Vietnam Trade and Investment R

Q1 2019
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Vietnam
Trade and In
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Includes the Fitch Solutions Operational Risk Index
Vietnam Trade and Investment Risk Report | Q1 2019
Contents
Trade and Investment Risk......................................................................................................................................................... 4
Trade And Investment Risk Key View ................................................................................................................................................................................... 4
Trade And Investment Risk SWOT.......................................................................................................................................................................................... 6
Economic Openness Analysis ................................................................................................................................................................................................ 7
Government Intervention Analysis ....................................................................................................................................................................................22
Legal Environment Analysis ..................................................................................................................................................................................................30
Trade And Investment Risk Methodology ...........................................................................................................................37
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Trade and Investment Risk

Trade And Investment Risk Key View
Key View: 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). The country is further hindered by pervasive corruption that adversely impacts the efficacy of the legal system, as well as
the onerous bureaucracy surrounding paying taxes and opening and closing a business. Taking these factors into account, Vietnam
receives a score of 55.5 out of 100 for Trade and Investment Risk, placing ninth out of 18 East and South East Asian countries,
behind peers such as Singapore, Malaysia and Thailand, and ahead of China.
High Trade Openness Boosts Score

Vietnam & Regional Average - Trade & Investment Risk
Note: 100 = Lowest risk; 0 = highest risk. Fitch Solutions Trade And Investment Risk Index.
Government Intervention (44.4/100): Burdensome tax bureaucracy and relatively low levels of financial inclusion in Vietnam
have skewed the country's competitive landscape. Businesses face inefficient, costly and cumbersome tax administration,
compounded by high levels of government involvement in important economic sectors, particularly banking and financial
services that raise barriers to entry in the sector for foreign investors. However, operating costs are partly moderated by a steady
improvement in access to international financial markets and moderate corporate tax rates by regional comparison.
Legal (51.5/100): Though the country is attracting more investors by virtue of increasing regional economic integration and the
government's moves to open up lucrative opportunities and curb entry barriers in the market, bureaucratic and legal bottlenecks
still present a hurdle to foreign players. Key risks include the weak adherence to the rule of law compounded by the prevalence of
corruption. The enforcement of real and intellectual property rights remains variable, particularly in the latter and inadequate
dispute settlement mechanisms weigh down the market’s potential. Additionally, administrative procedures regarding starting a
business, obtaining construction permits and registering property raise the risk of starting up new ventures in the country.
Economic Openness (70.6/100): Vietnam has become a rising star in East and South East Asia through its rapid growth and
increasing foreign direct investment. Imports and exports have exhibited robust growth, facilitated by the country's efforts to
liberalise trade and expand the scope of regional and international trade agreements. Government reforms have opened up the
economy, boosting FDI and bringing about a steady recovery in real GDP growth.
VIETNAM - TRADE AND INVESTMENT RISK

Economic Openness Government Intervention Legal Trade And Investment Risk
Vietnam score 70.6 44.4 51.5 55.5
East and South East Asia average 55.3 56.7 55.2 55.7
East and South East Asia position (out of 18) 4 14 11 9
Asia average 45.1 51.2 46.8 47.7
Asia position (out of 35) 4 22 14 9
Global average 49.4 50.3 50.3 50.0
Global position (out of 201) 27 127 100 80
Note: 100 = Lowest risk; 0 = highest risk. Source: Fitch Solutions Trade and Investment Risk Index.
The Operational Risk Index quantitatively compares the challenges of operating in 201 countries worldwide. The index scores each
country on a scale of 0-100, with 100 being the lowest risk state. The entire index consists of 24 sub-index scores and 84 individual
surveys and datasets, which all contribute to the headline score. A full methodology can be found at the end of the report.
Trade And 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.
Threats • A high level of non performing loans in the banking system may lead to wider economic risks.
• Corruption and inefficiency in the legal system raises cost and investment risks.
• The government's war against corruption will realise gains but only in the long term as favouritism still rife.
• Vietnam may lose trade opportunities from rising global protectionism, largely stemming from inward-
looking US policies.
Economic Openness Analysis

Key View: Vietnam has become a rising star in East and South East Asia through its rapid growth and increasing foreign direct
investment. Imports and exports have exhibited robust growth, facilitated by the country's efforts to liberalise trade and expand the
scope of regional and international trade agreements. Government reforms have opened up the economy, boosting FDI and
bringing about a steady recovery in real GDP growth. Vietnam receives an Economic Openness score of 70.6 out of 100. This places
it fourth out of 18 states in the region, behind Singapore, Malaysia and Hong Kong.
Regional Trade Integration And Robust Manufacturing Expansion Boost Score

