Lawyer in Vietnam Oliver Massmann Asean Economic Community Impact on Real Estate Sector

Often compared to the European Union (EU), the AEC is a community formed in order to promote economic integration in South East Asia. The aim of this community is to create a market where member countries are able to develop competitively and cooperate with fewer barriers including free movement of goods, services, investment, freer flow of capital as well as substantial growth in workforce and demanding occupations. In order to achieve this, there are several tasks that need to be fulfilled such as diminishing the gap between developed and developing nations or enhancing communications connectivity and infrastructure.

Due to this, it is expected that the AEC would have a significant impact on the members’ economies in general, and on their real estate sectors in particular; and Vietnam is not an exception. Considering market fluctuations, it can be seen that an excessive amount of foreign capital has been invested into properties recently. In reality, until June 2015, a total of $16.6 billion from ASEAN investors had been poured into this market, despite the fact that AEC was not formed until December last year. This is partly because of the recently applied Housing Law and the Law on Real Estate Business which allow foreign investors to legally own, sell and transfer real properties. Regardless, the influence of AEC is undeniable. Also, similar trends were found in other ASEAN nations including Thailand or Singapore.

This has led many experts to predict that the involvement of Vietnam in AEC would result in prosperity in the real estate market. Vietnam can well compete with its ASEAN member countries in the Real Estate sector.

Vietnam has the most liberalized Real Estate Sector of all Asia allowing free hold ownership of land and houses for foreigners who are married to Vietnamese nationals.

There are still a number of challenges ahead of us such as weak management or lack of skilled labors and unclear procedures. As a result, although with its diversity, the ASEAN real estate market is an attractive destination to several investors, individual countries including Vietnam are required to improve systematically in order to compete in the global market.

Please do contact the author Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Vietnam Human Resources – Best Practice Solutions and Impact of ASEAN

The new Law on Social Insurance is coming into force at the 1 January 2016 and it will introduce some extensive changes which are considered to be good for Vietnam and align with international practice. These changes include, among others, expansion of the subjects of application of compulsory social insurance; additional provisions to improve the transparency of social insurance regime such as rights of employees to self-manage their social insurance books and obligations of employers to publicize information about the payment of social insurance premiums to employees every 6 months; steps to be taken to separate unemployment insurance from the social insurance regime; etc.
In order to ensure such changes are properly understood by employers and employees, the Ministry of Labour, War Invalids and Social Affairs should have more consultation and communication with the business community by reviewing regulations related to such changes, directly interacting with employers and employees during the consultation and opinion collecting process and building trust for social insurance agency. This would allow employers to be better positioned while explaining issues to their employees.
With respect to foreign workers, following the adoption of the new Labour Code in 2013, the Government of Vietnam recently issued Decree No. 102/2013/ND-CP elaborating the Labour Code’s provisions on foreigners working in the country. While the Decree clarifies the issuance and reissuance of work permits and eligibility for work permit exemption, there are current issues that should be resolved:
• Procedure for re-issuance of work permit should be simplified and it should be possible to apply at least 30 days prior to its expiration so that applicants have time to get their visa/temporary cards renewed;
• Trainees, who are working in Vietnam, and freelancers, who are working for many entities, are not covered by this Decree;
• The requirement of a criminal record certificate should only be applicable for applicants who have been in Vietnam for 6 months or more;
• The period for approval of a “foreign labour demand report” should be maximum 15 days and not 6 weeks as in some provinces;
• Documents for issuance of work permit should depend on type of employment/assignment including foreigners working under labour contracts and intra-company transferees or assignees working under service contracts; foreigners working in Vietnam less than 90 days to conduct audit, training, internship, etc.;
• Procedure for work permit exemption should be simple; and
• More comprehensive guidelines for applicants and training of officers in charge of issuance of work permits should be provided.
Please kindly note that the upcoming ASEAN Economic Community will impact the hiring of regional skilled labour in certain job categories by end the of 2015. The Ministry of Labour, War Invalids and Social Affairs should maintain the communication channels with the business community on this to address both opportunities and challenges.

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Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

IF YOU ARE INTERESTED IN DOING BUSINESS IN VIETNAM PLEASE VISIT: www.vietnamlaws.xyz

THANK YOU VERY MUCH

Why Is It Best To Start Preparing For Transactions Now In Vietnam?

Vietnam is currently at the final stage of negotiating the Trans-Pacific Partnership (“TPP”) and the EU- Vietnam Free Trade Agreement (“EVFTA”). Meanwhile, the ASEAN Economic Community, which Vietnam became a full member in 1995, is to be established by the end of 2015. With such deep integration into the multilateral and regional economy, Vietnam is expected to be an attractive investment environment for investors and witness a significant growth in the upcoming years. Samsung Electronics Company has decided to choose Vietnam as the Number 1 country to put their world largest mobile and tablet production and invested more than 6 Billion USD after a researching worldwide. Also major Japanese companies are convinced Vietnam is a top investment destination and become the largest investors in Vietnam. However, whether foreign investors should wait until the TPP and the EVFTA are concluded and the AEC has been established to enjoy their benefits then is a big question. The following section provides an overview of these free trade agreements and the AEC to help investors understand what is awaiting them ahead and choose the right time for their investment.

TPP

The TPP is one of the largest trade and investment agreements ever to be negotiated, involving some of the largest nations in the world. Countries participating in the negotiations include those throughout the Asia- Pacific region, namely Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. The TPP is touted to be the 21st century trade agreement, set a template for regional and global trade and investment and incorporate next-generation issues.

