Vietnam is one of the fastest-growing economies in the world and has an expanding manufacturing sector due to low production costs, enabling the country to become a regional manufacturing hub. The economy is also heavily reliant on exports to the U.S. and China. In turn, about half of what the country imports comes from China, its largest trading partner in Asia. A coastal country, Vietnam is ranked seventh in Asia for its access to global shipping networks in the Linear Shipping Connectivity Index.
Vietnam's location on the Indochinese peninsula has given it a natural advantage for interactions between countries in East Asia and Southeast Asia. The country serves as an important link between matured economies in East Asia and emerging markets in Southeast Asia. Its location adjacent to China has also served as a gateway to investors who wish to penetrate China’s market.
With low valuations, rising foreign cash flow and the ongoing privatisation of state-owned enterprises, there is great potential for investment yield in Vietnam. Furthermore, Vietnam's economy is supported by a young workforce with high literacy rates, and it is undergoing a shift from traditional industries to high-tech production.
With multiple trade deals and free trade agreements, companies can enjoy competitive tax advantages by investing in Vietnam. Economic reform, in particular the government’s drive for partial or total privatisation of dozens of state-owned enterprises, has also provided a favourable outlook to the economy as it becomes increasingly competitive.
What solutions are available in Vietnam?
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Corporate Treasury in Vietnam
Vietnam is one of the fastest-growing economies in the world with an expanding manufacturing sector and a dynamic domestic retail market. Here, we highlight some of the key benefits relevant to treasury and cash management in Vietnam.
Financial Market Development
- The World Economic Forum ranks Vietnam 60th in the world for its financial system in The Global Competitiveness Report 2019.
- It ranks Vietnam 114th in the world for the soundness of its banks, and 133rd for banks’ regulatory capital ratios, although it is 27th for non-performing loans and 20th for domestic credit to the private sector..
- Vietnam has good business infrastructure in the major cities, a cost-efficient workforce and an evolving legal framework.
- The Vietnamese dong is a closed currency. Foreign currency for permitted transactions must be purchased through authorised banks. Foreign businesses are allowed to use foreign currency to remit all profits, pay for imports and services abroad, and to repay foreign loans and interest on them. The central bank recently clarified the law on foreign exchange controls for FDI and liberalised some of the requirements.
- Although the State Bank of Vietnam has devalued the Vietnamese dong several times in the past, in recent years it has worked to keep the currency stable, with Vietnam’s prime minister pledging to limit devaluation of the dong.
Sophistication of Banking Systems
- There are 35 domestic commercial banks in Vietnam, four of which are fully state-owned. There are nine wholly foreign-owned banks, and 49 branches of foreign banks, as well as 52 representative offices of foreign banks.
- The supply of foreign exchange in Vietnam has been limited in the past, however, the country’s foreign exchange reserves increased to USD82.84 billion in May 2020.
- Vietnam's debt market is dominated by government bonds, followed by municipal bonds and corporate bonds. The local currency bond market was valued at VND1,360.7 trillion in March 2020. A derivatives market was launched in August 2017.
- The banking industry is regulated by the central bank, the State Bank of Vietnam. It is working to bring Vietnam's banks closer to meeting international regulatory standards, although the deadline by which its leading banks must comply with Basel II regulations has been extended until 2023. Foreign exchange controls are also overseen by the State Bank of Vietnam.
- Transactions between resident and non-resident companies and transactions by resident companies abroad must be reported on a monthly basis.
- The corporate income tax rate is 20%. Different tax rates are available based on industry and location and on a project-specific basis when certain conditions are met. v
- Resident companies are taxed on their worldwide income. Foreign enterprises with permanent establishments in Vietnam are generally taxed on income earned in Vietnam and income earned out of Vietnam related to the operations of the permanent establishments.
- Foreign companies carrying out business in Vietnam without setting up a legal entity are treated as foreign contractors and are subject to Foreign Contractor Tax, which consists of both Value Added Tax (VAT) and corporate income tax elements.
- Interest expenses that are used for business purposes are generally tax deductible, although some restrictions apply, including tax deductibility of interest being capped at 30% of EBITDA. There are no thin capitalisation rules in Vietnam.
- Unrealized foreign-exchange gains or losses due to the revaluation of foreign currency items are not taxable or tax deductible items as the case may be.
- Capital gains are generally assessed with ordinary income and subject to corporate income tax.
- The standard rate for VAT typically charged on goods and services is 10%. VAT is charged at 0% for exported goods and/or services, and 5% for essential goods and/or services. A number of goods and services are VAT exempt.
- A special sales tax is an excise tax that applies to the production or import of certain goods and the provision of certain services. Rates range from 10% to 150%.
- There is no withholding tax on dividends remitted overseas. Withholding tax for interest, part of the foreign contractor tax, paid to non-resident companies is 5% unless a tax treaty is in place and non-residents can provide the Certificate of Residence. Withholding tax rates on interest where treaties are in place are 0%, 10% or 15%.
- Vietnam has tax treaties with more than 80 countries and territories.
Benefits for Shared Service Centres
- Vietnam is a member of the Association of Southeast Asian Nations (ASEAN) and the Asia-Pacific Economic Cooperation (APEC).
- Vietnam is a member of the Asian Payment Network, a common payment-settlement platform within the Asia Pacific region.
- Notional pooling in Vietnamese dong and foreign currencies is permitted within the same legal entity. Cross-border notional pooling is not permitted due to regulatory restrictions.
- Domestic cash concentration is available in Vietnamese dong within the same legal entity. Cross-border cash concentration is not permitted due to regulatory restrictions.