East & South East Asia - Economic Openness
Note: 100 = Lowest risk; 0 = highest risk. Source: Fitch Solutions Trade and Investment Risk Index.
Latest Economic Openness Analysis
• Vietnam posted real GDP growth of 7.5% y-o-y in Q317 and cumulative growth of 6.4% y-o-y in the first nine months of 2017,
making it one of the fastest growing economies in the world. We believe that Vietnam will continue to enjoy robust growth over
the coming years, underpinned by relative political stability, strong FDI inflows, high productivity, higher savings and favourable
demographics. Growth will be further buttressed by greater economic and trade liberalisation, which should see the export-
oriented manufacturing, construction and services sectors continue to outperform. There is a slight risk that economic policy
slippages could dent investor confidence and result in a slowdown in FDI inflows and manufacturing growth.
• In Q118, Vietnam’s Ministry of Finance announced 10 draft decrees on preferential tariff rates for 2018-2020 related to its 10
Free Trade Agreements (FTAs). The trade deals include the ASEAN Free Trade Area, as well as FTAs between ASEAN and Japan,
India, Australia-New Zealand, South Korea and China. Also included are FTAs between Vietnam itself and Korea, Japan, Chile and
the Eurasian Economic Union. Most of the goods will enjoy a 0% import tariff (in effect from January 1 2018), in line with the
country’s commitments within the FTAs' frameworks, while others will go through a gradual reduction until 2022. Exporters will
continue to benefit from the reduced tariffs, leading to greater economic integration. 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. With reduced tariffs leading to a reduction in import tax revenues, the state will likely offset it by an increase in
domestic tax collection in the medium term.
• US President Donald Trump’s tariffs on imported washing machines, aimed at stemming the flow of appliances from East and
South East Asian and Chinese companies into the American market, may put pressure on Vietnam's manufacturing exports. The
overall short-term effect, however, is likely to be limited. Targeted companies such as South Korea-based LG Electronics Inc.
and China’s Midea Group Co. can get around the import duty (of as much as 50%) by raising prices or re-routing production to
countries that are exempt from the new taxes. Should the Donald Trump administration introduce additional specific tariffs on
Vietnamese (and/or Asian) exports to the US, this would pose a more salient risk to Vietnam's export sector, given the
manufacturing sector's strong base.
• Vietnam boasts a strong infrastructure development project pipeline, particularly in transport and power, as it seeks to improve
logistics and address electricity shortages. The government is seeking to draw in foreign private sector expertise, given the high
technical requirements of these projects. Ongoing regulatory reforms intended to privatise and break up state-owned
enterprises and encourage private-sector participation in the infrastructure space and wider economy bodes well for continuing
levels of investment in infrastructure expansion projects.
• In H217 key developments in Vietnam's economic and business environments add further weight to our positive view on its
agribusiness sector. The industry holds strong growth opportunities in terms of production, exports and retail sales, particularly
with regard to the rice, coffee, livestock and dairy sectors. Moreover, economic and financial integration in South East Asia will
benefit Vietnam's exports of agricultural products. However, Vietnam faces growing competition in its key markets. The
fulfilment of its promising potential will only be achieved if the country steps up its competitiveness and improves product
quality and supply chain efficiency. Vietnam will have to significantly ramp up investments on crop productivity and domestic
value addition in the sector.
• Vietnam stands to benefit from increased FDI due to its relative macro-stability, low wages and a large and youthful workforce,
which help retain its appeal as a regional manufacturing base. Vietnam's government expects that inward FDI flows will rise in
2018-2020 in line with increased efforts to attract factories by building a more pro-business environment.
Trade Openness
The export and investment-led growth model that the Vietnamese government is pursuing has drawn significant investor interest
and spurred trade. The increasing pace of regional integration presents many lucrative opportunities that businesses can enjoy –
particularly in manufacturing industries. By expanding trade relations and lowering tariffs between key trade partners, the country is
poised to continue experiencing robust trade growth over 2018-2022. As a result, we give Vietnam a score of 88.0 out of 100 for
Trade Openness, ranking it in first place in the world.
The Vietnamese economy is dominated by its manufacturing and services sectors, and both are becoming increasingly diversified,
advanced and integrated with regional and global value chains. The country has enjoyed robust growth over the past decade with
nominal GDP in 2018 expected to reach USD239.6bn, up from an estimated USD219.2bn in 2017 and USD201.3bn in 2016.
Aggregate annual growth for the period 2018-2022 will be an estimated 6.5%, making the country one of the fastest growing
economies in the world.
The tertiary sector in GVA terms stood at an estimated USD111bn in 2017 up from 101.1bn in 2016 – representing 57.2% of total
GVA, while the secondary sector registered GVA value of USD52.2bn in 2017. The total primary sector value also reached an
estimated USD53.6bn in 2017, though we expect this sector to contract in terms of its share of GDP over the next decade. Medium-
term growth will likely be driven by robust expansions in the industrial and services sectors which are supported by steady FDI
inflows, a diversified and resilient export sector and a fast-rising tourism industry. Moreover, increasing economic and financial
integration in East and South East Asia will benefit Vietnam's exports.
Despite transitioning to a more service and industrial base, agriculture remains a key sector in Vietnam, employing just under half
(46.5%) of the population. Up until the early 1990s, Vietnam was a large exporter of wood, particularly sandal wood. However, in
1992, in response to concerns over the dwindling forests, the government imposed a ban on the export of logs and raw timber. This
was extended to include all timber products except wooden artefacts. Agricultural exports are now dominated by coffee, rice and
fish. Vietnam is one of the top rice-exporting countries 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.
Going forward, we expect continued improvements in the agriculture, forestry and fisheries sectors as the impact from adverse
weather conditions fades but note that expansion in this segment of the economy will remain considerably below headline growth.
Mining also faces headwinds from low commodity prices and environmental concerns. According to the General Statistics Office
(GSO), the mining industry contracted by 3.6% y-o-y in the first three quarters of 2017 but that overall industrial growth was buoyed
by the processing sector, which grew by 11.2% y-o-y and the construction sector which expanded by 9.1%.
Recent developments in Vietnam's economic and business environments add further weight to our positive view on its secondary
sector (see Investment Openness section). The agricultural and agro-processing industries hold some growth opportunities in
terms of production, exports and retail sales, particularly with regard to the rice, coffee, livestock and dairy sectors. However,
Vietnam faces growing competition in its key markets. The Mekong River is one of the key elements behind our positive outlook for
Vietnam, as it is the cornerstone behind its fertile lands. However, two key risks are hovering over the river and its impact on the
region's agriculture. The most pressing risk to water-sharing is linked to the upcoming boom in hydropower along the river, as the
planned construction of multiple dams in the region (mainly Laos) will drastically change river flow and, therefore, the ecosystems,
irrigation and land profile of the regions alongside the river (see 'Mekong Hydropower Development: Potential To Spark Conflict',
March 3 2016). 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.
Manufacturing And Service Sectors Drive Growth

Vietnam - GVA By Sector (2014-2018)
e/f = Fitch Solutions estimate/forecast. Source: National Statistics Office, Fitch Solutions
Vietnam's industrial manufacturing sector growth will remain robust, supported by steady inflows of investment and a well-
diversified export basket in terms of both export markets and types of goods. In recent years, Vietnam's economy has benefited
from multinational companies ranging from tech giants such as Samsung Electronics and Intel, to automobile companies such
as Toyota and Ford, and many textile, apparel and shoemakers including Nike setting up plants in the country. This has raised
Vietnam's trade profile to become one of the largest South East Asian exporters to the US and EU. Vietnam's trade resilience and
economic success are underpinned by strengthening efforts in diversifying its export products and export markets.
The manufacturing sector is a key export driver and this has allowed total goods and services exports to reach an estimated
USD210.5bn in 2017, despite a sluggish in global trade trends in that year. We still forecast resilient aggregate real export growth of
12.4% annually over the period 2018-2022. Vietnam's major product exports have attracted significant investment from
international companies. In 2016, and according to Trademap, the country exported USD76.6bn worth of electrical machinery, parts
and equipment, whereas exports in this sector have been growing at an average pace of 21% over 2012-2016. Another key sector,
textiles, is an important export growth node for the country as, in 2016, the exports of textiles (and articles thereof) stood at
USD18.3bn.
Vietnam is a rapidly growing market for manufactured intermediate goods, vehicles parts, textiles, chemicals and derivatives. A lack
of strong integration between its primary and secondary sectors, however, means that 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 forthcoming capacity growth will be insufficient to
cover demand and the South East Asian economy will remain a major destination for regional fuel exports and intermediate goods
(such as electrical parts) needed for manufacturing over the medium term. In 2016, the country imported USD45.7bn worth of
electrical machinery, parts and equipment, and USD20.9bn worth of machinery, mechanical equipment and parts – the imports in
these sectors have been growing at an average pace of 21% and 12% respectively over 2012-2016.
Heavy Industries Dominate Trade

Vietnam - Goods Exports & Imports, USDbn (2015)
Source: Trade Map, Fitch Solutions
Vietnam will continue to enjoy strong trade growth over the coming years, with both imports and exports expanding at double-digit
rates. The manufacturing sector is a key import driver as many of the inputs used in the production process are imported
predominantly from regional peers such as China, South Korea, Singapore and Japan. Consequently high fuel demand and the need
for intermediate manufactured products and other capital inputs meant total imports reached an estimated USD153.6bn in 2017
and, in line with export growth, we still forecast resilient aggregate real import growth of 13% annually over the period 2018-2022.
The country is establishing itself as a key manufacturing hub, driving trade in both directions. 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, supported by Vietnam’s increasing openness to
trade and investment, political stability, and growing reform momentum. At the same time, a growing consumer base, business
services and tourism sectors are also likely to support steady growth in the services sector, informing our view that Vietnam will
continue ranking among the world's fastest-growing economies globally over the medium term. We forecast private consumption
as a share of GDP to decline very gradually over the coming years as more resources go to capital building. However, the country's
large population, rising affluence and sustained remittance inflows (USD13.2bn in 2015) are some factors that will keep private
consumption growth robust at an average of 6% per annum over the next decade, lending further support to our outlook for
imports.
Vietnam's historical self-sufficiency in crude oil is set to come to an end by H219 as low oil prices, upstream investment pullbacks,
natural declines at mature fields and a massive expansion of refining capacity significantly expand Vietnam's need for crude
feedstock that will need to be sourced via imports. The increase in oil demand will primarily be driven by a significant increase in
refining capacity, alongside positive macroeconomic and demographic factors. Vietnam's natural gas consumption is poised to
surpass production when the country's first LNG import terminal, the Son My, comes online in 2020. Availability of additional gas
supplies will fuel greater uptake in the transportation, power, manufacturing and petrochemicals sectors, driving long-term
consumption growth. 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.
Manufacturing Sector Drives Robust Trade Growth

