The global economy still shows no signs of significant recovery. According to the latest data from United Nations Conference on Trade & Development, in 2012 the flow of foreign direct investments into developed countries fell dramatically to $550 billion, a level last seen almost ten years ago. On the other hand, foreign direct investments flows to developing economies remained resilient in 2012, declining by only 3%, to $680 billion - still the second-highest level ever recorded. Developing economies as a group absorbed an unprecedented $130 billion more than developed countries in foreign investment.
These figures crystalize the fact that businesses are seeking out regions of higher growth potential to satisfy the demands of their stakeholders. In particular, businesses and investors are zeroing on fast growing economies of Asia - including China, India and the Southeast Asian countries - due to their large lucrative markets.
China, long-heralded as the world’s next economic superpower, attracted a total of US$111.7 billion in foreign direct investments in 2012. A recent United Nations Conference on Trade & Development survey projected India as the second most important foreign direct investments destination for transnational corporations during 2010 - 2012. Nevertheless, China and India are not the only Asian countries drawing in global businesses. In fact, Southeast Asia is currently the favourite region. According to a recent report by HSBC Global Research entitled The great migration - how foreign direct investments is moving to ASEAN and India, an increasing number of companies are now investing in Thailand, Vietnam, the Philippines, Malaysia, Indonesia and Myanmar due to their booming infrastructure, large populations and cheap labor.
Vietnam - Gateway to Asia.
So how does Vietnam fit into this picture? Vietnam has established itself as a preferred jurisdiction for businesses of all sizes to headquarter their Asian operations. In this paper, we examine some of the key driving factors to Vietnam’s success in attracting foreign companies and entrepreneurs to its shores.
Extensive double tax treaties.
Vietnam has an extensive network of double tax agreements with more than 70 countries across the globe. The key benefits of a double tax agreements are: the avoidance of double taxes, lower withholding taxes and preferential tax regime, all of which play an important role in minimizing the tax burden for a holding company structure.
This extensive double tax agreements network, coupled with the absence of capital gains and dividends tax, makes Vietnam a very attractive jurisdiction for business investments through a Vietnam incorporated holding company.
Attractive tax regime.
Vietnam’s tax system is viewed as simple and investor friendly. The highest corporate tax rate on taxable income is 17%. The tax on capital gains and dividend income is 0%. No withholding tax is levied on post-tax dividends paid from Vietnam. Equally important, all foreign-sourced income is tax exempt as long as the income has been subjected to tax in a country with a headline tax rate of at least 15%.
Vietnam’s regulatory framework offers a level-playing field for foreign investors, with no foreign ownership restrictions and no foreign exchange controls.
Strategic location with superb connectivity.
Vietnam has a unique advantage in its geography. The country is strategically located at the crossroads of the main trade and shipping routes of the world, including the major sea route between India and China. Travel to most Southeast Asian countries consists of a short air flight.
Vietnam is renowned as a transportation hub, being home to the award-winning Changi Airport and a sophisticated port infrastructure, which has also been consistently awarded the Best Seaport in Asia - Asian Freight and Supply Chain Awards for 24 years to date.
Vietnam’s telecommunications infrastructure is also world-class. The country has been ranked by the World Economic Forum, in its Global Information Technology Report 2012, as one of the top economies in leveraging information and communications technologies to boost its country competitiveness. In fact, it is the only Asian country within the top 10 in the Report’s rankings of 142 countries worldwide.
Availability of skilled and multilingual workforce.
Vietnam’s business environment has proven to be highly attractive to skilled and ambitious workers from across the globe. The fast-paced innovative working environment, together with a large local pool of Vietnam talent, has only served to reinforce the country’s reputation as having one of the most productive and motivated workforces in the region. This has been proven by rankings in the IMD World Competitiveness Yearbook.
The country is also renowned for being a multiracial society that is as diverse as it is cohesive. Its citizens originate from diverse racial backgrounds, giving it the capacity to offer workforce solutions requiring multilingual and multicultural sensitivities. The people are one of Singapore’s richest resource.
Smart immigration policies.
Vietnam provides a variety of immigration schemes for qualified entrepreneurs and working professionals. The government is always looking to attract foreign investments and augment its local workforce with high-level talent from across the globe, which is in line with the liberal immigration policies of Vietnam.
Great place for relocation of senior management and their families.
