A number of recent tax changes in Vietnam may have an impact on foreign investors in the country. Below is a short outline of the new changes in the regulations affecting capital gains tax, turnover tax and import tax.

Capital Gains Tax:

The new capital gains tax is effective as from January 1st 1996. The tax will be imposed on the transfer of capital or of the right of investment from one investor to another; the profits gained from this transfer and the transfer of profits to overseas destinations.

Companies likely to be affected by these changes are those set up under the Law on Foreign Investment, the Company Law, the Private Business Law and the Law on Domestic Investment Promotion. Also affected are branches of foreign banks operating in the country and investors who hold shares in joint venture banks with foreign investments

The new tax rates are as follows:

- A 25 percent tax rate will be imposed on profits gained from the transfer of capital, especially if the capital generated is from businesses established according to the country's Foreign Investment Law and the investor is a foreigner who transfers his share to another foreign investor.

- The second tax rate is applied to profits gained from business operations by Vietnamese investors and is subject to the tax structure stipulated in other laws. The second tax rate, imposed on the transfer of ownership capital, is reserved for Vietnamese investors and foreign investors who established their businesses under the law on Domestic Investment Promotion.

- The tax rates on the transfer of profits to overseas destinations are similar to those stipulated in the granting of licenses for operations.

- A 5 percent tax rate is imposed on the transfer of profits overseas by Vietnamese living on foreign soil but who operate businesses in Vietnam under the law on Domestic Investment Promotion.

Turnover and Consumption Tax

The changes in Vietnam's turnover tax have also been in effect since January 1st 1996 and affect individuals and businesses that generate turnover in Vietnam. Businesses exempted from paying turnover taxes are those involved in: agriculture, production of goods subjected to special consumption tax, production or processing of export goods and credit activities of banks, credit organizations and finance companies.

Other organisations also temporarily exempted from this regulation are state-funded radio and television broadcasters, geological surveys and mapping, builders of gratitude houses and sales of fixed assets for renovation. However, those who produce and import the following commodities must pay a special consumption tax. They are as follows:

Goods                                           Tax rate

Filtered cigarettes

Filters made from imported materials            70 percent
Filters made from domestic materials            52 percent
With filters manufactured domestically          32 percent
Imported cigar and cigarettes                   70 percent
Medicinal wines                                 15 percent
Alcohol content of more than 40 degrees         90 percent
Alcohol content 30-40 degrees                   75 percent
Alcohol content less than 30 degrees            25 percent
Beer                                            90 percent
Canned beer                                     75 percent
Fire crackers                                  100 percent
Imported autos with less than 5 seats          100 percent
Autos with 6-15 seats                           60 percent
Other kinds of automobiles                      30 percent
Petrol and materials for producing              15 percent

The new tax rates are effective Jan 1, 1996. The listed items still face special sales tax as do domestically produced items in the same categories.

Import Tax

New tax rates have been set on goods imported to Vietnam. They are:

Item                                            Tax Rate

Beer made from malt                             50%
Wine (made with grapes                          60%
& other kinds of distilleries
ethyl alcohol and other spirits)
Material for tobacco processing                 50%
Fuel                                            50%
Passenger automobiles                           55%
Vehicles for transporting goods                 60%

The new tax rates are effective Jan 1, 1996. The listed items still face special sales tax as do domestically produced items in the same categories.

Taxes on made-in-ASEAN goods

Vietnam joined the Association of Southeast Asian Nations in July and is working to be a member of the ASEAN Free Trade Agreement by 2006. To do so, Vietnam has been required to clarify its trade and tariff policies. The government recently issued a list of 857 made-in-ASEAN-goods on which import tariffs will be reduced to between 0 and 5 percent. To be eligible for the tariff outs, goods must have certificates of origin stating the items were produced in an exporting ASEAN country.

The tariff reduction goes into effect Jan 1. It is viewed as a move to prepare Vietnam to be an active participant in ASEAN's Common Effective Preferential Tariffs (CEPT) scheme, which covers 40,000 product lines.

To quality for CEPT, Vietnam must adjust its duties on more than 2,200 items, However, members can submit exemptions for items in domestically sensitive areas. For Vietnam, sensitive areas include vehicles, electrical goods and agricultural products such as rice.

