease out land with completed infrastructure
    • provision of real estate business services, such as real estate: — brokerage services — valuation services — trading floor services — consultancy services — auctioning services — advertising services — management services.
Tax system
Indonesia’s taxation system is based on broad-based value-added tax on revenues combined with a self-assessment system. Taxes are imposed at regional and national levels. The Indonesian tax system classifies taxes into:
    • national taxes: including income tax, value-added tax, sales tax on luxury goods, stamp tax, property tax (on land and buildings), and fiscal departure tax
    • regional taxes: including development tax, motor vehicles tax, other minor taxes (household, entertainment, road, advertisement, radio and television taxes)
    • customs and excise taxes: including export duty, import duty, tobacco, sugar, beer and alcohol, and gasoline taxes.
The Ministry of Finance and the Director General of Taxation regulate compliance with the main taxation rules. Unfortunately, the Tax Court, which is the court of appeal on tax matters, does not make its decisions readily available. The Tax Court is a judicial institution with jurisdictional authority for taxpayers or tax guarantors seeking settlement of tax disputes. A request for re-examination of a decision of the Tax Court by the Supreme Court will only be granted where certain conditions are fulfilled.

A Large Taxpayer Tax Service Office was established in Jakarta in July 2002 and responsibility for “large” taxpayers were transferred to this office. It is common practice for the financial year of companies to follow the calendar year.

In September 2008 the Parliament passed a new income tax law which reduced the number of income tax brackets (from five to four) and lowered the maximum rate of income tax from 35 per cent to 30 per cent (for salaries of Rp500 million or greater). In addition, the then current corporate tax rates of 10 per cent, 15 per cent, and 30 per cent disappeared in 2009 in favor of a single corporate tax rate of 28 per cent. In 2010, this corporate tax rate fell to a flat 25 per cent.
 
Income taxes
 
The wide definition of income tax in Indonesia’s taxation law applies equally to both individuals and businesses operating through corporate structures. This definition of income tax includes such income sources as:
    • wages and salaries
    • interest and dividends
    • compensation for work performed
    • compensation for use of assets
    • commissions and bonuses
    • rent
    • pensions and royalties
    • lottery prizes and awards
    • bonuses and awards
    • foreign exchange gains
    • insurance and reinsurance premiums
    • capital gains on property.

Taxpayers are classified as:

    • resident taxpayers: this includes companies, partnerships and cooperatives domiciled or incorporated in Indonesia. If a foreign business has a “permanent establishment” (that is, an “establishment regularly used to carry on business in Indonesia by an organization or enterprise not set up or domiciled in Indonesia”), it is considered a resident for tax purposes. Any individual present in Indonesia for more than 183 days in any 12-month period or a person who intends to reside in Indonesia is also classified as a tax resident of Indonesia
    • non-resident taxpayers: a non-resident taxpayer is one who receives benefit from activities in Indonesia. Double tax treaties that Indonesia has signed with various countries can provide some relief.
Withholding taxes
Withholding taxes apply to:
    • payments made for a range of services performed within Indonesia
    • payment of fees to partnerships or individuals
    • payment to offshore funds (these include interest, royalties, technical service fees, dividends)
    • certain classes of income, including transfer of title to land/buildings, rent paid on land/ buildings and income from construction and construction consulting services.
Other taxes
 
Other taxes of relevance to foreign investors include:
    • land and building tax which is an annual tax on land, building and permanent structures. Taxpayers are those with the rights over the land or those who possess or control structures to obtain benefit from them
    • value-added tax applies to the supply of most goods and services in Indonesia
    • stamp duty on execution of certain documents (this is nominal and not an ad valorem tax)
    • foreigners’ tax, which is payable by companies for expatriate employees
    • fiscal tax on departure from the country (currently Rp1 million on each departure of Indonesians and foreign residents). From 2009, any person with an Indonesian tax file number (Nomor Pokok Wajib Pajak (NPWP)) is exempted from fiscal exit tax.
Workplace relations Legislation
 

The Labor Code applies to all employees, including foreign workers, working in Vietnam and generally sets out the rights and obligations of both employers and employees.