TPP Market Snapshot
• GDP: US$28,136.0 billion (2012)
• GDP per capita: US$35,488 (2012)
• Population: 792.8 million (2012)
• TPP % of world GDP: 39.0% (2012)
• TPP % of world population: 11.3% (2012)
• TPP % of world trade: 25.8% (2012)

The TPP is being negotiated across thirty chapters with deep focus on comprehensive market access, a fully regional agreement, cross-cutting issues (regulatory coherence, competiveness and business facilitation, small and medium sized enterprises, and development), new trade challenges (particularly rules on state owned enterprises and government procurement); as well as, finally, the notion of a living agreement.

The TPP would expand market access in goods and services among its signatories. The market access issues include liberalization of trade barriers protecting dairy, sugar, and rice; tariffs and origin rules affecting textiles, clothing, and footwear; and services trade reforms, especially financial services, insurance, and labor services. Vietnam would be the largest beneficiary of this trade pact, resulting from its strong trade ties with the United States, high level of protection against its main exports (i.e., apparel and footwear), and its highly competitive positions in industries such as manufacturing where China is gradually losing its competitive advantage. Statistics shows that by participating in the TPP, Vietnam’s GDP would add an additional increase of 13.6% to the baseline scenario.

Higher income will help Vietnam to invest more and grow more

Vietnam is among the largest income gains in TPP

Recently, President Barack Obama has been grated fast-track authority to negotiate the TPP with other 11 nations. This shows a step closer to its conclusion, hopefully by the end of 2015.

AEC
The AEC originates from the ASEAN Vision 2020, which was adopted in 1997 on the 30th anniversary of the Association of Southeast Asian Nations, made up of Brunei Darussalam, Myanmar, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam (ASEAN). With a population of more than 600 million and a nominal GDP of about $2.31 trillion, ASEAN is a strong economic community in Asia and also a driver of global growth.

The AEC encompass the following characteristics: (i) a single market and production base, (ii) a highly competitive economic region, (iii) a region of equitable economic development, and (iv) a region fully integrated into the global economy.
The AEC is expected to be an area where goods can circulate freely and in which custom duties on goods will be gradually reduced to 0%. It will establish ASEAN as a single market and production base, making ASEAN more dynamic and competitive with new mechanisms and measures to strengthen the implementation of its existing economic initiatives; accelerating regional integration in the prioritized sectors; facilitating movement of business persons, skilled labor and talents; and strengthening the institutional mechanisms of ASEAN.
The free flow of investment will also offer enhanced investment protection to all ASEAN investors and their investments in other ASEAN member countries, including the settlement mechanism of an investor state dispute based on a non-discrimination principle when investing in other ASEAN countries. Those principles play a very important role in providing investor confidence when making cross-border investment.

Once the AEC is completed, it will be a unified market, a common manufacturing area seeking for more dynamic and competitive development and to create new opportunities for tariff reductions as well as other trade incentives.

AEC Market Snapshot
• GDP: US$2311.3 billion (2012)
• GDP per capita: US$3748.4 (2012)
• Population: 620 million, 60% under the age of 35
• AEC % of world GDP: ~3.3%
• AEC % of world population: 9%
• AEC’s merchandise exports: US$1.2 trillion – ~54% of total ASEAN GDP and 7% of global exports
• If ASEAN were one economy, it would be the 7th largest in the world – 4th largest by 2050 if growth trends continue

EVFTA

It is estimated that Vietnam’s Gross Domestic Products (GDP) could rise by over 15% and that the value of its exports to the European Union could increase by almost 35% as a result of its entry into force.

In 2013, the EU was Vietnam’s second biggest trade partner with a total value of trade in goods of EUR 24.2 billion. In the same the EU was also Vietnam’s biggest export market with EUR 21 billion, representing 19% of Vietnam’s total export. Vietnam’s export to EU increased by 28% from 2012 to 2013. In addition, the EU is among the biggest investors in Vietnam, with 1,810 FDI projects in 2013. The EU committed to continuing to support with the foreseen assistance amount of EUR 400 million in the coming six years. EU exports to Vietnam are dominated by high-tech products including electrical machinery and equipment, aircraft, vehicles, and pharmaceutical products. Vietnam’s key export items to the EU include telephone sets, electronic products, footwear, textiles and clothing, coffee, rice, aqua products, and furniture.

The two parties have already been cooperating on various subject matters since the conclusion of the EU-Vietnam Partnership and Cooperation Agreement in June 2012. This cooperation will be brought to the next level by the conclusion of the FTA, which will tackle issues such as tariff and non-tariff barriers, regulatory issues, services, public procurement, Intellectual Property Rights, sustainable development, etc. 2015 will mark the 25th anniversary of EU-Vietnam cooperation, and it is expected to be the year the EU-VN FTA is concluded.

Conclusion: Why investment in Vietnam now – not after the trade pacts are signed and sealed?

 Vietnam ties in first place with Singapore, thus it provides highest possible protection for investment

Country Limitation of market access* Country Limitation of market access*
Malaysia medium Myanmar high
Indonesia medium Cambodia medium
Philippines medium Laos medium
Singapore low India high
Thailand medium China medium
Brunei high Vietnam low

*Typical restrictions: number of opened sectors, JV requirement, limits on foreign-owned shares, permission requirement

 Vietnam has the fastest growing middle class with a very good demographic situation: about 90 Million people of which about 50 percent are under 30 years old.

 Expectations of Vietnam parties might get unreasonable, the same as after Vietnam acceded to the WTO in 2007 and no projects could be done.

 Market opening in certain sectors, for example, media, and there could be more competing companies from the AEC with better market access to Vietnam. Thus, it is vital that investors start working on their projects now to position themselves as early as possible before the coming into effect of the trade pacts and the AEC.

Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

INTERESTED IN DOING BUSINESS IN VIETNAM? VISIT: www.vietnamlaws.xyz

THANK YOU VERY MUCH!

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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