The following is a list of commodities subjected to a tariff of 0-5 per cent.

Commodity Group                                 Number of items

Food grains                                            8
Oil seeds and fruits,
industrial and pharmaceutical                          5
plants, animal feed
Animal and vegetable fat and oil                      28
Products processed from food grains                    3
Salt, sulphur, earth and stones, plaster, lime and    28
Ores, slag and ash                                    17
Mineral fuel, mineral oil and their products          44
Soap, organic detergent, candles and similar           4
Materials for movies and photography                   9
Locomotives, trams and their parts                    27
Optical, photographic, cinematographic and            36
medical instruments and equipment
Rubber and rubber products                            24
Raw hide                                              23
Products made from leather and animal internal         4
Wood and wooden products, charcoal                     7
Pulp                                                   6
Paper and cardboard, products from pulp               30
Artificial silk                                       15
Cotton                                                 5
Blended yams                                           4
Textile products for industrial use                    5
Products made of stones, plaster, cement and          18
Ceramics                                               3
Glass and glass products                               9
Iron and steel                                        35
Iron and steel products                               32
Copper and copper products                            18
Nickel and nickel products                             8
Aluminum and its products                             12
Lead and its products                                  6
Zinc and its products                                  6
Tin and its products                                   6

Fuel Tax

Vietnam's tax rates on imported fuel has recently been amended. Petrol will be taxed at 55 percent and diesel at 25 percent. Fuel for aeroplanes and consumer oil will be taxed at 10 percent. The change is effective Jan 1 and will be applied to all commodities declared at customs.


Changes were recently made to Vietnam's advertising law, while the government also took steps to regulate the runaway advertising developing around the cities.

Clarifications to the law were made as follows:

- Advertising for social and humanitarian programs launched by the government or sponsored by international organizations run free of charge. This includes campaigns against drug abuse and HIV/AIDS.

- Announcements, death notices or social and humanitarian advertisements may take up more than 10 per cent of space in newspapers and 5 percent of air time on television.

- To advertise beyond the rates, news organizations must receive permission from the Ministry of Cultural Information.

- All advertisements must be composed and edited according to the laws of the State. Equal advertising must be given to foreign and domestic advertisements.

The government is also working to separate editorial from advertising. Last month, the Ministry of Culture asked media officials to stop the practice of sending reporters and editors to solicit advertisements. This order was issued after the Ministry of Culture received complaints that media officials were dropping by various businesses to solicit advertising, not conduct interviews.

The government, in an attempt to regulate runaway advertising, is allowing open bidding in various advertising space around the city. It also is removing a number of billboards that reportedly "limit vision and distract drivers" posted on the Nga Bay Roundabout in District 10. The government also plans to remove the billboards placed along the Saigon River before the end of the year.

Illegal advertising is one of several "social evils" government attempting to control:

Government officials are worried about the ease in which residents can access items it believes will disrupt the social fabric of the community and recently issued regulations to prevent and control what it deems to be social evils by imposing sanctions for violation of the regulations. The regulations apply to a number of "social evils" including the circulation of films, videos, audios prohibited from circulation, activities in public places, illegal advertising and gambling. The past month has seen the halt of business licenses to video shops, businesses that provide karaoke entertainment, bars nightclubs, outdoor advertisement and printing. Government officials also are inspecting video shops, karaoke restaurants, hotels, nightclubs, printing shops and other related businesses, Shop signs bearing names of advertisers have been removed.

Government officials believe the inspections and sanctions will reduce the number of violent and sexually-explicit videotapes circulating within the city and the abuse of karaoke entertainment by restaurants and hotels.



The government recently issued guidelines for airlines to follow when setting air fares. They are:

- Airfares must comply with the international agreement Vietnam signed or should be based on international civil aviation norms.
- Fares must be fixed in U.S. dollars, Vietnamese dong or the currency of the relevant country.
- Domestic fares paid by foreign nationals and Vietnamese expatriates must be based on international standards or should be the identical fares charged in neighboring countries.
The fares are fixed in Vietnamese dong.
- Fares for Vietnamese nationals will include state subsidies and will be based on Vietnamese travellers' ability to pay.

