Tag Archives: custom

More Clarity on Foreign Investment and M&A in Logistics Companies in Vietnam

Foreign investors can now proceed with more certainty when setting up logistic companies or acquiring stakes from Vietnamese partners. Logistics is an area where discrepancies between international treaties and domestic law implementation have caused many headaches. However, Vietnam’s Ministry of Industry and Trade (MOIT) has recently provided more clarity through a guiding regulation (Circular No. 9911/BCT-KH) and a number of official letters, including responses to the Ho Chi Minh City People’s Committee and the Vietnam Business Forum. At the same time, a few Japanese logistics companies have established 100% foreign-invested subsidiaries in Vietnam.

International treaties should supersede national law, and official comments from MOIT have restated that view. So, we initially refer to Vietnam’s WTO service sector commitments (WTOSSC) in most cases. Accordingly, some sectors are open to 100% foreign investment (e.g., warehousing and freight forwarding), while some still require Vietnamese equity participation (e.g., container handling).

Foreign Ownership Limitations in the Logistics Sector (WTOSSC)
CPC Service Description Max. Foreign Ownership
742 Storage and Warehouse 100%
748 Freight transport agency (incl. freight forwarding services) 100%
749 (partially) Bill auditing; freight brokerage; freight inspection, weighing and sampling; freight receiving and acceptance; transportation document preparation on behalf of cargo owners 99%
7211 Maritime transport (Passengers; less cabotage) 49%
7212 Maritime transport (Freight; less cabotage) 51%
7221 Internal waterways transport (Passengers) 49%
7222 Internal waterways transport (Freight) 49%
7111 Rail transport (Passengers) Unbound
7112 Rail transport (Freight) 49%
7121 + 7122 Road transport (Passengers) 49%
7123 Road transport (Freight) 51%
No CPC Custom clearance 99%
No CPC Container station and depot 100%
7411 Container handling (except at airports) 50%
7512 Courier (express delivery) 100%
621, 61111, 6113, 6121, 622, 631 + 632 Distribution (import/export, commission agents, wholesale, retail) 100%

As a foreign buyer in an M&A case, besides the purchases price and other conditions, we recommend to consider and differentiate between absolutely essential and optional business lines as well as the best case and acceptable levels of ownership in the target.

Yamato Logistics and Sagawa Express have established 100% foreign-invested subsidiaries in Vietnam. This is possible through strategically limiting business lines to those that are open to 100% foreign investment.

For further information, please  contact Giles Cooper (gtcooper@duanemorris.com), Manfred Otto (motto@duanemorris.com) or any other lawyer you are regularly communicating with at Duane Morris.

Japan Releases TPP Details – Vietnam to Abolish Tariffs and Economic Needs Test

Besides abolishing tariffs and providing for investor-state dispute settlement (ISDS), some of Vietnam’s highlights under the Trans-Pacific Partnership (TPP) free trade pact include removing the dreaded economic needs test (ENT), raising foreign ownership caps in restricted sectors such as telecoms, and improving custom procedures.

Although the actual text of the TPP has not been published (because the final version is not available yet), the Japanese government has recently disclosed key elements of the pact. Interestingly, the government refers to the agreement that was reached on 5 October 2015 in Atlanta as a “broad agreement,” implying that it may not be the final version including all the details yet. The following information that may not have been as broadly reported in other international news is based on Japanese government sources, including the following presentation (in Japanese):

http://www.cas.go.jp/jp/tpp/pdf/2015/12/151020_tpp_setsumeikai_siryou01-1.pdf

1. Abolishing tariffs for 95% of all traded items

The TPP has a very high liberalization rate. Tariffs for many agricultural products and 99.9% of industrial products (e.g., cars, auto parts, electronics, chemicals) will be abolished. Tariffs for many items will be lifted immediately once the TPP comes into effect (e.g., agricultural products such as grapes, kiwifruits, herring, prawns, crab, yellowfin tuna, suckling pig, red beans, eggs.). On the other hand, tariffs for some items will remain and will end in the 3rd to 16th year of the pact (e.g., orange juice, cigarettes, wine, plywood).

For specific items member countries can set import quotas (e.g., rice in Japan), and countries can implement temporary emergency measures (so-called “safeguards”) to protect domestic production.

2. General trade and investment facilitation

The TPP provides common rules to facilitate doing business, competition and investing in other member countries. Some general rules include:

  • 6-hour rule for express custom clearance (standard clearance within 48 hours).
  • Stricter rules on intellectual property (counterfeits) and prohibition on royalty rate restrictions.
  • General prohibition on demanding technology transfer, local contents, or access to source code from an investor.
  • Visa waivers for short-term business travelers and their families (except for United States and Singapore).
  • Opening domestic public procurement to member state bidders.
  • Prohibition on levying import duties on digital contents and general rules on e-commerce.
  • Support for small and medium-sized enterprises to benefit from TPP.
  • Environmental and over-fishing protection measures.

