07 remarks for foreign investors to conduct projects for production in Vietnam

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07 remarks for foreign investors to conduct projects for production in Vietnam

Nowadays, an increasing amount number of Foreign Investors (“Investors”) choose Vietnam as an ideal destination to conduct business activities. Besides, the Vietnam Government also enacts many preferential policies aimed at attracting and calling many Investors to invest in Vietnam, boosting economic development, creating jobs, enhancing living standards and income for workers.

A project invested in a foreign country without careful research shall make Investors hesitate and nervous to reach an investment decision. Especially regarding projects for production requiring a huge amount of investment capital for its operations, Investors shall need to have a clear plan as well as duly understand Vietnamese provisions before investing.

This article is aimed at providing Investors an overview of remarks to carry out investment projects in Vietnam.

Firstly: Manufacturing location

Manufacturing location is a crucial issue that Investors need to prioritize to look for and choose in order to check on preferential policies and restrictions for project implementation as well.

Manufacturing location must be consistent with the overall master planning of socio-economic development and environmental regional planning. Enterprises are not allowed to have its production in concentrated residential zones, inner city areas but merely in environs or remote areas which are far from residential areas, and areas planned for production such as Industrial Parks. 

Currently, there are many Industrial Parks that are allowed to operate in provinces/ cities, investors can contact the Industrial Parks in the provinces/cities where the Investor intends to locate their operation location for survey and evaluation. In case, the Investor wishes to locate their manufacturing plant outside the Industrial Park, but far from residential areas, when applying for an Investment Registration Certificate, the licensing agency will consult the provincial-level People’s Committee to check the planning issue and approval of the project.

In addition, major projects with a land use scale of 50 or more hectares may have to obtain the approval of the Government or the National Assembly before being licensed. This also shows that Investors need to carefully research the regulations and mandatory procedures when deciding to invest in Vietnam in order to have the appropriate investment plan.

Secondly: Project impact on the development of social-economic and economic efficiency of the project

This criterion is, no less than others, also important. It is essential for Investors to prove important effects rooted in the project and whether it positively impacts the development of the industry, and the area, or not. To be specific:

  • The experiences, product quality, ability to access the market, material sources, ability to affect the external environment and foreign advanced technology.
  • The demand for local labor.
  • The estimated revenue, profit and other taxes are remitted to the state budget at least 3 years from the initiation of the project.

Hence, the licensing agency shall acknowledge the capacity and effectiveness of the project.

Thirdly: Investment incentives

In order to attract Investors to implement projects in areas with harshly socio-economic conditions, or in industries encouraged to invest by the state, the Government has enacted preferential policies as follows:

  • Corporate income tax (CIT) incentives, comprising application of a lower rate of CIT than the normal tax rate for a definite period or for the whole duration of implementation of the investment project; and exemption from and reduction of tax and other incentives in accordance with the law on CIT;
  • Exemption from import duty in goods imported to form fixed assets; or on raw materials, supplies and components imported for production in accordance with the law on import and export duties;
  • Exemption from and reduction of land rent, land use fees and land use tax;
  • Accelerated depreciation and increase in the amount of deductible expenses when calculating taxable income.

♦ Areas with difficult socio-economic conditions are eligible for preferential investment:

Investors can refer to Appendix III – List of Preferential Investment Geographical Areas (Attached to Decree No. 31/2021/ND-CP dated March 26th, 2021 of the Government)

♦ Preferential investment industries and trades comprise:

