Vietnam Trade & Investment Risk Report - Q3 2022

Q3 2022
www.fitchsolutions.com
Vietnam
Trade & In
Invves
estment
tment Risk R
Report
eport
Includes the Fitch Solutions Trade & Investment
Risk Index
Vietnam Trade & Investment Risk Report | Q3 2022
Contents
Key View............................................................................................................................................................................................ 4
Trade & Investment Risk Key View ........................................................................................................................................................................................ 4
Trade & Investment Risk SWOT............................................................................................................................................................................................... 6
Economic Openness Analysis ................................................................................................................................................................................................ 7
Government Intervention Analysis ....................................................................................................................................................................................24
Legal Environment Analysis ..................................................................................................................................................................................................33
Trade & Investment Risk Methodology ................................................................................................................................38
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Key View
Trade & Investment Risk Key View
Key View: Vietnam is emerging among the most promising destinations for manufacturers in South East Asia. This is on account of
the country gradually moving towards a market-oriented economic model, thereby steadily integrating with the global economy. In
particular, firms benefit from a high level of economic openness, which has enabled robust expansion in both trade and foreign
investment. Productivity and competitiveness, however, are hindered by a range of factors, including high levels of government
intervention in the economy through regulation and the dominance of state-owned enterprises in key sectors (such as banking and
mining). While exports have proved resilient amid the pandemic, we do, however, highlight several downside risks to the economy in
the near term. These include, high shipping costs amid a global shipping capacity crunch, which could weigh on manufacturing
activity; a shortage of construction raw materials slowing project progress; and a resurgence in Covid-19 infections and
concomitant movement restrictions hampering a recovery in services and also disrupting factory operations. Taking these factors
into account, Vietnam receives a score of 61.1 out of 100 for Trade and Investment Risk, placing ninth out of 18 East and South East
Asian markets and 57th globally, behind peers such as Singapore, Malaysia and Thailand.
Resilient Trade Growth And Increasing Regional Integration Boost Appeal

Vietnam & Regional Average - Trade & Investment Risk
Note: 100 = Lowest risk; 0 = highest risk. Fitch Solutions Trade & Investment Risk Index
Legal (49.0/100): Although Vietnam is emerging as one of the most attractive investment destinations in the region, bureaucratic
and legal bottlenecks present a hurdle to foreign players. With an underdeveloped legal system, Vietnam’s courts are often
ineffective in settling commercial disputes. Negotiation between concerned parties or arbitration are the most common means of
dispute resolution. Judicial independence can be compromised by political interference and inadequate mechanisms to
enforce intellectual property rights protection, compounded by the prevalence of corruption are factors that weigh down the
market’s potential. Additionally, administrative procedures regarding starting a business, obtaining construction permits and
registering property are lengthy.
Government Intervention (59.8/100): Vietnam's competitiveness is held back by an inefficient tax administration, relatively low
levels of financial inclusion despite having generally low levels of direct tax. This is compounded by high levels of government
involvement in important economic sectors, which raises barriers to entry for foreign investors, particularly in banking and financial
services. Operating costs will be partly moderated by the steadily improving access to international financial markets, as Vietnam
becomes integrated with global supply chains and the moderate direct tax rates by regional comparison.
Economic Openness (74.6/100): As the economy reopens further, Vietnam is set to be a significant regional growth
outperformer, following 2021’s relatively weak expansion. Higher growth in consumer and capital spending, combined with a robust
external sector, should boost activity in 2022. However, the possible reinstatement of pandemic-related domestic restrictions and a
potentially prolonged downturn in the tourism sector are key near-term downside risks. On a longer-term horizon, the country is
emerging as a key manufacturing hub in the East and South East Asia region, supported by government-led economic liberalisation
efforts and integration into global supply chains, through trade agreements and membership to regional and international blocs.
Although manufacturing has been the growth outperformer over the past few years, the economy is relatively broad-based, with
domestic demand, exports, foreign investment and services also contributing to growth.
VIETNAM - TRADE AND INVESTMENT RISK

Economic Openness Government Legal Trade &
Intervention Investment
Risk
Vietnam Score 74.6 59.8 49.0 61.1
East and South East Asia Average 58.9 65.6 53.4 59.3
East and South East Asia Position (out of 18) 5 12 11 9
Asia Average 46.0 57.2 46.6 50.0
Asia Position (out of 35) 5 16 14 9
Global Average 49.5 50.5 48.8 49.6
Global Position (out of 201) 20 47 94 57
Note: 100 = Lowest risk; 0 = highest risk. Source: Fitch Solutions Trade & Investment Risk Index
Trade & Investment Risk SWOT

SWOT Analysis
Strengths • Growing levels of foreign investment encourage further trade and value-addition opportunities.
• Strong contract enforcement capabilities increase security when engaging with local entities.
• Diversified economy provides investment opportunities for businesses across a wide range of sectors.
Weaknesses • Onerous tax administration increases the costs and time to pay taxes.
• It is a lengthy process to start a business and register property.
• An underdeveloped banking sector reduces the options for keeping money in the state.
Opportunities • Efforts to reduce trade barriers are making it easier to enter the market.
• Increased foreign participation in the banking sector will increase the availability of funds for loans.
• Global efforts to diversify supply chains could benefit Vietnam as industries look for opportunities in the
country.
Threats • Stress banking system and rising financing costs may lead to wider economic risks.
• Corruption and inefficiency in the legal system raises cost and investment risks.
• Russia is a close trading partner which leaves the country exposed to the ongoing slowdown and political
risk associated with the Russia-Ukraine crisis, which has manifested in the form of sanctions on and from
Russia.
Economic Openness Analysis

Key View: As the economy reopens further, Vietnam is set to be a significant regional growth outperformer, following 2021’s
relatively weak expansion. Higher growth in consumer and capital spending, combined with a robust external sector, should boost
activity in 2022. However, the possible reinstatement of pandemic-related domestic restrictions and a potentially prolonged
downturn in the tourism sector are key near-term downside risks. On a longer-term horizon, the country is emerging as a key
manufacturing hub in the East and South East Asia region, supported by government-led economic liberalisation efforts and
integration into global supply chains, through trade agreements and membership to regional and international blocs. Although
manufacturing has been the growth outperformer over the past few years, the economy is relatively broad-based, with domestic
demand, exports, foreign investment and services also contributing to growth. Overall, Vietnam has a high score of 74.6 out of 100
for Economic Openness and ranks in fifth position out of 18 markets in the East and South East Asia region. Globally, Vietnam ranks
in a competitive 20th position out of 201 markets.
Vietnam To Benefit From Supply Chain Diversification

East & South East Asia - Economic Openness
Note: Includes territories and special administrative regions. 100 = Lowest risk; 0 = highest risk. Source: Fitch Solutions Trade & Investment Risk Index
Latest Economic Openness Analysis
• Following a contraction in economic activity in Q321, the economy rebounded sharply in Q421, with growth underpinned by
strong output from the manufacturing sector. Industrial production growth remained robust in January 2022 amid improving
manufacturing output. In addition, the manufacturing Purchasing Managers' Index picked up in the same month, as improving
demand (particularly external demand) drove the print to a nine-month high. Though Covid-19 infection rates have spiked in the
region, a strong acceleration in the domestic vaccination campaign in recent months should limit the impact in both social and
economic terms, with authorities ending travel restrictions on February 15 2022 in a move likely to benefit the services sectors
and tourism industry in 2022.
• We expect Vietnam’s inflation rate to pick up from an average of 1.8% y-o-y in 2021 to 3.4% in 2022 due to higher imports costs
following Russia's invasion of Ukraine and rebounding demand-side pressures. We anticipate that the State Bank of Vietnam will
allow for some appreciation of the Vietnamese dong to offset imported inflationary pressures over the course of 2022, while
easing food price inflation and lingering Covid-19 drags on domestic activity will also keep inflation broadly below the
government’s 4.0% upper limit.
Trade Openness
Trade Openness
Vietnam continues to liberalise its economy as it opens up to foreign direct investment and trade, which is boosting its
attractiveness regionally. High trade volumes reflect Vietnam’s deepening integration with global supply chains. Vietnam is
emerging as one of the most attractive manufacturing destinations in the region for many businesses looking elsewhere out of
China or adopting a ‘China plus One’ supply chain policy to reduce their exposure to China, amid Beijing’s growing tensions with the
West. Vietnam’s membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will also
support trade and economic diversification efforts (further up the value chain). As a result, Vietnam is a regional outperformer with a
high score for Trade Openness of 89.2 out of 100, ranking second out of 18 markets in the region and fifth globally.
Structure Of The Economy
Ov
Over
erview:
view: Vietnam has enjoyed robust growth over the past three decades, making it one of the fastest-growing economies in the
world. While manufacturing continues to be the outperformer and the main engine of growth, the economy is relatively well-
diversified, with domestic demand, agriculture, exports, foreign investment and services, mainly travel and transportation, all
contributing significantly. Meanwhile, its manufacturing and services sectors are both becoming increasingly diversified, advanced
and integrated with regional and global value chains, offering numerous opportunities that investors can exploit.
Agriculture: While agriculture remains a key sector in Vietnam, employing just under 40% of the total labour force, the country is
transitioning to a more service and industry-based economy. Overall, agriculture had the smallest gross value added (GVA) of 14.9%
of GDP in 2020. The significance of agriculture will fall over the medium-long term, reducing Vietnam’s vulnerability to adverse
natural phenomena such as drought that negatively impact farming. The Mekong River is one of the cornerstones behind Vietnam's
fertile lands and a key engine for the agricultural sector but risks are hovering over the regional water resource sharing. In particular,
the ongoing and planned construction of multiple dams in the region (mainly by Laos) could drastically change the availability of
water downstream along the river. Climate change is also posing a more insidious and long-term risk to the future prospects of
agriculture in the Mekong region, as it will lead to a significant increase in average temperatures and to the reduction in the size of
the Mekong Delta via coastal erosion, rising sea levels and the growing salinity of arable land. Finally, growth of the ‘agriculture,
forestry and fishing’ sector will remain fairly low and stable so long as cultivation does not experience any major supply shocks from
bad weather.
Manufacturing And Service Sectors Drive Growth

