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Guide to Real Estate Industry in Vietnam

The real estate industry in Vietnam has witnessed remarkable growth and transformation in recent years, making it an increasingly attractive sector for investors and businesses. With a rapidly growing economy, a substantial urbanization rate, and a burgeoning middle-class population, cities such as Hanoi, Da Nang, and Ho Chi Minh City have transformed into vibrant and profitable metropolises.

1. System of Registration

Additionally, when the owner makes a request, the registration of ownership for houses and other land-attached assets follows the guidelines specified in Article 95.1 of the Land Law 2013. This process operates under the supervision of the land administration agency, following the requirements of Article 95.2 of the Land Law 2013.

2. Applicable Law

The main legislation which governs real estate transactions in Vietnam are as follows:
+ The Law on Real Estate Business No. 66/2014/QH13 (“LREB 2014”);
+ The Law on Housing No. 65/2014/QH13 dated 25 November 2014;
+ Land Law 2013;
+ The Law on Construction No. 50/2014/QH13.

3. Tenure and Ownership

There are two main categories of ownership and interests related to real estate in Vietnam:
+ Land Use Rights (LUR): This pertains to the right to exclusively use and manage the land in a specified manner.
+ Ownership of Attachments: This refers to owning the buildings and structures on the land, rather than the land itself.

4. Investing in Vietnam

Vietnam’s substantial economic rebound following the challenges of the Covid-19 pandemic and the Russia-Ukraine conflict is bolstering the expected recovery. This positive outlook indicates increased investor expectations for the real estate industry market in 2024.

5. Conclusion

In conclusion, the real estate industry in Vietnam is a vibrant and promising sector that offers both domestic and international investors numerous opportunities for growth and prosperity. With a robust legal framework, a stable economic environment, and a continually improving infrastructure, Vietnam has become a hotspot for real estate investments. Whether you are looking to invest in residential properties, commercial projects, or industrial developments, Vietnam provides a conducive environment for success.

For the full detail of this post, please reference on this link: http://hmlf.vn/guide-to-the-real-estate-industry-in-vietnam/

Harley Miller Law Firm “HMLF”

Indochine Counsel Press Release – Ho Chi Minh City, Vietnam 8 June 2021

Indochine Counsel advised Thaco Group in acquisition of 100% stake in E-mart Vietnam and strategic franchising arrangement with E-mart Inc.

Ho Chi Minh City — 8 June 2021 — Indochine Counsel advised Truong Hai Auto Corporation (Thaco Group) in acquisition of a 100% stake in E-mart Vietnam Co., Ltd. from South Korea’s largest retailer E-mart Inc. As part of the deal, the parties have also entered into a strategic franchise arrangement whereby E-mart will no longer operate its brand discount stores in Vietnam, but all stores will be operated by Thaco using the E-mart brand.

E-mart entered the Vietnamese market in December 2015 and opened its first and only hypermarket store in Go Vap District, Ho Chi Minh City. The retailer failed to realise its expansion plans due to challenges in securing licenses and development sites.

Thaco Group is one of the leading car manufacturers in Vietnam and the fourth-largest firm in the country. The group also owns a number of business sites and shopping malls. Via the strategic alliance, Thaco Group plans to open three discount stores in Vietnam next year and a total of 11 by 2026.

The deal represents a major agreement between one of Vietnam’s largest auto manufacturers and Korea’s largest retailer. Indochine Counsel represented Thaco from the initial discussions throughout the negotiation for the deal for both acquisition and franchise arrangement. The Indochine Counsel team was led by Managing Partner Dang The Duc, with support from Dang Hoan My (Associate), Thai Gia Han (Junior Associate) and Steven Jacob (Foreign Associate).

About Indochine Counsel

Indochine Counsel is one of Vietnam’s leading law firms. It is a business specialty firm with nearly thirty lawyers in both Ho Chi Minh City and Hanoi. Founded nearly 15 years ago, Indochine Counsel has six partners and is capable of handling both boutique services and large M&A deals. For more information about Indochine Counsel, please visit our website at http://www.indochinecounsel.com.

