Hanoi
BSc (Hons) Est Man
MRICS
APREA (CREIF)
Industrial - National |
Monday, 16 March 2009 | |
INDUSTRIAL : GENERAL
In the last 6 years, the number of IPs and EPZs in the county has soared from 46 in 1998 to 108 of which 68 are operational, with most established in the northern and southern delta provinces. The northern key economic zone has contributed 15% of the country's GDP and 25% to the nation's industrial production, and the southern key economic zone accounted for 30% of the country's industrial production and about 40% of the country's export revenue. The combined area of the 108 parks is about 20,200 hectares of which 13,809 hectares (68%) have been leased, excluding Dung Quat and Chu Lai Open Economic Zones and 124 industrial clusters or small-medium sized industrial parks which cover more than 65,000 hectares. The industrial areas have generated jobs for nearly 600,000 people and employed more than one million others indirectly. They have also served as a catalyst for the establishment of many new urban areas and the development of auxiliary industrial and services sectors.
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The country's key economic zones contributed 56% of GDP in 2003; 70% of industrial production value; 70% of export value; and around 73% of budget collection. HCMC, Dong Nai, Binh Duong and Ba Ria Vung Tau, have 3 EPZs and 56 IPs accounting for almost 65% of the total industrial acreage nationwide. They are far more efficient than those in other regions and provide jobs for over 425,000 people. In recent years, Dong Nai and Binh Duong have been the two most popular provinces with 451 operational projects worth $5.4 billion and 853 FDI operational projects worth $4.5 billion respectively. In recent years they have attracted almost as much as FDI from existing investors (expansion investment) than from ‘new’ investment per se. This is both good and bad news: it shows that most investors are profitable and confident in the future of Vietnam as a manufacturing base, but also that Vietnam is losing its battle with China and its ASEAN rivals in attracting new investors. Setting up in Vietnam can be easy and in places, literally carried out in a morning. However, although it is straight forward if you are looking for a reasonably long term operation, thus, necessarily with a relatively larger ‘registered capital’ than would typically otherwise be the case, it is much less easy to set up operations for only a few years. Thus, Vietnam struggles to attract ‘secondary’ supplier type industries.
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Almost half of the foreign investment capital registered in Vietnam in recent years came through the country's IPs. Just over $1 billion or 45% of the total capital registered via new foreign investment projects set up in 2004 was earmarked for Vietnam's IZs and EPZs, a 33% increase on a 2003. There were 232 projects established in the IZs and EPZs in 2004 - an increase of 10%. Three quarters of all new projects opened up in Ho Chi Minh City, Dong Nai and Binh Duong in southern Vietnam. In total, the zones absorbed just over $1.8 billion of freshly registered foreign investment in 2004, including $759 million or 40% of the total added by foreign investors to 358 projects as supplemented capital. These figures represented a 33% rise in unit volume and 40% increase in capital over 2003. Most expanded projects were based in Dong Nai, Binh Duong, Long An, Ho Chi Minh City and Hanoi.
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Vietnam saw a sharp fall in the scale of investment in its IPs & EPZs in the early 2000’s. While the average investment per project for the country was $23 million in 1997, the rate dropped to a mere $3.44 million in 2003 and has only slightly recovered to $4 million since. The export per person from Vietnam's EPZs and IPs is only $8,711 compared with Taiwan's $140,000 principally because 60% of exports are secondary processed goods and therefore value addition is not high. Thus, although some Vietnamese firms have been exporting under their own brand names, most domestic producers are too small to be regarded as engines of industrial growth. It is therefore important that Vietnam makes better use of technology while expanding its production process to cover not just the sub contracting / assembling phase but also other crucial phases such as research and development, design, marketing and distribution.
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Despite low average monthly IP workers’ salaries of only $42-48 per month, productivity and product quality remains less competitive than in other competitor countries. Total Factor Productivity contributes only 22.5% to GDP – much lower than Thailand’s 35%, the Philippines’ 41% or Indonesia’s 43%. The ‘added value’ for each Vietnamese dong in industrial production in 1995 in HCMC was VND0.4 but only VND0.32 in 2004, demonstrating the decreasing economic efficiency and competitiveness of the city's economy. Thus, Vietnam’s high export growth rates are based mainly on the exploitation of local resources (such as agriculture, natural resources and the low labour costs), and not from technological renovation or greater management efficiency. A recent analysis by the Ministry of Trade showed that external factors (rising international prices) and quantitative factors (higher manufactured volumes) were the two main reasons for the recent export growth, instead of from any substantive ‘added-value’ improvement. The reasons for this are complex but include the lack of central planning; the price of “land rental”; and the investment restrictions and limitations placed on potential foreign investors. About USD$8.6 million worth of capital has been poured into the nation's EZs to date. The Ministry of Planning and Investment estimated that EZs were likely to attract an additional USD$2.5-3 billion by the end of 2007 and in early 2008 as several major projects currently in the pipeline complete licensing and investment procedures.
A number of other economic zones have been set up across the country including Van Don in Quang Ninh province, Nhon Hoi in Binh Dinh (12,000ha), Nghi Son in Thanh Hoa (18,600ha), Phu Quoc (56,100ha), and Dong Nam in Nghe An (18,800ha). These zones have more than industrial parks to include ports, residential areas, free tax areas and tourism complexes where investors are often offered more preferential treatment than in other regions. Haiphong is applying for an economic zone.