Vietnam - GDP By Sector, % share of GDP (2020)
Source: World Bank, Fitch Solutions
Manufacturing: Manufacturing (16.7% of GDP) will remain the key growth driver over the rest of 2022. Notably, growth in this
component will continue to benefit from improved market access from the EU-Vietnam and EU-UK free trade agreements, as well
as the ongoing global inventory restocking cycle. Looser Covid-19 containment measures globally, encouraged by rapid vaccination
progress, could improve confidence and will likely to feed into stronger order books for Vietnamese exporters.
Over the medium term, we maintain a constructive outlook on the Vietnamese economy, expecting the manufacturing sector to
benefit from multinationals relocating away from established hubs – such as China – in search of lower production costs. This will be
supported by Vietnam’s increasing openness to trade and investment, political stability, and healthy reform momentum. In recent
years, Vietnam has attracted multinational companies ranging from tech giants such as Samsung Electronics and Intel to
automobile companies such as Toyota and Ford, and many textiles, apparel and shoemakers including Nike setting up plants in
the country. This has raised Vietnam's trade profile to become one of the largest Southeast Asian exporters to the US and EU. The
country's trade resilience and economic success are underpinned by strengthening efforts in diversifying its export products and
export markets. Consequently, industry had the second largest GVA contribution after services. Vietnam has a large population of
close to 100mn people with a growing middle class. This together with sustained remittance inflows will ensure a steady market for
various consumer goods and services.
Services: We expect broad services (41.6% of GDP) to post positive growth as the economy reopens in 2022 and tourism recovers.
Indeed in 2021, tourist arrivals remain far below pre-pandemic levels, with international visitors down 97.6% y-o-y over the first half
of 2021.
Post-Covid And Near Term Business Outlook: The economy is estimated to grow at the fastest rate in the region this year,
following 2021’s relatively weak expansion. Higher growth in consumer and capital spending, combined with a robust external
sector, should boost activity in 2022. However, the threat of further outbreaks of new Covid-19 variants clouds the outlook
considerably.
Vietnam entered the pandemic with solid economic fundamentals and policy buffers, although some structural challenges remain
to be addressed. Since the advent of market-oriented “Doi Moi” reforms in 1986, Vietnam went from being from one of the poorest
markets in the world to one with lower middle-income status. Structural transformation from agriculture to a modern economy
based on foreign direct investment-led manufacturing and the emphasis on “leaving no one behind” boosted living
standards. Strong foreign investment and current account surpluses strengthened external resilience. The health of the banking
system improved, with higher profitability, liquidity, and fewer non-performing loans than in the past, although weaknesses
remained.
Trends In Trade
In 2019, Vietnam had the seventh largest trade values (USD570.9bn) in the East and South East Asia region, ranking marginally
behind Thailand but ahead of Malaysia, the Philippines and Indonesia. In 2020 trade volumes increased, bucking global trends, with
exports of goods and services reaching an estimated USD308.9bn and imports at USD300.1bn. We hold a positive outlook on
Vietnam's trade competitiveness and growth over the medium term (beyond Covid-19) as the country is relatively well diversified
both in terms of trade partners and basket of product exports. In addition, China's tense relations with the US over trade tariffs
bodes well for Vietnam, which is well positioned to fill up the gap that may be left by some Chinese exporters now facing increasing
headwinds in the external environment, particularly those that used to export to the US. On the other hand, while Vietnam currently
lacks strong integration between its primary and secondary sectors. As such domestic conversion and end-product manufacturing
operations are reliant on imports, which have grown fast in recent years in tandem with export growth. With industrial growth likely
to remain strong, driven by fixed investment, Vietnam's current industrial capacity will be insufficient to cover demand and
the economy will remain a major destination for regional fuel exports and intermediate goods (such as electrical parts) needed for
manufacturing over the medium term.
Healthy Trade Growth In Both Directions

Vietnam - Total Imports & Exports, USDbn (2016-2021)
e/f = Fitch Solutions estimate/forecast. Source: Asian Development Bank, Fitch Solutions
Despite a sluggish growth in global trade trends over the past few years, and the significant global trade slump in 2020, Vietnam's
manufacturing sector continues to attract significant investment from international companies, which will continue to drive export
growth over the medium-to-long term. The manufacturing sector is a key driver of export volumes. According to the International
Trade Centre's latest Trademap data, Vietnam exported USD152.9bn worth of machinery and complex manufactured products,
which accounted for 51.6% of total exports in 2019 and this fell slightly in 2020 to USD137.7bn in 2020. Manufactured consumer
goods represent another important export growth sector, accounting for 32.9% of total exports in 2019 and 31% in 2020 at
USD87.5bn for the latter. While the value of food and agricultural product exports was also relatively large at USD25.6bn, it only
accounted for 8.6% of total exports in 2019- this rose to USD29bn in 2020, as the country is increasingly transitioning from an
agricultural society into a manufacturing-based economy. Up until the early 1990s, Vietnam was a large exporter of wood,
particularly sandalwood. However, the government has imposed a ban on the export of logs and raw timber in 1992, in response to
concerns over dwindling forests. This was extended to include all timber products except wooden artefact. Agricultural exports are
now dominated by coffee, rice and fish. Vietnam is one of the top rice-exporting markets in the world, though the limited
sophistication of small-scale Vietnamese farmers signals below-potential output levels. The country is also one of the world's largest
exporter of coffee.
Trade Moving Up Into The Province Of Higher Value Products

Vietnam - Goods Exports & Imports, USDbn (2020)
Source: Trade Map, Fitch Solutions
Vietnam's historical self-sufficiency in crude oil will in part, benefit the country amid high global oil prices in H122. The increase in oil
demand will primarily be driven by a significant increase in refining capacity, alongside solid macroeconomic fundamentals (beyond
Covid-19) and demographic factors. The country will continue to remain dependent on refined fuels imports as, even with a
dramatic upsurge in domestic fuels production capacity, a stronger demand-side response will necessitate imports. Our oil and gas
data show that the country will require an average of about 202,000b/d of fuels imports annually over the next decade. This will
ensure Vietnam continues to rely on traditional fuels trade partners, the largest of which is Singapore, that supply about half of its
annual fuels requirements.
The outlook for Vietnam’s emerging LNG sector remains promising. It is one of several new LNG markets in Asia that are forecast to
begin first imports in the coming decade as Hanoi looks towards the fuel to replace declining domestic production and replace
pollutive, environmentally-harming fuels in the energy mix. The main drive behind stronger gasification in Vietnam will come from
the state. Vietnam’s newest state power development plan (PDP), the draft PDP VIII (2021-2030) was published in February 2021
and sets higher targets for gas and other renewables in the domestic energy mix for the decade ahead. The rise of new LNG
markets such as Vietnam is bullish news for global suppliers, such as the US, Qatar, Australia and Russia all large exporters, which are
aiming to expand their respective LNG exports to global markets in the coming decade. The level of interest in Vietnam’s LNG sector
from foreign parties remains strong. PDP VIII estimates about USD128.3bn will be needed over the next decade, in order to achieve
the natural gas and renewables targets. Though we highlight that the main risk is the fact that Hanoi has no history of importing
LNG. Multiple elements including policies, regulations and legal framework, including those associated with ensuring market
competition, the role of SOEs, local gas pricing mechanism, domestic power market liberalisation and technical standards for LNG-
related infrastructure among others, still remain in the dark.
Export Partners: China and the US are Vietnam's top two markets partners that accounted for over 36% of total product exports
in 2019 before rising to almost 44.8% in 2020. Meanwhile, other export partners are Japan, South Korea and Hong Kong, China,
which are also highly exposed to the US and Chinese markets. This shows Vietnam's exposure to US-China trade disputes that have
escalated over the past few years over issues like security, technology and trade imbalances.
High Exposure To US-China Trade Tensions

Vietnam - Top Five Partners For Product Exports, USDbn (2016-2020)
Note: Includes territories and special administrative regions. Source: Trade Map, Fitch Solutions
Import Partners: China and South Korea represent the largest source markets for Vietnamese imports, accounting for
approximately 50.1% of goods imports in 2020 (latest available). While this still represents a large share, Vietnam has rapidly been
diversifying the source of its imported products, ramping up its imports from the US and Taiwan, China strongly in the last four
years.
China And Asian Peers Dominate Import Mix

Vietnam - Top Five Partners For Product Imports, USDbn (2016-2020)
Note: Includes territories and special administrative regions. Source: Trade Map, Fitch Solutions
Vietnam's strong export growth is partly being fuelled by continued focus on trade liberalisation and numerous free
trade agreements. This is boosting the country's integration into regional and global economies, helping to reduce tariff barriers
facing businesses and allowing Vietnamese exporters access a wider market base at low cost. Consequently, Vietnam's average tariff
rate stands at a low 2.9%. Vietnam has been a member of WTO since January 2007 and the government has to notify all the WTO
Committee on Technical Barriers to Trade on all draft technical regulations. The country has also concluded a large number of free
trade agreements. There are at least 10 free trade agreements that Vietnam has signed and in effect while a few more, including
that with the European Union, which is at an advanced stage, are under negotiation. These and membership of the Association of
South East Asian Nations (ASEAN) and the ASEAN Free Trade Area (AFTA), have facilitated trade by significantly lowering import
tariffs and regional manufacturing costs for ASEAN members. Additionally, Vietnam signed a bilateral trade agreement with the US
in 2001, which saw to the reduction of export tariffs on Vietnamese products to the US from roughly 40% to 3-4%. The agreement
also lowered tariff and non-tariff trade barriers for US products arriving in Vietnam. The future of trade with the US, however, has
become uncertain. It remains to be seen whether any bilateral trade agreements between the two states will be amended. Should
the US introduce fresh tariffs on US imports of Vietnamese goods, this would pose a salient risk to Vietnam's export sector.
Lat
Latest
est TTrrade Updat
Updates:
es:
• Sanctions imposed by the US, European states and allies on Russia caused Vietnamese export order and transaction delays in
Q122, following the Russian invasion of Ukraine. After certain Russian banks were blocked from the SWIFT payment system,
many orders to Russia saw their value drop by half due to devaluation of the ruble and delayed transactions. International
logistics firms were all unable to receive goods, while flights to Russia are limited. Some shipping companies have refused to
deliver goods from Vietnam to Russia, while transportation fees rise with further delays in transportation. Vietnam exports to
Russia reached around USD3.2bn in trade value and imports around USD2.3bn in 2021, according to customs data. Main
exports to Russia include computers, components, phones, textiles, coffee and electrical products.
• In June 2021, Vietnam issued regulations on rules of origin and preferential tariffs for the implementation of the UK-Vietnam free
trade agreement (UKVFTA). This follows the signing of the UKVFTA (which came into effect in May 2021), which will virtually see
all customs duties eliminated, once fully implemented. The agreement represents significant opportunities in skills development,
renewable energy, healthcare and infrastructure for UK and Vietnamese businesses and will further strengthen and build on
both markets’ trade relationship. The UK would also like to join the CPTPP, which Vietnam has supported but is dependent on the
remaining signatories.
• Ongoing US trade tariffs on Chinese exports, the push towards supply chain diversification and geopolitical tensions between
China and the West have also set in motion a relocation of manufacturing to Vietnam, which is likely to continue over the
coming years. Vietnam’s membership of the CPTPP will also support trade and economic diversification efforts (further up the
value chain) in the coming years. The RCEP, which is likely to be in operation in H221 (at the earliest), should also support foreign
direct investment into Vietnam, given Vietnam’s favourable structural and labour demographics, and eventually strengthen its
position as an exports manufacturing hub. Vietnam’s exports continued to record strong growth amid global pandemic
conditions, hitting new highs following the EVFTA ratification in August 2020. Vietnam is also among the few Asian markets –
along with Singapore, South Korea and Japan – which has secured an exclusive FTA with the UK. Considering that Vietnam has
been a major beneficiary of the supply chain relocation/diversification trend out of China over the past several years, we see
large scope for growth in Vietnamese exports in the years to come.
VIETNAM - FREE TRADE AGREEMENTS

Territory/ Status Positive Effect On Businesses
Bloc
Association of Active • High: ASEAN is a 10-member regional organisation working together to advance economic integration
Southeast through cooperation in economic, social, cultural, technical, scientific and administrative fields.
Asian Nations • The FTA reduces tariff and non-tariff barriers between member states. The 10 members of the ASEAN
(ASEAN) Free FTA are Brunei, Indonesia, Malaysia, Philippines, Singapore, Vietnam, Laos, Myanmar, Indonesia and
Trade Cambodia.
Agreement • Vietnam benefits from increased regional integration and tariff liberalisation that includes the
(FTA) (effective elimination of import duties in various sectors and classes of goods. These factors will help reduce input
from January costs for businesses and will increase the country's exporting capacity and industrial base in the long
1993) term. Being a member of ASEAN also opens the economy to other significant trade agreements with key
regional markets.
• The bloc gives Vietnamese businesses access to about 622mn people, presenting a very large potential
consumer base that can be reached without encountering significant tariff barriers.
ASEAN- Active • High: This is a comprehensive economic cooperation between the ASEAN member states and Mainland
Mainland China China. The goal of the agreement is not just eliminating tariffs as it also seeks to address behind-the-
border barriers that impede the flow of goods and services.
• Trade relations between Vietnam and Mainland China benefit from trade preference in terms of tariff
exemption or reduction. Mainland China is an important market for Vietnam as it is a key trade partner
and an important source of investment.
ASEAN-Hong Active • Moderate: Hong Kong and the ASEAN commenced negotiations of an FTA and an investment
Kong, China agreement in July 2014. After 10 rounds of negotiations, Hong Kong and the ASEAN announced the
FTA (AHKFTA): conclusion of the negotiations in September 2017 and forged the agreements on November 12, 2017.
The agreements are comprehensive in scope, encompassing trade in goods, trade in services,
investment, economic and technical cooperation, dispute settlement mechanism, and other related
areas.
• The agreements will bring legal certainty, better market access, and fair and equitable treatment in trade
and investment, thus creating new business opportunities and further enhancing trade and investment
flows between Hong Kong and the ASEAN.
• The agreements will also extend Hong Kong's FTA and investment agreement network to cover all major
economies in South East Asia. Hong Kong is a key export market and the reduction of tariffs will ease the