Issues relating to workplace relations are highly regulated in Vietnam, including the form of employment contract, term, probationary period, minimum salary, working hours, rest breaks, overtime, annual and other statutory leave entitlements, special benefits for female employees, social and health insurance contributions, internal labor regulations, collective labor agreements, and safety and hygiene.

Employment relations

The Code requires that all employment relationships (with a few exceptions) must be evidenced by labor contracts in the Vietnamese language entered into between employers and employees, including foreign employees, in duplicate and contain prescribed contents. Labor contracts for foreign employees must be registered.

Collective agreements

FIEs established in Vietnam and foreign and international organizations permitted to operate in Vietnam which have a trade union or temporary executive committee of the trade union are required to enter into collective labor agreements with their Vietnamese employees, in addition to the individual labor contracts between the employer and each employee.

The principal provisions of a collective labor agreement include undertakings of the parties in respect of employment and guarantees of employment, working hours and rest breaks, salaries, bonuses, allowances, labor protection, occupational safety and social insurance for employees.

The terms of a collective labor agreement must be accepted by more than 50 percent of the employees and registered with the local labor department.

Internal labor regulations

Enterprises employing ten or more workers are required to adopt internal labor regulations in writing and register the internal labor regulations with the local labor department. Internal labor regulations stipulate the work hours, rest time, order in the enterprise, labor safety, hygiene, protection of assets and technology secrets of the enterprise. Specific forms of disciplinary measures must be included in the internal labor regulations.

Recruitment

FIEs are entitled to recruit Vietnamese employees directly or through labor supply agencies. Foreign organizations and agencies which are licensed to operate in Vietnam must employ Vietnamese employees through labor supply agencies. If the labor supply agency is not able to identify a suitable candidate within 15 days, the foreign organization or individual is entitled to recruit directly. In practice, certain provinces and cities have abolished this requirement with respect to representative offices of foreign companies and such offices are permitted to employ Vietnamese employees directly.

Dismissal

It is very difficult to dismiss employees in Vietnam, even for serious breaches.

The Code provides for limited term contracts for 12 months and up to three years. It is important to ensure that wherever possible all employees are on limited term contracts so that the employer has the option of not renewing the contract upon maturity. It is very difficult to dismiss an employee who is employed on an indefinite term contract.

Definite term contracts automatically convert into indefinite term contracts if the parties do not sign a new definite term contract within 30 days following the expiry of the contract.

Sickness and disability pension and life assurance

Social insurance

Vietnamese employees on employment contracts of a duration of three months or more or for an indefinite term are subject to the compulsory social insurance scheme. Employers must contribute 17 percent of the salary and the employee must contribute seven percent. Both amounts will increase to 18 percent and eight percent respectively as from 1 January 2014.

There is also a compulsory contribution to an unemployment fund. Employees must contribute one per cent of monthly salary, and employers must contribute one per cent of monthly payroll, to the unemployment fund every month.

Employees are entitled to social insurance benefits and allowances in the event of illness, work-related accidents and occupational diseases, pregnancy, retirement, unemployment and death.

Medical insurance

Medical insurance is compulsory and is applicable to Vietnamese and foreign employees employed by and working for foreign invested enterprises, export processing zones and industrial parks and foreign and international organizations operating in Vietnam, except otherwise stipulated by international treaties executed or entered into by the Socialist Republic of Vietnam amongst others.

Premiums paid to the medical insurance fund for such Vietnamese and foreign employees are equal to 4.5 percent of their monthly wages and salaries and allowances (if any) as specified in the labor contract, of which the employer is required to contribute three per cent and the employee 1.5 percent. For foreign workers the contribution is usually insignificant as it is capped at 20 times the minimum wage.

Industrial relations

Trade unions

The establishment of a trade union in the workplace is to be carried out by the employees themselves or by the trade union at provincial level. Although employers are not required to set up trade unions, they are required to provide support for the establishment and operation of the trade unions. Trade unions are established and regulated pursuant to the Law on Trade Unions 1990 issued by the National Assembly, dated 7 July 1990. The trade union of an enterprise is set up to protect the rights and benefits of employees during the employment and represents employees in negotiation with the employer.