Links

https://www.koreatimes.co.kr/www/tech/2021/05/694_308997.html

https://www.dealstreetasia.com/stories/e-mart-exits-vietnam-thaco-241411/

https://www.vir.com.vn/locals-step-up-ma-retail-strategy-with-foreign-players-84303.html

Indochine Counsel Press Release – Ho Chi Minh City, Vietnam 7 June 2021

Indochine Counsel advised EQuest Education Group in relation to the investment by KKR

Ho Chi Minh City — 7 June 2021 — Indochine Counsel acted for EQuest Education Group (EQuest) in relation to the investment made by KKR through KKR Global Impact Fund, as announced by KKR on 31 May 2021.

EQuest operates a diversified portfolio across the educational sector in Vietnam, focusing on four core segments including K-12 bilingual schools, tertiary and vocational institutions, English enrichment courses, and digital learning solutions. Its K-12 portfolio, which serves more than 9,000 students in its 8 campuses, has gained a strong reputation in Vietnam where there is a rapidly growing demand for an affordable bilingual curriculum with strong efficacy. As a group, EQuest has more than 110,000 students enrolled across its segments each year, positioning the Company as one of the largest private educational services providers in Vietnam. KKR is a leading global investment firm with US$367 billion of assets under management as of 31 March 2021.

The investment will be used to support EQuest’s expansion and advance its mission to provide students in Vietnam with affordable access to world-class education. Vietnam has a growing middle-class population with rapidly increasing demand for better education. With continued trends of globalization, English has become an essential employability skill, with proficiency in the language a high priority area for Vietnam’s national education goals. The Vietnamese government has also earmarked digital learning solutions as a strong area of focus as it seeks to further improve access to education.

The Indochine Counsel team was led by Managing Partner Dang The Duc and supported by Le Thanh Cong (Associate) and Pham Hoang Vu.

About Indochine Counsel

Indochine Counsel is one of Vietnam’s leading law firms. It is a business specialty firm with nearly thirty lawyers in both Ho Chi Minh City and Hanoi. Founded nearly 15 years ago, Indochine Counsel has six partners and is capable of handling both boutique services and large M&A deals. For more information about Indochine Counsel, please visit our website at http://www.indochinecounsel.com.

Links

https://www.businesswire.com/news/home/20210531005318/en/KKR-Invests-in-EQuest

https://equest.vn/kkr-invests-in-equest/

https://www.dealstreetasia.com/stories/kkr-education-platform-equest-243503/

India & Vietnam: Increasing Trade and Investment Relations

The year 2020 marks the 42nd anniversary of India-Vietnam bilateral trade. Vietnam and India have shared strong bilateral relations historically, and for the past two decades, trade between the two countries has risen considerably. These economic ties have materialized into several Indian investments in Vietnam in various sectors.

The enormous volatility in the global trade environment has pushed businesses into diversifying their supply chains away from China, which has increased the importance of the India-Vietnam trade route for international business.

India, which is one of the fastest-growing economies in the world, currently ranks fifth globally in terms of GDP. The ASEAN-India Free Trade Area (AIFTA), which Vietnam is a part of, was established in 2009 as a result of convergence in interests of all parties in advancing their economic ties across the Asia-Pacific.

Vietnam’s manufacturing industry has rapidly emerged as a highly effective location for incoming electronics and telecom manufacturers who are relocating from China due to increased costs and the US-China trade war. The country has bolstered investor confidence with quick and efficient containment of the COVID-19 pandemic. Vietnam is becoming a leading choice for major companies looking to set up their new manufacturing hubs and diversify their supply chains.

India has significant expertise in IT services, pharmaceuticals, and oil & gas, all of which can significantly benefit Vietnam. Additionally, there are export opportunities in zinc, iron, steel, and man-made staple fibers from India to Vietnam.

A large middle class in India’s 1.3 billion population and its customs-duty exemption for ASEAN products make it a lucrative destination for Vietnamese exports. There is a notable scope for the development of services related to wholesale & retail trade, transportation & storage, business support along with trade opportunities in cotton and knitted clothing.

Bilateral trade

Over the past two decades, bilateral trade between Vietnam and India has steadily grown from US$200 million in 2000 to US$12.3 billion in the financial year 2019-2020.

The two countries aimed to raise bilateral trade to US$15 billion by 2020, but COVID-19 related trade disruption resulted in a 9.9 percent trade shrinkage to US$12.3 billion in the last financial year. Vietnam has emerged as the 18th largest trading partner of India, while the latter ranks seventh among Vietnam’s largest trading partners.