Bloc
trading process; Hong Kong's potential as a key export market increases the importance of AHKFTA.
Japan Active • High: A framework for comprehensive economic partnership between the ASEAN and Japan was signed
by leaders at the ASEAN-Japan Summit on October 8, 2003, and was aimed at establishing a
comprehensive economic partnership agreement between ASEAN and Japan. The agreement on
comprehensive economic partnership among member states of the Association of Southeast Asian
Nations and Japan (AJCEP) was concluded in November 2007 and signing was completed by April 14,
2008. AJCEP is comprehensive in scope, with chapters on trade in goods; sanitary and phytosanitary
measures; standards, technical regulations and conformity assessment procedures; investment;
services; and economic cooperation.
• The agreement aims at liberalising and facilitating trade in goods between the ASEAN and Japan and
promoting cooperation in fields such as information and communications technology, intellectual
property and small- and medium enterprise development. The parties will also continue to discuss and
negotiate improvements to the chapters on trade in services and investment. Trade relations between
Vietnam and Japan benefit from trade preference in terms of tariff exemption or reduction under the
AJFTA. Japan provides a large market for exports, with tariff-free trade therefore benefiting the
manufacturing sector in particular. The agreement is partly superseded by the CPTPP.
• Under the Vietnam-Japan Economic Partnership Agreement, a 0% rate is applied to 456 tariff lines for
items such as construction stones, steel, aluminium, sugar, machinery, equipment, and vehicle parts.
This is also superseded by the CPTPP.
South Korea Active • High: ASEAN and South Korea consolidated their partnership by signing a framework agreement on
comprehensive economic cooperation at the ninth ASEAN-South Korea Summit on December 13, 2005,
which provides for the establishment of the AKFTA. Under this framework three major agreements on
trade in goods, trade in services and investment were signed on August 24, 2006, November 20, 2007,
and June 2, 2009, respectively.
• The agreement provides for progressive reduction and elimination of tariffs by each market on almost all
products. Vietnam benefits from trade preference in terms of tariff exemption or reduction under this
agreement. South Korea is a key trade partner, and the removal of tariffs benefits both exporters and
importers.
• The Korea-Vietnam Free Trade Agreement (FTA) came into effect in 2016, and Vietnam’s exports to
South Korea have grown from USD11.4bn in 2016 to USD18.2bn in 2018 (latest available data).
• South Korea was Vietnam's second largest import partner (after China) and fourth largest export partner
(accounting for 7.5% of total exports and 20.1% of total imports in 2018).
• From 2018, import tariffs for 704 tariff lines were reduced to 0% for items such as seafood, wheat,
confectionery, diesel fuel, machinery and electronic equipment.
ASEAN-India Active • Moder

Moderate:
ate: The ASEAN-India Trade in Goods Agreement was signed at the seventh ASEAN Economic
FTA (AIFTA): Ministers-India Consultations on August 13, 2009. The agreement entered into force on January 1, 2010,
for India and some ASEAN member states. The ASEAN-India Trade in Services and Investment
Agreements were signed in November 2014.
• Vietnam benefits from trade preference in terms of tariff exemption or reduction under AIFTA. This will

Bloc
help Vietnam in terms of trade growth and diversification given the size and performance of the Indian
economy and other ASEAN member states.
• In July 2021, large pharmaceutical companies in India expressed their hope to establish a pharmaceutical
industrial park in Vietnam, with an initial investment of about USD500mn. This will help Vietnam reduce
dependence on traditional pharmaceutical supplies and diversify production chains. It is estimated the
industrial park would create jobs for 50,000 direct and 200,000 indirect workers, earning export revenue
of about USD5bn per year. Vietnam’s domestic pharmaceutical industry is currently able to meet just
53% of the country’s demand, representing significant opportunities for foreign investors.
Eurasian Active • Moderate: The EAEU commits Vietnam to open the market for about 90% of total tariff lines within a
Economic 10-year tariff reduction schedule. Tariffs will be eliminated from the entry into force (EIF) of the FTA for
Union products in the priority list of the EAEU (which consists of Russia, Armenia, Belarus, Kazakhstan and
Kyrgyzstan), including agricultural commodities such as beef, dairy products and wheat flour. Tariffs will
be eliminated within three-to-five years after EIF on processed meat and fish, electrical machinery and
machinery used in agriculture. Five years after EIF, tariffs will be eliminated on pork and chicken, and 10
years after EIF, tariffs will be eliminated on alcoholic beverages and cars. Tariff elimination will not be
earlier than 2027 for petroleum and not longer than 10 years for iron and steel. The EAEU will eliminate
the tariff rate for approximately 90% of all tariff lines.
• Groups of products for which the import tariff will be eliminated are agricultural, forestry and fishery
products of Vietnam (majority of fishery items, certain kinds of fresh and processed vegetable and fruits,
processed meat and fish, and cereals and rice – with a tariff quota of 10,000 tonnes). Also included will
be some industrial goods that Vietnam has an advantage in exporting, such as textile (in quota) and raw
textile materials, footwear (especially athletic shoes), machinery, electronic components, some
pharmaceutical products, iron and steel, rubber products, and wood and furniture.
EU Under • High: The EU and Vietnam have finished negotiating a trade agreement and an investment protection
negotiation agreement, and the agreement now awaits ratification. The EU Council adopted a decision on the
conclusion of an FTA between the EU and Vietnam on March 30, 2020. The agreement entered into
force on August 1, 2020.
• The agreement will provide opportunities to increase trade and support jobs and growth on both sides
through eliminating 99% of all tariffs, reducing regulatory barriers and overlapping red tape, ensuring
protection of geographical indications, opening up services and public procurement markets, and
making sure that the agreed rules are enforceable. This agreement is likely to boost trade for both
regions.
Comprehensive Entered • High: The agreement – comprising Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New
and into force Zealand, Peru, Singapore and Vietnam – is in effect. The agreement was ratified in Q418, with the deal
Progressive for representing 13.4% of global GDP, making it the third largest trade agreement after the United States-
Agreement for Vietnam on Mexico-Canada Agreement and the European Union (EU). The agreement aims to cut tariffs, improve
Trans-Pacific January 14 access to markets and set common ground on labour and environmental standards and intellectual
Partnership 2019. property protections.
(CPTPP) • The agreement, which entered into force for Vietnam on January 14 2019, will help the country to align

Bloc
its trade and labour standards with its international peers. In addition to strengthening its global
competitiveness, it will also give domestic businesses and exporters access to more than 490mn
potential consumers with zero or limited tariffs.
Regional Signed But • High: The RCEP is a regional economic agreement being negotiated between the ASEAN governments
Comprehensive Not Yet In and their six FTA partners: Australia, Mainland China, India, Japan, New Zealand and South Korea. This
Economic Force includes a population of more than 3.0 billion people that contributes around a third of the world's GDP.
Partnership The RCEP is envisioned to be a modern, comprehensive, high-quality and mutually beneficial economic
(RCEP) partnership agreement that aims to advance economic cooperation and broaden and deepen
integration in the region, building on existing economic links. The RCEP would lower tariffs and other
barriers to the trade of goods among the 16 countries that are in ASEAN or have existing trade deals with
ASEAN.
• Although India pulled out of the agreement on November 4 2019, India was invited to return to the
negotiating table at the 29th meeting of the RCEP trade negotiating committee in April 2020. The
agreement was signed in November 2020 and is expected to come into force by 2022 (or H221 at the
earliest).
Source: Vietnam Trade Promotion Agency, Fitch Solutions
Vietnam's goods trade account flipped from a structural deficit to a surplus in 2012, and the country has managed to sustain a net
goods export surplus since. While sustained growth in the export-oriented manufacturing sector will keep exports as a share of GDP
rising, firm domestic demand conditions and high import-content of manufactured goods will also result in elevated levels of
imports. Hence, we expect net exports as a share of GDP to remain low below 5% of GDP over the medium term.
Improved market access accorded by the EU-Vietnam free trade agreement (FTA), UKVFTA, Comprehensive and Progressive
Agreement for Trans-Pacific Partnership, and Regional Comprehensive Economic Partnership among others will support a widening
of Vietnam’s goods trade surplus. Vietnam’s continued current account surplus will be spearheaded by its goods trade surplus and
supported by a gradually growing secondary income surplus which will expand in line with the global economy on the back of rising
remittances from Vietnamese migrant workers overseas. However, an urgent need for transport and logistical infrastructure
development in Vietnam, which tend to heavily involve foreign consultants and other services, will see the services deficit widen.
Moreover, with foreign-invested enterprises being the key driver of exports growth, rising corporate profit remitted overseas will
widen the primary income deficit over time. From a structural perspective, an increase in investment opportunities domestically as
the external facing sector develops and middle class grows in Vietnam will also see the excess of savings over investments narrow,
and reduce the current account surplus accordingly over the long run.
Investment Openness
Vietnam is emerging as a key manufacturing hub in the East and South East Asia region, supported by government-led economic
liberalisation efforts, lucrative incentives and integration into the global supply chain. The country is focused on attracting foreign
investment, especially in sectors that will bring advanced technology, increase the labour market skills and improve labour
productivity. Other FDI pull-factors are a relatively stable political system, strategic location near global supply chains and China, and
an abundant labour force that is less costly relative to China. Nevertheless, the state's role in the economy remains significant and
some sectors are restricted for 100% foreign ownership, including energy, transport, mining, utilities and agriculture. The pandemic
hit the economy hard, but Vietnam has taken decisive steps to limit both the health and economic fallout. Overall, Vietnam has a
moderate score of 60.0 out of 100 for Investment Openness, ranking eighth out of 18 markets in East and South East Asia,
marginally behind Thailand, and 62nd out of 201 markets globally.
Investment Trends
From a structural perspective, the government also aims to increase the localisation rate of economic growth. The state aims for the
private sector to account for 55% of GDP by 2025, up from 42% in 2020 with the localisation rate at 30%. The goal by 2030 is to
have private companies accounting for 60-65% of GDP. In pursuit of this goal we expect the government to continue keeping its
business and investment environment supportive for rapid growth and business initiation. This should increase the amount of
investment opportunities available and narrow the savings excess over domestic investment, which will narrow the current account
surplus.
Recent changes to the Investment Law and the development of special economic zones have demonstrated Vietnam's
commitment towards attracting foreign direct investment. In 2019, total FDI stock in Vietnam stood at USD161.1bn up from
USD145bn in 2018, representing 61.8% of GDP. Vietnam is one of the few counties in Asia that have been able to sustain
manufacturing growth supported by increased efforts to integrate into regional and global value chains. Capital expenditure
disbursement is likely to be quicker in 2021. This segment faced constraints in 2020 due to lockdowns and disruptions from the
pandemic, which caused delays to imports of capital equipment and the arrivals of foreign project advisors, in addition to delays in
site clearance and resettlement. The implementation of the public-private partnership (PPP) law from January 1 2021 should
facilitate the progress of capital projects. Meanwhile, projects funded under overseas developmental assistance would likely also
progress more smoothly in 2021 following delays in 2020 due to adjustments to financing agreements and investment procedures.
Financial services will likely also continue registering stronger growth over the coming quarters as an improving economic outlook
spurs an increase in credit demand, supported by low interest rates. In particular, low borrowing costs, combined with a strong
economic outlook has seen Vietnamese commercial and industrial real estate garner strong interest among foreign investors. New
housing project releases by developers following effective Covid-19 containment domestically should also see higher sales activity
over the coming quarters. Combined with property managers looking to reshuffle their tenant mix to mitigate their cash flow risks
over the coming quarters, these all bode well for a strengthening of real estate services growth. More decisive reforms are needed
to make the most of Vietnam’s considerable growth potential. This would require tackling the sources of pervasive low productivity.
Priority should be given to improving the business environment and ensuring a level playing field for small and medium-sized
enterprises, with reforms geared towards reducing regulatory burden faced by firms, improving their access to resources, enhancing
governance and access to technology and innovation, and reducing skills mismatches. Reforms in these areas would also help
Vietnam reap greater benefits from participation in global value chains in the post-pandemic world.
FDI Targets Higher Value-Add Sectors

