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's maritime industry is ranked fourth-largest in the region.
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.
Vietnam has signed 13 Free Trade Agreements, and is in the process of negotiating more, meaning companies can enjoy competitive tax advantages by investing in the country. 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 71st in the world for financial market development in The Global Competitiveness Report 2017-2018.
- It ranks Vietnam 112th in the world for the soundness of its banks, while it rates the country 69th for ease of access to loans, although it ranks more highly for financing through local equity markets and venture capital availability.
- 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 authorized 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 State Bank of Vietnam has devalued the Vietnamese dong several times in recent years. The dong has depreciated 2.5% since the beginning of 2018 as a result of renminbi depreciation and the trade war between China and the US.
Sophistication of Banking Systems
- There are 35 domestic commercial banks in Vietnam, four of which are fully state-owned and 31 are joint-stock banks. There are 10 wholly foreign-owned banks, and around 50 representative offices of foreign banks and around 50 branches of foreign banks.
- The supply of foreign exchange in Vietnam has been limited in the past, however, foreign exchange reserves hit USD63.5 billion at the end of June 2018.
- Vietnam's debt market is dominated by government bonds, followed by municipal bonds and corporate bonds. The local currency bond market was valued at VND1,173 trillion in March 2018. 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. 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, location and project specific basis (and conditions prescribed are met).
- 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 and corporate income tax elements.
- Interest expenses that used for business purposes are generally tax deductible. 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 item as the case may be.
- Capital gains are generally assessed with ordinary income and subject to corporate income tax. For the transfer of capital outside of Vietnam whereby the transferred capital includes capital from investment in Vietnam, it was proposed that such be tax at 2% on sales proceeds with effect from 1 January 2019. However, this proposal is still under discussion and review.
- The standard rate for Value Added tax (VAT) is typically charged on goods and services at 10%. VAT is charged at 0% for exported goods and/or services, 5% for essential goods and/or services. In recent times, many different proposals have been submitted for consideration to increase the VAT rate in Vietnam.
- A special sales tax is an excise tax applied to the production or import of certain goods and provision of certain services. Rates range from 10% to 150%.
- There is no withholding tax on dividends remitted overseas. Withholding tax for interest paid to non-resident companies is 5% unless a tax treaty is in place and the non-resident can provide a Certificate of Residence. Withholding tax rates on interest based on the available treaties range from 0% to 15%.
- Vietnam has tax treaties with more than 75 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 35 domestic commercial banks in Vietnam, four of which are fully state-owned and 31 are joint-stock banks. There are ten wholly foreign-owned banks, and around 50 representative offices of foreign banks and around 50 branches of foreign banks.
- 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 hold the largest total assets at more than 50%, followed by joint stock banks with 40%.
- 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 is offered on current and savings accounts.
- Foreign business entities and investors must meet certain account requirements in order to engage in direct and indirect investment activities. These include, but are not limited to, opening foreign currency accounts for direct investment and capital Vietnamese dong accounts for indirect investment.
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
- 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.
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.
- 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.
- The main brands of international cards in use are China UnionPay, JCB, Visa and MasterCard, and the domestic banks issue SmartLink payment cards.
- 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 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 within city limits, 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
Government Drives e-Payment Adoption
Vietnam’s government has issued a resolution under which all schools, hospitals, utility suppliers and postal companies in urban areas must work with banks and payment service providers to enable consumers to settle bills using e-payments by the end of this year. The State Bank of Vietnam is also working on solutions to encourage the take-up of e-wallets. Only 4.9% of payments in Vietnam are currently classed as non-cash transactions, compared with nearly 60% in Thailand and 90% in Malaysia, according to the World Bank.
Read more about the development here.
Cashless Payments More than Double
The value of cashless payments in Vietnam more than doubled during the first nine months of 2018. Transactions made using digital wallets saw the strongest growth of 161% year-on-year, while payments through mobile apps rose by 126%, according to the State Bank of Vietnam. The trend is being driven by increased take-up of technologies such as QR codes and contactless payments among both consumers and banks; 27 local startups are now licensed to offer payment services, 20 of which operate e-wallets.
Read more about the development here.
Mobile Payments Encouraged in Rural Areas
The State Bank of Vietnam is exploring using mobile subscriber accounts for e-payments in a bid to expand access to financial services to people outside of cities. Six out of 10 people in rural areas do not have a bank account, while the acceptance of e-payments is mainly limited to restaurants, hotels and large shops in urban settings. Vietnam’s digital payment infrastructure is still limited but using the telecommunications network could overcome this challenge and give more people access to low-cost digital payment services.
Read more about the development here.
Digital Payments Stifled by Regulations
The take-up of digital payments in Vietnam is being stifled by central bank regulations. While the government has set targets for reducing cash-based transactions, especially in urban areas, a 2014 State Bank of Vietnam rule states that e-wallet accounts must be linked to bank accounts in the same name. But only 31% of adults in Vietnam have a bank account, meaning they are unable to access an e-wallet. Following a recent tightening of enforcement of the regulation, a number of providers have been forced to freeze users’ e-wallets. Payment services companies are calling for the rule to be changed.
Read more about the development here.
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Sources: IMF, The World Economic Forum The Global Competitiveness Report 2017-2018, US Department of Commerce, State Bank of Vietnam, Reuters, Asian Development Bank, PwC
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