Investment in EZ’s (Economic Zones) to end 2006 : -
- No. registered projects – 300
- No. realized projects – 60
- Registered capital – $10 billion
- Realized capital – $0.4 billion
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Typically, enterprises carrying on manufacturing and other business activities in OEZs, including domestic investors shall be completely exempt from CIT for 4 years after taxable incomes are first generated and enjoy a 50% rebate for the 9 subsequent years. Thereafter, a rate of 10% shall apply to such projects for 15 years from the time of starting the business. Existing companies which set up new production lines or expand old ones, renew technologies, set up waste treatment facilities or invest in enhancing productivity shall be exempt for 4 years from income tax on the increased incomes. They will also enjoy a 50% rebate for the 7 subsequent years at most. For foreign invested enterprises and foreign parties to business co-operation contracts that suffer losses after paying CIT may transfer such losses to subsequent years for deduction from their taxable incomes. Such transfers may be done for not more than 5 years. Investors are also typically exempt from import tax where the goods are of foreign origin (manufactured, processed, recycled or assembled in the non-tariff area or have at least 40% of their value originating from ASEAN as evidenced by certificates of ASEAN origin. If imported raw materials or components are used, import tax shall be imposed on the volume of the imported raw materials or components constituting such goods. Foreign invested enterprises investing in a OEZ shall not have to pay import tax on raw materials, supplies and components imported for production for 5 years from the time of commencing production.
Hi-Tech Parks
There are 7 operational hi-tech parks nationwide, covering some 750ha, excluding nearly 2,500ha for 14 industrial parks with hi tech applications. If everything goes as planned, another 33 hi-tech parks will come on stream, covering 16,426ha and the High Technology Law (1st July 2009), offers more favorable mechanisms to encourage various localities and economic sectors to develop hi-tech parks.
Tax Regimes for Industry
There are two major categories of industrial estates, namely Industrial Parks (IP’s) and Enterprise Processing Zones (EPZ’s), with different levels of incentives being available in each. Incentives also not only vary between but within provinces, in favour of remoter and / or mountainous & economically challenges regions.
According to Decree 152/2004/ ND-CP dated 6th August 2004 regulations guiding the rates, exemptions and reductions to the standard rate of 28% CIT, the following tax incentives apply to IP & EPZ investors : -
Typical Income Tax Incentives Inside & Outside IPs & EPZs
Type of Enterprise Inside Outside
· Hi-Tech Enterprises Rate – 10% Tax Exemption – 8 years
· EPZ Enterprises Rate – 10% Tax Exemption – 4 yrs & 50% reduction for next 4
· Export over 80% Rate – 10% Rate – 10% for 15 yrs Tax Exemption – 4 yrs & Tax Free – 4 yrs 50% reduction for next 4 Reduction – 50% for next 4yrs
· Export over 50% less 80% Rate – 15% Rate – 15% for 12 yrs Tax Exemption – 2 yrs & Tax Free – 2 yrs 50% reduction for next 3 years Reduction – 50% for next 3 yrs
· Export less 50% Rate – 15% Rate – 25% Tax Exemption – 2 yrs
· Service & Others IZ Service Ent. Rate – 20% Rate – 25% Tax Exemption – 1 yr EPZ Service Ent. Rate – 15% Tax Exemption – 2 yrs
Import Duties : - Foreign Invested Enterprises (FIEs) and parties to Business Co-Operation Contracts (BCCs) shall be entitled to exemption from import duties in respect of goods imported to form fixed assets, including : -
The exemption from import duties applicable to the above imported goods shall also be applied in the case of expansion of a project and replacement or renewal of technology.
Typically Encouraged Special Investment Projects
Typically Encouraged Investment Projects
· Projects for production, processing and export of 50% or more of products;
· Projects for production, processing and export of more than 30% of products using a large quantity of domestic materials (having value of 30% or more of production expenses);
· Projects employing a high number of labourers and effectively utilising natural resources available in Vietnam;
· Processing of agricultural, forestry products (except wood) and aquatic products;
· Preservation of food, preservation of post-harvest agricultural products;
· Exploration, exploitation and intensive processing of minerals;
· Development of petrochemical industry, construction and operation of oil and gas pipelines, oil storage, oil port;
· Production of equipment and component pack for exploitation of oil and gas, energy and mines; manufacture of large size lifting equipment;
· Manufacture of electrical middle and high voltage devises;
· Manufacture of precision mechanical safety test equipment, safety test equipment, manufacture of moulds for metal and non metal products;
· Manufacture of diesel engines with advanced technique and technology, manufacture of machinery and spare parts for dynamics and hydraulics and compressing machine;
· Manufacture of spare parts for automobile and motorbike, manufacture and assembly of equipment, vehicle and machinery for construction, manufacture of technical equipment for transportation sector;
· Building of ships, and manufacture of equipment and spare parts for cargo ships and fishing boats;
· Production of agricultural machines, spare parts, equipment, irrigation equipment;
· Production of materials for insecticides;
· Production of basic chemicals, pure chemicals, dyer and specialized chemicals;
· Production of materials for detergents and additives used in chemical industry;
· Production of special cement, composite materials, sound insulating materials, electrical insulating materials, heat insulating materials, wood substitute synthetic materials, refractory materials, plastic materials used for construction, crystal fibre;
· Production of light construction materials;
· Production of powder of papers;
· Production of silk, fibre of various kinds, special fabric used in industries;
· Production of high quality materials for production of footware and garments for export;
· Production of high quality packages for exports;
· Production of medical equipment used in analytical technology and extractive technology in medicine;
· Production of materials for medicines, production of medicines meeting the GMP international standards;
· Public transportation;
· Buildings and reformation of bridges, roads, airports, railway stations, railway networks;
· Building and operating infrastructure of IPs and EPZs and Hi Tech Zones.
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Last Updated ( Tuesday, 21 April 2009 ) |
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