East & South East Asia - Inward FDI Stock (2019)
Note: Includes territories and special administrative regions. Source: National statistics, Fitch Solutions
Vietnam continues to work to improve its business climate in order to attract foreign direct investment (FDI) with manufacturing
sector dominating FDI inflows (particularly since 2013) as investors continued to move large scale operations from other developing
markets to Vietnam. Since 2015, the investment influx to the textiles and apparel industries has remained robust. Over the medium
term, however, and as wages rise, the manufacturing focus will shift to higher value-added production. As such, Vietnam is attracting
new and additional investment in the ICT and energy sectors. Vietnam also continued to attract investment in infrastructure
projects such as power generation, roads, railways and water treatment. Vietnam needs an estimated USD170bn in additional
infrastructure development in order to meet growing economic demand. In energy alone, Vietnam's General Statistics Office (GSO)
estimates that electricity demand will continue to grow at a rate of 10-12% annually, through to 2030. If the government further
liberalises the sector, this presents highly lucrative opportunities for investors.
Vietnam has received USD231bn in FDI from 1988 through 2020, according the Ministry of Public Affairs (MPI), which oversees
foreign investments. Vietnam’s strong initial handling of the pandemic, which has included proactive management of health policy,
fiscal stimulus, and monetary policy, combined with supply chain shifts, contributed to Vietnam receiving USD19.9bn in FDI in 2020,
almost as much as the USD 20.3bn received in 2019. Of the 2020 investments, 48% went into manufacturing – especially in the
electronics, textiles, footwear, and automobile parts industries; 18% in utilities and energy; 15% in real estate; and smaller shares in
assorted industries. The government approved the following significant FDI projects in 2020: Delta Offshore’s USD 4bn investment
in the Bac Lieu liquified natural gas (LNG) power plant; Siam Cement Group’s (SCG) USD1.8bn investment in the Long Son
Integrated Petrochemicals Complex; a Daewoo-led, South Korean consortium’s USD774mn investment in the West Lake Capital
Township real estate development in Hanoi; and Taiwan-based Pegatron’s USD481mn investment in electronics production.
Reform Momentum And Global Supply Chain Diversification Draw FDI Inflows
Vietnam - Inward FDI Stock (2010-2019)
Source: UNCTAD, Fitch Solutions
Much of the country’s FDI flows come from regional peers such as China, South Korea, Japan and Malaysia. Vietnam's Small and
Medium Enterprise Development Fund is also partnering with South Korea's Small and Medium Business Corporation to encourage
SME development in the two nations. South Korea is currently one of the largest foreign investors in Vietnam, with specific
investments going into the electronics, energy and manufacturing sectors. This investment flow has boosted SME growth in
Vietnam, enabling them to gain access to advanced technologies and the global supply chain.
In February 2021, the 13th Party Congress of the Communist Party approved a ten-year economic strategy that calls for shifting
foreign investments to high-tech industries and ensuring those investments include provisions relating to environmental
protection. On January 1, 2021, Vietnam’s Securities Law and new Labour Code Law, which the National Assembly originally
approved in 2019, came into force. The Securities Law formally states the government’s intention to remove foreign ownership
limits for investments in most industries, and the new Labour Code provides more contract flexibility – including provisions that
make it easier for an employer to dismiss an employee and allow workers to join independent trade unions – although no such
independent trade unions yet exist in Vietnam. On June 17, 2020, Vietnam passed a revised Investment Law and a new Public
Private Partnership Law, both designed to encourage foreign investment into large infrastructure projects, reduce the burden on
the government to finance such projects, and increase linkages between foreign investors and the Vietnamese private sector.
The 2020 Enterprises Law, which came into effect January 1, 2021, defines an SOE as an enterprise that is more than 50% owned by
the government. Vietnam does not officially publish a list of SOEs. Vietnam officially started privatizing SOEs in 1998. The process
has been slow because privatization typically transfers only a small share of an SOE (two to three%) to the private sector, and
investors have had concerns about the financial health of many companies. Additionally, the government has inadequate
regulations with respect to privatization procedures.
Investment Incentives
The legal environment for foreign investment is enshrined in the 2005 Investment Law, which offers protection to foreign investors
against the nationalisation or confiscation of property or assets, defines investment incentives and rules and outlines government
policies for other notable investment issues. While foreign participation is particularly encouraged in agriculture, labour-intensive
industries, hi-tech industries and infrastructure development, foreign ownership is prohibited or restricted in certain sectors; for
example, investors are unable to participate in sectors integral to areas such as national defence and security.
Under the current laws of Vietnam, There are various investment preferences and incentives to investors who have investment
projects enjoy a range of incentives. Preferential tax rates of 10% or 17% may be available to eligible projects in industries or
locations encouraged via government policies. A 10% rate for the 15-year period beginning with the first year of revenue may be
available for income from new investment projects in areas with especially difficult socio-economic conditions, and in economic
zones and high-technology zones and projects in hi-tech, research, environmental protection, education and energy sectors.
Incentives for research and development (R&D) have been consistently among the most favourable in Vietnam, given that R&D
activities are important to the country’s development. Eligibility requirements for obtaining incentives, however, are strictly set out.
Incentives for science and R&D include tax exemptions, tax holidays, financial support and preferential land lease fees. Investors
may be considered for tax holidays and reductions. The holidays take the form of a complete exemption from corporate income tax
(CIT) for a certain period beginning immediately after the enterprise first makes profits, followed by a further period where tax is
charged at 50% of the applicable rate. However, where the enterprise has not derived profits within three years of the
commencement of operations, the tax holidays will start from the fourth year of operation.
There are also import duty exemptions available on the importation of equipment, materials, means of transportation and other
goods for implementation of investment projects in Vietnam in accordance with the Law on Export and Import Duties. Exporters will
continue to benefit from the reduced tariffs, leading to deeper economic integration, particularly over 2018-2023. This will further
lead to an increase in foreign investments, competition, production and business efficiency. In addition, this will also reduce the
input cost for domestic firms. The increase in imports/exports and subsequent reduction in import tax revenues will, however, be
offset by an increase in domestic tax collection – such as corporate and personal income tax.
VIETNAM - FREE TRADE ZONES AND INVESTMENT INCENTIVES

Free Trade Zone/Incentive Main Incentives Available
Programme
270 industrial zones and export • Foreign investors are exempt from import duties on goods imported for their own use and which
processing zones across the cannot be procured locally, including machinery, vehicles, components and spare parts for
country. Country divides into machinery and equipment, raw materials, inputs for manufacturing, and construction materials that
three key economic zones cannot be produced domestically.
(KEZs), each of which has its own • Remote and mountainous provinces are allowed to provide additional tax breaks and other incentives
economic development plan. to prospective investors.
• Projects in high tech, research and development, new materials, energy, clean energy, renewable
energy, energy saving products, automobile, software, waste treatment and management, primary or
vocational education; or projects located in difficult areas or economic and projects in industrial
zones are entitled to investment incentives such as lower corporate income tax, exemption of import
tariffs, or land rental.
Source: Vietnam Ministry of Planning and Investment, Fitch Solutions
Special economic zones in Vietnam are well developed. The Vietnamese government has divided the country into three key
economic zones, each of which has its own economic development plan. The country has around 300 industrial zones and export
processing zones, which allow investors to enjoy a range of investment incentives. Additional services located within the zones
allow businesses to streamline the business registration and export processes. For example, the presence of customs warehouse
keepers provide transportation services and act as distributors for goods deposited. However, investors should be aware that in
practice the time involved for clearance and delivery can be lengthy and unpredictable. This is because additional services relating
to customs declaration, appraisal, insurance, reprocessing, or packaging require the approval of the provincial customs office.
Investment Barriers
While the government has been making efforts to break up state monopolies and privatise SOEs, we expect the divestment
process will remain slow and that the government will miss its five-year target for cutting the number of state-owned enterprises
(SOEs) to 103 by 2020 (from 583 in 2016) as efforts to attract more foreign investment loses steam. Under the government’s SOE
privatisation plan, there were 135 SOEs that were to undergo divestment in 2017 and 181 in 2018, according to the Director
General of the Ministry of Finance’s Corporate Finance Department, Dang Quyet Tien. However, it was reported in November 2018
that the government only managed to divest its stakes from 31 firms in two years - 13 in 2017 and 18 in 2018. There remain some
barriers to FDI that can largely be attributed to the slow liberalisation of the investment space in sectors dominated by the state,
legal risks, as well as the existing restrictions on 100% of FDI in all sectors. Firms still face challenges applying for investment
licences, for which the procedures are complex and lengthy, increasing delays and operational costs.
BARRIERS TO FDI
FDI Barrier Sectors Affected Business Impact
Regulatory barriers and All • Moderate: The overall administrative burden negatively affects investment
administrative burden decisions. Under the new Investment Law, businesses must apply for an
investment license when establishing a new company and update their business
license when they: make significant changes to an ongoing enterprise (such as
increasing investment capital), restructure the form of investment or investment
ratios between foreign and domestic partners, change the foreign management
structure, or add new business activities.
• Foreign investors are subject to different business licensing processes and
restrictions. Vietnamese companies which have a majority foreign investment are
subject to foreign investor business license procedures.
• In general, the new Investment Law has not provided clearer and speedier
processes for investors to complete necessary investment license paperwork.
Efficiency of procedures in construction and environmental permitting is
insufficient, while corruption raises risk for investors.
• In addition, the lack of substantive regulations on merger and acquisition activities
makes such transactions risky. It is difficult to determine which business lines the
acquired company is allowed to maintain.
• The reason for the lack of clarity is due to the fact that while Vietnam allows foreign
investors to invest in all but six prohibited sectors, and regulates investment in 267
sectors, there are more than 6,400 conditions relating to these sectors.
Dominance of SOEs Oil and Gas, energy • Moderate: There are approximately 2,000 SOEs where the state controls a majority
interest and 781 SOEs where the state controls 100% of operations. Vietnam does
not, however, publish a full list of SOEs.
• SOEs operate in most industries and areas, including those such as apparel,
banking and mobile phone services where the private sector would operate more
efficiently.
• Privatisation drives have been slow. In several key sectors – including
transportation, agriculture, utilities, financial services, manufacturing, and
FDI Barrier Sectors Affected Business Impact
construction – Government linked corporations continue to dominate the market.

