FDI companies in Vietnam have consistently played a crucial role in contributing to Vietnam's economy and its growth. Since the authorization of foreign investment in 1988, Vietnam FDI has been pivotal in transforming the country into a highly appealing destination for international investors. The country’s robust growth in securing FDI has garnered positive feedback from […]
FDI companies in Vietnam have consistently played a crucial role in contributing to Vietnam's economy and its growth. Since the authorization of foreign investment in 1988, Vietnam FDI has been pivotal in transforming the country into a highly appealing destination for international investors. The country’s robust growth in securing FDI has garnered positive feedback from […]
There are the 5 main types of business entities available in Malaysia.
· Sole Proprietorship · Partnership · Sendirian Berhad (Sdn Bhd): Private limited company limited by shares · Berhad (Bhd):
Unlisted Public Company
Listed Public Company
Company Limited by Guarantee
· Limited Liability Partnership (LLP): Mix of traditional partnership and Sdn Bhd company
During the progress, simple procedures that can be finished include incorporating a business in Malaysia and creating a corporate bank account. If a Power of Attorney is granted to the Malaysia incorporation agent, who will then carry out all procedures on his behalf, Our Client won't need to travel to the nation. The following steps are as below:
Requirements
After deciding on the business entity type, to set up a company in Malaysia, the following requirements shall be met:
· Minimum of 1 shareholder · Minimum of 1 local resident director · Minimum of 1 local resident company secretary · Minimum of RM1.00 initial paid-up capital · A local registered address
Pre-incorporation planning
Before Viettonkin Consulting moves forward with the establishment of a Malaysian business, our firm demands that our Client shall:
i) pay the engagement fees that are due, ii) sign our engagement letter, and email it back to us; iii) each shareholder, director, and the corporate beneficial owner shall deliver to us all requested due diligence papers such as: Copy of Identification Card (IC) or Passport Copy of residential proof address or bank statements
The Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia – SSM) is searched by Viettonkin Consulting's Malaysia Incorporation Team for company names. If the name is available, we fill out Form PNA 42 on your company's behalf to reserve it. SSM typically takes 1 to 3 working days to approve a name reservation.
For our Client, Viettonkin Consulting creates a thorough engagement strategy for the creation of a Malaysian Company that includes the requirements for creating a corporate bank account. In order to maximize openness and ensure that our Client's expectations will be met throughout the project, this engagement project plan outlines, week by week, each stage to engagement completion;
Incorporation procedure
Viettonkin Consulting will complete the incorporation of Form A for our Client's signature and courier return once the corporate structure has been decided upon with our Client. After that, we create the corporate documents for the company incorporation.
To our client for his signature and courier return to us, our team emails the Memorandum and Articles of Association, as well as the director and shareholder consent forms. Viettonkin Consulting' Incorporation Team works with the SSM to finalize business incorporation in Malaysia, provided our Client gives us the original signed documents in a timely way;
The Certificate of Incorporation from the Malaysia SSM is sent to Viettonkin Consulting via email, and our staff quickly forwarded it to the Client;
The Viettonkin Consulting Malaysia incorporation team submits to the SSM a register of the company's shareholders, directors, managers, and secretaries on behalf of the client.
Post-incorporation
By filling out and submitting Form CP 600C to the Inland Revenue Board of Malaysia, Viettonkin Consulting registers our Client's business for corporate tax;
Together, the Banking Team at Viettonkin Consulting opens a corporate bank account for our Client in Malaysia with top-notch multi-currency internet banking capabilities. For the purpose of offering corporate bank account services, we collaborate with locally-based Maybank, Public, CIMB, and RHB banks as well as globally renowned institutions like HSBC, Standard Chartered, and Citibank.
In order to avoid our Client having to go for a bank account opening interview, Viettonkin Consulting's Banking Team will also communicate with the bank. Our Client is obliged to deposit the proposed share capital of the company as soon as the bank account is opened. The board resolution to move forward with creating a bank account will be sent by our company secretary together with all approved corporate documentation;
Following the conclusion of the engagement, Viettonkin Consulting couriers a company kit folder containing the following corporate documents, including original corporate documents, bank correspondence, and a client feedback survey to evaluate the quality of our Malaysia company incorporation services, to our Client's preferred international address;
All foreigners wishing to work lawfully in Malaysia must first get a working visa in Malaysia. There are 2 main types of work passes available in Malaysia:
· Employment Pass · Professional Visit Pass Viettonkin Consulting will assist clients in applying for a working visa for foreigners working in Malaysia
Conditional business sectors in Malaysia
The following commercial activities call for a license for foreign investors when forming a company in Malaysia:
(i) manufacturing; (ii) banking; (iii) construction projects; (iv) oil, gas, (v) both retail and wholesale.
