Invest Asia Group in Vietnam
Last Update: 30th September 2020
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Tran Quoc Pagoda in Hanoi, Vietnam
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The Vietnamese Economic Miracle has transformed the country from a war-torn, divided country into one of Asia's economic success stories. Similar to its successful Northern neighbor (China), the Socialist Republic of Vietnam embarked on a number of 'Đổi Mới' economic reforms during the 1980s to transform the economy from a 'highly centralized command economy' into a mixed market based economy, offering varied opportunities for prospective investors.
This strategy has solidified Vietnam as an exporter within the global economy, attracting foreign direct investment from all corners of the globe. Despite these economic reforms, the government controls a large number of companies within Vietnam and similar to Singapore & China, aims to continually implement a successful state capitalist economy.
This strategy has solidified Vietnam as an exporter within the global economy, attracting foreign direct investment from all corners of the globe. Despite these economic reforms, the government controls a large number of companies within Vietnam and similar to Singapore & China, aims to continually implement a successful state capitalist economy.
Vietnam: Overview
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Vietnam is a diverse country geographically and economically with major differences in living standards between the two main cities of Hanoi & Ho Chi Minh City, compared to the rest of the country. Moreover, with Vietnam's recent history, these two main cities are also quite different culturally and economically. Hanoi, being the capital of North Vietnam (Democratic Republic of Vietnam) is less developed with large communist inspired buildings throughout the city. Alternatively, Saigon (Ho Chi Minh City) being the capital of South Vietnam, is larger, cleaner and more developed. After the country was unified, post Vietnam war, reforms followed and Vietnam is now 'catching up' as one of the highest annual economic growth countries in the world.
Whilst Ho Chi Minh City and Hanoi offers the best skilled talent to choose from, depending upon objectives for investing or operating a business within Vietnam determines the best place to establish. Due to the increased wages within China, Vietnam (as well as other neighboring countries) has replaced a significant amount of labor intensive work that was originally produced in China. The Vietnam government offers various benefits to attract foreign direct investment and its growth prospects over the coming generations remain positive. |
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Vietnam Regions
Vietnam is a densely forested country with numerous hills and mountains throughout the country. It also features a long coastline, stretching from the very north east on the border of China at Mong Cai and to the very south at Phu Quoc Island.
Divided into provinces there are 58 provinces and 5 municipalities in Vietnam. However, for the purposes of this article, we've detailed the 8 main regions within Vietnam. Details are outlined below as follows: |
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Vietnam Municipalities
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Vietnam employs a tiered city system with municipalities being the largest and most important cities within the country, followed by provincial cities.
The municipalities are directly controlled by the central government of Vietnam and since most investors into Vietnam predominantly choose the larger municipalities, for the purpose of this article, we've only detailed these options. The current municipalities of Vietnam are as follows:
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Business Operations in Vietnam
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Operating a business in Vietnam presents an array of opportunities & challenges. Aside from obvious business related risks, understanding and working within a foreign system presents numerous challenges to investors.
However, with a relevant strategy, professional advice and local team, these risks can be mitigated. Whilst details are quite complex, we’ve summarized accordingly so readers can gain an understanding of the different options and processes involved in operating a business in Vietnam. |
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Forming a Company in Vietnam
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Establishing a company in Vietnam is not a simple process and depending upon your specific business objectives, there are some restrictions that apply (depending upon the industry). Within Vietnam, corporate laws allow the following entity types to be established:
From these different types of entities, the best option (from our experience) for foreign investors establishing a company in Vietnam is either a Limited Liability Company or Joint stock company incorporation. |
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Company Formation Procedure
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For the purposes of this Vietnam article, we've detailed the process involved in establishing a Limited Liability Company as a foreign investor in Vietnam.
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Aside from the above standard procedures to form a company, there are might also be additional steps required depending upon the proposed business location and industry specific requirements.
Invest Asia Group strongly advises investors to engage either an experienced local consulting company or an international law firm to navigate these processes. For details regarding a Joint Stock Company or any other queries, please contact the Invest Asia Group team directly. |
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International Investors
Whilst there are certain restrictions, international investors/companies can operate businesses in Vietnam. Vietnam welcomes foreign direct investment across a number of industries and with an export oriented economy, conditions for foreign investment are favorable. Moreover with ongoing reforms, the number of restricted industries that foreign investors are able to operate is continually being reduced on an annual basis.