For one, the resource industry in Vietnam is largely state-led and heavily regulated
by the government.
• According to a recent draft decree released by the Ministry of Planning and
Investment, the Vietnamese government will retain a 75% stake in companies
operating in the oil, natural gas, coal, bauxite, iron ore and copper industries going
forward.
Localisation Agriculture and • High: Foreign investors have maximum ownership restrictions on some sectors
requirements and Forestry, Mining, deemed to be strategic. Electricity, transport, mining, banking and telecoms
foreign ownership limits Electricity, Waste infrastructure sectors have maximum foreign ownership have foreign ownership
management and limits (ranging from 49%-65%).
water supply, • This has effectively stunted the growth potential of these sectors as it shuts FDI
Transportation, real out. Foreign investors may possess majority shares in securities or fund
estate, Media, Banking, management companies in Vietnam only if they possess the required licence in
Telecoms and Financial their home country and have at least two years of experience in the financial sector
Services in their country of origin.
• The new decree on securities also introduces a requirement for real estate
investment funds to invest at least 65% of their net assets into qualifying
Vietnamese real estate or shares of real estate companies with revenues of at least
65% in their core business.
• In 2010, Vietnam restricted bidding by foreign firms on government-issued
procurement tenders to those cases where domestic bidders cannot provide the
necessary services or supplies.
Conformity with All • Moderate: FDI projects must conform to one or more sectoral master plans.
Economic Master Plans Master plans are economic development policies that set five- to ten-year targets
for industry.
• The requirement for projects to conform to relevant master plans can be
problematic for foreign investors, as the grounds for assessing compliance with a
particular plan are unclear, and master plans may overlap as they are issued by
both ministries at the national and provincial level.
Source: Vietnam Ministry of Planning and Investment, Fitch Solutions
Government Intervention Analysis

Key View: Vietnam's competitiveness is held back by an inefficient tax administration, relatively low levels of financial inclusion but
these aspects are partially offset by the generally low levels of direct tax. Steadily improving access to international financial markets,
as Vietnam becomes integrated with global supply chains will also help to lower operational risks in the medium term. Taking these
factors into account, Vietnam receives a score of 59.8 out of 100 for Government Intervention Risk, placing it 12th out of 18
markets in East and South East Asia and 47th globally.
High Financing Costs Dent Competitiveness

East & South East Asia - Government Intervention
Latest Government Intervention Analysis
• On 11 January 2022, the National Assembly of Vietnam agreed to reduce VAT by 2% in 2022, applicable to groups of goods and
services currently subject to a 10% VAT rate. except for certain goods and services, e.g. telecommunications, ICT services; finance
and banking services, securities, insurance; real estate business; metal production and manufacture of prefabricated metal
products; etc. A 5% VAT rate applies generally to areas of the economy concerned with the provision of essential goods and
services. The 10% standard rate applies to activities not specified as not subject to VAT, exempt, or subject to the 0% or 5% rate.
• In Q421,Vietnam issued Resolution 406 that aims to further assist businesses and individuals affected by the pandemic including
a 30% corporate income tax cut. The reduction will apply to all businesses with revenue of less than USD8.8mn (VND200bn) in
2021, consequently businesses should study the Decree carefully to obtain the support measures. The tax reduction is primarily
based on the principle of self-assessment. Businesses are expected to review their actual business circumstances and self-assess
their eligibility for such tax breaks.
In early June 2021, Vietnam's Ho Chi Minh exchange (HNX) suspended trading for an afternoon, following a surge in orders,
which promoted concerns over market stability. The market registered a 50% jump in share trading volumes in May 2021
compared with December 2021. This is in line with wider trends in Vietnam whereby people are looking to move cash away from
savings into the stock market amid declining interest rates. In reflection of this trend, the country's benchmark VN Index soared
17% in the three months up to April 30 2021, beating every major market in the region and almost doubling gains from the S&P
500.
• In a move to improve the management and taxation of e-commerce transactions, the Ministry of Finance circulated a draft
decree which includes in its scope organisations operating e-commerce platforms and websites, the transporters of the goods,
customs brokers, and exporters and importers. An e-commerce activity management system will be developed by the General
Department of Customs. Export and import declarations will be processed on a 24-hour basis via this system, and the system will
share information with the National Single Window and other existing management systems of the General Department of
Customs. Consequently, e-invoices and further provisions relating to e-invoices and electronic documents as per the Law on Tax
Administration will be effective from July 1 2022.
Taxation
While Vietnam has a moderately low corporate income tax rate, the country has one of the most burdensome tax administration
systems in the world. The government is heavily reliant on tax revenues to fuel public spending, leaving businesses at high risk of tax
increases should the state's fiscal position deteriorate. Meanwhile, the bureaucratic system is still opaque with many tax rates
applying to different sectors or type of business undertaking, exposing some investors to high legal risk. Consequently, Vietnam
ranks 12th out of 18 markets in the region and 46th globally, with a moderate score of 67.4 out of 100 for Taxation.
Tax Overview
All businesses established under Vietnamese laws are liable to pay corporate income tax on their worldwide income irrespective of
where this is earned. By contrast, foreign businesses that are not established under Vietnam laws and/or with Vietnam-sourced
income are regarded as foreign contractors. Vietnam has double taxation agreements (DTAs) with many markets, including major
global economies such as China, Malaysia, Netherlands, South Korea, Singapore, the UK and the US, among many others. This helps
to reduce the tax compliance burden and exposure to the risk of paying taxes more than once on a given income, particularly for
businesses whose operations span across various jurisdictions.
All taxes are imposed at the national level. The standard corporate income tax rate is 20%. Enterprises operating in the oil and gas
industry are subject to rates ranging from 32% to 50%, depending on the location and specific project conditions. In Q122, there
was a resolution on fiscal and monetary policies to support the socio-economic development and recovery program. Among
various measures, there is a 2% VAT reduction for goods and services which are currently subject to 10% VAT from February to
December 2022, except for certain goods and services, e.g. telecommunications, ICT services; finance and banking services,
securities, insurance; real estate business; metal production and manufacture of prefabricated metal products; etc. A 5% VAT rate
applies generally to areas of the economy concerned with the provision of essential goods and services. The 10% standard rate
applies to activities not specified as not subject to VAT, exempt, or subject to the 0% or 5% rate.
Vietnam witnessed significant recent developments related to transfer pricing, e-commerce activities, and the application of e-
invoices. In June 2020, the government released Decree 68 to ease up the interest deductibility cap under Decree 20 from 20% to
30% on net interest expense. Decree 68 is applicable for tax year 2019 and the changes on the cap threshold of 30% applied on net
interest expenses could retrospectively apply for the tax years of 2017 and 2018. In November 2020, the Government issued a
decree setting out new rules on transfer pricing in Vietnam, which takes effect from December 2020, but applies for the financial
year 2020 and replaces previous relevant decrees. In addition, the Ministry of Finance has circulated a draft Decree, which includes
in its scope organisations operating e-commerce platforms and websites, transporters of the goods, customs brokers, as well as the
exporters and importers- in a push to enhance the management and taxation of e-commerce transactions. An e-commerce activity
management system will be developed by the General Department of Customs (GDC). Export and import declarations will be
processed 24/7 via this system, and the system will inter-connect and exchange information with the National Single Window and
other existing management systems of the GDC. There will also be a guidance in a draft circular guiding Law on Tax Administration
on tax registration, declaration, and payment for foreign contractors who operate in e-commerce or do business via digital platforms
and other businesses without having a physical presence in Vietnam. This is expected to affect foreign companies conducting
business with Vietnamese companies and individuals using online platforms. Regarding e-invoices, an extension of the deadline for
compulsory implementation of e-invoices from 1 November 2020 until 1 July 2022 has been granted. This extension gives some
breathing room for companies that have not yet implemented e-invoicing. In addition, the National Assembly ratified the amended
Law on Enterprises and the amended Law on Investment in June 2020. The new laws took effect from January 2021 and replaced
the existing laws.
Due to the Covid-19 pandemic, the Vietnamese government announced on March 28 2022 a proposal to extend VAT deadlines.
The proposal includes the following:
• A six-month delay for March, April, May and Q1 2022 VAT;

• A five-month delay for June and Q2 2022 VAT;
• A four-month delay for July 2022 VAT; and
• The deadline for individuals and small enterprises to pay VAT on December 31 2022.
Business Taxes
The standard corporate income tax rate is 20% for most business activities. However, companies in the oil and gas sector face
higher rates that range from 32% to 50%, depending on where the business is located as well as on other project-specific
conditions. Additionally, businesses involved in mining, including exploration, prospecting and/ or exploitation of minerals are
subject to corporate income tax rates of 40% or 50% depending on project location and/ or any project-specific conditions. This
makes Vietnam a less attractive location for businesses in the resources sector, specifically mining, oil and gas. Meanwhile, some
activities in preferential sectors may receive rates of 10-17%. The latter rates may be offered to encourage sectors such as
healthcare, education, high-tech, infrastructure development and software, as well as investors in special economic zones or
underdeveloped areas with difficult socio-economic conditions.
Tax incentives under the Tax Allowance Incentive are granted to certain qualifying resident companies investing in certain types of
businesses or regions. The Tax Allowance Incentive consists of the following: accelerated depreciation and amortisation; an
extended period of 10 years for the carry-forward of a tax loss (normally five years), subject to certain conditions; a reduced tax rate
of 10% (or lower under a double tax treaty) for dividends paid to non-residents; and an investment allowance in the form of
reduction of net income by 30% of the amount invested in land and buildings and plant and equipment. This allowance may be
claimed at a rate of 5% each year over a six-year period.
VIETNAM - BUSINESS TAXES

Type Of Tax Tax Rate And Base
Corporate income tax (CIT) 20% is the standard rate (preferential rates of 10%, 15% and 17% where certain criteria are
met)
The rate of CIT applicable to firms 32-50% depending on the location and specific project conditions
operating in the oil and gas industry
CIT for firms engaging in prospecting, 40% or 50% depending on the project's location
exploration and exploitation of mineral
resources (eg, gold and precious stones)
Capital gains tax 0.20%
Branch tax Same as CIT rate
VAT Standard rate: 10% on goods and services (with a 2% reduction on certain goods and services).
A 5% rate applies generally to essential goods and services. A 0% rate applies to exported
goods and services
Special sales tax (SST) Applies to the production or import of certain goods, including cigarettes; cigars; spirits; beer;
autos; assorted types of petrol; air conditioners; and the provision of certain services, including
casinos, golf clubs and lotteries. SST rates range from 10% to 150%. Exported goods are not
subject to SST
Type Of Tax Tax Rate And Base
Natural resources tax Rates vary from 1% to 40% depending on the natural resource being exploited and are applied
to the production output at a specified taxable value per unit
Foreign contractor tax (withholding tax) 0.1-10% depending on type of business activity
Source: Vietnam Ministry Of Finance, Fitch Solutions
Tax incentives are granted based on regulated encouraged sectors, encouraged locations, and size of the projects. Business
expansion projects (including expansion projects licensed or implemented during the period from 2009 to 2013, which were not
entitled to any CIT incentives previously), which meet certain conditions, are also entitled to CIT incentives from 2015. New
investment projects and business expansion projects do not include projects established as a result of certain acquisitions or
restructuring efforts. The sectors that are encouraged by the Vietnamese government include education, health care, sport/culture,
high technology, environmental protection, scientific research and technology development, infrastructural development,
processing of agricultural and aquatic products, software production, and renewable energy. The encouraged locations include
qualifying economic and high-tech zones, certain industrial zones, and difficult socio-economic areas.
Tax Administration
The standard tax year is the calendar year. However, different accounting year-ends can be used if approval is obtained from the
authorities. Some benefits accrued from tax incentives are greatly offset by the complexity and difficulty in paying taxes, hindering
business operations and increasing administrative costs. Over the last several years, several foreign companies have disputed
retroactive government tax audits. The affected businesses generally attribute these cases to unclear, conflicting and amended
language in investment and tax laws, combined with the government’s desire for balance the fiscus; and they complain that these
retroactive tax cases make it difficult to predict their eventual tax liability. In some cases, the government has complained publicly
that some foreign investors engage in transfer pricing, which the Vietnamese define as overstating input costs to decrease tax
liabilities.
In September 2021, the government officially issued detailed guidance on the Law on Tax Administration on various matters, which
also has a chapter focusing on the tax filing mechanism for foreign companies doing e-commerce, digital business and other
business in Vietnam without a permanent establishment. Following this, the government issued Decree 85/2021 setting out new
rules on e-commerce detailing obligations of foreign traders that have e-commerce activities in Vietnam and related parties.
Enterprises are required to make quarterly provisional CIT payments (no later than the 30th day of the next quarter) based on the
quarterly business results. If the total amount of provisional quarterly CIT paid in the first three quarters of a tax year accounts for
less than 75% of the final CIT liability for the year, any shortfall will be subject to late payment interest, counting from the deadline
for payment of Q3 provisional CIT liability. Final payment of CIT is due with the final CIT return (ie, the last day of the third month as
of the ending date of a calendar year or a financial year). The 2019 Law on Tax Administration, which came into force July 1 2020,
requires foreign entities that employ digital platforms without a permanent physical presence in Vietnam to register as tax-paying
entities in Vietnam. The Ministry of Finance released a draft circular with guidance on implementation of the Law in March 2021,
and is working to revise the law based on stakeholder comments, as of April 2021.
Personal Income Tax
Social insurance, health insurance and unemployment insurance contributions on salaries (generally applicable to Vietnamese
employees only) stand at a high 18% of wages (according to the World Bank), thereby raising the cost of labour-intensive operations
as this is all due to be paid by the employer. Tax residents are subject to Vietnamese personal income tax (PIT) on their worldwide
taxable income, wherever it is paid or received. Employment income is taxed on a progressive tax rates basis. Non-employment
income is taxed at a variety of different rates. Non-residents are subject to PIT at a flat tax rate (20%) on the income received as a
result of working in Vietnam/on Vietnam-related income in the tax year, and at various other rates on their non-employment
income. However, this will need to be considered in light of the provisions of any double taxation agreement (DTA) that might apply.
VIETNAM - PERSONAL INCOME TAX