See this page for more information;
Malaysia local business industry licenses are as follows:
Business Type
Type of Business License
Education of all types
Universities,Colleges,Schools,Tuition Centre,Kindergarden,Language Centre
Tourism
Inbound,Outbound and Ticketing
Transportation
Car Rental
Publishing of Books,Magazine
Publication
Broadcasting to the Public
TV,Radio, and Music
Distributive,Import/Exports/Trading
Wholesale Retail Trade (WRT) License for Trading,Import,Export,Restaurant
Manufacturing
Factories of all kinds
Hospitality
Luxury Hotel,Budget Hotel
Construction and Builder
Construction Industrial Development Board and Engineering
ICT and E-commerce
Multi-Super Corridor (MSC)
Direct Selling and Multi Level Marketing
MLM License
Banking
Central Bank of Banking and Financing
Tax Advisory and Consultancy
Inland Revenue Board
Audit and Account Service
Malaysia Institute of Accountant
Insurance
Insurance Agent/Broker/Underwriter
Shipping
Maritime License
Franchising
Franchise License of all types
Hire Purchase/Leasing Business
Leasing
Legal Service/Litigation/Advocate
Lawyer
HR Recruitment and Placement
Recruitment License
Compliance under Malaysian regulations
The following post-incorporation compliance factors for our Client's Malaysian company:
Our Client is required to appoint Malaysian auditors six months before the required Annual General Meeting;
The Annual General Meeting (AGM) must be convened 18 months after incorporation, and the Annual Return must be filed within 14 days of the AGM;
Our Client must finish Employee Provident Fund (EPF) registration within a week after formally hiring the first employee, and within a month, register with Social Security Organization (SOCSO);
Our Client must register for GST with the Royal Malaysia Customs Department and submit quarterly reporting if annual sales exceed US$121,000 (RM500,000).
Viettonkin Consulting has helped its clients register their businesses in the Philippines for years. Our offerings consist of i) services for company formation in the Philippines; ii) registration for a government license; iii) establishing corporate bank accounts at local or foreign banks; iv) hiring new personnel; v) work permit, visa and immigration related services and vi) provision of office lease and/or office supplies and equipment.
Philippines business structure overview
The Philippines has the fifth-largest GDP in ASEAN. For clients seeking to expand their market reach throughout the country and the larger ASEAN area, incorporation of a Philippines firm is advised;
For foreign investors looking to start a business in the Philippines, a joint-stock corporation is a popular choice. A foreign firm no longer needs to appoint a board of directors as of 2019;
Since 2019, a Philippines One Person Corporation (OPC) with just one shareholder—who may be a foreigner—can be registered;
There are further business entities in the Philippines;
Although it can go up to US$2.5 million for some industries and activities, the minimum paid-up capital for a foreign business in the Philippines is $200,000. Therefore, opening a corporate bank account in the Philippines is required before registering a company.
Since English is the official business language in the Philippines, finding English-speaking employees is simple. The Philippines has one of the lowest average salaries in ASEAN at $3,294 USD. Our company can help our clients find local employees in the Philippines.
Benefits of Philippines company registration
Without entering the nation, foreigners can register a company in the Philippines;
The Philippines is a prospective frontier market for international business people due to:
In 2022, the Philippines' economy is anticipated to develop at the quickest rate in South East Asia. For business owners establishing Philippine enterprises, this will translate into a variety of prospective investment options.
With several rating upgrades since 2015, rating agencies like Moody's Investor Service, Fitch, and Standard & Poors currently consider the Philippines favorably for investment;
The Philippines has a thriving startup culture that is backed by laws like the Innovative Startup Act and the Philippines Innovation Act, both of which were signed into law in 2019;
For business people looking to invest in the Philippines, the Philippine Economic Zone Authority (PEZA) provides a variety of online services.