The Vietnam General Federation of Labor and trade unions in general are charged principally with the responsibility of discussing and resolving issues related to labor relations.

Settlement and mediation proceedings

The Labor Code 1994 provides for the resolution of labor disputes in the case of an individual labor dispute and also in the case of a collective labor dispute. A collective labor dispute can be classified as a collective labor dispute about rights and a collective labor dispute about benefits.

A party to an individual dispute may request the local labor conciliation council or, if there is none, a local labor conciliator to resolve the dispute.

For certain individual disputes, either party may bring the dispute directly to the Labor Court. If an individual dispute cannot be resolved satisfactorily by the local labor conciliation council or the conciliator (as the case may be), either party may refer the dispute to the Labor Court.

In the case of a collective dispute, either party has the right to request the labor conciliation council or a local labor conciliator as selected by both parties to resolve the dispute. If no satisfactory solution is found, either party may refer the dispute to the Chairman of the relevant People’s Committee of a district, town or provincial city regarding a collective labor dispute about rights, or the labor provincial arbitration council regarding a collective labor dispute about benefits for further settlement. If a collective labor dispute about rights is not resolved by the Chairman of the People’s Committee of district, town or provincial city, either party may refer the dispute to a Labor Court for final resolution or the Labor Collective may go on strike in accordance with the procedure set down in the relevant regulations. While if a collective dispute about benefits is not resolved by the labor provincial arbitration council, the dispute may not be further referred to the court, the Labor Collective however may go on strike in accordance with the procedure set down in the relevant regulations.

Dispute resolution
 
Under Vietnamese laws, there are two dispute resolution methods, namely courts and arbitration procedures.
 
Courts
 
Court procedures have two stages, first instance and appeal.

First instance procedures
In principle, the People’s Court which has jurisdiction to settle civil cases is the court having jurisdiction over the locality in which the defendant’s head office is located. Parties to a contract are, however, able to agree in the contract to submit any disputes for settlement to the People’s Court of the locality in which the plaintiff’s head office is located, but this must be expressly provided for in the relevant contract or in other written agreements between the parties.

Legal proceedings are commenced by a petition submitted to the competent court within the limitation period. The limitation period is generally two years from the date the benefits and interest of the plaintiff are breached, unless otherwise provided to by specific laws.
The first instance procedures typically last four months (or six months in complicated cases). However, in practice, this usually takes longer. During this time, the court investigates the case by requiring evidence from the parties. Prior to trial, the parties are required to attempt conciliation to reach an amicable resolution of the dispute. Conciliation meetings will be organized by the court which require the participation of the parties. If conciliation is successful, the mutual written agreement of the parties will be recognized under a decision of the court as final and binding on the parties. If conciliation fails, the parties will proceed to court trial.
 
The first instance trial is chaired by a judgment committee consisting of one judge and two jurors that will adjudicate on the dispute based on the principle of majority vote. A secretary of the court is in charge of preparing the minutes of the trial.

At the court hearing, in addition to the parties involved in the dispute, there may be other attendees including the prosecutor, interpreters, witnesses and experts. On conclusion of the court hearing, the court will issue its first instance judgment on the dispute. The court may also issue other decisions in respect of particular issues arising from the trial.

Appeal procedures
 
Appeals may be lodged with the court higher than the first instance court within 15 days from the date of the lower court’s judgement.
 
An appeal trial is conducted on a similar basis to a first-instance trial except that the panel consists of three judges. The appeal court will reconsider the case.
 
Special procedures following the first-instance trial and appeal
 
After the judgement of the first instance court or any appeal court becomes effective, the judgment may still be subject to appeal by the administration authority of the People’s Courts or the People’s Procuracies at the provincial level or higher under the special procedures for supervision and review as prescribed by law. However, the parties to the proceedings have no right to initiate such appeal procedures.
 