Exports from Vietnam to India include mobile phones, electronic components, machinery, computer technology, natural rubber, chemicals, and coffee. On the other hand, its key imports from India include meat and fishery products, corn, steel, pharmaceuticals, cotton, and machinery.

After India announced its decision to opt-out of the Regional Comprehensive Economic Partnership (RCEP), the India-ASEAN FTA is expected to be reviewed to compensate for the potential trade loss.

Foreign direct investment

Vietnam’s strategic location close to existing manufacturing hubs, its favorable position in accessing other Southeast Asian markets, and its proactive approach towards opening its markets to the world has helped it gain popularity as an attractive manufacturing and sourcing location.

The rising importance of Vietnam in global supply chains has the potential to strengthen India-Vietnam ties further. India is estimated to have invested nearly US$2 billion in Vietnam including funds channeled via other countries. Over 200 Indian investment projects in Vietnam are primarily focused on sectors including energy, mineral exploration, agrochemicals, sugar, tea, coffee manufacturing, IT, and auto components. Several major Indian businesses such as Adani Group, Mahindra, chemicals major SRF, and renewables giant Suzlon have shown interest in venturing into Vietnam.

India’s salt to IT conglomerate Tata Coffee recently inaugurated their 5000 MTPA freeze-dried coffee production plant in Binh Duong province of Vietnam last year. This US$50 million coffee facility was commissioned within 19 months of the ground-breaking ceremony.

Another example is HCL Technology Group, which is considering establishing a US$650 million technology center in Vietnam and plans to recruit and train over 10,000 engineers within the next five years.

With the implementation of major infrastructure projects like Tata Power’s Long Phu – II 1320 MW thermal power project worth US$2.2 billion, the investment figures are expected to rise considerably. The thermal power project was first coined in 2013 and was originally expected to be fully operational by 2022, but the revised seventh Power Development Plan (PDP7) indicates an eight-year delay, shifting its launch to 2030.

This delay appears to be due to Vietnam’s shift toward renewable energy. Nevertheless, opportunities remain for Indian investors in the renewable energy industry, specifically in solar and wind due to increased power demand. Reports indicate that the Tata group is in talks of investing further in solar- and wind-power projects.

Opportunities for Indian investors

Vietnam provides several lucrative reasons to invest such as increased access to markets, favorable investment policies, free trade agreements, economic growth, political stability, low labor costs, and a young workforce. As per a Standard Chartered report on trade opportunities, Vietnam’s exports to India have the potential to grow by 10 percent annually, or approximately US$633 million. This projected growth is primarily focused on goods export (53 percent) and services (46 percent).

Pharmaceutical

Vietnam’s domestic pharmaceutical industry is currently able to meet just 53 percent of the country’s demand, representing significant opportunities for Indian investors as India is among the leading global producers of generic medicines supplying 20 percent of total global demand by volume. There is an enormous potential for Vietnam to purchase generic medicines from India, but the former is actively trying to get Indian pharmaceutical companies to manufacture in Vietnam instead of importing.

Agriculture

Vietnam is seeking alternate buyers for its agricultural exports, after the reduction in demand from China due to the pandemic. Lifting India’s trade barriers on the import of agricultural products can open a new market for Vietnamese agricultural exporters. Also, there is a significant potential for investment in breeding technology, irrigation technology, and storage facilities. Vietnam’s topography, climate, and fertile soil make it suitable for coffee plantations. The TATA group has expressed plans of investing in the installation of agricultural machinery to serve demand in the Mekong Delta.

Tourism

The tourism industry in Vietnam is a largely untapped market sector for Indian businesses, which is likely to gain strong traction after the pandemic. The country received over 15.5 million international arrivals in 2018, a seven-fold increase from 2.1 million in 2000. Over 31,400 Vietnamese visited India the same year, a 32 percent increase from the previous year. India is a preferred destination for Vietnamese pilgrims and medical tourists.

India’s low-cost carrier Indigo launched direct flights linking India’s Kolkata with Vietnam’s Hanoi and Ho Chi Minh City in November 2019. Following this launch, Vietnamese low-cost carrier, Vietjet Air started direct flights connecting India’s New Delhi with Hanoi and Ho Chi Minh City. Improved connectivity will help Vietnam in diversifying its tourism portfolio, which currently is largely dependent on Chinese and South Korean tourists.

