Why Hong Kong Companies Should Make Investments in Vietnam

Are you looking to expand your business out of Hong Kong? Vietnam has recently established itself as one of the ideal business locations in SEA for companies of all sizes to expand to.

Vietnam has set new benchmarks for developing economies in the global investment ecosystem with their bolstered economic development and ability to revive from the pandemic’s aftermath.

With the growing manufacturing sector and integration with the global supply chain, the country’s demand for professional services and foreign investments from places like Hong Kong have spiked.

Current Scenario of Hong Kong’s investments in Vietnam

As per a survey conducted by the Hong Kong Trade Development Council (HKTDC) in 2017, Hong Kong turned out to be the most preferred country by Vietnamese companies for seeking business partners. Moreover, Hong Kong is the 6th largest source of Foreign Direct Investments (FDI) made in Vietnam with a plethora of investors in the manufacturing and real estate sector, especially.

With its strategic location, connections in the western countries, and international distribution expertise, Hong Kong assumes a significant role in streamlining the supply chain of Vietnamese products overseas. Likewise, Vietnam’s border with China, central location in SEA and a plethora of new free trade agreements opening up the economy even more, it is an ideal location for Hong Kong companies to do business in.

Understanding BUD Fund – Government Grants for Expansion

To help businesses capitalize on the opportunities arising from the National 12th Five-Year Plan, a “Dedicated Fund on Branding, Upgrading and Domestic Sales” (BUD Fund) was introduced by the Hong Kong Special Administrative Region Government.

The fund is aimed at helping enterprises in discovering new opportunities and giving a boost to the mainland and Asian market through establishing brands, refining their business functions and improving domestic sales.

To further bolster the capabilities of businesses in exploring more diversified avenues, the government introduced measures like expanding the geographical scope of the fund and increasing the total funding limit to USD 6 million per enterprise.

Previously the BUD fund was only to assist Hong Kong companies expanding to the Chinese mainland, however, this has changed in terms of scope and companies can now capitalize on this fund to move to South East Asian nations.

Vietnam Investment Law – Things to Know

Foreign investors planning to expand their business must be cognizant of Vietnam’s investment laws and regulations, as there is no single law that governs investment and acquisitions. Following are some of the Investment laws:

• WTO commitments: The Schedule of Specific Commitments in Services, contains services that Vietnam allows foreign businesses to access. The law also specifies any limits on foreign ownership in a Vietnam-based company;
• The Law on Enterprises No. 59/2020/QH14 adopted by the National Assembly of Vietnam governs the establishment, organization, restructuring, dissolution, and other relevant activities of companies in Vietnam;
• The Law on Investment No. 61/2020/QH14 adopted by the National Assembly of Vietnam which aims at regulating investment activities by or in companies;
• The Law on Securities No. 54/2019/QH14 adopted by the National Assembly of Vietnam;
• The Law on Competition No. 23/2018/QH14 adopted by the National Assembly of Vietnam;
• The Ordinance on Foreign Exchange Control No. 28/2005/PL-UBTVQH11 adopted by the Standing Committee of the National Assembly; and
• Any Other specific legislation is applicable to foreign investment in Vietnam-based companies that deal in specific regulated areas, for instance, banking, insurance, and financial services.

Asia’s Next Hotspot for Fintech Sector

Vietnam is gradually catching up with Indonesia and Singapore for becoming the next fintech hotbed in Southeast Asia. According to Techinasia, with 70% of the country’s population having limited or no access to banking services presents a sea of opportunities for foreign investors to bridge the gap. Moreover, companies like MoMo and VNPay have earned some of the mega-deals recorded for Vietnam since 2019.

Green Investments – A Sustainable Future

To fight climate change and stop global warming, Vietnam is committed to achieving the goal of carbon emission neutrality by 2050, as reported by Reuters. The country has ambitious aims to increase installed wind and solar power generation capacity to 31-38 gigawatts in the next 10 years.

However, Vietnam has duly acknowledged that it requires investment, the latest technologies, and expertise from global investors to achieve the envisioned targets.

Vietnam Tax Incentives

Tax incentives are recognized as one of the most prominent features of doing business in Vietnam. The Corporate Income Tax (CIT) incentives are leveraged by both foreign and local investors. It can be further classified as follows:

• Preferential Tax Rates: Depending on the specific provisions, preferential tax rates of 10%, 15%, and 17% are available*. However, the standard CIT is 20% and goes up to 50% depending on the project. The preferential tax rates can either be applicable for the entire tenure of a project or a pre-defined period.
• Tax Holidays: It refers to a pre-defined period in which companies can decide not to pay CIT or pay 50% of the payable tax*. This period is generally four years and begins on the occurrence of either the first year of profit-making or the fourth year of revenue generation, whichever is earlier.

* Source

Free Trade Agreements

• ASEAN-Hong Kong, China Free Trade Agreement: This agreement aims to amplify economic cooperation and boost investment between Hong Kong and the regional markets in the ASEAN zones. Also, it helps Hong Kong in dealing with the soaring US-China trade war, by allowing it to expand its investment opportunities in Vietnam. Read more about the ASEAN-Hong Kong FTA
• AFTA: The ASEAN Free Trade Area (AFTA) happens to be one of the largest and most significant free trade areas (FTA) in the world. It is aimed at promoting local trade and manufacturing in all ASEAN countries and fostering economic integration with allies.
• EU-Vietnam trade agreement: This is one of the most comprehensive trade agreements the European Union (EU) has signed with a developing country. The agreement puts Vietnam’s development requirements on the fore. It has allowed the country a 10-year period to eliminate its import duties on products shipped out of the EU. Read more about the EU-Vietnam FTA.

Conclusion

The Vietnamese economy has shown credible performance in the face of adversities caused by the Covid-19 pandemic and is expected to recover quickly in 2022 and continue to grow rapidly in the years to come. Backed by its growing middle-class, abundant natural resources, inexpensive and talented workforce, and favorable business environment, Vietnam presents a perfect podium for Hong Kong’s investors to expand their business.

If you are interested in doing business in Vietnam, please see our partners Cekindo.vn for full A-Z market-entry services.