Vietnam - Total Imports & Exports, USDbn (2012-2016)
e = Fitch Solutions estimate. Source: Asian Development Bank
Vietnam has the seventh largest market regionally in terms of total trade values, ranking between Thailand and Malaysia out of 18
states in East and South East Asia. We expect total trade to reach an estimated USD402bn in 2018, with exports leading the way at
USD231.2bn, while imports will reach USD170.8bn. We expect robust growth in terms of trade volumes over the medium term
(hovering around 13% y-o-y over 2018-2022) backed by a number of factors, including a large, rapidly growing population of
around 96mn that provides a sizeable labour force to satisfy production needs. In turn, economic growth and prosperity have
increased demand for imports while a rebalancing of global trade signals increasing global demand for goods that are key to
Vietnam's export mix.
Vietnamese exports performed well over the last two decades, and rapid export growth in recent years, has supported the country’s
trade balance that will remain in surplus over 2018-2022, reaching USD60.4bn in 2018, up from USD56.9bnin 2017. The reason for
Vietnam's export sector boom is largely due to foreign firms increasingly moving their manufacturing facilities into Vietnam to take
advantage of demographic advantages and trade openness. While sustained growth in the export-oriented manufacturing sector
will keep exports as a share of GDP rising (estimated to reach 99% of GDP in 2018), firm domestic demand conditions and high
import-content of manufactured goods will result in elevated levels of imports.
Over the coming years, we believe that improvements in Vietnam's productive capacity and growth in its manufacturing and service
exports will continue to support the country's trade balance, despite strong import growth due to growing domestic demand. In
addition, strong remittances growth and investment inflows will also help to shore up the country's external position. In 2018, the
current account balance is set to reach USD9.1bn (3.8% of GDP) up from USD8.7bn in 2017.
We hold a positive outlook on Vietnam's trade competitiveness and growth over the medium term as Vietnam's major trading
partners (such as China, South Korea and the EU) are experiencing a return to growth, bolstering export prospects. Export growth to
the US will, however, remain uncertain in the short- to medium-term due to the US administration's movement towards more
protectionist policies, with Asian products in focus. The US is Vietnam's largest export partner, accounting for an estimated 19.9% of
Vietnamese exports in 2016. The US also accounted for 5% of Vietnam’s imports in 2016.
China Dominates Export Mix

Vietnam - Top Five Trade Partners For Product Exports (2015), USDmn
In addition, the country remains vulnerable to growth slippages, in a scenario where the Chinese economy significantly falters. China
represents the largest source market for Vietnam (accounting for 30.3% of goods imports in 2016) and the second largest export
market (accounting for 16.9% of total exports in 2016). We believe that any significant growth slippages in China will weigh on
growth and investment dynamics in the wider region, particularly Vietnam. After China and the US, South Korea and Japan are also
key export and import markets, accounting for a significant share of total trade.
China And Asian Peers Play Critical Feeder Role

Vietnam - Top Five Import Partners, Imports In USDmn (2011-2015)
Fueling Vietnam’s exports is a continued focus on further integration in the regional and global economy. In regard to these ends,
the country’s average tariff rate stands at a low 3.4%. 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. Firms dependent on imports
and exports have benefited from the government's consistent efforts to liberalise foreign trade since the 1980s, which has lowered
the cost of trade while increasing the competitiveness of local products. Trade has been facilitated by Vietnam's membership of the
Association of South East Asian Nations (ASEAN) and the ASEAN Free Trade Area (AFTA), which significantly lowered import tariffs
and regional manufacturing costs for ASEAN members.
Vietnam has signed the European Union Free Trade Agreement (EU-FTA), and is party to agreements such as the Korea FTA,
Eurasian Economic Union (EAEU) FTA, the ASEAN-Australia-New Zealand FTA, the Vietnam-Japan FTA, the ASEAN-China FTA and
bilateral trade agreements with South Korea and the EU. Vietnam also improved trade relations with the US by signing a bilateral
trade agreement 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 due to US President Donald Trump's stance on trade protectionism. It remains to be seen whether
any bilateral trade agreements between the two states will be amended.
VIETNAM - FREE TRADE AGREEMENTS

Country Status Positive Effect On Businesses
Bloc
ASEAN Free Active

Trade Zone • High: ASEAN is a 10-member regional organisation working together to advance economic integration
through cooperation in economic, social, cultural, technical, scientific and administrative fields.
• Within ASEAN is the ASEAN Economic Community (AEC). While the AEC’s goal is to establish a single
market across ASEAN nations (similar to the EU), it has a long way to go in order to achieve this goal. To
date, the greatest success of the AEC has been tariff reductions. As a result, more than 70% of intra-ASEAN
trade is tariff-free, and less than 5% is subject to tariff rates above 10%.
• From 2015, almost all tariffs between member states were removed. Many member states are significant
trade partners for Vietnam.
• Under the ASEAN Trade in Goods Agreement (ATIGA), Vietnam has already cut 6,900 tariff lines, or 72% of
all tariff lines, to 0% in 2014. It reduced more than 1,700 other lines to 0% in 2015. By 2018, Vietnam is
committed to removing all import tariffs. Items to be subjected to 0% import tariff include automobiles,
motorcycles, vehicle components, vegetable oil, tropical fruits, home electronic appliances, milk, and dairy
products.
• Certain agricultural products such as poultry, chicken, citrus fruits, brown rice, processed meat, and sugar
will continue to have a tariff rate of 5%.
ASEAN -China Active

• High: China is a major trade partner of Vietnam.
• Items to attract 0% import tariffs from 2018 include chicken, coffee, raw tea, processed food, textiles and
apparel, some machinery and electronic equipment.
• Vietnam is negotiating Regional Comprehensive Economic Partnership (RCEP) agreement.
ASEAN; Active
Australia; • Moderate: Both Australia and New Zealand are important trade partners for Vietnam.
New Zealand
Japan Active
• High: In 2016, Japan was Vietnam's third largest export and import partner.
• Under the Vietnam-Japan Economic Partnership Agreement (VJEPA) a 0% rate will be applied to 456 tariff
lines for items such as construction stones, steel, aluminium, sugar, machinery, equipment, and vehicle
parts.
South Korea Active

• High: South Korea is Vietnam's second largest import partner and fourth largest export partner
(accounting for 5.7% of total exports). The Korea-Vietnam Free Trade Agreement (FTA), which came into
effect in 2016, was estimated to increase Vietnam’s 2016 exports to South Korea by 28% since 2015, to
USD12.5bn.
• From 2018, import tariffs for 704 tariff lines will be reduced to 0% for items such as seafood, wheat,
confectionery, diesel fuel, machinery and electronic equipment.
Active
Eurasian • Moderate: Under the Vietnam-Eurasian Economic Union FTA, 5,535 tariff lines have been reduced to 0%
Economic in 2018 for items such as milk, dairy products, automobile and spare parts, iron and steel, and steel
Union products. In addition, in 2016 the Vietnam-Russia and the Eurasian Economic Union (EAEU) FTA boosted
Country Status Positive Effect On Businesses