SMEs

SMEs play a large role in both India’s and Vietnam’s economies. Most recently, India and Vietnam held a promotion conference titled ‘Boosting trade-investment cooperation opportunities between Vietnamese and Indian SMEs’ organized by Vietnam’s Trade Office of the Vietnamese Embassy in India, India’s Uttar Pradesh state government, the Indian Industries Association (IIA), and Vietnam’s Hanoi SME Association. The takeaway was that several major businesses have shown interest in coming to Vietnam.

The IIA noted that Vietnam is looking to attract investment in sectors such as energy, mineral exploration, agriculture, tea, IT, and automobiles. Nevertheless, challenges remain regarding high corporate income tax rates for specific sectors such as oil and gas.

SMEs contribute close to 40 percent of India’s exports but also need government support to thrive. Indian SMEs will have to further internationalize. For example, India’s Tamil Nadu state has a diversified manufacturing industry dominated by SMEs with a number of factories and special economic zones. However, at the moment, SMEs in Tamil Nadu are yet to connect to business opportunities in Vietnam. This is a missed opportunity. As per ADB such businesses can connect through India’s Market Access Initiative and Market Development Assistance schemes to tap into potential businesses and market sectors.

Apart from streamlining regulatory standards between both countries, both governments will also have to hold seminars, events, and trade fairs to ensure that SME are aware of the various opportunities in the relevant market fields.

Supporting industries

Vietnam is an attractive destination to produce and export, thanks to its assortment of free trade agreements with several countries, allowing products to be exported to these countries with attractive low tariffs. There is a need for the development of the local supporting industry to support major manufacturers, and Indian businesses have the potential to fill the gaps in this sector.

Takeaways

With Vietnam’s strong economic growth in the past few years, a review of the India-ASEAN free trade agreement is necessary to foster further trade in promising emerging sectors between both countries. As per Vietnam’s Foreign Investment Agency (FIA), India had almost 300 projects in Vietnam accounting for almost US$900 million as of December 2020.

As pointed out by the Standard Chartered report, there is considerable scope to increase trade between India and Vietnam should both governments take a proactive approach to trade and investment and realize this potential.

 

Vietnam’s Solar Industry: Bright Prospects for Investors

Vietnam’s golden era for solar development

In June 2020, Sharp Energy Solutions Corporation (SESJ) completed a mega solar power plant in Ninh Thuan province, which is expected to generate 76,373 megawatt hour (MWh) per year. The plant is the newest addition to SESJ’s five other existing solar power plants in Vietnam.

Sharp is only one of the many companies that cashed in on Vietnam’s hunger for renewable power by investing in large-scale solar power projects. As the country bounces back from the pandemic-induced downturn, its energy demand is expected to rise by over 9 percent from 2021 in the next decade. The Ministry of Industry and Trade (MoIT) in a draft report forecast that Vietnam will need about US$128.3 billion of investment to develop its electricity industry in the 2021-2030 period.

For years, Vietnam like many other developing countries relied on coal as the cheapest and easiest option to meet energy needs. However, technological progress and growing environmental concerns have made renewable energies more attractive. In 2017, solar energy played almost no part in Vietnam’s energy strategy. By the end of 2019, Vietnam surpassed Malaysia and Thailand to reach the largest installed capacity of solar panels in Southeast Asia. The country found itself with 5 gigawatts (GW) of photovoltaic projects, far exceeding the 1 GW by 2020 target.

The following article takes a look at Vietnam’s recent solar boom and the future trajectory of solar energy development in the country.

FiT approved in the midst of uncertainty

Much of Vietnam’s recent success with solar energy can be attributed to feed-in-tariffs (FiT). FiTs encourage investment in renewable energy by guaranteeing an above-market price for producers. Since they usually involve long-term contracts, FITs help mitigate the risks inherent in renewable energy production.

In April 2020, the Vietnamese government finalized new solar FiTs, ten months after the previous FiT program expired in June 2019. The new tariffs are 10-24 percent lower than before and are still uniform across regions but differentiated by type (ground-mounted, floating, and rooftop).

Under the new decision, solar projects were required to achieve commercial operation by December 31, 2020, to benefit from the new FiT rates. The delay in the government’s approval gave solar developers a very narrow time frame to work with.

