Vietnam

Introduction

 

About Vietnam

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 with China, which is its second largest trading partner. Being a coastal country, Vietnam's maritime industry is ranked fourth largest in the region, with its coastal boundary being located at major trading centres.

Vietnam's location in the Indochinese peninsula has given it a natural advantage for interactions between countries in East Asia and Southeast Asia, as it serves as an important link between matured economies in East Asia and emerging markets in Southeast Asia. Its adjacent location to China has also served as a gateway to investors who wish to penetrate the China market.

With low valuations, rising foreign cash flow and the 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, supporting the shift from traditional industries to high-tech production.

Under multiple trade deals and free trade agreements, companies enjoy a competitive tax advantage by investing in Vietnam. Economic reform and the privatisation of state-owned enterprises have also provided a favourable outlook to the economy as it becomes increasingly competitive.

 

What solutions are available in Vietnam?

Solution Description
Payment Factory A centralised management of payments for the organisation to drive greater visibility, control and efficiency in the execution process.
Interest Optimisation Maximise your interest yield from for your balances held with the bank.

Corporate Treasury in Vietnam

Vietnam is one of the fastest-growing economies in the world and has an expanding manufacturing sector. 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 84th in the world for financial market development in The Global Competitiveness Report 2015-2016.
  • It ranks Vietnam 124th in the world for the soundness of its banks, while it rates the country 88th for ease of access to loans, although it ranks more highly for financing through local equity markets.
  • 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, most recently in January 2016.

 

Sophistication of banking systems:

  • There are more than 37 domestic commercial banks in Vietnam, with the sector dominated by four largest state-owned banks. There are eight wholly foreign owned banks, 51 branches of foreign banks and 51 representative offices of foreign banks.
  • The supply of foreign exchange in Vietnam has been limited in the past, however, foreign exchange reserves hit a record high of USD40 billion in 2016.
  • Vietnam's debt market is dominated by government bonds, followed by municipal bonds and corporate bonds. The local currency bond market was valued at VND996 trillion at the end of 2016. Vietnam plans to launch a bond derivatives market in the near future.

 

Regulatory bodies:

  • 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.

 

Tax:

  • The Corporate Income Tax rate is 20%. CIT is paid at a preferential rate of 10%, 15% or 17% when certain criteria are met. Oil and gas companies pay CIT at 32% to 50%. Firms working in mineral resources pay CIT at 40% or 50%.
  • Preferential CIT rates of 10% and 17% for 15 years and 10 years respectively are available for businesses working in certain sectors, such as scientific research, technology and infrastructure development, or certain locations, providing qualifying conditions are met. Certain enterprises are also eligible for tax holidays of zero CIT for a set period followed by a 50% reduction for a further period.
  • Businesses established under the laws of Vietnam pay CIT on their worldwide income. Foreign enterprises with permanent establishments in Vietnam pay tax on income earned in Vietnam and income earned out of Vietnam related to the operations of the PE.
  • Foreign entities 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 VAT and CIT elements.
  • VAT is charged at 0% for exported goods and services, 5% for essential goods and services and 10% for other goods and services. Input VAT is charged on certain activities.
  • 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. WHT rates on interest range from 0% to 15% depending on individual treaties.
  • Interest on loans is deductible under certain circumstances, but conditions apply. For example, tax deductibility of interest on loans is capped at 20% of earnings before interest, taxes, depreciation, and amortization.
  • Unrealized foreign-exchange gains or losses due to the revaluation of foreign currency items are not tax-deductible.
  • 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 center 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 and educated population, many graduates of universities with international standards, stable government with low political risk, good infrastructure in urban centres and sound and growing English-language proficiency.  

 

Banking

 

Banking System

  • There are 37 domestic banks in Vietnam, of which 28 are joint stock banks, seven are state-owned banks and two are joint-venture banks. In addition, there are eight foreign banks, 51 representative offices of foreign banks and 51 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 hold the largest total assets of 45%, 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.