Bloc
Vietnam exports to the EAEU by 20% to USD USD1.6bn.
EU Under
Negotiation • High: Nearly all tariffs are being removed. This agreement is likely to boost trade for both regions.
• In Q118, Vietnam and the EU had concluded negotiations on the EU-Vietnam FTA, which was (at the time
of writing) pending review and approval from both sides.
Source: Fitch Solutions
Vietnam is looking to lower preferential tariff rates for 2018-2020 related to its main Free Trade Agreements (FTAs), which provides
significant upside to export growth. Exporters will continue to benefit from the reduced tariffs, leading to a deeper economic
integration. In addition, this will also reduce the input cost for domestic firms. With reduced tariffs leading to a reduction in import
tax revenues, the government aims to offset it by an increase in domestic tax collection. The trade deals include the ASEAN FTA,
FTAs between ASEAN and Japan, India, Australia – New Zealand, South Korea, and China. Also included are FTAs between Vietnam
and Korea, Japan, Chile and the Eurasian Economic Union. Similarly, under the ASEAN – India (AIFTA), items having current import tax
rates between 1% and 3% will be subjected to 0% import tariffs by 2019. Most of the goods will enjoy a 0% import tariff in effect
from January 1, 2018, in line with the country’s commitments within the FTAs framework, while others will go through a gradual
reduction until 2022.
In 2017, Vietnam also commenced hosting the Asia Pacific Economic Cooperation (APEC) which puts a spotlight on regional
economic integration and improvements to the business climate. While the Trans Pacific Partnership (TPP) is no longer a powerful
tool to accelerate economic reforms, internal pressures ( including a sustained budget deficit, a weak domestic sector that has low
linkages to the global supply chain, productivity challenges amid rising wages, and a financial sector overburdened by non-
performing loans) remain and will continue to drive the reform process.
Investment Openness
Vietnam is focused on attracting foreign investment, especially in sectors that will bring advanced technology, increase the labour
market skills and improve Vietnam's labour productivity. Vietnam's attractiveness as an FDI destination has grown as the country
continues to make key legal reforms related to the business climate. Other FDI pull-factors are Vietnam's stable political system, its
strategic location near global supply chains and China, and an abundant labour force that is less costly relative to China. However,
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. Indeed, taking these factors into consideration, Vietnam scores 53.1 out of 100 for
Investment Openness, ranking it 10th out of 18 states in East and South East Asia.
Investment Trends
Recent changes to the Investment Law and the development of special economic zones have demonstrated Vietnam's open
attitude to investment. Total FDI stock in Vietnam stood at USD115.4bn in 2016 (up from USD102.8bn in 2015), representing 57.3%
of GDP, which ranks the country above most of its East and South East Asian neighbours, in eighth place out of 18 states, on this
metric. Manufacturing and processing activities account for the majority of FDI, at 69.9% of Vietnam's total registered capital.
Vietnam's growth story over the past decade has been marked by tumultuous periods of high inflation, multiple currency
devaluations and widespread economic wastage as a result of inefficient state-owned enterprises (SOE) that continue to hold
dominance in key economic sectors. We believe, however, that 2013 marked a major turning point for the economy. While
structural factors underpinning Vietnam's potential for long-term growth (including favourable demographics, proximity to China
and low cost of labour relative to the region) remain largely unchanged, we highlight several developments that reinforce our bullish
outlook on the economy over the next decade.
Firstly, we foresee a more stable economic environment in Vietnam, brought on by a decisive shift in the government's focus
towards policies aimed at maintaining price stability and ongoing efforts to further address fiscal imbalances. Vietnam is one of the
few counties in Asia that has been able to sustain manufacturing growth. Fuelled by a growing economy with a young, increasingly
urbanised population and inexpensive labour, Vietnam will maintain its manufacturing powerhouse status in Asia. Vietnam as it
made great strides in integrating into the global economy due to increased efforts to integrate in regional value chains.
FDI Contributes Significantly To Growth, More Reforms Needed

East & South East Asia - Inward FDI Stock (2016)
Source: National statistics, Fitch Solutions
Vietnam continues to work to improve its business climate in order to attract foreign direct investment (FDI) and has sustained
registered FDI inflows of roughly USD18.5bn annually since 2012. The manufacturing sector dominated FDI inflows (particularly
since 2013) as investors continued to move large scale operations from other developing countries 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 add production. As such, Vietnam is attracting new and additional investment in the
ICT and energy sectors.
The government encourages investment in: the production of new materials, new energy sources, metallurgy and chemical
industries, manufacturing of high-tech products, biotechnology, information technology, mechanical engineering, agricultural,
fishery and forestry production, salt production, generation of new plant varieties and animal species, ecology and environmental
protection, research and development, knowledge-based services, processing and manufacturing, labour-intensive projects (using
5,000 or more full-time labourers), infrastructure projects, education, training, and health and sports development.
Information technology (IT) has drawn investments from companies such as Samsung (USD3bn), LG (USD1.5bn),
and Microsoft (USD500mn) in recent years. The FDI inflows to the IT sector are in line with Vietnam's strategic efforts to shift FDI
from low-end manufacturing to the high tech sector. Vietnam currently has two high-tech industrial parks: Hoa Lac High-Tech Park
(located in Hanoi) and Saigon High-Tech Park.
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, the 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.
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. 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. Foreign participation is particularly
encouraged in agriculture, labour-intensive industries, hi-tech industries and infrastructure development.
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 socioeconomic 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.
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 a 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.
The Vietnamese government's gradual liberalisation of industry regulation and embrace of public-private partnerships (PPPs) bode
well for the country's construction and infrastructure industries, which in turn will boost the country’s logistics profile. Liberalisation
efforts, including decisions in 2014 and 2015 to lift restrictions on foreign real estate investments and ownership of several
industries will help improve the attractiveness of Vietnam for PPPs; according to our Infrastructure Key Projects Database, there are
45 PPP projects worth nearly USD127bn in the planning phase, mostly in the road, rail and power sectors. Furthermore, our key
projects database shows that half of all ongoing projects involve a foreign partner. However, we note that the appeal of PPPs to
foreign investors may be dented by the lack of transparency in the processes (see 'PPP Appeal Marred by Lack of Transparency',
January 19 2017).
The government has been making efforts to break up state monopolies and privatise SOEs, and although progress has been slow
on this front, we expect this will also offer investment opportunities in the future. An example is in the power market; after the
government started allowing independent producers to sell electricity to state operator EVN in 2012, IPPs now control 40% of the
country's installed capacity. Similar efforts are underway to introduce further private-sector participation in the road and rail sectors.
High Production Potential And Structural Reforms Momentum Draw FDI Inflows
Vietnam - Inward FDI Stock (2007-2016)
Source: UNCTAD, Fitch Solutions
Sustained foreign direct investment (FDI) inflows will be supportive of economic growth over the coming years. In addition,
considering that Vietnam has been running current account surpluses for the past few years, this implies that the private sector has
accumulated savings. Unlocking these savings would allow for greater private sector participation in the country's economic
development and provide an immense boost to growth over the long term.
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 (SMEDF) is also partnering with South Korea's Small and Medium Business Corporation (SBC)
to encourage SME development in the two nations. South Korea is currently one of the largest foreign investor 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.
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 (IZs) and
export processing zones (EPZs) 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.
VIETNAM - FREE TRADE ZONES AND INVESTMENT INCENTIVES

