Easing business restrictions helps Vietnam attract investors
The government’s efforts to simplify business registration regulations, allow foreigners to own property and improve infrastructure are attracting both local and foreign investors.
Amendments were made to the Business Law and Investment Law amid an urgent need to improve the investment climate.
The changes have had a positive effect on businesses’ operations since they took effect in July, Nguyen Huy Hoang of the National Center for Socioeconomic Information and Forecast said.
Thanks to new rules giving businesses more freedom to decide on their own operations, the number of new businesses is rising consistently.
Between July and November more than 40,800 new business were incorporated, up 30 percent year-on-year. Some 94,000 businesses have been set up this year, a record high, compared to 74,800 last year.
The amended laws allow businesses to expand into any legal activity. Earlier they had to specify their activities in license applications.
The list of illegal business activities has also been shortened from 51 to six, including wildlife trading, human trafficking and sexual services.
However, economist Pham Chi Lan said: “Many firms said they need more government support amid the international integration.”
According to the World Bank's Doing Business report released in October, Vietnam moved up three places to 90th out of 189 economies, with improvements in the areas of business start-up, power access, and bankruptcy resolution.
The country's score on a scale of 100 increased from 60.35 to 62.1, indicating an improved
environment for businesses, the report said.
The increase in foreign direct investment has also demonstrated that Vietnam’s environment has improved.
FDI has risen 12.5% to US$22.76 billion this year, with strong inflows into manufacturing, a key driver of the country's economic growth, according to the Ministry of Planning and Investment.
The country has implemented such reforms as simplifying customs procedures, reducing the time required to complete social insurance paperwork, and upgrading infrastructure, according to the
Central Institute for Economic Management.
Yasuzumi Hirotaka, head of the Japan External Trade Organization (JETRO)'s Ho Chi Minh City office, said cheap labor and upgraded infrastructure have helped Vietnam attract Japanese investors.
A quarter of Japanese firms leaving China have chosen Vietnam as their investment destination, it added.
The recent legislative changes allowing virtually unrestricted foreign ownership of property and eliminating caps on foreign ownership in listed companies have created an image of an opening of the economy to foreign capital.
Under the amendments to the Law on Housing, which took effect July 1, foreigners with valid visas and international organizations operating in Vietnam are allowed to buy up to 30% of an apartment building or 250 houses in a ward -- a subdistrict-level administrative area that can contain thousands of properties.
The old law restricted ownership to foreigners married to Vietnamese and those foreigners deemed to have made significant contributions to the nation’s development. Even then, however, they could only buy apartments, not landed property.
The new rules have encouraged foreign businesses to come to the country.
Investors who have done business in Vietnam for many years like Lotte, the nation's biggest fund manager VinaCapital Group, and Indochina Land, a subsidiary of London-listed fund Indochina Capital, have recently increased their investment in property, while new ones like Creed Group have entered the market.
Property ranked third behind the processing and energy industries in attracting FDI in 2015. It saw inflows of US$2.4 billion, or 10.5% of total FDI, according to the Foreign Investment Agency.
The country saw economic growth of 6.68% in 2015, the fastest pace in five years, helped by an expanding industrial sector and record foreign investment.
Difficulties
Though accelerated, the reforms are not enough. Many companies struggle with high taxes and getting bank credit.
A company could spend 39.4% of its profits paying income tax and value added tax.
Thirty percent of small- and medium-sized enterprises (SMEs) are unable to access credit, the Vietnam Chamber of Commerce and Industry said.
Banks are only willing to lend against assets, but SMEs typically do not have much to offer in terms of collateral.
Banks charge 9-11% interest for medium- and long-term loans and 7-8% for short-term loans, according to the central bank.
VCCI chairman Vu Tien Loc called for rate cuts and hailed the government’s plan to provide further tax incentives to businesses, like scrapping penalties for late tax payment. Corporate tax is at 22%
“Many companies are in a difficult situation and cannot afford to pay taxes. So all measures to delay, reduce or waive taxes are necessary.”
He said tax authorities should also simplify procedures and create a transparent environment to save businesses both time and money.
Corruption should also be tackled, economists said.
In terms of paying taxes, Vietnam has not made it very easy for business, ranking 168th out of 189 economies, according to the World Bank's Doing Business report.
Companies made 30 tax payments on average a year and it took them 770 hours to file, prepare and pay taxes, the report said.
The chairman of the Association of Foreign Invested Enterprises, Nguyen Mai, said the government should foster a more competitive environment where administrative procedures are simplified, rules are fairly enforced and companies compete on merit, including for access to capital, land and opportunities.