 

Bank Accounts

  • 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.

 

Payments

 

Payment Systems

IBPS

(Inter Bank Payment System)

 

  • Owned and operated by the State Bank of Vietnam.
  • Approx.  2,353 participants
  • It is divided into two systems: the HVP and LVP.

HVP

(High Value Payment system)

Vietnam's Real-time Gross Settlement (RTGS) system

  • Processes all high-value (equal to or greater than VND 500 million) VND-denominated interbank transfers.

LVP

(Low Value Payment system)

 

Deferred net settlement system

  • Processes low-value (less than VND 500 million) electronic credit and debit payments.

ACH

(Automated Clearing House)

Electronic clearing system for low-value electronic payments

  • Owned and operated by the State Bank of Vietnam.
  • Approx. 131 members
  • The establishment of the IBPS has diminished the necessity and use of ACH.
  • Processes bilateral payments through the internal clearing systems of Vietnam's six largest banks.
  • Processes and clears intra-city/intra-province transactions through the local branch of the State Bank of Vietnam or its National Processing and Settlement Centre.

 

 

Cheque and paper-based transactions

  • Intra-city cheque payments are cleared through provincial payment centres (part of the State Bank of Vietnam) and are usually settled within three days.
  • Inter-province cheque payments are cleared through the National Processing and Settlement Centre and are usually settled within four to seven business days.
  • There are 230 participants.

 

 

 

Payment Instruments

 

Credit transfers:

  • High-value (equal to or over VND 500 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 (autodebits):

  • 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.

 

Cheques:

  • Not a common form of payment.
  • Only used for low-value retail transactions, if at all.

 

Card payments:

  • Fast-increasing in popularity, especially debit cards.
  • The main brands of international cards in use are China UnionPay and MasterCard, and the domestic banks issue SmartLink payment cards.
  • There are 16,573 ATM and 217,470 POS terminals (end of 2015).
  • Smartlink and Banknet have merged their processing operations to consolidate all mobile phone, ATM, POS and online transactions through a centralised system.
  • 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.

 

Demographics

Recent developments

 

E-commerce Boom

Vietnam’s e-commerce market is booming on the back of increased investment from retailers, and growing internet use and smartphone ownership. Sales are currently growing at a rate of 35% a year, making Vietnam one of the fastest growing e-commerce markets in the world, according to the country’s E-commerce and Information Technology Agency. Sales growth for the period 2016 to 2020 is expected to average 20% a year, to reach a total of USD10bn by 2020.

Read more about the development here

 

TrueMoney Granted License

TrueMoney Vietnam is set to offer digital financial services in the country after obtaining an Intermediary Payment Services License from the State Bank of Vietnam. The company, which is part of South East Asian FinTech firm Ascend Money, will provide e-money and e-payment services, as well as wireless transfers and payment gateways. The services will enable consumers to pay bills, make purchases and top-up prepaid mobile phones online, and also transfer money from a bank account to a digital wallet.

Read more about the development here

 

Blockchain Technology to Help Reach Unbanked

Steady economic growth and high levels of innovation will help Vietnam reach people who are excluded from financial services. Only 31% of adults in Vietnam currently have a bank account, but 40% of people are expected to own a smartphone by 2021, creating opportunities to connect with the unbanked through banking apps and blockchain-based financial services. Vietnam has a dynamic startup ecosystem, aided by a new government plan to provide resources and training to tech companies in the coming few years.

Read more about the development here

 

 

This Market Profile is brought to you by DBS. Get in touch with us for further insights on doing treasury in Vietnam and take advantage of our innovative solutions to empower your business. Click here to find out more.

 

 

Sources: IMF World Economic Outlook database, October 2016; CIA World Factbook; Trading Economics; PwC

Please note that the information contained in this document, assembled based on information available and accurate as at July 2017, is of a general nature only and is subject to change whether for economic, political, social or other reasons.

 

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Last updated on 20 May 2018