The Philippines is a fantastic location to establish an export-focused service business because
Infrastructure, utilities, and office space are inexpensive. Additionally, the average incomes in the Philippines are among the lowest in all of ASEAN. Filipinos with English proficiency can generally be hired by foreign companies for less than $5,000 annually;
Due to the vibrant expat population, high quality of life rankings, and lack of significant recruitment barriers, a local company can attract foreign talent;
The Philippine government provides tax breaks and additional assistance for foreign investment projects, such as i) breaks for corporate taxes and ii) customs taxes on imported machinery and raw materials, which have been decreased or waived. Projects that qualify include i) centers for medical travel; ii) projects in hospitality for the elderly tourism sector and iii) IT companies;
The information and communications technology (ICT) service industry in the Philippines is developing quickly. In addition to serving as a desirable base for the IT and Global In-House Center (GIC) services sectors, the nation is a recognized global Business Process Outsourcing (BPO) powerhouse. The following should be noted:
With a large pool of tertiary graduates, particularly in fields like finance, accounting, and business IT, the Philippines is ranked ninth internationally as a BPO destination;
Numerous call centers and BPO firms are housed in the Philippines Cyber Services Corridor (PCC), which is supported by a high-bandwidth fiber backbone and digital network.
A number of market access benefits are available when registering a business in the Philippines because the country is a signatory to the ASEAN Trade in Goods Agreement (ATIGA). These consist of:
Closer linkages in the economy between the Philippines and other ASEAN nations to allow for economies of scale for Philippine businesses;
A bigger market that Filipino businesses can tap into;
Lowering some tariffs and trade restrictions.
It is simple to register a company in the Philippines because
A single shareholder and director, who may be a foreign national residing outside the Philippines, may register a corporation in the Philippines;
Because registration processes are digitized, the majority of applications for company registration in the Philippines are processed in about three weeks. Regrettably, tax registration, which might take up to six weeks, is not yet subject to this.
Problems with Philippine company registration
Unless the company hires more than 50 employees, in which case the paid-up capital minimum is US$100,000, a foreign-invested company in the Philippines must have US$200,000 in paid-up capital. However, sectors that are restricted from receiving foreign investment include i) retail; ii) agriculture, and iii) advertising requires up to US$2.5 million in paid-up capital;
A limited liability firm is not permitted by Philippine law. If they want to open a business in the Philippines, foreigners must: i) register a branch in the Philippines, which gives the foreign company unlimited liability for activities there; ii) Philippine One Person Corporation or Joint Stock Corporation;
A limited liability firm is not permitted by Philippine law. If they want to open a business in the Philippines, foreigners must: i) register a branch in the Philippines, which gives the foreign company unlimited liability for activities there; ii) a One Person Corporation in the Philippines or iii) a corporation with joint-stock;
Our clients must open a temporary bank account before a joint-stock company may be registered. For the purpose of opening an account, some local banks demand that a foreign bank signatory get a visa and present the Alien Certificate of Incorporation;
Philippine company formation takes time as licenses must be approved by numerous government agencies as well as the municipality where the business will be located;
There is a lot of restrictions
The Philippines publishes a list of industries that demand 100% Filipino ownership;
Property registration is costly and takes longer than a month to complete.
The Philippines does poorly in terms of investor protection and the ease of acquiring financing;
The Philippines is only listed by the World Bank as one of the top 95 countries in the world to launch a business because of the aforementioned reasons.
Additionally difficult reasons to conduct business in the Philippines are:
The per capita income in the Philippines is just over US$3,000 per year. 25% of people are considered to be below the poverty level;
Infrastructure for inter-island travel must be updated to support domestic commerce and the movement of people and goods;
Mindanao's southernmost island is still susceptible to political violence and terrorism.
The appointment of a resident treasurer is necessary for Philippine business registration. In addition to reviewing and ensuring the accuracy of the Philippines firm's financial statements, the treasurer's duties are similar to those of a company secretary. Our clients will receive resident treasurer services from Viettonkin Consulting.
All local businesses in the Philippines are required to submit numerous accounting and tax-related returns, including:
Within 60 days of the conclusion of each quarter, the quarterly provisional corporate income tax return (1702Q);
20 days after the end of each month, a monthly VAT return (2550M) is required;
25 days after the end of each quarter, a quarterly VAT return (2250Q) is due;
10 days after the end of each month, withholding tax returns (1601C and 0619E) are due.
Within 30 days at the end of each quarter, you must submit the quarterly enhanced withholding tax return (1601EQ).
The preparation and submission of these returns will be finished by Viettonkin Consulting PLC. To discover our price for these services, visit this page.
A single shareholder and director are permitted for a Philippine corporation, but this individual must be an individual. There must b e a minimum of two shareholders for entities with corporate shareholder(s).
Best applications for a firm based in the Philippines
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Philippines-related links
British Virgin Islands (BVI), which has a population of 25,000, is located in the Atlantic Ocean just 96 kilometers east of Puerto Rico. With over 750,000 offshore firms formed since 1984, it is the top offshore jurisdiction. The largest island, Tortola, is home to Road Town, the BVI's capital. The BVI belongs to the Eastern Caribbean Supreme Court (ECSC) area and has an English common law-based legal system. In order to hear business and financial matters from the BVI, a specialized Commercial Court was established in 2009. There is a right of appeal to the Privy Council in England as well as the Eastern Caribbean Court of Appeal.