Court fees
 
The plaintiff must deposit 50 percent of the prescribed court fees when submitting its claims, except in some special cases. The losing party is responsible for payment of these fees at the time the judgment is issued.
 
Foreign court judgements are unenforceable in Vietnam in the absence of a bilateral agreement for mutual recognition. Vietnam has entered into bilateral agreements with countries including Russia, the Czech Republic, Slovakia, Cuba, Hungary, Bulgaria, Poland, Laos, China, France, Ukraine, Mongolia, Belarus and the People’s Democratic Republic of Korea. However, Vietnam has not made any agreement on the reciprocal recognition of judgments with the United States, Australia, any other Asian country or any western European country.
 
Arbitration procedures
 
The law provides for arbitration in Vietnam. However, it is very seldom used in Vietnam, partly because of the inexperience of the arbitrators in complicated commercial disputes. A dispute will be resolved by arbitration if the parties have entered into an arbitration agreement before or after the occurrence of the relevant disputes. A dispute between the parties can be resolved by an arbitration tribunal established by an arbitration center or by an ad-hoc arbitration tribunal established by the parties.
 
An arbitration tribunal consists of three arbitrators or of a sole arbitrator as agreed by the parties. In Vietnam, there are only seven arbitration centers, and it is generally considered that the most reputable arbitration center is the Vietnam International Arbitration Centre.
 
In order to commence proceedings, the parties must enter into an arbitration agreement. An arbitration agreement can be an arbitration clause in a contract or a separate agreement. An arbitration agreement or clause is independent from the underlying contract. Any modification, extension, termination or invalidity of a contract does not affect the validity of the arbitration clause. The arbitration clause should include provisions on how to establish an arbitration tribunal, how to appoint arbitrators, arbitration rules for settlement of dispute, venue of the arbitration, applicable laws and the language used in the procedures. Each party shall bear its own legal costs and disbursements relating to any dispute or arbitration, unless otherwise agreed between the parties.
 
Vietnam is a party to the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards but only a very limited number of foreign arbitral awards have been recognized and enforced in Vietnam to date.
Business environment
 
Vietnam promulgated its first Law on Foreign Investment in 1987. In 1994, diplomatic relations with the United States resumed. In 1995, Vietnam was admitted into the Association of Southeast Asian Nations and was accorded favored-nation trading status by the European Union. In 2001 a Bilateral Trade Agreement with the United States took effect. Vietnam became a permanent member of the WTO on 7 January 2007.

There are almost over 14,000 active foreign investment projects licensed in Vietnam, and despite the global financial crisis, its GDP has grown in recent years. Growth in 2010 was 6.78 percent and 6.3 percent for 2011. Over the past decade, Vietnam has averaged GDP growth of 7.5 percent a year.

Vietnam is an attractive investment destination to foreign companies for many reasons. It has a substantial population (over 87 million people), with the majority below the age of 30, presenting a tremendous domestic market for goods and services. The country also enjoys a very high literacy rate of over 90 percent.

In addition, the Vietnamese Government provides investment incentives to foreign investors in certain industries and where investment is undertaken in low socioeconomic regions. The industries include certain areas of technology, biotechnology, education, infrastructure, and agriculture. Incentives are also available for investment in industrial zones, high tech zones, export processing zones, and economic zones. Incentives can include long term low tax rates, import tax, VAT, corporate income tax (CIT) and personal income tax (PIT) concessions, and concessions for land use fees and rent.
 
Currency
 
The Vietnamese Dong (VND) is the national currency of Vietnam. The Dong is not freely convertible in the international money market. The exchange rate between Dong and United States Dollars is set daily by the State Bank of Vietnam (SBV), the Vietnam central bank, and has been devalued four times since 2009.

United States Dollars are still widely used in the economy, despite the SBV’s regulations on the circumstances in which they may be used in trade and business. It is common for those dealing in foreign exchange to offer better rates for buying US dollars than the maximum authorized rate.
 