Other airline news:

Philippine Airlines, one of 26 foreign airlines that operate flights into Vietnam, opened a ticket office in the Continental Hotel on Dong Khoi Street in Ho Chi Minh City. The opening of the ticketing office follows government approval for foreign airlines to sell tickets.

United Arab Emirates has joined the group of foreign air carriers serving Ho Chi Minh City. Last month, the company, which made its maiden flight to Vietnam in October, signed an agreement to provide air services last month. The carrier provides, twice weekly flights between Dubai and Ho Chi Minh City.

American businesses continue to arrive in Vietnam. This month, Airborne Express, a U.S.-based company, signed an agreement with Vietnam Postal Authorities to provide express and freight delivery through the country.

To meet increased air service demand, Vietnam Air Service has expanded its air services and short-distance chartered flights. The company began operating in February 1995 and has been used to conduct topographic photography, geological surveys and oil exploration,


The government wants to encourage visitor arrival to Ho Chi Minh City. So it is building a new international airport eight kilometers outside of Long Thanh Town in the Dong Nai Province to alleviate congestion at the Tan Son Nhat Airport in Ho Chi Minh City. Long Thanh is about 45 kilometers from Ho Chi Minh City,

The new international airport will be equipped to handle 10 million passengers a year. It will replace the small airport that is now operating six kilometers from Long Than Town.



The government has allowed commercial banks to sell a certain amount of currencies to foreign-invested joint ventures producing and selling commodities, which the domestic market uses as substitutes for imports.

However, the amount of foreign currency that can be sold to these joint ventures must be within the level of funds the government has reserved to pay for the imports. On a case-by-case basis, Vietnam's State Bank will consider requests for foreign currency by other joint ventures that are not on the list and are running short of foreign Currency. Additionally, banks selling foreign currency to foreign joint ventures for direct overseas transfer cannot transfer the traded sum to the foreign currency deposit accounts the enterprise opened at local banks.

Import substitutes that can be traded for foreign currencies are:

  • Galvanized steel
  • Alloy coated steel sheet
  • Steel pipes
  • Steel house frames
  • Iron roofing sheets
  • Metal cans
  • Paints resistant to rust and barnacles
  • Dye
  • Insecticides and materials for insecticide productions
  • Chemical fertilizers
  • Crude oil derivatives
  • Lubricants
  • Tar
  • Tires and tubes
  • Plastic materials
  • Cement
  • Yarns of all kind
  • Animal feed
  • Electrical equipment, electrical products and parts
  • Equipment for communication, audio-visual equipment and components
  • Machines used in construction
  • Agricultural machines
  • Gasoline and diesel engines
  • Means of transport
  • Motorcycles
  • Paper of all kinds
  • Fabric and accessories for garment-making
  • Sugar made from sugar cane
  • Wheat flour
  • Milk and milk derivatives

The ceiling on the amount of currency that can be brought in and taken out of Vietnam has been raised. Now, those carrying $7000 in cash or travellers checks will not need to declare the amount at customs. Previously, declarations had to be made if the person was carrying more than $5000 in cash or travellers checks. This new ruling came into effect Jan. 1.


The State Bank lowered the ceiling on interest rates charged on short-term bank loans but made no change to the rates charged on medium. and long-term loans. The new rates went into effect on January 7, 1996. They are as follows:

- Ceiling on short-term loans: 1.75 percent per month or 21 percent per year,
- Ceiling on medium. and long-term loans: 1,7 percent per month or 20.4 percent per year.
- Interest rates for loans issued by joint stock commercial banks operating in rural areas: 2 percent per month or 24 percent per year.
- Ceiling on loans issued by experimental people's credit funds and cooperatives: 2.5 percent per month or 30 percent per year.

Additionally, the State Bank has begun to disallow all forms of loans issued at mutually agreed rates that are higher than the ceiling fixed by the State Bank. This is being done to retain firmer control over banking operations at commercial banks.

a. Bonds

The State Bank has started selling bonds that have a total value of VNDI,100 billion (USD$100 million) to credit organizations. The bonds carry a two-month term and a monthly interest rate of 0.7 percent. The interest is paid at the time the bonds are sold.