Corporate Taxes
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There are a number of different corporate taxes within Vietnam as outlined below:
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Where to establish in Vietnam
Ultimately, the best location to establish within Vietnam depends upon your business type and goals for doing business in Vietnam. Ho Chi Minh City and Hanoi offer the most skilled labor force but with much higher competition, resulting in higher costs. Vietnam has an advantage in various forms of manufacturing with competitive wages. Please advise your business type and specific goals for Vietnam when contacting our team.
Tax-Friendly Policies
Yes – a number of tax-friendly investment policies exist to encourage foreign direct investment within specific sectors and industries. Further details can be provided, depending upon your specific inquiry.
Financial Markets in Vietnam
With the reforms undertaken in 1986, Vietnam's entire economy underwent drastic reform and changes. However, despite strong economic growth and exports climbing up the value chain from garments to electronics, Vietnam's financial markets are still lacking. There are two stock exchanges within Vietnam - the Ho Chi Minh City Stock Exchange and the Hanoi Stock Exchange, both providing a profitable future outlook when all factors are considered. A brief overview of each stock exchange is outlined below and if you have any questions or queries, please contact the Invest Asia Group team directly.
Ho Chi Minh City Stock Exchange (HOSE/HSX)
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The Ho Chi Minh City Stock Exchange (HOSE/HSX) was Vietnam's first stock exchange, founded in 2000 and now (2020), the only exchange within Vietnam that offers equity trading.
The exchange operates with an automated order maching system, whilst daily stock price fluctuations are limited to 7% either above or below the previous day's close. It's opened for trading during weekdays and features a number of the largest Vietnamese companies. Some of the indices include:
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Ho Chi Minh City Stock Exchange Products
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The Ho Chi Minh City Stock Exchange (HOSE/HNX) is the primary exchange in Vietnam offering securities trading. Since 2020 when the Hanoi Stock Exchange moved to trading bonds only, all securities previously listed on the Hanoi Exchange were moved to the Ho Chi Minh exchange. Products available on the Ho Chi Minh City Stock exchange include the following products:
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Hanoi Stock Exchange (HNX)
The Hanoi Stock Exchange (HNX) was the smaller exchange in Vietnam and featured a number of related securities listings. However, in 2020, the Hanoi Stock Exchange changed to operate as Vietnam's bond listing exchange with all stock securities being transferred to the Ho Chi Minh City Stock Exchange.
Other ways to get exposure to Vietnamese Stocks
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Aside from the above listed ways to gain exposure to Vietnam and Vietnamese companies directly, investors also have options to invest in an Index Fund (VNM - VanEck Vectors Vietnam ETF) which tracks a selection of Vietnamese equities.
There is currently only this one ETF but in the future, provided Vietnam's strong economic growth continues, more will be available. A small selection of Vietnamese companies are listed in Hong Kong, Singapore and London, whilst a number of companies (as at 2020) such as Vinamilk, Petrolimex, and SSI Securitiesi are awaiting an overseas IPO. With favorable demographics, low labor costs, a strong political system to advance economic growth, Vietnam's growth should continue to outpace the developed economies and offer a number of attractive investment options, despite still being classified as a frontier market. |
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Foreign Exchange
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The Vietnamese Dong (VND) is the national currency of Vietnam, which was first implemented in 1978 (a few years after the end of the Vietnam War) and reunification of the country. Since then, the Vietnamese Dong has experienced several turbulent years with hyperinflation in the 1980s being the worst and overall, it's been devalued five times during this short period. Devaluation has occurred to spur exports and increase economic growth.
