Merchandise Trade

• Vietnam joined the World Trade Organization (WTO) on January 11, 2007, following more than a decade-long negotiation process. WTO membership has provided Vietnam an anchor to the global market and reinforced the domestic economic reform process.


• Vietnam is a member of the ASEAN and a signatory to the ASEAN Free Trade Agreement (FTA), which aims to reduce tariff and non-tariff barriers to trade between member states. ASEAN has also negotiated FTAs with Australia, New Zealand, Mainland China, India, South Korea and Japan.
   
• Vietnam shares the top spot with Singapore in South East Asia for having the most bilateral and multilateral FTAs; Vietnam is a signatory to 16 of them. As Vietnam continues to live up to its commitments to further reduce import tariffs, this will lead to deeper economic integration with the world, boosting foreign investment and enhancing productivity. 


• Some reductions in import tariffs have come into effect since January 2018 (such as a 0% import tariff for car, motorbike and vehicle components under the ASEAN FTA) and there are further commitments to progressively reduce tariffs to 0% by 2022 for a range of other commodities. For instance, under the Vietnam-South Korea FTA, a range of commodities with import tax rates ranging from 10-20% will see a gradual reduction to 0% by 2022.


• Import duty rates are classified into three categories: ordinary rates, preferential rates and special preferential rates. Preferential rates are applicable to imported goods from countries that have most-favoured-nation (MFN) status with Vietnam. The MFN rates are in accordance with Vietnam's WTO commitments and are applicable to goods imported from other member countries of the WTO. Special preferential rates are applicable to imported goods from countries that have a special preferential trade agreement with Vietnam.


• Vietnam has concluded three important agreements in recent quarters: the ASEAN-Hong Kong FTA, the European Union (EU) FTA and the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). Vietnam is negotiating other agreements, including the Regional Comprehensive Economic Partnership, and FTAs with the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland) and Israel.


• Export duties are charged on only a few items, mainly certain natural resources and these rates range from 0% to 40%.


• Vietnam has reserved the right of importation to state trading entities in the following product categories: cigars and cigarettes, crude oil, newspapers, journals and periodicals and recorded media for sound or pictures (with certain exclusions).


• Vietnam also prohibits importation of equipment and technologies which are more than 10 years old. However, there are exceptions in some special cases.


• Vietnam currently prohibits the import of certain products, including weaponry, ammunition, explosive materials, military technical equipment, firecrackers, second-hand consumer goods, types of publications and cultural products in the category prohibited from dissemination and circulation in Vietnam, right-hand-drive cars, materials and transport facilities, chemicals, plan protection agents prohibited from use in Vietnam, scrap and waste, refrigerating equipment using CFC products and raw material containing asbestos of the group of amphibole chemicals on the list of prohibited chemicals.


• Foreign investors are exempt from import duties on goods imported for their own use which cannot be procured locally, including: machinery, vehicles, components and spare parts for machinery and equipment, raw materials, inputs for manufacturing and construction materials that cannot be produced domestically.


• VAT of 10% applies to goods and services that are not specifically included in the list of goods and services subject to the 0% or 5% rates or the list of goods exempt from VAT. The 5% rate applies to the supply of essential goods and services (water supply, agricultural goods, medical goods and teaching aids).


• VAT refunds are now allowed for imported goods that are later exported (this was previously disallowed). In addition, the scope of items not subject to VAT was amended to include exported products being primarily processed from natural resources and mined minerals. Both these changes were effective from February 1, 2018.
   
• Vietnam's National Assembly approved a new Labour Code which will take effect in January 2021. The amended code offers greater protection for employees and is viewed as better aligned with international best practices. The amended labour code will help Vietnam match international standards as it becomes a part of several FTAs including the EU Vietnam FTA and the CPTPP.

Sources: WTO – Trade Policy Review, Fitch Solutions, national sources

Multinational Trade Agreements

Active

1. Vietnam has been a member of WTO (effective date: January 11, 2007).


2. ASEAN FTA (effective from: January 1993): The FTA reduces tariff and non-tariff barriers between member states. The 10 members of the ASEAN FTA are Brunei, Indonesia, Malaysia, Philippines, Singapore, Vietnam, Laos, Myanmar, Indonesia and Cambodia. Vietnam benefits from increased regional integration and tariff liberalisation that includes the elimination of import duties in various sectors and classes of goods. These factors will help reduce input costs for businesses and will increase the country's exporting capacity and industrial base in the long term. Being a member of the ASEAN also opens the economy to other significant trade agreements with key regional markets.