- The main financial centre in Vietnam is Ho Chi Min City.
- Vietnam has bilateral payment arrangements with Belarus, Cambodia, China, Laos and Russia.
- Vietnam has many advantages as a global outsourcing centre, with low costs, a skilled IT workforce, a young, literate and educated population, many university graduates, a stable, one-party government with low political risk, good infrastructure in urban centres, and a sound and growing English-language proficiency.
- There are 35 domestic commercial banks in Vietnam, of which four are state-owned and the rest are either joint-stock or joint-venture banks. In addition, there are nine wholly foreign-owned banks, 52 representative offices of foreign banks and 49 foreign bank branches.
- The banking sector is dominated by four banks: Vietnam Bank for Agriculture and Rural Development (Agribank), Bank for Investment and Development of Vietnam (BIDV), Commercial Bank for Foreign Trade of Vietnam (Vietcombank) and Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank).
- State-owned banks currently hold the largest total assets of 43.4%, followed by joint stock banks with 41.4%.
- The largest bank is Agribank, in terms of total assets, customer base and branch network.
- The government has launched an initiative to consolidate and restructure its banking sector. This involves floating shares in the state-owned banks.
- Residents: May hold foreign-exchange accounts domestically and overseas, with prior approval from the State Bank of Vietnam for overseas accounts. Residents may hold domestic currency accounts onshore only, but they are convertible to foreign currency.
- Non-residents: May hold foreign currency and domestic currency accounts.
- Interest: Offered on current and savings accounts.
Legal and Regulatory
- The State Bank of Vietnam oversees the banking sector and administers foreign exchange controls in Vietnam.
- It is a member of the Association of Southeast Asian Nations (ASEAN) and therefore subject to financial-sector multilateral agreements.
- Non-residents are usually required to gain permission to carry out foreign-exchange transactions within Vietnam.
- The Ministry of Planning and Investment requires a permit to carry out any offshore investment activity and, similarly, also requires prior approval for any foreign investment.
- All investments done by non-residents within Vietnam have to be carried out in domestic currency (VND).
- Vietnam has anti-money laundering and counter terrorism financing regulations in place.
- It has set up a financial intelligence unit, the Anti-Money Laundering Department (AMLD), which is under the State Bank of Vietnam.
(Inter Bank Payment System)
(High Value Payment system)
Vietnam's Real-time Gross Settlement (RTGS) system
(Low Value Payment system)
Deferred net settlement system
(Automated Clearing House)
Electronic clearing system for low-value electronic payments
Cheque and paper-based transactions
- High-value (equal to or over VND500 million) and urgent VND-denominated credit transfers are cleared same day.
- Low-value and non-urgent credit transfers are cleared through the LVP or ACH.
- Used for payroll, supplier and third-party payments.
- Represents 90.95% of non-cash domestic transaction value as of 2Q20.
Direct Debits (auto debits)
- Only available for low-value, regular payments such as utility bills.
- There is no centralised system, therefore, interbank payments are carried out through a bilateral system.
- Used for 4.01% of non-cash domestic transaction value in 2Q20.
- Fast increasing in popularity, especially debit cards. However, usage is limited by low bank account penetration and insufficient ATM and POS terminals in rural areas, with only 0.7% of non-cash domestic transaction value being made by bank card in 2Q20.
- There are 19,571 and 266,308 ATMs and POSs, respectively.
- The main brands of international cards in use are China UnionPay, JCB, Visa and MasterCard, and the domestic banks issue SmartLink payment cards. Approximately 106 million bank cards in circulation.
- Smartlink and Banknetvn have merged their processing operations to consolidate all mobile phone, ATM, POS and online transactions through a centralised system, the National Payment Corporation of Vietnam (NAPAS).
- Vietnam’s VinaPay’s MrTopUp service is one of the country’s biggest pre-paid card distributors. In addition, five banks are authorised to take part in VinaPay’s Vcash e-wallet scheme, which allows individuals and companies to make and receive payments, pay bills and make purchases online.
- E-cards are typically used for low-value transactions and to pay utility bills. Vietcombank and eight other institutions are authorised to issue e-money cards in Vietnam.
- The government is committed to becoming a cashless economy by 2020, and increase cash transactions to 90% of total transactions. This would culminate in changing to a digital payments infrastructure, encouraging bank account adoption and providing incentives to use electronic transactions.
- Digital transactions are increasing in line with increases in internet penetration and mobile phone ownership. As well as international digital wallets in the market, such as Samsung Pay and Alipay, there are many local digital wallets such as MoMo, Appota Wallet and Bankplus.
- There are many bank and non-bank mobile wallet apps available.
- The e-commerce market is worth USD6.2 billion, just over half of which is mobile commerce. However, it represents just 5% of total retail transactions.
The government has set out to regulate cryptocurrency activities after a series of cryptocurrency scams that affected thousands of Vietnamese.
Cash, Cheques and Money Orders
- Cash is still the most common mode of payment, accounting for 90% of total transactions. This is largely due to lack of bank account penetration, lack of electronic payment facilities and ATM terminals in rural areas as well as lack of trust in system security.
- Cheques are not a common form of payment. Only used for low-value retail transactions, if at all.
- Money orders are handled primarily through Vietnam Post as well as vendors such as Western Union and MoneyGram.
1 (Progressive) max rate for incomes over VND80 million
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Sources: IMF, World Economic Forum, PwC, US Department of Commerce, State Bank of Vietnam, Reuters, Bloomberg, Vietnam News, Asian Development Bank, DBS.
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