Annual Taxable Income (VNDmn) Monthly Taxable Income (VNDmn) Tax Rate (%)
0 to 60 0 to 5 5
60 to 120 5 to 10 10
120 to 216 10 to 18 15
216 to 384 18 to 32 20
384 to 624 32 to 52 25
624 to 960 52 to 80 30
More than 960 More than 80 35
Source: Vietnam Ministry Of Finance, Fitch Solutions
In general, a person is considered a resident in Vietnam if they are present in Vietnam for at least 183 days in the year, have a regular
resident location in Vietnam, or cannot be a tax resident of another country - subject to applicable DTAs. Vietnam has currently
signed DTAs with more than 60 markets, out of which 50 DTAs are currently in force. Generally, these DTAs follow the basic principles
contained in the OECD Model Convention.
Financial Barriers
Vietnam's financial system poses a high level of risk to firms. This is due to an underdeveloped banking system that remains saddled
with significant non-performing loans, limited means to raise capital due to a dearth of developed financial services in stark contrast
to Singapore, Malaysia and China, and fixed and state-controlled currency regime that can adversely affect the value of foreign
investments in the country. Private sector businesses are particularly disadvantaged when trying to access credit due to a
preference for offering capital to public entities. This is partly the result of a scarcity of private lending institutions and the
inadequacy of existing credit records coverage in Vietnam. The new umbrella entity called the Vietnam Stock Exchange (VNX),
100% owned by the Ministry of Finance, now manages the country's two stock exchanges. Consequently, Vietnam receives a score
of 52.2 out of 100 for Financial Barriers, placing in 12th position out of 18 markets in the East and South East Asia region, but 94th
globally, behind more sophisticated markets such as Malaysia and Singapore.
Banking Sector
While Vietnam's banking sector offers much upside potential, we caution that the banking sector as a whole suffers from poor asset
quality, undercapitalisation, inefficient and obligatory lending practices, as well as somewhat arbitrary government
regulations. Growth in the banking and financial services sector this year will reflect the stronger economic expansion. Given that
Vietnam has an average household disposable income of slightly more than USD5,200, this sector is relatively undeveloped and will
be able to sustain expansion for the foreseeable future. The long-term prospects for Vietnam's banking and financial services
industry remain bright as economic growth averaging around 6.5% per annum through to 2030 will support rising incomes and
expand the already-growing middle class. Vietnam's government is relatively stable and is open to cooperating with the rest of the
Asian region, which will support the adoption of new technologies and best practice in the industry. The state's gradual reduction in
ownership and easing of investment restrictions will boost private sector and foreign involvement in local capital markets.
The Vietnamese banking industry consists of a wide range of players, from relatively large state-owned and joint-stock commercial
banks to small, privately held banks. According to the State Bank of Vietnam (SBV), by the end of 2020, the banking sector’s
estimated total assets stood at USD572bn, of which USD236bn belonged to seven state-owned and majority state-owned
commercial banks – accounting for 41% of total assets in the sector. Though classified as joint-stock (private) commercial banks,
the Bank of Investment and Development Bank (BIDV), Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank),
and Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) all are majority-owned by SBV. In addition, the SBV
holds 100% of Agribank, Global Petro Commercial Bank (GPBank), Construction Bank (CBBank), and Oceanbank. Currently, the total
foreign ownership limit in a Vietnamese bank is 30%, with a 5% limit for non-strategic individual investors, a 15% limit for non-
strategic institutional investors, and a 20% limit for strategic institutional partners. Private sector businesses are particularly
disadvantaged when trying to access credit due to a preference for offering capital to public entities. This is partly the result of a
scarcity of private lending institutions and the inadequacy of existing credit records coverage in Vietnam.
In August 2018, the government issued its long-term plan for the industry, via the 'Development Strategy for the Banking Sector to
2025, with Orientations to 2030'. The strategy includes plans to make the SBV more autonomous, independent and accountable,
while also increasing the effectiveness of its supervision. It also includes the gradual adoption of Basel II standards by local banks,
the diversification of bank ownership structures, and a goal to have several leading entities included among the top 100 banks in
Asia (by assets) by 2025. In addition, there are plans to develop the micro-financing sub-sector and promote the development of
non-cash payments in Vietnam. The strategy will be supported by the World Bank and Swiss government under the ‘Vietnam:
Strengthening Banking Sector Soundness and Development Project’. The primary legislation governing the banking sector is the
2010 Law on Credit Institutions, which was later amended in 2018. The newer amendments focused primarily on establishing a
framework for the restructuring, rescue and liquidation of a credit institution. It also clamped down on cross-ownership of credit
institutions. More specific rules and requirements are predominately outlined in government decrees or circulars.
The growing number of financial technology (fintech) start-ups will support financial inclusion and continue to boost the demand
for consumer goods and services in Vietnam. According to the State Bank of Vietnam (SBV), the number of fintech companies in
the country rose from 40 to 150 over the past four years to early 2020. Meanwhile, Ho Chi Minh City’s Municipal Department of
Industry and Trade reported that online spending grew by over 12% annually since 2015. The key drivers of growth in this industry
include a supportive regulatory environment for the industry, rising internet penetration together with a large, youthful population
that is increasingly tech-savvy.
VIETNAM - KEY FINANCIAL INCLUSION INDICATORS (2017)

Indicator
Income level Lower middle income
Financial institution account (% age 15+) 30.0%
No account because financial services are too expensive (% age 15+) 8.4%
Used the internet to buy something online in the past year(% age 15+) 18.7%
Saved at a financial institution (% age 15+) 14.5%
Debit card ownership (% age 15+) 26.7%
Borrowed from a financial institution or used a credit card (% age 15+) 21.7%
Has a national identity card (% age 15+) 94.1%
Credit card ownership (% age 15+) 4.1%
Mobile money account (% age 15+) 3.5%
Source: World Bank, Fitch Solutions
The Covid-19 pandemic increased strains on the financial system as an increasing number of debtors were unable to make loan
payments. Slow credit growth, together with increases in debtors’ inability to pay back loans, squeezed bank profits in 2020. At the
end of 2020, the SBV reported that the share of non-performing loans (NPLs) in the banking sector was 2.14%, up from 1.9% at the
end of 2019. Local banks generally allocate credit on market terms, but the banking sector is not as sophisticated or capitalised as
those in advanced economies. Foreign investors can acquire credit in the local market, but both foreign and domestic firms often
seek foreign financing since domestic banks do not have sufficient capital at appropriate interest rate levels for a significant number
of FDI projects.
Meanwhile, the national currency, the Vietnamese dong (VND), is not fully convertible and its flow is regulated by currency controls
implemented by the State Bank of Vietnam. The value of the VND is determined by a managed floating policy, or a crawling peg,
which 'crawls' between 1% above and below the fixed rate according to the central bank's evaluation of the economy. However, the
unofficial exchange rate can fluctuate more dramatically than the official rate due to the exchange of dollars at an open market rate
by gold shops and money changers. While at times this environment could diminish the value of businesses' holdings in local
currency, the Vietnamese government allows foreign companies to remit profits in hard currency. However, there are some
exceptions to this regulation, as Vietnam generally does not provide foreign currency conversion guarantees to foreign investors. In
order to provide flexibility in responding to exchange rate volatility, the SBV now announces the interbank reference exchange rate
daily. The rate is determined based on the previous day's average interbank exchange rates, taking into account movements in the
currencies of Vietnam's major trading and investment partners. As part of its efforts to de-dollarise the economy, the Vietnamese
government issued Decree 70 in 2014 to prohibit foreigners from holding foreign currency-denominated savings accounts.
Foreigners are still allowed to have cheque and investment accounts in any foreign currency and VND (previously foreigners were
only allowed to have USD investment accounts).
In 2021, The Asian Development Bank and Prudential announced an investment scheme to acquire existing coal-fired power plants
across Asia and retire them before the end of their operational life cycle. Several financial partners,
including HSBC, BlackRock and Citi, are reportedly also expected to support the initiative. The scheme is expected to be financed
through a mix of equity, debt and concessional finance, via public-private partnerships. This will help support and accelerate the
energy transition of several markets across the region, especially those with younger coal-powered plants in operation. Primary
target markets in the initial phase will include Indonesia, Philippines and Vietnam, but may be expanded to other low- and middle-
income Asian markets.
Financial Inclusion
With about 60% of its 90mn population under the age of 35, the working-class population will continue to expand rapidly over the
next twenty years and bring about greater demand for consumer banking services. Moreover, the under-banked nature of the
population suggests that there is plenty of room for further financial inclusion and customer base expansion for Vietnamese banks.
Vietnam’s banking sector has been stable since recovering from the 2008 global recession. Nevertheless, Vietnam’s central bank,
estimated in 2019 that 55% of Vietnam’s population is underbanked or lacks bank accounts due to a preference for cash, distrust in
commercial banking, limited geographical distribution of banks, and a lack of financial acumen. The World Bank’s Global Findex
Database 2017 (the most recent available) estimated that only 31% of Vietnamese over the age of 15 had an account at a financial
institution or through a mobile money provider (compared to a regional average of 61.7%). With only 3.3 bank branches per
100,000 people, Vietnam has one of the lowest numbers of banks in East and Southeast Asia and the majority are state-run
institutions. Furthermore, only 22% of the adult population had borrowed from a financial institution or used a credit card while
mobile money transactions are also low with only 3% of the adult population owning a mobile money account in 2017 (latest
available). This indicates that financial inclusion remains very low in Vietnam, which is both an opportunity for businesses to target
the large and unbanked population but is also a drawback for consumer-facing businesses as lack of access to financial services can
undermine consumer demand for goods and services.
Financing Remains Costly Despite Recent Dip