  • High-tech activities, industrial products which support high-tech; research and development activities; production of products formed from the results of science and technology [S&T] in accordance with the law on S&T; 
  • Production of new materials, new energy, clean energy or renewable energy; production of products with an added value of 30% or more, and energy-saving products;
  • Production of electronics, prioritized mechanical products, agricultural machinery, automobiles, automobile parts; and shipbuilding;
  • Production of products on the List of supportive industrial products for which development is prioritized;
  • Production of products of information technology, software and digital content;
  • Breeding, growing and processing agricultural, forestry and aquaculture products; afforestation and protection of forests; salt production; fishing and fishing logistics, creation of plant and animal varieties and production of products of biological technology;
  • Collection, processing, reprocessing or reuse of refuse/waste;
  • Investment in development and operation, and management of infrastructure facilities; and development of public transportation in urban areas; 
  • Pre-school education; general education; vocational education; and university education; 
  • Medical consultation and treatment; production of medicines, raw materials for production and storage of medicines; and scientific research in relation to technology of preparation or biological technology for production of new medicines; production of medical equipment;
  • Investment in facilities for training and competition of sports or physical practice for disabled people or for professional sportsmen; and protection and promotion of the value of cultural heritage;
  • Investment in centres for geriatrics, psychiatry or treatment of patients exposed to Agent Orange, and centres for care of the old, disabled, orphans or street children without support;
  • People’s credit funds and micro-financial institutions;
  • Production of goods or supply of services which create or participate in a value chain or industry linkage cluster.

Fourthly: Investment Scale

This criterion is determined through the land area and construction area of the project. Quantity and volume of products expected to be produced in the year. This is a mandatory criterion that needs to be explained when applying for an investment registration certificate for the project and will be clearly stated in the investment registration certificate of the project. In case the investor does not operate in accordance with the registered scale or exceeds the registered scale, it is compulsory to register for adjustment of investment scale with the licensing agency.

Fifthly: Implementation schedule of the investment project

Implementation schedule of the investment project is an important condition that the licensing agency considers when considering and approving investment projects. Investors need to have a project implementation road map including the time of project preparation, capital contribution and operation. Specifically, the Investor needs to have the following basic road map:

♦ Schedule of capital contribution and raising capital sources:

♦ Schedule of construction and putting the work into operation:

  • The time to complete the application for Investment Registration Certificate;
  • Time to complete the implementation of Environmental Impact Assessment, fire prevention and fighting and Construction Permit;
  • Time to complete the procedure of investment and construction;
  • Time to complete the project construction;
  • Time to complete the purchase, arrange;
  • Time to complete the purchase, installation of machinery and equipment, and trial operation;
  • Time to operate the project.

It can be seen that the investor needs to carry out many stages as above to operate the project, the Investor also needs to determine the timelines for completing each stage and register with the licensing agency.

Sixthly: Investment capital and the ability to raise capital

Capital is an element showing whether the Investor’s capacity is suitable for the project scale that the Investor applies for approval or not. Investment capital includes the Investor’s capital contribution and loan raised. The Investor must contribute the full amount of capital within the period that the Investor commits to contribute. Investors need to prove their financial ability enough to invest in the project to the licensing agency, the document used to prove can be a financial statement or a bank account statement.

For the loan raised, this is the capital that the Investor can borrow from credit institutions, the Investors cooperate to implement the project or from another capital source.

Seventhly: Environment

The Environment is a matter of concern to state agencies and local governments for production projects. Many production projects violate this problem leading to a heavy impact on the environment, especially caused by the waste of factories. According to the provisions of Article 18 of the Law on Environmental Protection 2014, the subject to environmental impact assessment include: 

  • Projects under the competence to decide on investment guidelines of the National Assembly, the Government and the Prime Minister; 
  • The project has land use of nature reserves, national parks, historical-cultural relics, world heritage areas, biosphere reserves, listed scenic areas; 
  • The project risks adversely impacting the environment. 

Specifically, projects must carry out environmental impact assessment specified in Appendix II of Decree No. 40/2019/ND-CP

In case the production project does not belong to the case of environmental impact assessment as prescribed above, the Investor must make an environmental protection plan as prescribed in Article 30 of the Law on Environmental Protection 2014.

The above are significant issues that investors need to pay attention to before deciding to invest in Vietnam.

In summary, currently the Government of Vietnam is inviting many investors to invest in Vietnam to develop the domestic economy. Therefore, investors should get opportunities and have appropriate investment plans.

If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.

This article is for general information only and is not a substitute for legal advice.