With the current supply chain disruptions affecting solar cells and module delivery from China, and other pandemic-induced economic uncertainties, it was very challenging for firms to become operational before the deadline. Thus, advisory firms like FitchSolutions expect that the new FiT scheme will not be the main driver of investments in solar energy in Vietnam.

Looking forward, Vietnam still intends to implement an auction mechanism in the future. All projects who do not qualify for the new FIT rates will go through a competitive bidding process. By giving the government the ability to issue a call for tenders and select the most price-competitive firms, the scheme will help better manage clean energy development across the country.

However, a transition away from a FiT scheme may take longer than expected given that undeveloped large-scale photovoltaic projects were just approved to receive tariffs. Attracting investment will largely depend on the government’s ability to deliver a clear auction scheme and other incentives on time.

Long-term commitment to boost solar energy

The revised FiT came shortly after the Vietnamese government announced that it intends to double its power generation capacity over the next decade. This will increase the proportion of renewable energy to 20 percent in an attempt to reduce reliance on coal for electricity production.

In late 2019, the Prime Minister approved the outline of the national Power Development Plan (PDP) VIII, expected to be completed sometime in 2021. The PDP VIII covers the period of 2021 to 2030 with a vision to 2045 and sets out renewable energy development and investment attraction as two of the key priorities.

The draft PDP forecasts that by 2030, Vietnam’s electricity sources could reach 132.2 GW with 27 percent from coal-fired plants, 21 percent from gas thermal power, 18 percent from hydroelectricity, 29 percent from wind, solar, and renewable energy, and four percent from other imported sources.

The plan encourages the development of renewable energy and discourages hydroelectricity. Renewables made up 13 percent of power in 2020 but the aim is to make it 30 percent by 2030. This is an ambitious goal but reflects the government’s push to switch to renewables.

In addition to developing the PDP VIII, the MOIT also submitted Proposal No.544/TTr-BCT on January 21, 2020, which outlines a pilot program on direct power purchase agreement (DPPA) mechanisms.

The DPPA program would allow energy producers to sell and deliver electricity to corporate consumers instead of going through a state-owned electric utility company. The proposal sets a two-year timeframe for implementing the pilot program and lays out the criteria for participating developers and private power consumers. It is expected to range between 400-1000 megawatts (MW) and will be available nationwide.

Despite some criticism of the DPPA’s limited scope, the proposal is a positive development for the growth of renewables in Vietnam. It signals that Vietnam is a serious solar player that is willing to implement supportive mechanisms to retain investor interest in the renewable energy sector.

Investors will have to contend with other challenges

Beyond the uncertainties over future investment schemes, there are other factors that both investors and government authorities need to consider as Vietnam moves forward with solar energy development.

First, there are some infrastructure shortcomings that hinder energy transmission. Most solar power plants are concentrated in the sunny southern region, where they tend to overwhelm the national grid. Meanwhile, some solar plants have seen their operation date delayed due to incomplete transmission lines.

The government has proposed to develop the power transmission system and source power from central, south-central, north-central, and central regions. It also stated to apply the research of a smart grid system and use Industry 4.0 technology to optimize transmission systems.

Bringing energy to economic centers and northern cities is, therefore, still a challenge. The new PDP aims to address this by ensuring that energy development is balanced among the regions, and that power grids are connected within Vietnam and with neighboring countries as well.

Further, ground-mounted solar projects need to consider land rights, an issue that looms large in Vietnam. Though investors can benefit from exemptions from land-use fees and rents, administrative processes can take time and cause significant delays.

There are still uncertainties regarding the future of coal. While the PDP VIII emphasizes sustainable development to address climate change, Vietnam’s coal imports in the first half of 2020 surged by 53.8 percent from a year earlier, a record high. According to the MOIT, coal-fired plants account for around 35 percent of Vietnam’s power generation capacity.

The ministry expects that the country will face severe power shortages as the construction of new power plans fall behind the fast-growing demand for energy. Thus, coal may continue to fill the energy gap in the upcoming years.

However, there are signs of dwindling interest for coal. The majority of planned coal power capacity has been delayed or postponed. Though alleged corruption and engineering difficulties partly explain these delays, local opposition and a global movement away from coal power are also major contributing factors.

For example, South Korean and Japanese lenders have pulled back their investment in coal power projects, while Chinese companies are becoming more aware of the risks of continuing to invest in coal. Most recently, Mitsubishi Corp in February pulled out of a coal-fired power plant in Central Vietnam due to international concern about the environmental impact of coal.