The US dollar is the national currency, and English is the official language. Exchange restrictions do not exist. Inheritance tax, capital gains tax, capital transfer tax, and sales tax or VAT are all absent from the BVI. On some transactions, stamp fees and property taxes apply. In 2004, both corporate and individual income taxes were eliminated. Local employees are now subject to payroll taxes. In the BVI, there are no withholding taxes.
Following the adoption of the International Business Companies Act in 1984, which introduced the International Business Company, BVI became the market leader for corporate services (IBC). This quickly rose to prominence as the industry's favored "offshore" vehicle and was especially well-liked in the Far East. The IBC Act was superseded by the BVI Business Companies Act of 2004, and the IBC is now replaced by the BC (Business Company). Over 450,000 active business firms are located in the BVI.
The commercial and professional infrastructure is strong, and the government is actively encouraging the growth of the financial services industry. In addition to being the second-largest hedge fund domicile and the fourth-largest captive domicile for insurance goods and services, the BVI is the world's leading corporate domicile.
What conditions must be met in order to register an offshore business in the BVI?
You might need the following when forming a corporation in the BVI:
01 director: Your BVI company only needs one director, and there are no restrictions on their country or place of residence. An individual or corporate entity can serve as a director. The identities of the directors are not publicly available because of the high level of confidentiality in the BVI. The necessity to file a Register of Directors with the Registry of Corporate Affairs within 14 days after the appointment of the first director is one of the major provisions included by the BVI Business Companies (Amendment) Act, 2015.
01 shareholder: A minimum of one shareholder, who may also be the director, is required for your BVI company. Shareholders are free to dwell anywhere and might be of any country.
01 shareholder: A minimum of one shareholder, who may also be the director, is required for your BVI company. Shareholders are free to dwell anywhere and might be of any country.
What is the duration of the BVI offshore business registration process?
The procedure of registering an offshore business in the BVI could take two to three working weeks.
What processes are involved in forming an offshore corporation in the BVI?
There will be three primary steps:
STEP 1 - SUBMIT THE BVI COMPANY INCORPORATION ORDER FORM.
In the package details, if you could please include your email address, we will email you the relevant incorporation forms.
When we get the aforementioned information from you,
Verify the availability of the name of the proposed company.
Follow up with you to address any questions (if any) and provide appropriate advice.
You with a bill for our services.
STEP 2: PAYMENT FOR OFFSHORE COMPANY
We shall draft the incorporation documents to be properly signed either in Singapore before us or abroad before a Notary Public after obtaining payment for our services.
STEP 3: FORM A BRITISH VIRGIN ISLANDS COMPANY
We will start the BVI Offshore Incorporation registration process after the incorporation documents have been signed. You can start the process of opening a corporate bank account after the firm has been incorporated.
The government of Brunei, the Islamic Kingdom in Southeast Asia, wants to diversify its economy and increase foreign investment, therefore it has implemented a number of initiatives to draw in investors from across the world, including Vietnam. If you wish to start a business in Brunei but are unsure how to do so, read our article below for more details.
I. Procedure to apply for a Vietnam external investment certificate
The first step in forming a company in Brunei is to apply for an offshore investment certificate from a Vietnamese authorized body. Follow these steps to carry out this procedure:
STEP 1: CREATE DOCUMENTATION FOR OFFSHORE INVESTMENTS
The following documents must be prepared:
Offshore Investment Registration Document (made according to the form)
Among the documents demonstrating legal status are:
For individual investors, a copy of an identity card, passport, or identity card
For institutional investors: a copy of the Certificate of Establishment or other comparable document establishing the investor's legal existence as an organization, such as the Investment License; Decide to establish; obtain a certificate of business registration;
The following are the main sections of the investment project proposal: project implementation status, investment stages (if any), the form, goal, size, and location of the investment; preliminary capital determination; capital mobilization strategy; and capital structure preliminary evaluation of the project's investment effectiveness
One of the following documents is among the ones demonstrating the investor's financial capability:
Investors' most recent two years' worth of financial statements
Dedication to providing a financial institution with funding
A promise of the investor's financial strength
Further records attesting to the investor's financial stability
— A formal agreement to arrange for investors of an approved credit institution to receive foreign currency or a commitment to self-balancing foreign currency sources.