Similar to China, Vietnam operates a foreign exchange policy by maintaining a stable exchange range with capital controls in place. Whilst it's technically a floating exchange rate, ultimately, the State Bank of Vietnam controls the rate and adjusts it according to market conditions (and to ensure exports remain cheap!). Despite the aforementioned capital controls, Vietnam does provide protection and provisions for international investors to repatriate profits abroad. |
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Commodities
The Vietnamese economy has experienced rapid economic growth during the early 21st century and as an export oriented economy, exports contribute significantly to GDP. Aside from value added manufacturing, Vietnam is also home to a number of extractive natural resources including:
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Aside from the above natural resources, Vietnam exports a number of different products including the following:
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In terms of commodity exports - the main mineral exports include coal & petroleum, whilst future prospective opportunities include the Rare Earth Elements industry (which is currently dominated by China). Non commodity exports predominantly include phones, textiles, electronics, footwear and machinery.
Within Vietnam there is a commodity exchange - the Mercantile Exchange of Vietnam (MXV). The exchange offers the following products for trading:
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Cryptocurrency in Vietnam
Vietnam embraced a similar position and approach to cryptocurrency as China - banning all cryptocurrency in October 2017. This changed in 2019, when two cryptocurrency exchanges were given licensing to operate but following licensing approval, nothing changed.
Vietnamese citizens are permitted to trade foreign exchange (as well as cryptocurrency) in other jurisdictions but for now, Vietnam is a very undeveloped cryptocurrency market. |
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Property in Vietnam
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Similar to most of the Vietnamese economy, the property market has boomed over recent years, providing incentives for investors to become involved in this frontier market. Despite previous onerous regulations and restrictions for property ownership, these laws were relaxed in 2014 to allow and encourage foreign investment into the property sector.
Due to the size of the country and differences in development across regions, the property market within Vietnam differs between the regions. Ho Chi Minh City and Hanoi are the strongest markets followed by the other regions (Can Tho, Da Nang and Haiphong). Therefore, the best way to analyse the property market is on a local level as opposed to country-wide analysis and Invest Asia Group advises to stick with the top regions, unless for other specific purposes (e.g. tourism property developments etc.) |
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International Investors & Vietnam Property
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Foreign investors can own property in Vietnam - either via a foreign investor with a valid Vietnam visa or operating a Vietnam company. However, there are restrictions compared to Vietnamese citizens and ultimately, it's not ownership - it's allowing the right to use land for a predetermined amount of time (normally 50 years, with option to extend).
Before 2014, foreign investors were strictly unable to own or purchase any form of Vietnamese property but this changed, resulting in increased investment, predominantly from China. Property prices subsequently thrived and with urbanization plans over the coming decade, Vietnamese property offers opportunities for foreign investors. |
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Property Taxes
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Compared to other countries, Vietnamese property transaction related costs are low, encouraging a thriving property sector for both domestic and international investors. Property transactions are also commonly conducted with gold bars as a hedge against the historically devalued Vietnamese Dong.
When purchasing a property in Vietnam (villa, apartment etc.) in China there are a number of fees associated in doing so but they're competitively low. Details as follows:
Moreover, there are corresponding notary fees but usually this is imposed upon the seller as opposed to buyer. |
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Best Locations to Purchase Property
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Ultimately, the best location depends upon your investment objectives. Some investors choose to purchase within the main cities of Hanoi or Ho Chi Minh City, whilst others choose to buy in beach or at hill stations among the mountains. In terms of capital growth, yield and return on investment, Invest Asia Group clients have realized the highest profits in Ho Chi Minh City.
Being the largest city within Vietnam, foreign companies have been attracted to Ho Chi Minh City. With persistent strong economic growth and high demand for property, this has resulted in strong appreciation of property values. Aside from Ho Chi Minh City, the capital city of Hanoi is also a popular city to invest due to its strategic importance and location near Haiphong (port and manufacturing zone). For further details about the different locations available within Vietnam to purchase property, please contact the Invest Asia Group team directly so we can assist. |
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Venture Capital/Private Equity in Vietnam
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Vietnam has attracted substantial investment, venture capital and private equity over the past decade and aims to replicate the 'China model' in its economic development. Whilst Vietnam's startups are less known compared to its East Asian peers, the bustling scene currently underway is reminiscent to China post global financial crisis and along with Singapore, is one of the most appealing countries for VC in South East Asia.
Some of the most successful startups in Vietnam include:
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