3. ASEAN-Mainland China (effective from: January 2005 for goods and July 2007 for services): This is a comprehensive economic cooperation between the ASEAN member states and Mainland China. The goal of the agreement is not just eliminating tariffs as it also seeks to address behind-the-border barriers that impede the flow of goods and services. Trade relations between Vietnam and Mainland China benefit from trade preference in terms of tariff exemption or reduction. Mainland China is an important market for Vietnam, as it is a key trade partner and an important source of investment.


4. ASEAN-South Korea FTA (AKFTA): ASEAN and South Korea consolidated their partnership by signing a Framework Agreement on Comprehensive Economic Cooperation at the ninth ASEAN-South Korea Summit on December 13, 2005, which provides for the establishment of the AKFTA. Under this framework three major agreements on trade in goods, trade in services and investment were signed on August 24, 2006, November 20, 2007 and June 2, 2009 respectively. The agreement provides for progressive reduction and elimination of tariffs by each country on almost all products. Vietnam benefits from trade preference in terms of tariff exemption or reduction under this agreement. South Korea is a key trade partner and the removal of tariffs benefits both exporters and importers.


5. ASEAN-India FTA (AIFTA): The ASEAN-India Trade in Goods Agreement was signed at the seventh ASEAN Economic Ministers-India Consultations on August 13, 2009. The agreement entered into force on January 1, 2010 for India and some ASEAN member states. The ASEAN-India Trade in Services and Investment Agreements were signed in November 2014. Vietnam benefits from trade preference in terms of tariff exemption or reduction under AIFTA. This will help Vietnam in terms of trade growth and diversification, given the size and performance of the Indian economy and other ASEAN member states.


6. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP): The agreement – comprising Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam – is in effect. The agreement was ratified in Q418, with the deal representing 13.4% of global GDP, making it the third largest trade agreement after the United States-Mexico-Canada Agreement and the EU. The agreement aims to cut tariffs, improve access to markets and set common ground on labour and environmental standards and intellectual property protections.


7. ASEAN-Japan FTA (AJFTA): A Framework for Comprehensive Economic Partnership between the ASEAN and Japan was signed by leaders at the ASEAN-Japan Summit on October 8, 2003 and was aimed at establishing a Comprehensive Economic Partnership agreement between the ASEAN and Japan. The agreement on Comprehensive Economic Partnership among member states of the Association of Southeast Asian Nations and Japan (AJCEP) was concluded in November 2007 and signing was completed by April 14, 2008. AJCEP is comprehensive in scope, with chapters on trade in goods; sanitary and phytosanitary measures; standards, technical regulations and conformity assessment procedures; investment; services; and economic cooperation. The agreement aims at liberalising and facilitating trade in goods between the ASEAN and Japan and promoting cooperation in fields such as information and communications technology, intellectual property and small- and medium enterprises development. The parties will also continue to discuss and negotiate improvements to the chapters on trade in services and investment. Trade relations between Vietnam and Japan benefit from trade preference in terms of tariff exemption or reduction under the AJFTA. Japan provides a large market for exports, with tariff-free trade therefore benefiting the manufacturing sector in particular. The agreement is partly superseded by the CPTPP.


8. ASEAN-Australia-New Zealand FTA (AANZFTA): The AANZFTA was signed on February 27, 2009, AANZFTA is the ASEAN's first FTA with two developed countries simultaneously, and the first ASEAN FTA done in a single undertaking. AANZFTA represents ASEAN's most ambitious FTA to date, covering 18 chapters, including new areas that ASEAN had previously never negotiated on, such as competition policy and intellectual property. The AANZFTA also includes an AANZFTA Economic Cooperation Support Programme, which will provide technical assistance and capacity building to the parties of the AANZFTA, with the aim of supporting the implementation of the agreement and the overall regional economic integration process. The agreement entered into force in 2012 for all parties and work is currently underway to resolve and implement the built-in agenda as stipulated under the agreement. The agreement aims to eliminate tariffs on 99% of exports to key ASEAN markets by 2020. The agreement is partly superseded by the CPTPP.


9. Chile-Vietnam FTA (effective from: March 2012): As part of the FTA, 73% of Chilean exports will be granted tariff-free access to Vietnam, and the remaining products will benefit from the FTA in terms ranging from three to 15 years. Only 4% of products will be on exception lists. Of Vietnamese exports, 75% will be granted tariff-free access to Chile and the rest of the products will benefit from tax relief in a period ranging from 6 to 11 years. The agreement is superseded by the CPTPP.


10. Japan-Vietnam Economic Partnership Agreement (effective from: October 2009): The agreement boosts cooperation between the two countries in many areas such as: goods, services, investment, business climate improvement, human resource transfer, technical transfer and technical transfer. Under this agreement, 92% of goods exchanged between the two countries will enjoy tax exemption and reduction within 10 years from the date of validity of the agreement. Vietnam's agricultural, garment and aquatic products will gain tax exemptions when entering the Japanese market, and Japanese industrial products, including car components and electronic products, will gain tax exemptions or see a decrease to the corresponding import taxes. Superseded by the CPTPP.