3. Examples of rules specifically applicable to Vietnam

(a) Vietnam to scrap the economic needs test

Vietnam commits to abolish the ENT after a period of 5 years from the issuing date of the TPP agreement. (At least 6 member countries respresenting at least 85% of the GDP of all initial members must ratify the pact within 2 years before it can be issued.) Foreign retailers are very interested in this market with an emerging middle class and surging disposable income.

The ENT currently requires foreign investors in the retail sector (including supermarkets, malls, and convenience stores) to undergo licensing procedures for each new outlet they intend to open beyond the first one. This has long been seen as a barrier to market access.

(b) Vietnam to ease foreign investment caps on telecoms, local banks, and entertainment services

Currently limited to a maximum of 65% foreign ownership, under the TPP foreign investors will be allowed to own up to 75% stakes in telecommunication businesses in Vietnam. Foreign ownership caps are also slated to be raised for local banks and entertainment services, such as theaters and music clubs.

(c) Prohibition of export duties and custom procedure transparency

Vietnam will generally not be allowed to impose new export tariffs or maintain the same on items such as on mineral resources. Vietnam will also be obliged to use best efforts to announce new custom regulations at least 60 days before they come into effect and to respond to reasonable questions from member states within 60 days as well.

In addition, the TPP generally provides for product-specific rules of origin applicable to all TPP member countries. Producers, exporters and importers will be allowed to issue certificates of origin themselves. E-custom filing is encouraged.

4. Investor-state dispute settlement mechanism

Investors from member states will be able to bring legal action against the Vietnamese government using international arbitration tribunals outside of Vietnam.

The ICSID, UNCITRAL, ICC or other arbitration rules can be applied, but the TPP’s ISDS provisions set forth a few basic rules:

  • Before the arbitration tribunal can rule on the merits of a case, it must first decide on whether it has jurisdiction and respond to the responding party’s objections.
  • Unlike in private arbitration where secrecy is considered a plus, all ISDS arbitral decisions must generally be published.
  • Statutes of limitations for bringing ISDS actions.

However, apparently, the TPP cannot prohibit countries from implementing restrictive measures based on justifiable public policy grounds. In the past, Vietnamese courts have often declined the recognition and enforcement of foreign arbitral awards on the ground of contradicting ‘fundamental principles of Vietnamese law’ which is similar to the public policy argument. Accordingly, how frequently TPP ISDS awards against Vietnam will be enforced in Vietnam in the future is still uncertain.

 

Again, the above information is not based on the actual text of the TPP but secondary governmental sources. A review of the actual legal text may reveal discrepancies. We will keep you updated on interesting developments and look forward to receiving your comments.

Please contact  Manfred Otto for more information or japanese@duanemorris.com inquiries in Japanese.

Disclaimer: This post has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. Each case should be analyzed individually with the support of competent legal counsel. For more information, please see the firm’s full disclaimer.

 

Vietnam Latest on Customs and Tax Compliance – What Has to be Improved to Match WTO Commitments