Competition
 
Monopolies exist in certain sectors, such as electricity supply and the supply of aviation fuel. In other sectors such as oil distribution, SOEs dominate the market. Monopolies and market domination are not prohibited in Vietnam. Competition is increasing although there are occasions when the need to protect SOEs or Vietnamese companies leads to obstacles arising when foreign investors try to introduce competition.

The Competition Law 2004 (Competition Law) deals with the restraint of competition, abuse of dominant market position, economic concentration and other “unhealthy” anti-competitive practices. It also sets out procedures for the resolution of anti-competition cases and measures for dealing with breaches of the Competition Law.

The Competition Law applies to organizations and individuals conducting business in Vietnam, including enterprises engaged in the production or supply of public utility products or services, State monopolies and industry associations.

Price control
 
Rates for utilities (for example, electricity, water and fuel) are set by the Vietnamese authorities. Prices of certain key commodities are regulated by the Vietnamese Government.

Re-organization of State-owned enterprises (SOEs) The Government has pursued a policy of selling interests in SOEs through a process known as equalization. This normally involves the allotment of parcels of shares to long-term strategic investors and to employees. A minority of shares may be issued on the stock exchange, although the Government maintains a majority shareholding.

Under the EL, SOEs were obliged to be equitized by 1 July 2010. While many small SOEs have now been equitized, most of them (more than 1,300) have not been.
 
Rules governing equalization include that:
    • the sale of shares to strategic investors (up to three) and other investors must not be less than 25 percent of the charter capital of the relevant enterprise
    • the sale of shares to other investors must not be less than 50 percent of the 25 percent referred to
    • with respect to enterprises on a large scale with State owned capital above 500 billion VND or conducting business in specialized sectors and industries (insurance, banking, posts and telecommunications, aviation, rare mineral exploitation), the ratio of shares auctioned to investors must be considered and specifically decided upon by the Prime Minister or competent authority authorized by the Prime Minister.

Vietnam promulgated the Intellectual Property Law 2005 on 12 December 2005. This Law is consistent with international practice. Accordingly, protection is available for the following types of intellectual property:

    • copyright and copyright related rights
    • inventions
    • industrial designs
    • layout-designs of semi-conductor integrated circuits
    • business secrets
    • trademarks
    • trade names
    • geographical indications
    • rights to plant varieties.
Copyright
 
Vietnam is a party to the Berne Convention for the Protection of Copyright in Respect of Literary and Artistic Works under Decision No.332/QD-CTN dated 7 June 2004 of the President of Vietnam. In addition, the Law on Intellectual Property 2005 also protects copyright with respect to certain scientific works, irrespective of form, language and quality. Copyright in Vietnam may be protected without any legal recognition.
 
Trade marks
 
Vietnam is a signatory to the Paris Convention for the Protection of Intellectual Property (Paris Convention) and Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks. Priority registration may be claimed in respect of marks registered in other countries within the previous six months. Protection is granted for a period of ten years from the date of filing or the priority date and can be renewed for successive ten year periods.
 
The specification of the goods will determine the ambit of protection for the mark. The classes for registration of trade marks in Vietnam are based on the International Classification of Goods and Services under the Nice Agreement.

Patents, inventions and utility solutions
 
Vietnam is a signatory to the Paris Convention and Patent Cooperation Treaty (PCT). Priority registration may be claimed in respect of inventions registered in other countries within the previous twelve months for registration under Paris Convention, twenty-one months for registration under Chapter I of PCT, and thirty-one months for registration under Chapter II of PCT from the priority date, respectively.

Protection for an invention is granted for twenty years from the filing date or the priority date. For “utility solutions” (or technical solution/ technological development), protection is granted for ten years from the filing date or the priority date.

Industrial designs
 
Where protection of inventions and utility solutions relates to technical aspects of a product, protection of industrial designs relates to the outer appearance of a product manifested by means of contours, three-dimensional forms or colors, or a combination of such elements, which is new in character throughout the world and may be used as a model for manufacturing handicrafts or industrial products.

The duration of protection is five years and renewable for two further five year periods.