11. Vietnam-Eurasian Economic Union (EAEU) FTA (effective from: October 2016): The EAEU commits Vietnam to open the market for about 90% of total tariff lines within a 10-year tariff reduction schedule. Tariffs will be eliminated from the entry into force (EIF) of the FTA for products in the priority list of the EAEU (which consists of Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan), including agricultural commodities such as beef, dairy products and wheat flour. Tariffs will be eliminated within three-to-five years after EIF on processed meat and fish, electrical machinery and machinery used in agriculture. Five years after EIF, tariffs will be eliminated on pork and chicken and10 years after EIF, tariffs will be eliminated on alcoholic beverages and cars. Tariff elimination will not be earlier than 2027 for petroleum, and not longer than 10 years for iron and steel. The EAEU will eliminate the tariff rate for approximately 90% of all tariff lines. Groups of products for which the import tariff will be eliminated are agricultural, forestry and fishery products of Vietnam (majority of fishery items, certain kinds of fresh and processed vegetable and fruits, processed meat and fish, and cereals and rice – with a tariff quota of 10,000 tonnes). Also included will be some industrial goods that Vietnam has an advantage in exporting, such as textile (in quota) and raw textile materials, footwear (especially athletic shoes), machinery, electronic components, some pharmaceutical products, iron and steel, rubber products, and wood and furniture.
     
12. ASEAN-Hong Kong FTA (AHKFTA): Hong Kong and the ASEAN commenced negotiations of an FTA and an investment agreement in July 2014. After 10 rounds of negotiations, Hong Kong and the ASEAN announced the conclusion of the negotiations in September 2017 and forged the agreements on November 12, 2017. The agreements are comprehensive in scope, encompassing trade in goods, trade in services, investment, economic and technical cooperation, dispute settlement mechanism, and other related areas. The agreements will bring legal certainty, better market access, and fair and equitable treatment in trade and investment, thus creating new business opportunities and further enhancing trade and investment flows between Hong Kong and the ASEAN. The agreements will also extend Hong Kong's FTA and investment agreement network to cover all major economies in South East Asia. Hong Kong is a key export market and the reduction of tariffs will ease the trading process; Hong Kong's potential as a key export market increases the importance of AHKFTA.

Signed

EU-Vietnam FTA: The EU and Vietnam have finished negotiating a trade agreement and an investment protection agreement, and the agreement now awaits ratification. The EU Council today adopted a decision on the conclusion of an FTA between the EU and Vietnam on March 30, 2020. The agreement is expected to enter into force in 2020. Once in force, the agreement will provide opportunities to increase trade and support jobs and growth on both sides through eliminating 99% of all tariffs, reducing regulatory barriers and overlapping red tape, ensuring protection of geographical indications, opening up services and public procurement markets, and making sure that the agreed rules are enforceable.

Waiting To Be Signed

Regional Comprehensive Economic Partnership (RCEP): There are ongoing negotiations regarding the RCEP, which is a regional economic agreement being negotiated between the ASEAN governments and their six FTA partners: Australia, Mainland China, India, Japan, New Zealand and South Korea. This includes a population of more than 3 billion people that contributes around a third of the world's GDP. The RCEP is envisioned to be a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement that aims to advance economic cooperation and broaden and deepen integration in the region, building on existing economic links. The RCEP would lower tariffs and other barriers to the trade of goods among the 16 countries that are in ASEAN or have existing trade deals with ASEAN. Although India pulled out of the agreement on November 4 2019, India was invited to return to the negotiating table at the 29th meeting of the RCEP trade negotiating committee in April 2020. The agreement is expected to be signed in November 2020.

Under Negotiation

1. Vietnam-Israel: Vietnam and Israel are negotiating an FTA. Israel is one of Vietnam's important partners in the Middle East, with two-way trade reaching USD2.3 billion in 2015. Prospects for co-operation have been seen in fields such as investment, finance, services, science, technology and labour.
2. Vietnam-EFTA: Vietnam and the EFTA (consisting of Iceland, Liechtenstein, Norway and Switzerland) are negotiating an FTA. The EFTA's leading exports to Vietnam included fish, pharmaceutical products, and machinery and mechanical appliances, while electrical machinery, footwear and precious stones and metals were leading imports.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

Foreign Direct Investment

• Value Added Tax: 10%
• Corporate Income Tax: 20%

Source: Vietnam General Department of Taxation – Ministry of Finance

Important Updates to Taxation Information

• The environmental tax on petrol was increased from VND3,000 to VND4,000 per litre as of 2019. 
   