The investor must provide written permission from a competent state agency on the satisfaction of the conditions for outward investment for projects involving outward investment in industries and trades subject to conditional outward investment. in compliance with applicable laws when overseas (if any)
— A statement from the taxing authority attesting to the investor's compliance with tax responsibilities
STEP 2: APPLY FOR AN OFFSHORE INVESTMENT CERTIFICATE IN TWO STEP
— Apply at the Ministry of Planning and Investment for an offshore investment certificate.
— The Ministry of Planning and Investment shall deliver the dossiers for the evaluation views of pertinent state agencies within three working days of the date of receipt of complete dossiers.
— You will receive an offshore investment certificate if you fully satisfy the requirements following the application review period.
II. Steps to establish a business in Brunei
STEP 1: PRE-INCORPORATION
Consultation phase: We discuss our Client's needs and goals for the new company before incorporating a Brunei resident company. The best corporate structure for the prospective business is then planned;
Due diligence and dedication on the part of the client: i) pays the engagement costs owed to Viettonkin Consulting in Brunei; ii) returns our client engagement letter signed by them; iii) gives us all the documentation necessary for our due diligence;
Planning phase: Viettonkin Consulting creates a thorough project plan for our Client's engagement that includes i) procedures for obtaining a corporate bank account; ii) procedure of incorporation. This project plan outlines each stage to the completion of the engagement week by week, maximizing openness and establishing client expectations;
Customers provide three distinct company names in order of preference for a name availability check. Viettonkin Consulting then i) on behalf of your business, inquiries the Brunei Registrar of Companies about the availability of the company name; ii) informs the customer of the availability;
Document preparation: Following the agreement with our client on the organizational structure, Viettonkin Consulting will draft incorporation documents for that client's signing and courier return.
STEP 2: INCORPORATION PROCEDURE
Viettonkin Consulting will be used as an example i) the Brunei Registrar of Companies, and register our Client's business there and ii) pay the registration money on behalf of our client;
Approval of incorporation: After registration is accepted, Viettonkin Consulting emails our Client i) public perception of the business, ii) company certificate, and iii) a seal is acquired for the company;
Additional requirements: In order to register a corporation in Brunei, you need an address there. Viettonkin Consulting gives our Client, upon request, a Brunei business address for the purpose of billing. In addition, after the establishment of the firm, clients can ask for a phone, fax, and email support for their business.
STEP 3: POST-INCORPORATION
Additional licenses: Depending on the nature and type of business activity, you may require an approval or clearance from a specific regulating agency. Viettonkin Consulting, if necessary i) requests a variety of licenses from the Municipal Board and ii) secures the Ministry of Health's and the closest fire department's approval for such a license;
Opening a corporate bank account is something Viettonkin Consulting helps our Clients with after receiving the certifications. Most of our clients opt for a business bank account in either Singapore or Malaysia, because i) efficiency in taxes and transfers; ii) considering that both jurisdictions are important financial centers; iii) multi-currency accounts and top-notch Internet banking services are offered by banks in both countries;
Following the conclusion of the engagement, Viettonkin Consulting sends our client a complete business kit that includes the original Brunei corporate documents, untouched bank correspondence, and a client satisfaction survey about the caliber of our Brunei incorporation services.
In recent years, the Vietnamese government has been making great efforts to improve the legal framework and business environment for more new waves of investment. Especially, the government has issued several critical policies to attract potential foreign investors in the high-tech sectors. In this article, you will be provided up-to-date insights in special investment incentives and several tips for claiming these benefits.
Requirements to be met for the special investment incentives
On Decision No. 38/2020/QD-TTg, the Priminister promulgated the List of High Technology which are prioritized for investment and advancement, and the List of High Technology Product which are encouraged to develop. Thus, investment projects under the aforementioned lists will receive investment incentives.
Following the Decision 38, there are particular fields foreign investors can consider for investment
Artificial intelligence technology
Big data technology and big data analytics.
Blockchain technology (Blockchain).
Virtualization technology, cloud computing, grid computing, edge computing, fog computing.
Technology for designing, integrating and optimizing telecommunications networks and systems in the national telecommunications infrastructure.
Technology for integrating telecommunications and information technology systems
Aside from the listed fields, investors need to meet several conditions as stated in the Law of High Technology and the Law on Investment. In addition to this, Decision No. 10/2021/QD-TTg specified some following conditions that investors critically follow for being qualified as a high-tech business:
At least 70% of total annual net revenue derived from hi-tech products;
At least 0.5 to 2% of total annual net revenue allocated to research and development (R&D) activities, or at least 0.5% for enterprises with total capital over VND 6 trillion (US$260.87 million) and more than 3000 employees;
Businesses with total capital of VND 100 billion (US$4.35 million) and more than 200 employees must allocate at least 1% to R&D activities; and all other businesses should spend at least 2%.
