Introduction
Vietnam is known in Japan for its nationally beloved noodle dish, Pho, the beautiful traditional attire Ao Dai, and the towns with French colonial architecture.
In 2020, Vietnam, with its bustling cities like Ho Chi Minh and Hanoi, ranked 3rd and 7th respectively in the "World's Most Dynamic Cities" (City Momentum Index, JLL survey). It is a country brimming with energy. Just observing the urban landscapes filled with youths commuting on motorbikes and relaxing in cafes, one can feel the significant economic growth of this nation.
As part of its national policy, Vietnam has also focused on nurturing the IT industry. In recent years, it has gained attention as an offshore development hub for Japanese IT companies. It has also increased its prominence as a relocation destination for major Japanese automotive manufacturers, previously operating primarily in China. The country is led by a population of young people with an average age of around 30, who are driving economic growth and domestic demand. Vietnam is indeed a highly attractive market.
In this document, we have provided an overview of Vietnam's market situation, covering the latest trends and information on foreign investment regulations, to explain the overall investment environment.
Basic Information
Capital: Hanoi
Currency: Dong (1 Dong: Approximately 0.005 yen)
Population: 98.72 million (2020)
Average Age: 31 years old (2020)
End of Population Bonus Year: 2041
Political System: Socialist Republic
Main Religion: Buddhism (80%)
Vietnam is currently one of the few socialist countries in the world. While countries like China, Cuba, and North Korea are well-known in Japan for their socialist systems, Vietnam and Laos in Southeast Asia also follow socialist ideologies. While aspects such as one-party rule and the presence of laws against overthrowing the government are not typically discussed in a positive context, Vietnam's proactive measures during the recent COVID-19 pandemic helped prevent the rapid spread of infection, leading to increased evaluations of Vietnam as an investment destination.
Moreover, with an average age about 8 years younger than Thailand, which has already achieved economic growth, and a population of over 98 million, Vietnam is the second-largest country in ASEAN in terms of population size, following Indonesia. The Vietnamese government expects the population to surpass 100 million by 2025.
Macro Information
Total GDP (2018, nominal): Approximately 27 trillion yen
GDP Growth Rate (2018, real): 7.1%
Trade Balance (2019): Approximately 11 trillion yen
Current Account Balance (2018): Approximately 650 billion yen
Market Capitalization of Stock Market (March 2020): Approximately 14.1 trillion yen
2-Year Government Bond Yield (March 2020): 2.67%
10-Year Government Bond Yield (March 2020): 3.54%
Minimum Wage: Approximately 20,000 yen per month
Average Wage of Non-Manufacturing Managers: Approximately 140,000 yen per month
Real Wage Growth Rate (2018): 4.1%
Percentage of College Graduates (2018): 22.6%
Smartphone Penetration Rate (2018): 72%
Number of Japanese Companies Expanding into Vietnam (2018): 1,816
Vietnam ranked third in the 2019 survey of the "Overseas Direct Investment Survey Results" conducted by the International Cooperation Bank, following India and China, displacing Thailand from its previous third-place position. With a GDP growth rate of 7% year-on-year, Vietnam's attractiveness as a manufacturing base replacing China contributed significantly to this outcome.
On the other hand, with a high wage growth rate of 4%, caution is necessary against relying solely on low-cost considerations for investment decisions.
In 2018, Vietnam's per capita nominal GDP was $2,590, categorizing it as a low-income country (less than $5,000). While recent economic growth has garnered attention, comparing it with Indonesia, the Philippines, and Laos, Vietnam's level is lower (Malaysia and Thailand are considered middle-income countries).
Investment Environment
1. Foreign Investment Regulations
The Investment Law serves as the primary regulation governing investment activities in Vietnam. A significant amendment was made to the previous Investment Law, and the current law came into effect in 2015.
Since Vietnam's accession to the WTO in 2007, many sectors such as securities, warehousing, and retail/wholesale have gradually opened up to allow 100% foreign ownership. However, certain industries still have restrictions on foreign investment.
The "Negative List" issued by the government specifies detailed investment conditions (foreign ownership percentage, whether special permission is required, investment areas, etc.) for each industry. Foreign ownership ratio limits vary depending on the sector, and minimum capital requirements are also set for each sector. Therefore, it is necessary to check the list individually.
In addition, there are industries such as real estate and advertising with no foreign ownership limit specified in the Negative List. In such cases, the required percentage is subject to the discretion of the relevant administrative authorities.
Regarding land ownership, according to the Land Law, "Land belongs to all the people," and the state, representing the owners, centrally manages the land. Regardless of whether they are Vietnamese individuals/companies or foreigners/foreign companies, they must receive allocation of "land use rights" from the state (directly or indirectly) and lease the land. Thus, even foreign-owned enterprises can receive allocation of land use rights from the state and become land users.
Regarding buildings, private ownership is permitted, and even foreigners/foreign companies can own and register them.
2. Corporate Law
The equivalent of Japan's Company Law in Vietnam is the "Unified Enterprise Law."
Shareholders' Meeting
Ordinary resolutions are passed with the agreement of "65% or more" of the total voting rights of attending shareholders.
Special resolutions concerning certain important matters require the agreement of "75% or more" of the total voting rights of attending shareholders. It is important to note that the approval requirements in Vietnam differ from those in Japan's company law, where ordinary resolutions typically require a simple majority, while special resolutions require at least two-thirds (some "special" resolutions require three-quarters) of the votes.
A minimum of three shareholders is required.
Board of Directors
Decisions are typically made by a simple majority. The board of directors consists of 3 to 11 members, with the number of directors required to reside in Vietnam specified in the company's articles of association. The term of office is within five years, with the possibility of re-election.
There are no nationality restrictions for the legal representative (signatory). However, there is a requirement for directors to be based in Vietnam, and if they stay outside Vietnam for more than 30 days, they must delegate their authority in writing to another person, which requires attention.
3. Accounting Standards
Vietnam's accounting system is based on Vietnamese Accounting Standards (VAS) prescribed by the Ministry of Finance, supplemented by some directives. While convergence with IFRS is progressing, there are differences, especially in financial instrument accounting, impairment standards for fixed assets, and employee benefits.
Practical accounting points include the use of account titles and codes designated by the Ministry of Finance for bookkeeping. Additionally, although choosing a fiscal year other than the calendar year is allowed, the fiscal year-end must be March, June, or September.
4. Taxation
Corporate Income Tax (nominal tax rate): 20%
Tax on Dividend Payments to Japan (maximum tax rate): 0%
Tax on Interest Payments to Japan (maximum tax rate): 5%
Tax on Royalty Payments to Japan (maximum tax rate): 10%
Value Added Tax (standard tax rate): 10%
Compared to other countries, Vietnam is said to have a narrow range of deductible losses and relatively strict tax audits.
Thank you for reading to the end. Have you gained a deeper understanding of Vietnam's investment environment? For individual consultations, please contact us separately.
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