"If these issues are not resolved, Vietnam will become less attractive to investors.”
The changes have had a positive effect on businesses’ operations since they took effect in July, Nguyen Huy Hoang of the National Center for Socioeconomic Information and Forecast said.
Thanks to new rules giving businesses more freedom to decide on their own operations, the number of new businesses is rising consistently.
Between July and November more than 40,800 new business were incorporated, up 30 percent year-on-year. Some 94,000 businesses have been set up this year, a record high, compared to 74,800 last year.
The amended laws allow businesses to expand into any legal activity. Earlier they had to specify their activities in license applications.
The list of illegal business activities has also been shortened from 51 to six, including wildlife trading, human trafficking and sexual services.
However, economist Pham Chi Lan said: “Many firms said they need more government support amid the international integration.”
According to the World Bank's Doing Business report released in October, Vietnam moved up three places to 90th out of 189 economies, with improvements in the areas of business start-up, power access, and bankruptcy resolution.
The country's score on a scale of 100 increased from 60.35 to 62.1, indicating an improved
environment for businesses, the report said.
The increase in foreign direct investment has also demonstrated that Vietnam’s environment has improved.
FDI has risen 12.5% to US$22.76 billion this year, with strong inflows into manufacturing, a key driver of the country's economic growth, according to the Ministry of Planning and Investment.
The country has implemented such reforms as simplifying customs procedures, reducing the time required to complete social insurance paperwork, and upgrading infrastructure, according to the
Central Institute for Economic Management.
Yasuzumi Hirotaka, head of the Japan External Trade Organization (JETRO)'s Ho Chi Minh City office, said cheap labor and upgraded infrastructure have helped Vietnam attract Japanese investors.
A quarter of Japanese firms leaving China have chosen Vietnam as their investment destination, it added.
The recent legislative changes allowing virtually unrestricted foreign ownership of property and eliminating caps on foreign ownership in listed companies have created an image of an opening of the economy to foreign capital.
Under the amendments to the Law on Housing, which took effect July 1, foreigners with valid visas and international organizations operating in Vietnam are allowed to buy up to 30% of an apartment building or 250 houses in a ward -- a subdistrict-level administrative area that can contain thousands of properties.
The old law restricted ownership to foreigners married to Vietnamese and those foreigners deemed to have made significant contributions to the nation’s development. Even then, however, they could only buy apartments, not landed property.
The new rules have encouraged foreign businesses to come to the country.
Investors who have done business in Vietnam for many years like Lotte, the nation's biggest fund manager VinaCapital Group, and Indochina Land, a subsidiary of London-listed fund Indochina Capital, have recently increased their investment in property, while new ones like Creed Group have entered the market.
Property ranked third behind the processing and energy industries in attracting FDI in 2015. It saw inflows of US$2.4 billion, or 10.5% of total FDI, according to the Foreign Investment Agency.
The country saw economic growth of 6.68% in 2015, the fastest pace in five years, helped by an expanding industrial sector and record foreign investment.
Difficulties
Though accelerated, the reforms are not enough. Many companies struggle with high taxes and getting bank credit.
A company could spend 39.4% of its profits paying income tax and value added tax.
Thirty percent of small- and medium-sized enterprises (SMEs) are unable to access credit, the Vietnam Chamber of Commerce and Industry said.
Banks are only willing to lend against assets, but SMEs typically do not have much to offer in terms of collateral.
Banks charge 9-11% interest for medium- and long-term loans and 7-8% for short-term loans, according to the central bank.
VCCI chairman Vu Tien Loc called for rate cuts and hailed the government’s plan to provide further tax incentives to businesses, like scrapping penalties for late tax payment. Corporate tax is at 22%
“Many companies are in a difficult situation and cannot afford to pay taxes. So all measures to delay, reduce or waive taxes are necessary.”
He said tax authorities should also simplify procedures and create a transparent environment to save businesses both time and money.
Corruption should also be tackled, economists said.
In terms of paying taxes, Vietnam has not made it very easy for business, ranking 168th out of 189 economies, according to the World Bank's Doing Business report.
Companies made 30 tax payments on average a year and it took them 770 hours to file, prepare and pay taxes, the report said.
The chairman of the Association of Foreign Invested Enterprises, Nguyen Mai, said the government should foster a more competitive environment where administrative procedures are simplified, rules are fairly enforced and companies compete on merit, including for access to capital, land and opportunities.
"If these issues are not resolved, Vietnam will become less attractive to investors.”