At the same time, investors are also required to hire employees with a bachelor degree or higher, which ranges from 1 to 5% depending on the total number of employees and investment amount. Yet, the number of college-level employees cannot be over 30% of the total workforce for high-tech businesses.
Special investment incentives for high-tech projects
Qualified investors and investment projects will enjoy special investment incentives.
Corporate income tax
According to Articles 15 and 16 of Decree 218/2013/ND-CP, with high-tech application projects in the aforementioned list, investors are entitled to 4-year tax exemption and 50% reduction of payable tax for the next 9 years. In addition, for projects that need large-scale and high-tech investments, investors will enjoy the tax rate of 10% for a period of 15 years, which can be extended but not exceeding 30 years.
CIT for projects in high-tech zones
With investment projects in high-tech zones, investors will receive the corporate income tax rate of 10% during the project implementation period, and be exempted from corporate income tax for 4 years from the date of taxable income. Along with that, 50% of the payable tax amount is reduced for the next 9 years (Clause 1, Article 3 of Decision 53/2004/QD-TTg)
Value Added Tax (VAT)
In Article 5 and Clause 15, Article 10 of the Law on VAT, machinery, equipment, spare parts and supplies are not subject to VAT if they cannot be produced at home and must be imported for direct use for scientific research and technological development. Additionally, several services for the purpose of technology development will be advantaged with the VAT rate of 5%.
Land rent
According to Article 19 of Decree 46/2014/ND-CP on collection of land rent and water surface rent, investors with high-tech projects are free from paying land rent for up to 15 years or even for the duration of the project.
Other offers
The Prime Minister issued Decision No. 2457/QD-TTg approving the National High-tech Development Program by 2020. Last year, Decision 130/ QD-TTg was approved and promulgated on the National Program for High Technology Development by 2030. Accordingly, for projects under the National High-tech Development Program, investors are permitted to:
Borrow up to 85% of capital at Vietnam Development Bank. Plus, the Program of full interest support will assist investors for a period of 5 years.
Support expenses for research, training, consulting, technology transfer, testing, laboratory construction, design center construction, trial production, purchase of sample products, equipment and sample lines, and test equipment.
Make a one-time settlement for the investment budget capital, supporting the investment for the Program's tasks afterwards.
In case the investment projects meet criteria on investment capital, disbursement period, and other specific criteria (for example the proportion of high technology, the participation level of Vietnamese enterprises in the supply chain, the proportion of VAT in product costs and the level of technology transfer), the investors will benefit from other special investment incentives regulated in Decision 29/2021/ QD-TTg.
How to claim special investment incentives
Based on Article 17 of the Law on Investment 2020 and Article 23 of Decree 31/2021/ ND-CP, the procedure for investment incentives are as follow:
Step 1: Determining the basis for the application of investment incentives
If investors and investment projects are granted an investment registration certificate, investment policy decision or a science and technology certificate, the investor shall carry out procedures for enjoying investment incentives based on the contents of the certificates. Otherwise, investors shall base themselves on the beneficiaries of investment incentives specified in Clause 2, Article 15 of the Law on Investment 2020.
Step 2: Submitting the application file for investment incentives at the head office of the state agency which applies investment incentives
A set of document includes
Declare/request for the application of investment incentives.
An investment registration certificate, investment policy decision or a science and technology certificate (If any)
Executive agencies are Tax offices, financial agencies, customs offices, and state agencies that have the power to apply land incentives and other incentives as prescribed by law.
Step 3: Tax offices, financial agencies, customs offices, and state agencies apply land incentives and other incentives to qualified investors.
To sum up…
High-tech corporations are eyeing Vietnam as their global manufacturing base. Japanese investors pioneered the extensive investments in Vietnam, with the participation of large well-recognized corporations namely Sanyo, Matsushita, Sony, Fujitsu, Toshiba, Panasonic, Nidec, among others. These corporations have built manufacturing plants using high levels of modern technology and are continuing to invest more for their expansion activities.
Accumulated to 2021, “giant” tech corp Samsung has invested USD$ 18.2 billion in Vietnam and by the end of this year this figure is expected to exceed USD$ 21.5 billion. In addition, the group is building their largest regional research and development center worth USD$ 220 million in Hanoi, and is also planning to expand the manufacturing activities in Bac Ninh and Thai Nguyen.