Free Trade Zone/ Main Incentives Available
Incentive Programme
270 industrial zones Foreign investors are exempt from import duties on goods imported for their own use and which cannot be
and export processing procured locally, including: machinery, vehicles, components and spare parts for machinery and equipment, raw
zones across the materials, inputs for manufacturing, and construction materials that cannot be produced domestically. Remote
country. Country and mountainous provinces are allowed to provide additional tax breaks and other incentives to prospective
divides into three key investors.In addition, projects in high tech, research and development, new materials, energy, clean energy,
economic zones renewable energy, energy saving products, automobile, software, waste treatment and management, primary or
(KEZs), each of which vocational education; or projects located in difficult areas or economic and projects in industrial zones are entitled
has its own economic to investment incentives such as lower corporate income tax, exemption of import tariffs, or land rental.
development plan.
Source: Government websites, Fitch Solutions
As the economy gradually shifts towards a more market-oriented system by allowing for increased foreign competition, we believe
that this will open up opportunities for foreign investors seeking to penetrate the Vietnamese market. Indeed, continued state
efforts to implement reforms and streamline bureaucracy will likely benefit businesses by increasing transparency, accountability
and fair competition. Increased foreign participation in sectors that are presently dominated by SOEs should also contribute towards
an overall improvement in the efficiency of the economy over the next decade.
Investment Barriers
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 All
barriers and • Moderate: The overall administrative burden negatively affects investment decisions. Under
administrative the new Investment Law, businesses must apply for an investment license when establishing
burden 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 Oil and Gas, energy

SOEs • 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 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

requirements Forestry, Mining, • High: Foreign investors have maximum ownership restrictions on some sectors deemed to be
and foreign Electricity, Waste strategic. Electricity, transport, mining, banking and telecoms infrastructure sectors have
ownership management and water maximum foreign ownership have foreign ownership limits (ranging from 49%-65%).
limits supply, Transportation, • This has effectively stunted the growth potential of these sectors as it shuts FDI out. Foreign
real estate, Media, investors may possess majority shares in securities or fund management companies in
Banking, Telecoms and Vietnam only if they possess the required licence in their home country and have at least two
Financial Services years of experience in the financial sector 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.
FDI Barrier Sectors Affected Business Impact
• 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 All
with • Moderate: FDI projects must conform to one or more sectoral master plans. Master plans are
Economic economic development policies that set five- to ten-year targets for an industry.
Master Plans • 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.
Government Intervention Analysis

Key View: Burdensome tax bureaucracy and relatively low levels of financial inclusion in Vietnam have skewed the country's
competitive landscape. Businesses face inefficient, costly and cumbersome tax administration, compounded by high levels of
government involvement in important economic sectors, particularly banking and financial services that raise barriers to entry in the
sector for foreign investors. However, operating costs are partly moderated by a steady improvement in access to international
financial markets and moderate corporate tax rates by regional comparison.Taking these factors into account, Vietnam receives a
score of 44.4 out of 100 for Government Intervention Risk, placing it 14th out of 18 states in East and South East Asia, behind
Cambodia and ahead of regional peers such as Laos.
High Financing Costs And Burdensome Tax Administration Dent Competitiveness

East & South East Asia - Government Intervention
Note: 100 = lowest risk, 0 = highest risk. Source: Fitch Solutions Trade and Investment Risk Index.
Latest Government Intervention Analysis
• Vietnam's commercial banking and financial services industry remains in the development stage. There are many opportunities
for domestic and foreign players to grow organically, as well as through mergers and acquisitions. Vietnam's regulatory and legal
framework, as well as its business environment, are mediocre relative to regional standards, but continuous improvement going
forward should boost the attractiveness of the market. We expect robust economic growth averaging over 6% per annum over
the coming decade to elevate household incomes considerably; this will create strong demand for retail banking, insurance and
wealth management products. In 2018, Vietnam strengthened access to credit by adopting a new civil code that broadens the
scope of assets which can be used as collateral.
• The Vietnamese government has introduced Resolution 42, effective August 15 2017, which aims to speed up the resolution of
non-performing loans (NPLs) in the banking sector. If successfully executed, this will likely help to free up much-needed capital
(which is currently set aside as loan loss provisions), which should be supportive loan growth and positive for financial stability
(see 'Industry Trend Analysis - Insolvency Law Reforms Positive For Banking Outlook', August 16 2017).
• While asset quality remains a key challenge for Vietnamese banks, we believe that the sector will improve gradually, with the
economy growing at above 6% over the coming years, and as the property market rises. Moreover, the government has been
pursuing positive reforms, which will serve to raise capital buffers in the banking system and help improve lending practices.
• With the proposed reductions in tariffs leading to a reduction in import tax revenues, the government aims to offset it by an
increase in domestic tax collection. In 2018, Vietnam made paying taxes easier by abolishing the 12-month mandatory carry
forward period for VAT credit and by introducing an online platform for filing social security contributions.
• In 2017, Vietnam made paying taxes less costly and arduous by streamlining the administrative process of complying with tax
obligations and abolishing environmental protection fees. Prior to this development, the country also made paying taxes less
costly for companies by reducing the corporate income tax rate, reducing the number of procedures and documents for filing
VAT and social security contributions, reducing the number of filings for VAT and replacing quarterly filings of corporate income
tax with quarterly advance payments. On the other hand, Vietnam increased the rate for social security contributions paid by
employers.
• Vietnam is aiming to reduce corporate income taxes on small- and medium-sized enterprises (SMEs) by 3% between 2017 and
2020. The Finance Ministry's Tax Policy Department is aiming to boost the number of SMEs in the country to one million by 2020,
which will ultimately help offset the revenue drop and increase the state budget revenue over time.
Taxation
Advantages to investors in Vietnam include a moderately low corporate income tax rate and relatively high fiscal freedom. However,
Vietnam has one of the most burdensome tax administration systems in the world and there is significant government control over
major strategic economic sectors, which continue to increase operational costs while restraining competition in the market.
Vietnam places in the middle of the regional pack for Taxation, with a score of 43.2 out of 100. This places it in 17th place regionally
out of 18 East and South East Asian states, marginally trailing Laos.
The government is heavily reliant on tax revenues to fuel public spending; leaving businesses at high risk of tax increases should the
country's fiscal position deteriorate. Corporate Income tax in Vietnam applies to all domestic and foreign entities that have income
from Vietnam. The standard rate is 20%, reduced in 2016 from the previous 22%, though special tax rates do apply to certain
industries. For example, companies in the oil & gas or natural resource sectors may have to pay a tax rate of 32%-50%. Enterprises
engaging in prospecting, exploration and exploitation of mineral resources (for example, silver, gold and gemstones) are subject to
corporate income tax rates of 40%-50%, depending on the project's location. Meanwhile, those in preferential sectors may receive
rates of 10%-20%. 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.
The taxpayer is responsible for self-assessing the applicable incentives in accordance with the current tax regulations. Profits
remitted by foreign-invested firms are not taxed, though companies are obliged to pay taxes in Vietnam before sending money
abroad. Gains derived from sales of capital or shares in entities are subject to tax at a rate of 20%. Transfers of securities by foreign
investors are subject to presumptive tax of 0.1% on total sales proceeds, regardless of whether the transfer is profitable. There is also
a 5% tax applicable for the exports of certain goods and services, such as water supply, agricultural goods, medical goods and
teaching aids.
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 20% on profits, this rises to 32-50% for businesses in the minerals (oil) sector;
Tax
Capital Gains Tax 20% on gains derived from sales of shares or assignments of capital in enterprises
Branch Tax 20% on profits
VAT 10% on sales and services; 5% on water supply, agricultural goods, medical goods and teaching aids
Special 5% to 150% on imported or domestically produced cigarettes, alcohol, motor vehicles, fuel and air conditioners, and
Consumption Tax various services including casinos, betting, golf courses and various places of entertainment
Social insurance 18% on salaries