Semiconductor integrated circuit layout designs Semiconductor integrated circuit layout designs are defined as a three-dimensional description of circuit elements and their interconnections in semiconductor integrated circuits. Under the laws of Vietnam, protection of a layout design is valid for the following periods, whichever ends earlier:
    • ten years from the date of grant of a certificate of protection
    • ten years from the date of filing by an authorized person or the date that person permits commercial exploitation of the design anywhere in the world
    • 15 years from the date of producing the design.
Trade secrets
Vietnam law states that a trade secret is protected if it is:
    • not common knowledge
    • applicable in business activities whereupon its holder is given advantages in comparison with others
    • protected by the owner with necessary measures to avoid disclosure and access.

Further, a geographical indication is a sign used to indicate a product originating from a specific area, locality, region or country. Vietnamese law allows a geographical indication to be eligible for protection if it meets the following conditions:

    • the product having the geographical indication originates from the area, locality, territory or country corresponding to such geographical indication
    • the product having the geographical indication has a reputation, quality or characteristics essentially attributable to the geographical conditions of the area, locality, territory or country corresponding to such geographical indication.
A certificate of registered geographical indication shall have indefinite validity starting from the grant date.

Trade name
 
A trade name is a designation of an organization or individual used in business to distinguish the business entity bearing such designation from other business entities acting in the same field and area of business. The area of business shall be the geographical area where a business entity has business partners, clients or reputation. Protection will be afforded to trade names only where the trade name is used in connection with an on-going business.
 
Rights to plant varieties
 
A plant variety is a plant grouping within a single botanical tax on of the lowest known rank, uniform of morphological, stability in the propagation circle, which can be distinguished by the phenotype expressed by a genotype or the combination of genotypes and distinguished from other plant grouping in at least one genetic phenotype. Rights to new plant varieties shall be established on the basis of the competent state authority’s decision on the grant of Plant Variety Protection Title.

Franchising Law
 
The franchising industry in Vietnam has been gradually developing over the past few years with the products and services of a number of well-known local and foreign brand names achieving higher market profile. However, this development has taken place in the absence of any regulations directly governing franchising activities. The franchising industry in Vietnam had relied on regulations on related issues, such as those relating to the licensing of intellectual property rights and technology transfer, coupled with regulations relating to general contractual obligations.
 
In June 2005, the National Assembly of Vietnam passed the new Commercial Law 2005 (Commercial Law) (and effective from 1 January 2006), which includes eight articles dealing with franchising activities (Articles 284 – 291). The Government also issued Decree No.35/2006/ND-CP (Decree) guiding the implementation of the Commercial Law with respect to franchising activities on 31 March 2006, which was followed by Circular No.09/2006/TT-BTM dated 25 May 2006 of the Ministry of Trade on registration of franchising activities.

In practice there are restrictions under the application of the WTO Schedule as described above.

Franchisors
 
Under the Decree, a franchisor must satisfy the following conditions:
    • the business system to be franchised has been operating for at least one year. In a case where a foreign franchisor grants a franchise to a primary franchisee being a Vietnamese business entity, such Vietnamese business entity must operate the franchise business for at least one year in Vietnam before sub-franchising
    • the business entity has registered the franchising activity with the competent authority
    • the goods and services of the franchise are not on the list of goods and services in which business is prohibited.
Franchisees
 
A franchisee must have a license to carry out the franchised business. Under the Decree, only goods and services which are not subject to any transactional prohibitions may be franchised. Further, for franchise of goods and services which are subject to certain conditions, franchising can only be carried out if these conditions are satisfied.

Registration of franchising agreements
 
Under the Decree, all franchising agreements must be registered. The Ministry of Industry and Trade is the authority for registration of:
    • franchising activities from overseas into Vietnam including those from export processing zones, non-tariff zones and other separate customs areas into Vietnamese territory
    • franchising activities from Vietnam to overseas, including those from Vietnamese territory into export processing zones, non-tariff zones or separate customs areas.

The Department of Industry and Trade where the proposed franchisor registers its operations will carry out registration of domestic franchising activities, except those transferred across the borders of export processing zones, non-tariff zones or separate customs areas in accordance with the laws of Vietnam.

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