Recently, Apple relocated 11 factories of Taiwanese enterprises in its supply chain to Vietnam, while many other high-tech firms such as Foxconn, Luxshare, Pegatron, Wistron have also expanded their existing production facilities here.
In short, despite being affected by the global economic crisis, along with the escalating tension of the Ukraine-Russia conflict, Vietnam still presents its potential. With tremendous investment policies and incentives, Vietnam’s high-tech industry is among one of the attractive sectors for your considerations. This is also a favorable time for you to seek new investment opportunities in Vietnam.
Yet, to have a better understanding of the investment incentive mechanisms and policies in Vietnam, foreign investors should consult top-notch experts with local expertise. Viettonkin is one of the leading professional firms with more than 12-year experience in diverse industries and majors. Our team of well-informed professionals in Vietnamese markets and legal systems are capable of assisting you to navigate through the process of establishing a new business in Vietnam. With us by your sides, you can focus on what really matters to you. Let us be your trustworthy partner!
The transfer of contributed capital and securities is becoming more widely used by both domestic and foreign investors as the tax environment for mergers and acquisitions (M&A) in Vietnam evolves. As a result, most shareholders who want to invest in or divest from a Vietnamese company consider compliance with regulations and tax efficiency to be top priorities. This is a guide from Viettonkin Audit to help interested investors become acquainted with the tax environment, particularly the capital transfer tax in Vietnam.
Capital Transfer Tax and Income Tax from Capital Transfer
In general, capital transfer tax can be described as the levy on the profit that an investor makes from the sale of an investment. The profit gained from the transfer of capital is classified as taxable income under Vietnamese law.
According to Section 1(1) of Decree No. 12/2015/ND-CP, taxable incomes earned in Vietnam by foreign enterprises, as prescribed in Article 2 of the Law on Corporate Income Tax 2007 amended in 2012, are derived in Vietnam from the provision of services, provision and distribution of goods, grant of loans, payment for copyrights for Vietnamese entities or foreign entities doing business in Vietnam, or from the transfer of capital, projects of investment, right to contribute capital, right to participate in projects of investment, and right to mineral exploration, extraction, and refinement of minerals, regardless of the location of business premises.
For further clarification, Section 14(1) of Circular No. 78/2014/TT-BTC also states that an enterprise’s income from capital transfer is income earned from the transfer of part or the whole of the capital amount the enterprise has invested in one or many other organizations or individuals (including the sale of the whole enterprise).
Although most assets in Vietnam are subject to VAT upon being transferred, according to Article 4. 8 (d) of Circular No. 219/2013/TT-BTC, business establishments are not required to declare and pay VAT in a number of capital transactions. These include “the transfer of part of or the whole capital invested in another business organization (regardless of the creation of a new legal entity); securities transfer; transfer of the right to contribute capital; and other forms of capital transfer prescribed by law, including business acquisition in which the acquirer inherits all rights and obligations of the acquired company.”
How to Calculate Capital Transfer Tax?
Taxed income from capital transfer shall be determined as follows:
Taxed income = Transfer price - Purchasing price of the transferred capital - Transfer expenses
Of which:
Transfer price: price paid to the seller as shown in the relevant share/capital contribution purchase agreement;
Purchasing price of the transferred capital, which can be either of: (a) paid-up equity if the seller has participated in establishing the target company; or (b) transfer price of the previous transaction for the rest
Transfer expenses: actual payments directly relating to the capital transfer and supported by legitimate documents/invoices including statutory fees required for transfer of that type, transaction, negotiation, execution expenses and other expenses (e.g. – attorney fees) with supported documents.
Corporate Income Tax (CIT) Declarations Related to Capital Transfer
According to Article 16.7 of Circular No. 151/2014/TT-BTC, any company that receives income from capital transfers must calculate and record the corporate transfer tax (CIT) in its annual declaration forms.
CIT shall be declared whenever it is incurred by any foreign organization that does business in Vietnam or earns income in Vietnam (hereinafter referred to as a foreign contractor) from capital transfer but its operations do not comply with regulations of the Law on Investment or the Law on Businesses.
The capital transferee shall determine, declare, deduct, and pay the CIT payable on behalf of the foreign organization. If the transferee is also a foreign organization that does not comply with the Law on Investment and the Law on Enterprises, the company established under The foreign organization must declare and pay any CIT owed under Vietnamese law on its behalf when investing capital in Vietnam.
Conclusion
Capital transfer tax can be quite a tricky issue when it comes to foreign investors and how they conduct their business, especially mergers and acquisitions (M&A), in Vietnam. It would take a considerable time for the continued development of the rules to converge with international norms. Still, investment and enterprise regulations and licensing procedures play a significant role in the acquisition process in Vietnam and should be reviewed carefully.