and contributions
Foreign Contractor 1% to 10%, depending on business type

Tax
However, benefits accrued from tax incentives are greatly offset by the complexity and difficulty in paying taxes, hindering business
operations and increasing administrative costs as it requires on average 14 annual payment procedures, against a regional average
of 22.9 payments and the OECD average of 10.9 payments. As the worst tax administration in East and South East Asia, it takes 498
hours per year to pay taxes in Vietnam, the longest time out of all 18 countries covered in East and South East Asia and far more
than the 64 hours needed in nearby Singapore. The tax collection system is viewed by investors as poorly managed, and this is
further reflected by Vietnam's placement at the bottom of the 'tax evasion and avoidance' index in Asia by the World Economic
Forum Financial Development Report. Between 2011 and 2012, total revenue collection dropped from 24.3% to 10.8%, while
corporate and VAT tax collection fell from 24.5% and 26.1% to 16% and 10.4% respectively during the same period.
Nevertheless we are seeing marginal improvements in this regard, as in 2016 it used to take on average 770 hours per year to deal
with tax administration. In 2017, Vietnam made paying taxes less costly and arduous by streamlining the administrative process of
complying with tax obligations and abolishing environmental protection fees. In 2016, Vietnam made paying taxes less costly for
companies by reducing the corporate income tax rate and made it easier by reducing the number of procedures and documents
for filing VAT and social security contributions, reducing the number of filings for VAT and replacing quarterly filings of corporate
income tax with quarterly advance payments.
Lengthy Tax Procedures Add To Costs

East & South East Asia - Time To Pay Taxes, Hours
Source: World Bank
Vietnam increased the rate for social security contributions paid by employers. Social insurance, health insurance and
unemployment insurance contributions on salaries (generally applicable to Vietnamese employees only) stand at a high 18% of
wages, thereby raising the cost of labour-intensive operations as this is all due to be paid by the employer. As of January 2009,
Vietnamese nationals and expatriates pay the same personal income tax rate, which ranges between 5% and 35%. Resident and
non-resident individuals working in certain economic zones are entitled to a 50% tax reduction. For tax residents, a progressive tax
system, where the marginal rate ranges from 5% to 35% is applied on worldwide income. For non-tax residents, a flat rate of 20% is
applied on the income derived from Vietnam.
VIETNAM - PERSONAL INCOME TAX

Annual Personal Income (VND) Tax Rate
Up to 5,000 5%
5,000 - 10,000 10%
10,000 - 18,000 15.%
18,000 - 32,000 20%
32,000 - 52,000 25%
52,000 - 80,000 30%
Over 80,000 35%
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 double tax agreements (DTAs).
Vietnam has currently signed DTAs with more than 60 countries, out of which 50 DTAs are currently in force. Generally, these DTAs
follow the basic principles contained in the OECD Model Convention.
However, benefits accrued from tax incentives are greatly offset by the complexity and difficulty in paying taxes, hindering business
operations and increasing administrative costs as it requires on average 14 annual payment procedures, against a regional average
of 22.9 payments and the OECD average of 10.9 payments. As the worst tax administration in East and South East Asia, it takes
498 hours per year to pay taxes in Vietnam, the longest time out of all 18 countries covered in East and South East Asia and far
more than the 64 hours needed in nearby Singapore. The tax collection system is viewed by investors as poorly managed, and this
is further reflected by Vietnam's placement at the bottom of the 'tax evasion and avoidance' index in Asia by the World Economic
Forum Financial Development Report. Between 2011 and 2012, total revenue collection dropped from 24.3% to 10.8%, while
corporate and VAT tax collection fell from 24.5% and 26.1% to 16% and 10.4% respectively during the same period.
Nevertheless we are seeing marginal improvements in this regard, as in 2016 it used to take on average 770 hours per year to deal
with tax administration. In 2017, Vietnam made paying taxes less costly and arduous by streamlining the administrative process of
complying with tax obligations and abolishing environmental protection fees. In 2016, Vietnam made paying taxes less costly for
companies by reducing the corporate income tax rate and made it easier by reducing the number of procedures and documents
for filing VAT and social security contributions, reducing the number of filings for VAT and replacing quarterly filings of corporate
income tax with quarterly advance payments.
Financial Barriers
The country's financial system poses a high amount of risk to firms, including 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. Ranked 14th regionally, Vietnam receives a score of 45.5 out of 100 for its Financial Barriers,
placing it behind more sophisticated markets such as Malaysia and Singapore.
Financial Markets
Vietnam places in the middle of the regional pack for its access to financial markets, highlighting the underdevelopment of the
financial system relative to neighbours such as Malaysia, Indonesia and Thailand. The country's stock market includes two main
stock exchanges; Ho Chi Minh City Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX). As of April 2014, 342 stocks were
listed on the HOSE with total market capitalisation of approximately USD14.7bn and 376 companies were listed on the HNX with
total market capitalisation of approximately USD6.5bn. The majority of companies listed on the exchanges were previously state-
owned enterprises that have been partly privatised. In 2009, a trading floor for unlisted public companies and government bonds
was created at the Hanoi Securities Centre. As of mid-April 2014, 176 companies were listed, with total market capitalisation of
USD1.4bn.
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. While SOE's share of the economy has steadily declined over the last decade, they still
account for around one third of Vietnam's GDP. The government still plays a leading role in many sectors of the economy and SOEs
remain dominant in key strategic sectors, such as oil & 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
investors' 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.
Financing Remains Costly Despite Falling Lending Rates

Vietnam - Lending Rate, %, average
e/f = estimate/forecast. Source: IMF
Banking Sector
We hold a positive outlook on Vietnam's banking sector, as Vietnam's finance, banking and insurance industry continue to grow,
supported by robust expansion in other sectors of the economy (particularly construction and manufacturing), favourable
demographics, and an increase in banking penetration among the population, which is from a low base. Additionally, growing
affluence among Vietnamese has also led to rising internet and smartphone penetration and we expect this will continue to drive
rapid growth in the m-commerce and digital banking segments.
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.
According to the World Bank, just 30.9% of Vietnamese people above 15 years of age had an account at a financial institution in
2015, which is one of the lowest in the region (compared to a regional average of 61.7%). With only 3.8 bank branches per 100,000
people, Vietnam has one of the lowest numbers of banks in East and South East Asia and the majority are state-run institutions.
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. As of March 2011, Vietnamese residents also faced restrictions on their ability to borrow in foreign currency as
a result of the national bank's efforts to curb inflation and to de-dollarise the economy, placing additional constraints on the ability
of some businesses to borrow money.
While there is 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. Although
there are no immediate threats to financial stability, the government's persistently high fiscal deficit combined with an
underdeveloped debt market could trigger a credit crunch in the event of an economic shock, which would disproportionately hurt
SMEs the most. Nevertheless, the government's move to remove guarantees for SOE borrowings is a positive move in this aspect
(see 'Removal of Guarantee for SOEs' Loans a Positive Move', October 13 2016).In 2016, timely intervention by the SBV appears to
have helped reinstall confidence and fend off a banking crisis for now, however, it seems probable that the build-up of bad debt due
to years of poor lending practices and a lack of regulatory oversight over the years will remain a weight on the sector's growth.
Indeed, we expect banks that are unable to compete effectively to be absorbed eventually by the larger state-owned banks under a
directive from the State Bank of Vietnam (SBV), or gradually exit the market altogether. On the whole, this necessary adjustment
may prove to be an effective way of eliminating uncompetitive banks in the economy which will have the long run effect of
reducing the banking sector's weaknesses. Furthermore, the Vietnamese government also established a debt management agency,
known as the Vietnam Asset Management Company, in July 2013, which will help to strengthen risk management practices and
address the high non-performing loans ratios among local banks over the long run. We believe that such efforts should play a
significant role in boosting Vietnam's competitiveness and economic growth over the long term.
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 moneychangers. 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.
The VND remained stable until August 2015 as the State Bank of Vietnam (SBV) prioritised exchange rate stability in order to reduce
dollarisation and the use of gold and other reserves. 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-dollarize 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).
Financial Markets
Vietnam places in the middle of the regional pack for its access to financial markets, highlighting the underdevelopment of the
financial system relative to neighbours such as Malaysia, Indonesia and Thailand. The country's stock market includes two main
stock exchanges; Ho Chi Minh City Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX). As of April 2014, 342 stocks were
listed on the HOSE with total market capitalisation of approximately USD14.7bn and 376 companies were listed on the HNX with
total market capitalisation of approximately USD6.5bn. The majority of companies listed on the exchanges were previously state-
owned enterprises that have been partly privatised. In 2009, a trading floor for unlisted public companies and government bonds
was created at the Hanoi Securities Centre. As of mid-April 2014, 176 companies were listed, with total market capitalisation of
USD1.4bn.
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. While SOE's share of the economy has steadily declined over the last decade, they still
account for around one third of Vietnam's GDP. The government still plays a leading role in many sectors of the economy and SOEs
remain dominant in key strategic sectors, such as oil & 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.
Legal Environment Analysis

