In case you would like to open a foreign invested company (hereinafter referred to as the “NewCo”) in Vietnam to export textiles products. We, therefore, are grateful to present you our legal comments for your review and consideration.
1. BRIEF SUMMARY OF BACKGROUND
Under Vietnam Law, the establishment of the NewCorequires an Investment Certificate from the licensing authority. Depending on the location of the company, the licensing authority may be the provincial People’s Committee (for companies located outside industrial or export processing zones) or the provincial Industrial and Export Processing Zones Management Authority (for companies located in industrial or export processing zones).
2. PRELIMINARILY COMMENT OF S&B LAW
2.1. Executive Summary
Under Vietnam Law on Investment, in order to obtain an Investment Certificate for establishment of a foreign invested company, Foreign Investor is required to propose an Investment Project.
Investment Project is understood as “a collection of proposals for the expenditure of medium and long-term capital in order to carry out an investment activity in a specific geographical area and for a specified duration”. Then, relevant competent authorities shall evaluate the legitimacy and the feasibility of such Investment Project to determine whether to grant Investment Certificate or not.
Assessment of the legitimacy of an Investment Project shall be based on legal framework of Vietnam, including Vietnam’s WTO Commitments, Vietnam Investment Law, Vietnam Enterprise Law, Regulations applicable to specific industries as well as the master economic development plan of the city or province that the NewCo shall register its head-office.
Meanwhile, a conclusion regarding to the feasibility of an Investment Project shall be based on assessment on the financial ability of the Foreign Investor, investment capital to put in the Investment Project, facilities and human resources serving the implementation of such investment project in Vietnam.
Thus, procedure for establishment of a foreign invested company in Vietnam generally takes a rather long time in comparison with other countries in the region. Our practical experiences show that although the total time for establishment of a foreign invested company as stipulated under Vietnam Investment Law 2005 is only 20 -45 days, the actual process may take a longer time due to that the competent authority must consult other relevant offices to valuate the investment project.
2.2. Specific comments
2.2.1. Exporting textile products from Vietnam
Under Vietnam’s WTO Commitments regarding to importation, exportation right and trading right (hereinafter referred to as “Distribution right”), from the year of 2009, restriction of foreign ownership in a foreign invested company conducting the distribution right in Vietnam shall be totally removed. Thus, it is possible for you to set up a wholly foreign invested company or Joint Venture Company in Vietnam.
Vietnam Law does not make any discrimination between Wholly Foreign Invested Company and Joint Venture Company. It does mean that Wholly Foreign Invested Company or Joint Venture Company can enjoy equivalent investment incentives from Vietnam Government.
With respect to a company exporting textile products from Vietnam, the Company shall be applied following taxes:
- Corporate Income Taxwhich is levied on the taxable income of the Company. Taxable income of the Company to be calculated Corporate Income Tax shall be revenues generated in its course of production less reasonable expenses in the relevant fiscal year. Percentage of Corporate Income Tax applied to enterprises in Vietnam is 25% of taxable income and will be down to 23% this year (2013)
- Value Added Tax (VAT) applies to the supply of goods and services for use in production, business or consumption in Vietnam. VAT is calculated on the sale/purchase price of relevant goods or service before the addition of VAT. VAT applied to exported products shall be 0%. It does mean that after a specific term, the Company can apply for reimbursement of input VAT that the Company has paid for its consumed products or services.
- Export tax: Under Vietnam Law, all goods which are exported or imported across Vietnamese borders, or pass between domestic market and a non-tariff zone and vice versa are subject to export or import duty except goods. However, in fact, list items of goods subjected to export tax in Vietnam is very few and annually adjustable. According to the Circular No. 157/2011/TT-BTC dated November 14th, 2011, textile product is not listed as products applied export tax from January 1st, 2012.
Also, it should be noted that Vietnam Law does not request for minimum amount to establish a foreign invested company for exporting textile products. However, the investment capital to put in the NewCo in Vietnam will be taken into account during evaluation of your plan on setting up the NewCo.
The amount of investment capital can be contributed within 90 working days (if the NewCo is structured under the form of Joint Stock Company) or within 36 months (if the NewCo is structured under the form of Limited Liability Company).