In recent years, Vietnam has exploded in popularity for “China plus one” investors.
Facing rising costs in China and trade tensions with the US, many foreign investors have sought to complement their China operations by shifting some production to other lower-cost countries.
Vietnam has emerged as perhaps the biggest beneficiary of this trend, boasting a low-cost business environment, geographic proximity to China, and numerous trade agreements with foreign countries. The influx of foreign direct investment into Vietnam has made it one of Asia’s fastest-growing economies, growing by seven percent in 2019.
In light of Vietnam’s continually rising popularity, we offer an overview of Vietnam’s business landscape for foreign investors exploring a China plus one solution.
Labor market
Vietnam has competitive labor costs compared to other manufacturing destinations in Southeast Asia, with minimum wages falling between US$132 and US$190 per month. There are four different levels of minimum wage in Vietnam, which generally reflect a given region’s level of development.
Vietnam’s wage levels compare favorably to its competitors in Southeast Asia.
Malaysia’s minimum wages range from US$270 to US$295, Thailand’s from US$248 to US$265, and Indonesia’s from US$120 to US$298.
Vietnam’s minimum wages are even competitive with its less-developed neighbor Cambodia, which has a minimum wage of US$190 in its garment industry.
Taxation
Vietnam levies a standard corporate income tax (CIT) rate of 20 percent. This rate is identical to those of Thailand, Cambodia and lower than Malaysia (24 percent), Indonesia (25 percent), and the Philippines (30 percent).
Besides the standard CIT rate, some industries engaged in natural resource extraction are subject to higher rates. Businesses in oil and gas, however, face CIT rates between 32 and 50 percent, and those in the mineral resource sector have a rate of either 40 or 50 percent.
Vietnam also offers preferential CIT rates for businesses that qualify for various incentive schemes. The preferential CIT rates are 10, 15, or 17 percent depending on the particular incentive.
The Vietnamese government has been very active in signing double taxation agreements. Vietnam has signed over 80 double taxation agreements, including with Australia, Canada, China, France, Germany, Hong Kong, India, Indonesia, Italy, Singapore, the UK, and the US, among many others.
Trade agreements
Like with double taxation agreements, the Vietnamese government has been proactive in signing free trade agreements (FTAs). Vietnam currently has 13 FTAs in effect – either as a member of ASEAN or bilateral – and has six more either signed but not yet in effect or under negotiation.
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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.