Key View: Though the country is attracting more investors by virtue of increasing regional economic integration and the
government's moves to open up lucrative opportunities and curb entry barriers in the market, bureaucratic and legal bottlenecks
still present a hurdle to foreign players. Key risks include the weak adherence to the rule of law compounded by the prevalence of
corruption. The enforcement of real and intellectual property rights remains variable, particularly in the latter and inadequate
dispute settlement mechanisms weigh down the market’s potential. Additionally, administrative procedures regarding starting a
business, obtaining construction permits and registering property raise the risk of starting up new ventures in the country.
Consequently, Vietnam is ranked in a middling 11th place out of 18 countries in East and South East Asia for Legal Risk, placing it
with a score of 51.5 out of 100.
Legal Risks Weigh Down Investment Appeal

East & South East Asia - Legal Risk
Note: 100 = lowest risk. 0 = highest risk. Source: Fitch Solutions Trade and Investment Risk Index.
Latest Legal Risk Analysis
• Transparency International ranks Vietnam 113 out of 176 countries in its latest Corruption Perceptions index of 2016. The ruling
Communist Party has stepped up their anti-corruption drive over the past few years with courts handing down the death penalty
against several senior executives. In August 2017, Vietnam's vice trade minister was dismissed for alleged misconduct as the
ruling Communist Party widened its crackdown on corruption.
• In 2018, Vietnam made enforcing contracts easier by adopting a new code of civil procedure and by introducing a consolidated
law on voluntary mediation.
Bureaucratic Environment
Extensive red tape poses significant risks to businesses operating in Vietnam in the time it takes to register a business, register
property, resolve legal disputes and wind up operations. Though benefits to companies include low costs of establishing a business
and obtaining construction permits, disadvantages stem from the lengthy nature of critical processes. Taking these factors into
account, Vietnam receives a score of 55.5 out of 100 for Bureaucratic Environment, or a low rank of 10th out of 18 states regionally.
VIETNAM - BUREAUCRATIC PROCEDURES

Bureaucratic Obligation Number Of Procedures Time Cost
Opening A New Business 9 24 days 4.6% of income per capita
Registering A Property Purchase 5 57.5 days 0.6% of property value
Obtaining Construction Permits 10 166 days 0.8% of warehouse value
Completing Insolvency Proceedings na 5 years 14.5% of estate
na = not available/applicable. Source: World Bank 'Doing Business'
VIETNAM- BUREAUCRATIC BARRIERS

Type of Bureaucratic Barrier to Business Operations
Procedure
Starting a Business • The process of opening a business in Vietnam is relatively complex, taking on average 22 days and
requiring nine procedures compared to the OECD average of 8.5 days and less than five procedures.
Though this length is relatively on par with the East Asia and Pacific average of 22.7 days, it highlights how
uncompetitive Vietnam still is by global comparison.
• As the country looks to develop its value chains and with increasing regional integration, it is vital that
bureaucratic procedures are swift and transparent as seen in states such as Hong Kong and Singapore. The
lengthiest procedure within the process of starting a business in Vietnam is buying pre-printed VAT invoices
from the municipal tax department, which takes 10 days, 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.
• In 2017 Vietnam made starting a business more difficult by requiring entrepreneurs to receive approval of
the seal sample before using it.
• The decentralisation of licensing authority to provincial authorities has, in some cases, streamlined the
licensing process and reduced processing times. It has also, however, given rise to considerable regional
differences in procedures and interpretations of investment laws and regulations. Insufficient guidelines
and unclear regulations can prompt local authorities to consult national authorities, resulting in additional
delays. Furthermore, the approval process is often much longer than the timeframe mandated by law. Many
foreign firms have invested successfully, though a lack of transparency in the procedure for obtaining a
business license can make investing riskier.
• The long amount of time required in order to comply with business regulations and the high number of
regulatory inspections weigh down operations in the country.
• The cost of opening a business in Vietnam is regionally competitive at 6.5% of income per capita. This is
well below the East and South East Asia average of 18.4% of income per capita but remains over the OECD
average of 3.1%.
• A significant incentive to investors is the fact that businesses are not required to pay any minimum
amount of capital when registering. This not only reduces the need for businesses to source high levels of
capital before beginning their operations, but also creates an environment in which entrepreneurship can
flourish.
• Furthermore, under Vietnamese law, the government can only expropriate investors’ property in cases of:
emergency, disaster, defence, or national interest. Under the law, if a property is expropriated, the
government is required to compensate investors.
Registering Property • The process of registering a property in Vietnam is also arduous, taking an average of 57.5 days and

Procedure
requiring just five procedures, compared to the East Asia and Pacific regional average of 74.5 days, but
more than double the OECD average (22.3 days). To register property, businesses must first build 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.
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 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. Nevertheless, the
total cost of registering a property is highly competitive at 0.6% of property value, compared to the regional
of 4.3%. This lowers the overall cost of starting a business and enhances Vietnam's competitiveness
compared to other states in the region.
• However, 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 dependent on
the region, with the ability to renew the lease. Foreign businesses therefore face an increased risk of
difficulties in enforcing property rights that could potentially lead to complicated and costly legal
proceedings.
Obtaining A Construction • Vietnam performs well by regional standards in terms of the cost of construction permits, which stands at
Permit 0.7% of warehouse value, relative to the regional average of 2.2% and the OECD average of 1.6%.
• It takes only 166 days to get a permit in Vietnam, compared with 138.2 and 154.6 days for the East Asia and
Pacific region and the OECD respectively.
• Firms therefore enjoy lower costs and relatively less difficulty in acquiring permits.
Closing A Business • Despite the many benefits of low costs of starting a business, it remains highly risky to invest due to the
complicated process of winding down operations in the country. Closing a business in Vietnam takes five
years, compared to the regional average of 2.6 years.
• Indeed, Vietnam's legal system remains underdeveloped and ineffective in settling disputes. In 2014
Vietnam revised its Bankruptcy Law to make it easier for companies to declare bankruptcy. The new law
clarifies the definition of insolvency as an enterprise that is more than 3 months overdue in meeting its
payment obligations. The new law also provides provisions for when creditors can commence bankruptcy
proceedings against an enterprise and created procedures for credit institutions to file for bankruptcy. The
new bankruptcy law is important as 71,400 companies suspended operations in Vietnam in 2015,
representing a 22% increase from the previous year.
• The average cost of closing a business is a high 14.5% of estate compared to the OECD average of 9.1% of
the state, highlighting the elevated costs for businesses. On average, businesses must contend with a low