• In June 2019, Vietnam’s National Assembly approved a new Law on Tax Administration. Under the new law, tax authorities have been granted additional enforcement powers and the law simplifies the process of filing taxes. The new law will take effect from July 2020. The authorities will provide circulars and decrees with details and guidance for the new law ahead of its implementation. Key changes include the speeding up of the issuance of tax registration certificates from 10 days down to three; extensions on filing personal income tax to 120 days instead of 90 and the inclusion of provisions for electronic transactions (discussed below).
   
• In a move to improve the management and taxation of e-commerce transactions, the Ministry of Finance circulated a draft decree, which includes in its scope organisations operating e-commerce platforms and websites, transporters of the goods, customs brokers, as well as the exporters and importers. An e-commerce activity management system will be developed by the General Department of Customs. Export and import declarations will be processed on a 24 hour basis via this system and the system will share information with the National Single Window and other existing management systems of the General Department of Customs. Consequently, e-invoices will be compulsory effective from November 1, 2020, further provisions relating to e-invoices and electronic documents as per the Law on Tax Administration, will be effectvie from July 1, 2022.
   
• In 2018, the Vietnamese Ministry of Finance released a draft tax law amending the current laws on value added tax (VAT), special sales tax, CIT, personal income tax, natural resources tax and customs duty. In the draft tax law, there are proposals to increase VAT rates to 11% from January 1, 2020 and 12% from January 1, 2022, while the 5% VAT rate shall be increased to 6% from January 1, 2022. 

Business Taxes

Source: Vietnam General Department of Taxation – Ministry of Finance
Date last reviewed: April 26, 2020

Localisation Requirements

Generally, preference for all roles is given to Vietnamese nationals. In order to qualify for work permits, foreign workers must have a degree of specialised knowledge or experience in management and technical roles that the domestic labour force cannot fill or carry out efficiently – as deemed apt by the Department of Labour.

​​​​​​Work permits for skilled workers

All foreign nationals seeking paid employment in Vietnam must be in possession of a valid work permit. The tenure of a work permit for a foreign worker is generally two years. In the first half of 2016 the Vietnamese government issued Decree No. 11, which guides a number of articles of the Labour Code on foreigners working in Vietnam. The decree proposes developments including changes to the conditions, paperwork and timeline for work permit applications and exemptions, allowing the import of skilled and unskilled labour with less bureaucracy Decree No. 11 also extends the time frame for lodging the re-issuance of work permits from 45 days prior to the expiry date, instead of the 15 days as per previous regulations.

Employee Contributions Structure

Social insurance (SI) and unemployment insurance (UI) contributions are applicable to Vietnamese individuals only. Health insurance (HI) contributions are required for Vietnamese and foreign individuals that are employed under Vietnam labour contracts. Effective from January 1, 2018, SI contributions are also applicable to foreign individuals working in Vietnam under a work permit or practising certificate or licence. Accordingly, from 1 January 2019 the salary subject to SI/HI/UI contribution comprises the monthly compensation, certain allowances and other regular payments according to the Labour Law, but this is capped at 20 times the basic salary for SI/HI contributions and 20 times the minimum regional salaries for UI contribution. Effective from July 1 2020, the basic salary will increase from VND1.39 million to VND1.49 million per month. In addition, from January 1 2020 the minimum regional salaries vary from VND3.07 million to VND4.42 million per month. These minimum salaries are subject to change each year. 

Sources: Vietnam General Department of Taxation, national sources, Fitch Solutions

Sovereign Credit Ratings

Sources: Moody's, Standard & Poor's, Fitch Ratings, Reuters

Competitiveness and Efficiency Indicators

Sources: World Bank, Transparency International

Fitch Solutions Risk Indices

Source: Fitch Solutions
Date last reviewed: April 26, 2020

Hong Kong’s Trade with Vietnam

Export Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Electrical machinery, apparatus and appliances, and electrical parts thereof	3,074.8
Commodity 2	Telecommunications and sound recording and reproducing apparatus and equipment	1,573.3
Commodity 3	Textile yarn, fabrics, made-up articles and related products	1,073.0
Commodity 4	Office machines and automatic data processing machines	884.4
Commodity 5	Miscellaneous manufactured articles	560.0

Import Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Electrical machinery, apparatus and appliances, and electrical parts thereof	4,771.5
Commodity 2	Telecommunications and sound recording and reproducing apparatus and equipment	2,645.1
Commodity 3	Office machines and automatic data processing machines	613.1
Commodity 4	Footwear	401.7
Commodity 5	Articles of apparel and clothing accessories	259.8