Vietnam - Lending Rate, % average (2012-2022)
e/f = Fitch Solutions estimate/forecast. Source: IMF, Fitch Solutions
Financial Markets
The government generally encourages foreign portfolio investment and the country has two stock markets: the Ho Chi Minh City
Stock Exchange (HOSE), which lists publicly traded companies, and the Hanoi Stock Exchange (HNX), which lists bonds and
derivatives. The Law on Securities, which came into effect in January 2021, states that Vietnam Exchange, a parent company to both
exchanges, with board members appointed by the government, will manage trading operations. Vietnam also has a market for
unlisted public companies (UPCOM) at the Hanoi Securities Center. VNX will establish a strategy for the development of the
country's stock markets, issue regulations on listings, ensure the stability of the system and coordinate international cooperation.
The two stock exchanges will operate as separate legal entities within VNX. HNX (currently the smaller of the two exchanges) will
manage the derivatives market and be responsible for government bond transactions. All company stock listings will move to HOSE.
Both exchanges will supervise activities, ensure compliance with regulations and invest in technology needed for their activities to
run smoothly. Vietnam complies with International Monetary Fund (IMF) Article VIII. The government notified the IMF that it
accepted the obligations of Article VIII, Sections 2, 3, and 4, effective November 2005.
The majority of companies listed on the exchanges were previously state-owned enterprises that have been partially privatised.
There is also ongoing cooperation between Vietnam, Japan and the Association of Southeast Asian Nations to help integrate
Vietnam into the broader Asian market. The government's stated intent to accelerate the privatisation of state-owned firms should
provide a foundation for the expansion of the country's financial markets over the medium term. In 2017, Vietnam strengthened
minority investor protections by making it easier to sue directors in cases of prejudicial transactions between interested parties,
increasing shareholder rights and role in major corporate decisions, strengthening the ownership and control structures of
companies and increasing corporate transparency requirements, which bodes well for the business environment in the long run.
This is further supported by greater disclosure requirements for publicly held companies in cases of related-party transactions and
the state requiring higher standards of accountability for company directors. The high level of competition from state-owned
enterprises (SOEs) in Vietnam poses a risk to investors by decreasing the efficiency of the market and reducing competition. The
government still plays a leading role in many sectors of the economy and SOEs remain dominant in key strategic sectors, such as oil
and gas, telecommunications, electricity, mining and banking. SOEs have only recently been authorised to sell shares to strategic
investors before an initial public offering. Vietnam allows foreign investors to participate in the equitisation process, subject to
provisions of other laws that may restrict foreign investor's participation, such as ceilings on capital ownership (see Investment
Openness section). The price for shares sold to strategic investors, however, cannot be lower than the price determined by their
ministerial line authority, which leaves limited space for negotiations that fall in line with changing market conditions.
Although Vietnam welcomes portfolio investment, the country has difficulty in attracting such investment. Foreign investors often
face difficulties in making portfolio investments because of cumbersome bureaucratic procedures. Morgan Stanley Capital
International (MSCI) classifies Vietnam as a Frontier Market, which precludes some of the world’s biggest asset managers from
investing in its stock markets. Vietnam did not meet its goal to be considered an “emerging market” in 2020, and pushed back the
timeline to 2025. Furthermore, in Q121, surges in trading frequently crashed the HOSE’s decades-old technology platform,
weighing on confidence. That said, generally, there is enough liquidity in the markets to enter and maintain sizable positions.
Combined market capitalisation at the end of 2020 was approximately USD230bn, equal to 84% of Vietnam’s GDP, with the HOSE
accounting for USD177bn, the Hanoi Exchange USD9bn, and the UPCOM USD43bn. Bond market capitalisation reached over USD
50bn in 2019, the majority of which were government bonds held by domestic commercial banks.
Legal Environment Analysis

Key View: Although Vietnam is emerging as one of the most attractive investment destinations in the region, bureaucratic and
legal bottlenecks present a hurdle to foreign players. With an underdeveloped legal system, Vietnam’s courts are often ineffective in
settling commercial disputes. Negotiation between concerned parties or arbitration are the most common means of dispute
resolution. Judicial independence can be compromised by political interference and inadequate mechanisms to enforce intellectual
property rights protection, compounded by the prevalence of corruption are factors that weigh down the market’s potential.
Additionally, administrative procedures regarding starting a business, obtaining construction permits and registering property are
lengthy. Consequently, Vietnam is ranked in 11th place out of 18 markets in East and South East Asia, and 94th globally for Legal
Risk, with a score of 49.0 out of 100, ahead of the Philippines.
Legal Risks Weigh, Drag Appeal

East & South East Asia - Legal Risk
Latest Legal Risk Analysis
• Despite the Communist Party General Secretary Nguyen Phu Trong’s anti-corruption drive for the past five years, corruption risks
remain high in the country. Vietnam introduced national code of conduct on social media behaviour in June 2021. We believe
that this reflects a further tightening of its controls over the media, likely to suppress growing (but still very limited) discontent
among its population. The move is likely intended to safeguard political and social stability in the country. However, we highlight
that an unintentional effect of these guidelines will be greater blindsiding corruption risks in the country, which while having
improved since 2016 on the back of Community Party of Vietnam General Secretary Nguyen Phu Trong’s anti-corruption drive,
remains high.
• A survey by Transparency International, which publishes the global Corruption Perception Index (CPI), suggests that corruption is
still a major problem in Vietnam. In 2021, Vietnam ranked 87th out of 180 markets, albeit with a low score of 39 out 100
(compared to 36 out of 100 in 2020). We at Fitch Solutions believe that the slow pace of institutional reform will continue to
weigh on Vietnam's potential in the medium-to-long term as the country seeks to position itself as the preferred destination for
manufacturing businesses in the region. In particular, while the government is taking steps to liberalise the economy and
encouraging foreign direct investment in key sectors, such as IT and manufacturing, corruption still remains a major issue that
will deter some foreign investors considering setting up their operations in the country.
• Vietnam is a member of many international organisations, such as the WTO, World Intellectual Property Organization, the Patent
Cooperation Treaty and the Madrid Agreement Concerning the International Registration of Marks, which advocates for the
protection and respect of intellectual property rights. However, the US Representative’s Special 301 Report lists Vietnam among
the Watch List in 2021, suggesting that there is a need for improvement in mechanisms for protecting and enforcing IP and
consumer rights as well as raising awareness at the street and market level. Indeed, some violations that are frequently reported
in Vietnam include the sale of counterfeit goods, false labels on consumer goods and illegal streaming of movies.
Bureaucratic Environment
Extensive red tape poses significant risks to businesses operating in Vietnam, particularly regarding the time it takes to register a
business, register property, resolve legal disputes and wind up operations in comparison to regional peers. Taking these factors into
account, Vietnam receives a moderate score of 59.4 out of 100 for Regulatory and Bureaucratic Environment, ranking in 9th
position out of 18 markets in the region and 67th globally.
Regulatory And Bureaucratic Environment
The lengthiest step within the process of starting a business in Vietnam is relates to procuring tax administration material from the
municipal tax department, though this can be carried out simultaneously with other processes such as paying for the business
licence tax, registering with the local labour force and registering employees with the social insurance fund. The decentralisation of
licensing authority to provincial authorities has, in some cases, streamlined the licensing process and reduced processing times.
However, it has considerable given rise to regional differences in procedures and interpretations of investment laws and regulations.
To register property, businesses must first prepare an application for the transfer of land use rights and ownership of assets attached
to the land. The transferor and transferee will then sign the contract which will be witnessed and certified by a notary located in the
same area as the property. The time taken to do this can vary substantially from between two and 10 days and could be longer amid
pandemic-related disruptions. The cost of this procedure is high at VND1mn, plus an additional 0.06% for all amounts exceeding
VND1bn. The lengthiest procedure in the process is when the parties pay income tax on the assignment of the land-use right and
the registration fee at the relevant District Department of Taxation. This can take 25-30 days and the final procedure related to
registering a property requires the land-use right transferee to register the right to use the land. This can take a further 15-30 days
and costs around VND150,000.
A major concern to investors is the relatively variable protection of property rights in Vietnam. While property rights of enterprises
and the people, in general, are recognised in many of the country's laws, in effect, ownership rights, especially of land, state
protection of land rights is still often ineffective. For example, land use rights of enterprises can still be revoked to serve loosely
defined goals such as socio-economic development. This leaves investors at risk of losing significant amounts of money were they
to build on disputed land. Expatriates and Vietnamese nationals alike are not able to own land in Vietnam, as it is owned by the state,
although foreigners are permitted to lease land under the Land Law of 2003 for 50-70 years depending on the region, with the
ability to renew the lease. The law requires that foreign and domestic investors be treated equally in cases of nationalisation and
confiscation. However, foreign investors are subject to different business-licensing processes and restrictions, and companies
registered in Vietnam that have majority foreign ownership are subject to foreign-investor business-license procedures. Under the
law, the government of Vietnam can only expropriate investors’ property in cases of emergency, disaster, or national interest, and
the government is required to compensate investors if it expropriates property.
Under the 2014 Housing Law and Real Estate Business Law, land can only be taken if it is deemed necessary for social-economic
development in the public or national interest and is approved by the prime minister or the National Assembly, as well as the
Provincial People's Council. However, 'socio-economic' development is loosely defined and there remain some outstanding legal
disputes between landowners and local authorities. Disputes over land rights are a significant driver of social protest in Vietnam.
Foreign investors also may be exposed to land disputes through mergers and acquisitions, particularly when they buy into a local
company. Real estate rights in Vietnam are divided into collective land ownership by the government and land-use and building
rights, which can be held privately. All land in Vietnam is collectively owned and managed by the state and as such neither
foreigners nor Vietnamese nationals can own land. The majority of land in Vietnam has been issued a land use rights certificate.
Vietnam is building a national land registration database and some localities have already digitised their land records, which signal
the potential for improvement with respect to property rights in the long run. Nevertheless, some investors may face difficulties
amending investment licenses to expand operations onto land adjoining existing facilities. There is also the risk that local authorities
may intend to increase requirements for land-use rights when current rights must be renewed, particularly in instances when the
investment in question competes with Vietnamese companies.
The Credit Information Center of the State Bank of Vietnam provides credit information services for foreign investors concerned
about the potential for bankruptcy with a Vietnamese partner. Under the 2014 Bankruptcy Law, bankruptcy is not criminalised
unless it relates to another crime. The law defines insolvency as a condition in which an enterprise is more than three months
overdue in meeting its payment obligations. The law also provides provisions allowing creditors to commence bankruptcy
proceedings against an enterprise and procedures for credit institutions to file for bankruptcy.
Public Private Partnership Law, passed in June 2020 lists transportation, electricity grids and generation plants, irrigation, water
supply and treatment, waste treatment, health care, education and IT infrastructure as prioritised sectors for FDI and private public
partnerships. The Law on Competition, which came into effect on July 1 2019, includes punishments, such as fines, for those who
violate the law. In 2020, Decree 35, the second decree to implement the Law on Competition came into effect and it addresses
issues on anti-competitive agreements, abuse of dominance and merger control. For merger control, the decree replaces the single
market share threshold for when parties must notify a merger with an approach that puts forward four alternative benchmarks
based on the value of assets, transaction value, revenue and market share. The decree also provides details on merger filing
assessment.
In addition, the lack of substantive regulations on merger and acquisition activities makes such transactions risky. For example,
when a foreign investor buys into a local company through such a transaction, it is difficult to determine which business lines the
acquired company is allowed to maintain. The reason for the lack of clarity is that while the Vietnamese government allows foreign
investors to invest in all but six prohibited sectors and regulates investment in 267 sectors, there are more than 6,400 conditions
relating to these sectors. Consequently, if companies operate within the 267 conditional sectors, determining the potential status of
foreign investors will be very difficult.
Legal Environment
Corruption risks and limited institutional capacity to adequately enforce regulations remain key threats to foreign businesses in
Vietnam, adversely impacting the independence and efficacy of the judicial system, the accountability and transparency of ruling
officials as well as freedom of speech and the press. Difficulties within these areas therefore substantially increase the risk of biased
court decisions, unfair market competition and other deterrents to foreign investment. Despite the country's improving
performance in its enforcement of contracts, investors generally prefer international arbitration to the Vietnamese legal system due
to corruption and resource constraints. Consequently, Vietnam receives a relatively low score of 38.5 out of 100 for Legal
Environment, ranking 12th out of 18 markets in the East and South East Asia region, and 122nd out of 201 markets globally.
Judicial System
Vietnam's judicial system includes the Supreme People's Court, Provincial People's Court and the District People's Courts. The
People's Courts operate in five divisions: criminal, civil, administrative, economic and labour. Parallel to the court systems is the
People's Procuracy, which is responsible for supervising judicial operations. The People's Procuracy can protest a judgment or ask
for a review of a case. In addition, Vietnam has a system of independent arbitration centres, established under the Commercial
Arbitration Ordinance 2003 that can grant enforceable arbitral awards. These are generally the preferred means of resolution for
many investors.
Laws are approved by the national assembly, and ministries draft circulars in order to implement laws. Regulatory authority exists in
both the central and provincial government, and foreign companies are bound by both central and provincial government authority.
Vietnam has its own accounting standards to which publicly listed companies are required to adhere to. Vietnam's attractiveness as
an FDI destination has grown as the country continues to make key legal reforms related to the business climate. The system,
however, still falls short of international norms due to weak judicial independence. There is a lack of separation of powers among
Vietnam’s branches of government. In addition, many judges and arbitrators lack adequate legal training and are appointed through
personal or political contacts with party leaders or based on their political views. In addition, extremely low judicial salaries engender
corruption. Finally, judges are appointed for just five years and must be reappointed by the Communist Party, further binding the
judiciary to the Party.
Vietnam has not yet acceded to the International Center for Settlement of Investment Disputes Convention but is a member of UN
Commission on International Trade Laws over 2019-2025. Vietnam is a party to the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, meaning that foreign arbitral awards rendered by a recognised international arbitration
institution should be respected by Vietnamese courts without a review of a case's merits.
In February 2017, the government issued a Decree on commercial mediation, which came into effect on April 15 2017, providing
upside potential for improved commercial mediation. In its totality, however, Vietnam’s legal system remains underdeveloped and is
often ineffective in settling commercial disputes. Negotiation between concerned parties is the most common means of dispute
resolution. The Law on Arbitration does not allow a foreign investor to refer an investment dispute to a court in a foreign jurisdiction,
nor does it allow for Vietnamese judges to apply foreign laws to a case before them, while foreign lawyers cannot represent plaintiffs
in a court of law. International arbitration awards, when enforced, may take years from original judgment to payment. Vietnamese
courts will only consider recognition of civil judgments issued by courts in markets that have entered into agreements on
recognition of judgments with Vietnam or on a reciprocal basis.
Corruption
Corruption remains a key impediment to foreign investment in Vietnam, as it stems from a number of factors, including a lack of
transparency, accountability, press freedom, low wages for civil servants and inadequate regulatory bodies. These factors lower the
ability of foreign firms to compete and increasing operational costs. A survey by Transparency International, which publishes the
global CPI, suggests that corruption is still a major problem in Vietnam. In 2021, Vietnam ranked in 87th position out of 180 markets
covered by the index, with a meagre score of 39 out 100 (compared to 36 out of 100 in 2020). We at Fitch Solutions believe that
the slow pace of institutional reform will weigh down on Vietnam's potential in the medium-long term as the country seeks to
position itself as the preferred destination for manufacturing businesses in the region. In particular, while the government is taking
steps to liberalise the economy and encouraging foreign direct investment in key sectors, such as IT and manufacturing,
corruption still remains a major issue that will deter some foreign investors considering setting up their operations in the country.
A lack of media freedom has a particularly damaging effect on the rule of law in Vietnam. All of Vietnam's 600 newspapers and 100
television and radio stations are controlled by the government and the state has only expanded its grasp over the media over the
last several years, including within online media with the passage of laws such as the 2012 Decree on the Management, Provision,
Use of Internet Services and Information Content Online. State protection of property rights is still evolving, as the state can
expropriate land for socio-economic development. Vietnam introduced national code of conduct on social media behaviour on
June 17, 2021. We believe that this reflects a further tightening of its controls over the media, likely to suppress growing (but still
very limited) discontent among its population. We highlight that such high restrictions on press freedoms (with its Press Freedom
rank consistently around the bottom five - ranked 175th in 2021 - on Reporters Without Borders index globally) and freedom of
speech, while likely to be effective in suppressing anti-state narrative to safeguard political stability, will also have an indirect effect in
hindering the country’s anti-corruption push. Reducing instances of and also the public perception of corruption in Vietnam will be
a crucial task for the government over the coming years, as the country seeks to attract more foreign direct investment and also
develop local value chains to produce higher value-added products which tend to require better real and intellectual property rights
protection.
Corruption Remains Entrenched