The State Bank is also restricting foreign currency loans to businesses do not import goods for production and consumption. Additionally, it will not accept the opening of accounts by businesses that do not need foreign currency and by administrative and nonproductive offices.

b. Interest rate reductions

Bankers from state run and joint-stock banks want the Central Bank to remove the 0,35 percent differential between the lending and borrowing rates.

Bankers contend that in the short-run, the 0.35 percent differential will not compensate them for banking fees and would result in losses. The differential was imposed on January 1st and some bankers are asking the government to give them an additional year to adapt their operations to government policies.

The Interbank Dealing Room is in full swing. The branch of the State Bank Dealing Room in Hanoi opened on Jan, 23 and specializes in buying and selling foreign currencies.


The government is determined to reduce the country's inflation rate,

To do so, it is:

- Placing stricter controls on credit quotas for borrowing.
Reducing the maximum interest rate on short-term loans to 21 percent per year.
- Suspending the opening of foreign currency accounts by administrative and nonproductive entities,
- Abolishing tax collection in foreign currencies.
- Stabilizing foreign exchange rates.


There's help out there for Ho Chi Minh City businesses who want to expand and provide additional jobs but do not have the money. These businesses can borrow from a program sponsored by Incombank's Ho Chi Minh City's branch.

Incombank has set aside VND20 billion (USD$1.8 million) to grant loans to create jobs. The loans have a monthly interest rate of 1.2 percent and are available to state enterprises that want to expand or upgrade their businesses to create more jobs,

Incombank's Hanoi branch has provided a similar service in Hanoi since June 1995. The Hanoi operation has lent about VND5 billion (USD$450,000) from its fund of VND50 billion (USD$4.5 million).


The government wants to put a stop to abuses of letters of credit in import-export transactions.

A letter of credit is what one company shows another to prove that it has enough capital to conduct a deal, Last year, the total loans issued through letters of credit totalled $400 million.

However, abuses in letters of credit has resulted in banks paying the shortfalls left if a company defaults on a letter of credit. Bankers warned that the abuses of letters of credit would hurt the hard currency available in Vietnam because offshore losses would have to be reimbursed from hard currency reserves. Some bankers said that tougher procedures are needed to control commercial banks' credit procedures.


Vietnam's joint-stock banks may soon be required to revise its accounts so it meets international accounting standards. Government officials believe the move would upgrade Vietnam's banking system, Currently, Vietnamese banks do not conform their accounts to international standards. As a result, foreign b are reluctant to issue significant loans to these banks because they cannot assess the local bank's ability to repay the money.

Officials are soliciting opinions on the matter but the government has not yet issued a draft of the proposal.


Vietnam has opened a bank to help the country's poor. The Vietnam Bank for the Poor opened last month. It has an operating capital of VND500 billion (U$D$50 million). Reported statistics indicate 3.2 million households in Vietnam are rated as destitute. The Vietnam Bank for the Poor will allow households to take out short-term loans of VND1.5-2.5 million at a monthly interest rate of 1.2 percent. An estimated 1.5 million poor families are expected to benefit from this program.

The Bank for the Poor will operate in 50 provinces and three centrally-administered cities,


Vietnam is becoming more environmental conscious. Some companies interested in opening a business in Vietnam now are asked to provide environmental evaluations so authorities can 'evaluate the proposed enterprise. Some ventures, especially those that do not comply with the country's environmental laws, have been rejected.

Government officials have drawn up a "black list" of 43 factories it said was polluting the environment in 1994. Many of these factories operate with outdated technology and equipment.

Two Canadian companies have signed an $9 million contract with Canadian International Development Agency for a project aimed at helping Vietnam organizations strengthen their environmental management capabilities. The two companies - SNC-Lavalin and ESSA Technologies Ltd. - will focus on environmental planning and monitoring, urban and industrial pollution and environmental effect assessment.

The contents of this article is intended as a general guide. Specialist advice should be sought for your specific circumstances.

For further information please contact Johnson Stokes & Master , Ian Lewis, Ho Chi Minh City - Tel: (848) 228 858 - 63, Fax: (848) 228 864 or Andrew Grant, Hanoi - Tel: (844) 244 316-8, Fax: (844) 244 319 or enter a text search 'Johnson Stokes and Master' and ' Business Monitor'.