Nevertheless, with proper strategic planning and increased support for investment, Vietnam can leverage the opportunities provided by the solar boom and cement its position as a renewables leader in Southeast Asia.

Source

Alberto Vettoretti Managing Partner, Dezan Shira & Associates

 

Vietnam: Legal and Financial Aspects in the M&A Process

Mergers and Acquisitions (M&A’s) are an increasingly popular route for foreign investors looking to begin operations in Vietnam – and due diligence is a key component of the M&A process.

While there are several aspects to consider in a due diligence – such as the company’s reputational profile, strategic position in the market, and assets – we focus on legal and financial due diligence because they represent the starting point for most investors.

Before commencing due diligence on a target company, the acquiring company typically signs an agreement such as a Memorandum of Understanding (MoU) with the target company. The acquiring company may also make a deposit to confirm that the deal is serious enough for the target company to spend time to prepare and release documents needed for the due diligence.

Legal and financial due diligence may take several months, depending on the size of the company being acquired, as well as the location where it is based. This work is typically conducted by a third-party professional services firm.

Foreign investors should seek to select a firm that has an office in-country with staff fluent in both Vietnamese and the language spoken at the investors’ headquarters. This profile will help ensure your service provider can work more efficiently during both on-site visits and communication with overseas managers.

Legal due diligence of a target company

During the legal due diligence process, service providers may ask to review the target company’s documents, certificates, qualifications, and licenses. These may include:

  • Business licenses;
  • Approval certificate;
  • Company charter;
  • Meeting minutes of Board of Management (BoM); and
  • Shareholders and capital contribution of shareholders.

Ownership

The percentage of foreign ownership to the target company based on applicable local laws, World Trade Organization (WTO) and other free trade agreements (FTAs) where Vietnam is a member will also need to be determined before the acquisition.

Contracts

Commercial contracts, loan agreements, MoUs, and non-disclosure agreements signed by the owners of the target company.

Litigation

Any ongoing litigation of the target company may affect its value. A thorough review of the litigation status is recommended.

Financial due diligence of a target company

Financial due diligence allows the investor to audit the target company and analyze the company’s earnings, its working capital needs, as well as sales and operating expenses.

Financial diligence can be broken down in two parts: assets and liabilities.

Ingraphic: Financial Status Review M&A

Internal financial statements

Review all of the target company’s documents related to revenue, expenditure and other accounts. This should be done to ensure the documents are factual and to identify any discrepancies.

Internal and tax reports

Analyze the target company’s internal and tax documents to see if there are any discrepancies between internal reports and tax reports. This review should evaluate relevant risks due to any discrepancies between the tax declaration and the actual status.

Other items that may need to be reviewed are capital contribution, cash on hand, cash flows and any other key financial indicators.

Timeframe and reporting

Once all the documents have been reviewed by the service provider, it submits a report, with details outlining to see if the target company is in compliance with all the rules and regulations in Vietnam.

At this stage, the third party can advise on any issues that need to be resolved between the acquiring and target company. Typically, the entire process of legal and financial due diligence in Vietnam can up to three months or more.

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This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asiawith over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region.

Vietnam’s Automobile Industry and Opportunities for EU Investors

Vietnam’s automobile industry has grown significantly in recent years. The average growth rate of domestically assembled vehicles was approximately 10 percent per year in the 2015-2018 period. With major manufacturers such as Toyota, Honda, Ford, Nissan, and Kia in the Vietnamese market, the number of spare parts suppliers have also invested in the industry giving the sector a much-needed boost.

The motorbike is ubiquitous to Vietnam, but with the country’s fast-growing middle class, car ownership is steadily rising. This growth, however, is likely to be stunted in the short term due to the COVID-19 pandemic but expected to resume in the long run as Vietnam reopens its economy.

Vietnam’s Industrial Policy and Strategy Institute predicts 750,000 to 800,000 vehicles will be sold annually by 2025 up from 288,683 in 2018.

The automotive industry is a major contributor to the GDP of many countries in the world:

Auto industry GDP

As displayed above, with such a high share in Vietnam’s GDP, the automotive industry has always received special attention from the government. There are currently many large automotive assembly and production projects in Vietnam with the aim of not only meeting domestic demand but also tapping into the regional market.