East & South East Asia - Transparency International Corruption Perceptions Index (2021)
Note: Includes territories and special administrative regions. Source: Transparency International
Intellectual Property Rights
The legal basis for intellectual property rights (IPR) includes the 2005 Civil Code, the 2005 Intellectual Property Law as amended in
2009, and implementing regulations and decrees. Vietnam has joined the Paris Convention on Industrial Property and the Berne
Convention on Copyright and has worked to meet its commitments under these international treaties. In 2009, Vietnam revised the
Intellectual Property (IP) Law and IP-related provisions in the Criminal Code with respect to criminal penalties for certain acts of IPR
infringement or piracy. Although Vietnam has made progress in establishing a legal framework for IPR protection, significant
problems remain and new challenges are emerging and in many cases, enforcement agencies still lack clarity in how to impose
criminal penalties on IPR violators. There were some positive developments in 2020-2021, such as the issuance of a national IP
strategy, public awareness campaigns and training activities, and reported improvements on border enforcement in some parts of
the country. Overall, however,IP enforcement continues to be a challenge. The number of entities involved in IPR enforcement in
Vietnam is also problematic, with nine different ministries and agencies responsible for protection and enforcement. Additionally,
the roles and power of these ministries and agencies vary widely.
Vietnam’s continued integration with the global economic community, through its efforts to meet obligations set out in the terms
of the European Union-Vietnam Free Trade Agreement, were seen as harbingers of positive change. Nevertheless, infringement and
piracy remained commonplace, and the impact of digital piracy and the increasing prevalence of counterfeit goods sold online
continued to undermine the IPR environment. The increasingly sophisticated capabilities of domestic counterfeiters, coupled with
developing smuggling routes through Vietnam’s porous borders are also negative for IPR protection.
Substantial compensation for IPR violations is only available under the civil remedies section of the IP Law. Vietnam has yet to
establish specialised IP courts, and knowledge on IP issues within the judiciary remains low. Most often, authorities use
administrative actions such as warnings and fines to enforce IPR protection because they are less demanding on enforcement time
and resources. Vietnamese enforcement bodies have investigated, and in some cases raided and fined, businesses suspected of
using pirated software- nevertheless, Vietnam has one of the highest rates of piracy worldwide, performing poorly in terms of its
anti-counterfeit and financial assets intellectual property rights protection. Due to a lack of resources and training, IPR enforcement
is usually administered through fines and cautions instead of legal protection and action. Vietnam has not yet developed courts
dedicated to intellectual property, and training and understanding of such issues are limited in the legal system. As a result, there is a
high risk for businesses of increased costs and difficulties associated with copyright infringement or piracy.
Trade & Investment Risk Methodology

Our Operational Risk Index quantitatively compares the challenges of operating in 201 markets worldwide. The index scores each
market on a scale of 0-100, with 100 being the lowest risk. The entire index consists of 24 sub-index scores and 90 individual
surveys and datasets, which all contribute to the headline score.
Each market has a headline Trade & Investment Risk Index score, which is made up of three categories, further broken down into
sub-categories. The individual categories and sub-categories are also scored out of 100, with 100 the lowest risk.
The overall Trade & Investment Risk Index score is calculated using the average of the Economic Openness, Government
Intervention and Legal sub-component scores.
Economic Openness: Analyses openness to foreign investment and international trade. This is generated from indicators such as
import, export and foreign direct investment values as a percentage of GDP, which are used as a barometer of openness. A market
that is more open to private and foreign businesses will score more highly on this indicator.
Government Intervention: This score consists of information on taxation and the availability of financing. The scoring system
favours markets which offer lower taxation and open, sophisticated financial markets with easy access to loans.
Legal: This score reviews the strength, transparency and efficiency of the legal system and bureaucracy in a given market. It
measures the extent to which the rule of law is upheld, the prevalence of corruption, and the delays and costs involved with the
bureaucratic procedures required to set up a businesses.
WEIGHTING OF INDICATORS (%)

Indicator Weighting
Economic Openness 33 of which
Trade Openness 50
Investment Openness 50
Government Intervention 33 of which
Taxation 50
Fiscal Barriers 50
Legal 33 of which
Bureaucratic Environment 50
Legal Environment 50
Source: Fitch Solutions
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Vietnam Trade &amp; Investment Risk Report - Q3 2022

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Q3 2022

Trade & Investment Risk Methodology ................................................................................................................................38

Resilient Trade Growth And Increasing Regional Integration Boost Appeal

VIETNAM - TRADE AND INVESTMENT RISK

Vietnam Score 74.6 59.8 49.0 61.1

East and South East Asia Position (out of 18) 5 12 11 9

Asia Average 46.0 57.2 46.6 50.0

Asia Position (out of 35) 5 16 14 9

Global Average 49.5 50.5 48.8 49.6

Global Position (out of 201) 20 47 94 57

Trade & Investment Risk SWOT

Economic Openness Analysis

Vietnam To Benefit From Supply Chain Diversification

Latest Economic Openness Analysis

Structure Of The Economy

Manufacturing And Service Sectors Drive Growth

Source: World Bank, Fitch Solutions

Healthy Trade Growth In Both Directions

Trade Moving Up Into The Province Of Higher Value Products

Source: Trade Map, Fitch Solutions

High Exposure To US-China Trade Tensions

China And Asian Peers Dominate Import Mix

VIETNAM - FREE TRADE AGREEMENTS

Territory/ Status Positive Effect On Businesses

ASEAN-India Active • Moder

Territory/ Status Positive Effect On Businesses

Territory/ Status Positive Effect On Businesses

Source: Vietnam Trade Promotion Agency, Fitch Solutions

FDI Targets Higher Value-Add Sectors

Source: UNCTAD, Fitch Solutions

VIETNAM - FREE TRADE ZONES AND INVESTMENT INCENTIVES

Source: Vietnam Ministry of Planning and Investment, Fitch Solutions

FDI Barrier Sectors Affected Business Impact

FDI Barrier Sectors Affected Business Impact

construction – Government linked corporations continue to dominate the market.

Source: Vietnam Ministry of Planning and Investment, Fitch Solutions

Government Intervention Analysis

High Financing Costs Dent Competitiveness

Latest Government Intervention Analysis

the existing laws.

• A six-month delay for March, April, May and Q1 2022 VAT;

VIETNAM - BUSINESS TAXES

Capital gains tax 0.20%

Branch tax Same as CIT rate

Type Of Tax Tax Rate And Base

Source: Vietnam Ministry Of Finance, Fitch Solutions

Personal Income Tax

VIETNAM - PERSONAL INCOME TAX

More than 960 More than 80 35

Source: Vietnam Ministry Of Finance, Fitch Solutions

VIETNAM - KEY FINANCIAL INCLUSION INDICATORS (2017)

Income level Lower middle income

Financial institution account (% age 15+) 30.0%

Saved at a financial institution (% age 15+) 14.5%

Debit card ownership (% age 15+) 26.7%

Has a national identity card (% age 15+) 94.1%

Credit card ownership (% age 15+) 4.1%

Mobile money account (% age 15+) 3.5%

Source: World Bank, Fitch Solutions

Financing Remains Costly Despite Recent Dip

e/f = Fitch Solutions estimate/forecast. Source: IMF, Fitch Solutions

Legal Environment Analysis

Legal Risks Weigh, Drag Appeal

Latest Legal Risk Analysis

Vietnam Trade & Investment Risk Report - Q3 2022

Vietnam Trade & Investment Risk Report - Q3 2022