Vietnam’s government has shown significant effort towards improving the country’s economy and society which makes it an ideal spot for businesses to open in. Vietnam has the third largest economy in Southeast Asia. From January to October 2019, foreign direct investment (FDI) in Vietnam increased from 7.4% to $16.21 billion USD. A pro-business government, young demographics, openness to foreign investment, and multiple free trade agreements are all good reasons to start a business in Vietnam.
Keep reading for the top four benefits of doing business in Vietnam.
Government Support to start a business in Vietnam
The Vietnamese government understands the economic impact that comes with foreign investment. Therefore, the government has put in efforts to reform Vietnam’s socio-economic status. The Socio-Economic Development Plan (SEDP) for 2016-2020 was implemented to develop Vietnam into a more competitive and established country.
The SEDP promotes entrepreneurship in Vietnam, including setting up training centers and venture capital funding. The government also supports businesses in research and development. The SEDP improves international relations within the Association of Southeast Asian Nations (ASEAN) and the United Nations. Through international cooperation, the Vietnamese government wants to strengthen regional and national defense, security and sovereignty. The SEDP also aims to reform education towards a more open and comprehensive approach that emphasizes life skills. Vietnam will develop into a knowledge economy that boasts a high-quality workforce in the science and technology. A pro-business government makes Vietnam a prime location to cultivate business.
Openness to Foreign Investment
Vietnam has encouraged FDI by regularly renewing government regulations and providing FDI tax incentives. The standard corporate income tax (CIT) rate is 20%, and this is universal for both foreign and domestic enterprises, however the government gives tax benefits to certain sectors or geographical locations.
Foreign investors in the IT sector can enjoy four years of tax holidays, followed by nine years of 5% CIT. Once this period is over, the companies can enjoy 10% CIT until fifteen years of establishment. Projects related to education, vocational training, healthcare, environment, culture and sport have even better tax incentives. After four years of tax holidays and nine years of 5% CIT, social impact companies will be subject to 10% CIT for lifetime of the project.
Areas that are distant from Hanoi and Ho Chi Minh City are classified as economically disadvantaged and therefore, qualify for location-based tax incentives. Investors that set up business in these areas can benefit from decreased tax rates. Economically disadvantaged areas get two to four years of tax exemption and four to nine years of 7.5% – 10% CIT. Extremely economically disadvantaged areas get four years of tax exemption, nine years of 5% CIT, and 10% CIT by the thirteenth year and beyond.
Multiple Free Trade Agreements for businesses in Vietnam
Vietnam is committed to economic growth and global trade and has multiple free trade agreements around the world. Vietnam is a member of ASEAN and ASEAN Free Trade Area (AFTA). Other members include Indonesia, Thailand, Singapore, Malaysia, Philippines, Brunei, Cambodia, Laos, and Myanmar. This connects Vietnam with the rest of the Southeast Asia region, automatically expanding the circle of influence of Vietnam-based businesses to neighboring countries. Vietnam is also a member of the World Trade Organization (WTO); it joined in 2007 with 163 other countries.
Vietnam has a Bilateral Trade Agreement with the USA. Through this agreement, Vietnam has access to the American market, and vice-versa. Vietnam will shift away from exporting low-tech manufacturing to more high-tech goods like electronics, machinery, vehicles, and medical devices. With more access to modern technology, businesses will have the resources they need to thrive in a booming economy like Vietnam. Businesses will also have the opportunity to expand their efforts to the USA after establishing themselves in the Vietnamese market.
Vietnam’s Young Demographics
In 2019, 70% of the Vietnamese population was under the age of 35. In Vietnam, by 2025, Generation Z will account for around 25% of the country’s workforce, which translates into 15 million potential consumers. The government is also investing more money in education, meaning Vietnam’s young workforce will have a range of useful skill sets.
Vietnam’s literacy rates are over 90% and the country has one of the highest Internet penetration levels in Southeast Asia. Foreign investors are leveraging the country’s technological awareness, solid entrepreneur network, and Vietnam’s openness to new concepts and ideas. Combined all together, starting a business in Vietnam will give investors access to employees who are equally as competitive. Foreign investors and business owners should take note of the exponential growth of this developing country.
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