Local conglomerate Vingroup officially inaugurated its Vinfast factory on June 14, 2019, making it the first domestic automobile factory in Vietnam. The factory is not only state-of-the-art but also in line with Industry 4.0 standards.

However, the Vietnamese automotive industry faces stiff competition. Part of the reason for this is the zero-tariff policy between ASEAN countries that Vietnam is part of. Thus imports are cheaper than domestically produced vehicles.

Although Vietnam is one of the four largest automobile manufacturers in Southeast Asia, it has one of the lowest average localization rate in this region (only around 10-15 percent, and is still far behind Thailand, Indonesia and Malaysia).

In addition, the local automobile industry has not been able to invest in core and high technology products such as engine production and transmission systems. Localized parts are mostly of low technology products such as tires, seats, mirrors, glasses, cable harnesses, batteries, and plastic products.

About 80-90 percent of the main raw materials used to manufacture components are still imported. As a result, companies are required to import approximately US$2 billion to US$3.5 billion in components and parts for vehicle manufacturing, assembly, and repair each year.

For this reason, domestic automobile production costs are 10-20 percent higher than in other countries in Southeast Asia. As a result, the cost of cars produced domestically are at a disadvantage compared to completely build units (CBUs) that are imported.

Increasing car ownership

Vietnam imported more than 109,000 CBUs in the first nine months of 2019 with a turnover of US$2.4 billion as per official statistics. Compared to the same period in 2018, imported cars increased by 267 percent in volume and 257 percent in value.

Cars with less than nine seats led imports – with about 75,848 vehicles valued at US$1.5 billion. This shows the increasing purchasing power and the changing demands of customers. In addition, the vehicles imported from the EU mainly come from Germany. As per the General Department of Vietnam Customs in 2018, 1,197 imported cars from Germany were registered in Vietnam. Germany’s ZF Friedrichshafen inaugurated its first plant producing chassis modules for cars in Haiphong in November 2019.

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This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asia with over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region.

COVID-19 in Vietnam: Travel Updates and Restrictions

In light of the recent COVID-19 outbreak, Vietnam has imposed several travel restrictions on those entering the country. As of May 19, Vietnam had confirmed 324 cases of COVID-19, though 263 of the patients had recovered.

Those planning to travel to Vietnam should be aware of the latest restrictions currently in place:

  • Vietnam has suspended the entry of all foreigners from March 22 until further notice to limit the spread of COVID-19. The measure will not apply to diplomats, officials, foreign investors, experts, and skilled workers as per Prime Minister Nguyen Xuan Phuc.
  • Vietnam’s Immigration Department on May 18 announced automatic visa extensions until June 30 for foreigners that entered the country on visa waiver programmes, e-visas, or tourist visas since March 1.
  • Foreigners that entered the country before March 1 including those with temporary residence permits will also be entitled to extensions till June 30 but must present proof of documents such as health declarations and official documents from embassies. For assistance, applicants can all the immigration helpline at 0243.9387320.
  • Travelers that are still in Vietnam can call the Tourist Helpline at +84378173371 for guidance on visas, accommodation, hospitals, embassy, or consulate details. The helpline is available from Monday to Friday from 9:00 a.m. to 5:30 p.m. local time.
  • Vietnam lifted social isolation measures on April 23 with most businesses resuming operations. Nevertheless, measures such as wearing face masks and observing strict hygiene standards remain in place.
  • As of 12:00 pm on March 15, Vietnam suspended all visas and will deny entry to travelers from the UK and the 26 Schengen countries; this includes travelers that have visited or transited through these countries in the past 14 days. This will be effective for 30 days.
  • In addition, Vietnam has suspended visa on arrival for all foreign nationals except for those on official or diplomatic trips. Those who currently hold visas to enter Vietnam will need to undergo screenings and may be quarantined when entering the country.
  • From March 7, all travelers coming to Vietnam will be required to submit a health declaration upon arrival. Passengers can fill out this declaration at the airport or submit it online via this link (picture below).
  • Those that are assessed to have symptoms of the epidemic will be transferred to designated health facilities for isolation.
  • There is a temporary ban on travelers with travel history to mainland China, except for those on official or diplomatic missions.
  • We have also heard of travelers in more remote border crossings into Vietnam being denied entry if they possess any China visa history in their passport. If travel is required, we recommend using the main border entry-exit points.
  • Do not travel if you are sick; those that travel while sick, risk being quarantined, and undergo tests.
  • Visa-free travel has been suspended for South Korean and Italian nationals as well as ethnic Vietnamese from these countries. In addition, travelers arriving from or those that have transited through Daegu and Gyeongsangbuk in South Korea in the past 14 days will be denied entry.
  • In addition, visa-free travel has also been suspended for eight countries: Denmark, Finland, France, Germany, Norway, Spain, Sweden, and the UK from March 9.
  • Travelers from China that are permitted to enter Vietnam, as well as those from South Korea, Iran, and Italy, are required to undergo a 14-day quarantine upon entry.
  • Flights and passenger trains, as well as various border crossings to mainland China, remain suspended.
  • All Vietnam carriers have suspended flights to South Korea, while other foreign airlines have reduced the number of flights significantly between Vietnam and South Korea.
  • Flights to Hong Kong, Taiwan, and Macao remain operational though they are operating with reduced capacity.
  • Additional restrictions are possible for travelers when they return to their country of origin, including entry restrictions and quarantine.