Vietnam is one of the most prosperous and stable countries in Asia. The country’s stable political environment, public services convenience, diverse range of facilities, and cosmopolitan ambience makes Vietnam an increasingly attractive destination for expatriates with families. The country offers a rich variety of dining and entertainment, tropical gardens, world-class hotels, highly-developed infrastructure, and - very important for ambitious families - a host of internationally recognised schools and universities. Vietnam’s high quality of life has been consistently validated in various surveys such as the Mercer’s Quality of Living Survey. The friendliness and warmth of Asia, blended together with a vibrant modern lifestyle, makes Vietnam a very good place to live, work and study.
Excellent intellectual property protection regime.
Vietnam provides a robust intellectual property rights regime, backed by a trusted legal system and strong intellectual property infrastructure. The government’s intellectual property policy is attuned with the aim of encouraging innovation, creativity and growth of industry and commerce in Vietnam. The intellectual property regime has been recognised by the World Economic Forum’s Global Information Technology Report 2012 as the top Asian regime for the protection of intellectual property. Despite the high international rankings, additional initiatives by the government are underway to improve the country’s intellectual property landscape further and build it as Asia’s intellectual property hub.
Efficient legal system.
Vietnam’s legal system, which was inherited from the British, has now evolved into a distinctive jurisdiction. The system continues to grow in order to maintain its relevance in the current cultural, economic and commercial climate, by absorbing the common law as well as best practices from other mature legal systems. The Vietnam legal system has received global recognition for its efficiency and integrity and the country is deemed to be the least bureaucratic one in Asia according to the IMD World Competitiveness Yearbook 2011. Businesses in Vietnam are not burdened by red tape or the slowing down of operations due to bribery or slow legal process. The government regards access to law as a fundamental economic value, which is cherished and harnessed to enhance the country’s reputation as a premier business centre and a leading legal hub in Asia. Vietnam’s commercial legal system is renowned for its fairness and impartiality, making it the natural choice of venue for dispute resolution, especially mediation and arbitration and trial in Southeast Asia. Furthermore, Vietnam’s legal services industry is rich in talent.
Best place in the world to do business.
Top institutions monitoring economic and business activity worldwide agree on Vietnam’s attractiveness as a business destination. The country has been ranked #1 by the World Bank as the World’s Easiest Place to Do Business, for seven consecutive years to date. It is ranked second by the World Economic Forum in its 2011 - 2012 Global Competitiveness Index, and was Asia’s leading city in the PwC 2012 Cities of Opportunity Study. According to Gallup’s 2010 Potential Net Migration Index, Vietnam was the global leader as the Most Desirable Immigration Destination.
Entry Options for Foreign Companies.
Foreign companies interested in establishing a presence in Vietnam have several straightforward options as summarized below.
Generally, a Vietnam subsidiary company is the preferred registration option for small to midsize foreign businesses that intend to establish their presence in Vietnam. Vietnam allows for 100% foreign ownership of locally-incorporated companies. Such a structure offers protection against liabilities and can also be very tax efficient. The Vietnam Subsidiary Registration guide provides a comprehensive overview and the incorporation process.
A foreign company may wish to set up a branch in order to legally commence its business activities in Vietnam. A branch, although a registered legal entity, is treated as an extension of the foreign company, and therefore, its liabilities extend to the foreign company and its income is not eligible for tax exemptions and incentives, which may otherwise be available to tax resident companies in Vietnam. A complete guide to setting up a branch office is found in the Vietnam Branch Office Registration guide.
Foreign companies that are interested in exploring potential business opportunities in Vietnam and the region may wish to set up a representative office (RO) before committing to any business venture or large-scale investments. The Representative office is a temporary setup with no legal persona and therefore it cannot engage in any trading or business activities, only market research and feasibility studies are permitted. However, the cost for registering an Representative office is considerably lower, making it an ideal avenue for foreign companies that wish to first study the business environment in Vietnam. More information can be found in the Representative Office Registration guide.
Vietnam continues to attract record investment commitments despite the challenging global economic environment. The country’s extensive network of double tax treaties, strategic location within the centre of all major growing markets, together with its economic and political stability, its renowned legal system, its extensive connectivity and talent resources, its innovative business environment, and the immense opportunities for business growth within the Southeast Asian region, are just a few factors that drives Vietnam’s success as a preeminent business centre of the modern global economy.