Over the past year, we have seen significant efforts and progress made by the General Department of Customs in terms of improved regulations, more effective e-customs operations, and increased dialogue and consultation with the business community. From 01 January 2015, the new Customs Law takes effect with its implementing Decrees coming into force on 15 March. The implementing Circulars are also already in force from 01 April with the most notable one, Circular No. 38/2015/TT-BTC. This Circular, which replaces 13 previous customs regulations, is considered the most comprehensive among the new regulations. We are looking forward to more regulations being adopted soon following the new Customs Law, for example, regulations on advance customs rulings, post-clearance inspection which stem from the ASEAN agreements implementing the AFTA, the WTO Trade Facilitation Agreement, or regulations in anticipation of the upcoming Free Trade Agreements. These agreements commonly have major requirements on advance customs ruling, availability of information, separation of customs clearance from final determination of duties and taxes, international cooperation in customs, etc. The Prime Minister has adopted Resolution No. 19 for a period of three years, from 2015 to 2018, to prioritize these changes. During the implementation process, Vietnam has been receiving much technical support from foreign experts of the WTO, WCO and other organizations.
We have also seen progress in reforming Vietnam’s tax procedures over the recent years. Up to 01 January 2015, the total time for tax compliance is reduced to 370 hours per year, which is an impressive decrease compared with 872 hours annually according to the 2013 statistics. Time spent for tax declaration and payment is also reduced to 121.5 hours per year, with possibility of online tax declaration and payment. Although German enterprises highly appreciate these tax reforms, we would expect that the efforts are not only at Government or ministerial levels but also at the local levels where we have to deal with the authorities there directly.
Notwithstanding the above positive developments, Vietnam still has much to do in the upcoming time. We address below certain major issues and suggest solutions accordingly.
1. Application of blended tax
Blended tax is a combination of ad valorem tariff and specific/ fixed duty rate. Since Vietnam has made WTO commitments in reducing import duty, especially for goods of commercial value imported from WTO members, the application of blended tax could be considered as going against WTO commitments on market opening and tax reduction. We suggest that if the Draft Law on Import and Export Tariff has to include provisions on blended tax, it should specify in which cases it is applicable or else it would create confusion for local companies in Vietnam who are only familiar with either ad valorem or specific duty for each of their commercial goods.
2. Application of quota duty
Decree No. 187/2013/ND-CP and Circular No. 111/2012/TT-BTC subject salt, raw tobacco, eggs, and sugar to tariff quota regime. This means if the imported quantity of these goods exceed the quota as prescribed by the Ministry of Industry and Trade or there is no import license as required under the tariff quota regime, import of these products will be imposed an import tariff of 50%-90%. We would suggest these provisions be included in the Law on Export and Import Tariffs rather than Decree No. 197 or Circular No. 11. Moreover, the Law on Export and Import Tariffs should also address applicable import tariffs for minimum and maximum import quota for specific types of goods and the authority to issue documents governing the application of import quota from time to time. This would serve as the basis for the competent authorities to perform their rights and obligations and enterprises to clearly understand government’s import and export policies.
3. Tariff policies for goods imported for production of exports
It is recommended that goods which are imported for production of exports be not subject to tariff upon importation. This tariff exemption works more efficiently compared with tax refund upon goods exportation in terms of cash flows burden for export enterprises and will help improve the competitiveness of domestic enterprises. However, there should be a mechanism to monitor and request for tariff payment if the goods are then used for domestic consumption.
4. Goods imported for implementation of investment projects
According to the new Investment Law, projects being implemented in certain geographical areas and industries will enjoy tax incentives. The implementing Decrees of the Investment Law or the Law on Export and Import Tariffs should provide a detailed list of such areas and industries. The law should also clarify whether imported goods are still exempted from duty if the investment project is entitled with tax incentives under the initial investment license but is no longer qualified for such preferential treatment due to a change in technology.

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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!

Question on doing business in Vietnam!

Interview by Vietnam Financial Times
Oliver Massmann

Question 1: What do you think about the reform in tax and customs of Vietnam so far? For the German enterprises in Vietnam, how do these policies affect them?

Over the past year, we have seen significant efforts and progress made by the General Department of Customs in terms of improved regulations, more effective e-customs operations, and increased dialogue and consultation with the business community. From 01st January 2015, the new Customs Law takes effect with its implementing Decrees coming into force later on 15 March. The implementing Circulars are also already in force from 01 April with the most notable one being Circular No. 38/2015/TT-BTC. This Circular, which replaces 13 previous customs regulations, is considered most comprehensive among the new regulations. While there are still more regulations being adopted soon following the new Customs Law, for example, regulations on advance customs rulings, post-clearance inspection, or regulations in anticipation of the upcoming Free Trade Agreements, impacts on German enterprises need to be accessed later.

We have also seen much progress in reforming Vietnam’s tax procedures over recent years. Up to 01 January 2015, the total time for tax compliance is reduced to 370 hours per year, which is an impressive decrease compared with 872 hours annually according to the 2013 statistics. Time for tax declaration and payment is also reduced to 121.5 hours per year, with possibility of online tax declaration and payment. Although German enterprises highly appreciate these tax reforms, we would expect that the efforts are not only at Government or ministerial levels but also at the local levels where we have to deal with the authorities there directly.

Question 2: How do the German enterprises in Vietnam look at the VN’s business environment? In the future, what should VN adjust to attract more German enterprises?

The Government of Vietnam has made certain success in stabilizing the economy to reach a high growth rate projection in 2015 by World Bank (i.e., 6%) and maintain import-export balance over the five years.

Vietnam is also extremely successful in international economic integration, especially by joining the negotiations for the Trans-Pacific Partnership (“TPP”), the European – Vietnam Free Trade Agreement (“EVFTA”), Korea – ASEAN Free Trade Agreement, Japan – ASEAN Economic Partnership Agreement, and establishment of the customs union Russia- Kazakhstan-Belarus, and notably the ASEAN Economic Community by end of this year. Vietnam is expected to be the main beneficiary of the major trade pacts, with additional growth of 13.6% (for the TPP) and 15% growth of GDP (for the EVFTA). 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.

Moreover, with the adoption of the 2014 Investment Law and Enterprise Law, the investment environment in Vietnam now even becomes more attractive to foreign investors, especially to German investors. Nevertheless, there are still certain outstanding issues that should be further addressed to attract foreign investors in general and German enterprises in particular. These problems include annulment and unenforceability of arbitral awards in Vietnam, certain trade restrictive measures in the field of import and export, burdens created for enterprise in tax administration by state authority, and especially corrosive and widespread corruption in Vietnam. These problems require Government’s stronger efforts and urgent actions to solve, in addition to several current attempts which we really appreciate.

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Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details 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!