Procedure
recovery rate of 21.80 cents on the US dollar. This is relatively low compared to the regional average of 35.4
cents on the dollar and even lower than the OECD average of 71.2 cents on the dollar suggests that
businesses receive relatively little protection in the event of insolvency.
Source: Fitch Solutions, World Bank
Legal Environment
Weak adherence to the rule of law remains a key threat to foreign businesses in Vietnam. Corruption is pervasive in the country,
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. Vietnam receives a score of 47.5 out of 100 for Legal Environment, ranking 10th out of 18 countries in the
East and South East Asia region, well ahead of Cambodia, Indonesia, Laos and the Philippines.
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. In Vietnam,
enforcement across the board is weak. Drafting agencies often lack the resources to conduct adequate scientific or data-driven
assessments. Furthermore, while the legal framework might comply in international norms in some areas, the biggest issue
continues to be enforcement.
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. Vietnam has not yet acceded to the Convention on the Settlement of Investment Disputes
between States and Nationals of other States (ICSID). Although the law states that the court should recognise and enforce foreign
arbitral awards, Vietnamese courts may reject these judgements on the grounds that the award is contrary to the basic principles of
Vietnamese laws.
There is a lack of separation of powers among Vietnam’s branches of government. For example, Vietnam’s Chief Justice is also a
member of the Communist Party’s Central Committee. Along with corruption, the judicial system continues to face additional
problems. For example, 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.
In February 2017, the government issued a Decree on commercial mediation, which comes 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 countries that have entered into agreements on
recognition of judgments with Vietnam or on a reciprocal basis. With the exception of France, however, these treaties only cover
non-commercial judgments.
Despite the failings of the judiciary, Vietnam performs moderately in the realm of contract enforceability. Enforcing contracts takes
an average of 400 days, versus 565.5 days in the East Asia and the Pacific region and 577 days in OECD countries. Additionally, the
cost as a percentage of the claim is only 29% in Vietnam, versus 47.3% regionally.
Corruption Remains Entrenched

East & South East Asia - Transparency International Corruption Perceptions Index 2016
Source: Transparency International
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.
Transparency International’s 2016 Corruption Perception Index determined Vietnam had made positive steps to improving some
areas of the legal framework and policies on anti-corruption. Specifically, it cited the government’s passing of the law on access to
information, and the revision of the law on anti-corruption. The Government has tasked various agencies to deal with corruption,
including the Central Steering Committee for Anti-Corruption, the Government Inspectorate, and line ministries and agencies.
However, ranking 113 out of 176 in the global index reflects the country’s continuing challenge fighting corruption and the ongoing
risk that corruption poses. Vietnam ranks in the bottom half out of 18 states within East and South East Asia for perceived levels of
corruption. According to Transparency International, the risk of corruption in judicial rulings is significant, as nearly 20% of surveyed
Vietnamese households that have been to court declared that they had paid bribes at least once. Many businesses therefore avoid
Vietnamese courts. Competition among agencies for control over business and investments has also created overlapping
jurisdictions and bureaucratic procedures that in turn create opportunities for corruption, particularly in public procurement.
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.
However, in a signal that the new government is serious about reforming government procurement, in July 2016, the government
approved a 10-year master plan for procurement. This will emphasise and promote online tendering, with the purpose of increasing
transparency and reducing corruption opportunities. To this end, the government is working to roll out an e-bidding public
procurement site in H118, which will supplement its existing e-procurement portal that provides information on public
procurement laws and regulations.
State protection of property rights is still evolving, as the state can expropriate land for socio-economic development. 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
land owners 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 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.
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, of which 3,299 conditions will be unlawful from July 1, 2016. Consequently, if companies operate within the
267 conditional sectors, determining the potential status of foreign investors will be very difficult.
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. 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 varies 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 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 specialized 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 is limited in the legal system. As a result, there is a very high risk for businesses of increased costs and difficulties
associated with copyright infringement or piracy.
Trade And Investment Risk Methodology

Our Operational Risk Index quantitatively compares the challenges of operating in 201 countries worldwide. The index scores each
country on a scale of 0-100, with 100 being the lowest risk. The entire index consists of 24 sub-index scores and 84 individual
surveys and datasets, which all contribute to the headline score. A full methodology can be found at the end of the report.
Each country has a headline Trade and 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 best.
The overall Trade and Investment Risk Index score is calculated using the average of the Economic Openness, Government
Intervention and Legal sub-component scores.
Economic Openness: Analyses a country's openness to foreign investment and international trade. This is generated from
indicators such as import, export and foreign direct investment (FDI) values as a percentage of GDP, which are used as a barometer
of openness. A country that is more open to private and foreign businesses will score more highly on this indicator.
Government Intervention: This score is composed of information on taxation and the availability of financing. The scoring
system favours countries 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 country. 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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Trade And Investment Risk Methodology ...........................................................................................................................37

Trade and Investment Risk

High Trade Openness Boosts Score

VIETNAM - TRADE AND INVESTMENT RISK

Vietnam score 70.6 44.4 51.5 55.5

East and South East Asia position (out of 18) 4 14 11 9

Asia average 45.1 51.2 46.8 47.7

Asia position (out of 35) 4 22 14 9

Global average 49.4 50.3 50.3 50.0

Global position (out of 201) 27 127 100 80

Trade And Investment Risk SWOT

Economic Openness Analysis

Regional Trade Integration And Robust Manufacturing Expansion Boost Score

Latest Economic Openness Analysis

Manufacturing And Service Sectors Drive Growth

Heavy Industries Dominate Trade

Source: Trade Map, Fitch Solutions

Manufacturing Sector Drives Robust Trade Growth

e = Fitch Solutions estimate. Source: Asian Development Bank

China Dominates Export Mix

Source: Trade Map, Fitch Solutions

China And Asian Peers Play Critical Feeder Role

Source: Trade Map, Fitch Solutions

VIETNAM - FREE TRADE AGREEMENTS

ASEAN Free Active

ASEAN -China Active

South Korea Active

Country Status Positive Effect On Businesses

Vietnam exports to the EAEU by 20% to USD USD1.6bn.

Source: Fitch Solutions

FDI Contributes Significantly To Growth, More Reforms Needed

Source: National statistics, Fitch Solutions

Source: UNCTAD, Fitch Solutions

VIETNAM - FREE TRADE ZONES AND INVESTMENT INCENTIVES

Source: Government websites, Fitch Solutions

Dominance of Oil and Gas, energy

Localisation Agriculture and

FDI Barrier Sectors Affected Business Impact

• In 2010, Vietnam restricted bidding by foreign firms on government-issued procurement

Source: Government websites, Fitch Solutions

Government Intervention Analysis

High Financing Costs And Burdensome Tax Administration Dent Competitiveness

Latest Government Intervention Analysis

VIETNAM - BUSINESS TAXES

Branch Tax 20% on profits

Social insurance 18% on salaries

Foreign Contractor 1% to 10%, depending on business type

Source: Government websites, Fitch Solutions

Lengthy Tax Procedures Add To Costs

Source: World Bank

VIETNAM - PERSONAL INCOME TAX

5,000 - 10,000 10%

10,000 - 18,000 15.%

18,000 - 32,000 20%

32,000 - 52,000 25%

52,000 - 80,000 30%

Over 80,000 35%

Source: Government websites, Fitch Solutions

for negotiations that fall in line with changing market conditions.

Financing Remains Costly Despite Falling Lending Rates

e/f = estimate/forecast. Source: IMF

Legal Environment Analysis

Legal Risks Weigh Down Investment Appeal