The Vietnamese government officially declared COVID-19 as an epidemic on February 1, with authorities taking swift and strict measures to contain the virus.

These include measures such as the suspension of schools, the cancelation of festivals, and tourist activities nationwide. In addition, bars, clubs, and movie theatres have also been closed in Hanoi and Ho Chi Minh City until March 31.

In addition, several Vietnamese businesses, residential complexes, and restaurants have installed their own preventative measures to keep customers safe.

Due to the epidemic, travelers should monitor restrictions and comply with advisories issued by the local and national authorities.

The Vietnamese Ministry of Health is updating about the epidemic here, while the Tourism Ministry has also listed travel updates here.

In addition, basic precautions one can take to reduce their risk to the coronavirus as advised by the World Health Organization (WHO) are:

  • Wash hands with soap and water or an alcohol-based hand rub;
  • Cover nose and mouth with tissues or inside of elbow when coughing or sneezing;
  • Avoid close contact with anyone with cold or flu-like symptoms;
  • Thoroughly cook meat and eggs; and
  • Avoid unprotected contact with live wild or farm animals.

This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asia with over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region.

Vietnam Issues Investment Incentives for SMEs

As the outbreak of COVID-19 hampers business activity, Vietnam introduced Decree No. 37/2020/ND-CP (Decree 37) on March 30 to update the list of sectors and industries access to investment incentives under Decree 118/2015/ND-CP. The move underlines the government’s efforts to support businesses and particularly small and medium-sized enterprises (SMEs) affected by COVID-19.

Decree 37 will take effect on May 15.

The regulation expands the list of business lines eligible for investment incentives. This includes four types of SME business lines which are:

  • Small and mediums sized enterprises (SMEs) supply chains;
  • Business incubators for SMEs,
  • Technical support facilities for SMEs; and
  • Co-working spaces of SMEs.

The aforementioned businesses will now be eligible for import duty exemptions on fixed assets as well as other exemptions based on location.

SMEs continue to play a major role in Vietnam, accounting for 98 percent of all enterprises, 40 percent of GDP, and 50 percent of employment or 1.2 million jobs. As per the Ministry of Finance, Vietnam has more than 600,000 firms, with nearly 500,000 private and 96 percent being small and micro-enterprises.

However, SMEs continue to face problems such as access to finance, market access, and competition with foreign firms. We highlight three issues faced by SMEs below.

Access to finance

Credit access is a major concern for the Vietnamese SMEs. Banks providing commercial loans prefer to allocate their resources to larger firms rather than SMEs. According to banks, higher default risks, lack of financial transparency, and lack of assets for a mortgage are the major factors for not providing loans to SMEs. SMEs have to increase transparency and introduce newer production technologies, to reduce risks and increase efficiency to increase their chances of acquiring commercial loans.

Global supply chains

A study by the International Finance Corporation shows that only 21 percent of Vietnamese SMEs are linked with global supply chains, much lower than 30 percent and 46 percent in Thailand and Malaysia respectively. Integrating further with global supply chains in terms of procurement, operations, and sales will allow firms to manage competition, reduce risks, and reduce production costs, which currently is 20 percent higher than those of neighboring countries, such as Thailand and China.

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This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asia with over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region.