Understanding the tax-related challenges that businesses may face, Viettonkin Audit offers a series of services that guarantee accuracy and quick results. With our team of experts in the field of taxes in Vietnam, Viettonkin Audit is confident in handling even the most sophisticated tasks, from determining capital transfer tax to completing CIT declaration dossiers. By letting us take care of these time-consuming processes, our clients have more time to concentrate on other major duties and are more confident in their ongoing and future investments in Vietnam. For more information on our services, contact us now.
Foreign remittances continue to contribute to the socio-economic growth of Vietnam as more investment opportunities present themselves to the overseas Vietnamese community.
Overview
Remittances have been growing rapidly in the past few years to become one of the potential resources for global socio-economic development, especially in the context of high capital demand for economic recovery. The overseas Vietnamese community grew stronger with about 5.3 million people in 2020 in more than 130 countries and territories, with economic, technological, and management potential, so there is a great opportunity for Vietnam to utilize this resource. Along with foreign direct investment (FDI), remittances account for the largest proportion of foreign capital into Vietnam and have tended to increase over the years.
Remittances received in Vietnam during 2000-2019 ($ million, percentage of GDP). Source: WDI
Compared to official development assistance (ODA) and foreign portfolio investment (FPI), remittances to Vietnam are always of great value and have higher stability.
For a long time, the Vietnamese government has provided guidelines and issued policies that are beneficial to and attractive to the overseas Vietnamese community. The effort to attract investments and talents, and increase remittances from the Vietnamese community living abroad began to be concentrated at the turn of the twenty-first century, as Vietnam started its reform process with ground-breaking policies to gradually open up and integrate with the world.
With Decision 170/1999/QD-TTg supplemented by Decision 78/2002/QĐ-TTg, the Government of Vietnam began to issue instructions on the work of encouraging and creating conditions for overseas Vietnamese to transfer foreign currency back to Vietnam on their demand in accordance with the laws of Vietnam and the laws of the countries where they currently reside.
Through other documents, such as Resolution No. 36-NQ/TW (2004), Directive 45/CT-TW (2015), Conclusion 12-KL/TW (2021), and Resolution 169/NQ-CP (2021), more instructions were made by the Government to expand and further facilitate the policy of remittances and investment attraction of overseas Vietnamese.
In accordance with Decision No. 170/1999/QD-TTg approved by the Prime Minister, the Vietnamese government encourages the expatriate community to send remittances through channels like credit institutions recognized by the State, money transfers through international postal financial services providers, or by bringing remittances in person into Vietnam.
Current Situation
Although the Covid-19 epidemic has had a strong impact on overseas Vietnamese for the past few years, the State Bank of Vietnam's (SBV) data shows that in 2021, foreign remittances reached $12.5 billion, an increase of about 10% compared to 2020.
However, the World Bank claimed that due to the numerous other channels through which remittances enter the country, the actual number was actually higher. It was estimated that Vietnam ranked eighth in the world for foreign remittance inflows, bringing in $18.1 billion, up from $17.2 billion in 2020.
Vietnam ranked eighth for foreign remittance inflows in 2021.
According to data from the Ministry of Finance, from 2000 to 2020, remittance inflows into Vietnam accounted for 3-8% of GDP annually, higher than those of developed countries (1-2% of GDP on average).
Most of the remittances came from North America (USA and Canada), Asia, Australia, and Europe. The United States - where many overseas Vietnamese live and work - accounts for 50% of the total remittances to Vietnam, followed by Japan, China, and Australia.
The United States accounted for 50% of the total remittances to Vietnam.
The major economies in the world were predicted to recover and grow in 2022, allowing overseas Vietnamese to earn and send more money back to support family members or invest in business and production. Recently, worrying indications have emerged, proving that the growth in remittances to Vietnam will be a lagging indicator. According to the SBV Ho Chi Minh City Branch, the total amount of remittances transferred to Ho Chi Minh City through credit institutions and economic organizations in the first 6 months of 2022 only reached 3.16 billion USD, down 13% compared to the same period last year. However, this unexpected outcome is seen as a temporary setback resulting from the conflict in Russia and Ukraine and high inflation brought on by high food and oil prices. Remittances to Vietnam are still expected to recover and maintain a growth momentum of 5-7% by the end of 2022.
Remittances for Investment
Previously, remittances transferred to Vietnam were mainly used for personal savings. However, in recent years, the investment of remittances in securities, real estate, business establishments, or investments in production, business, and services has increased sharply.
By the end of 2021, overseas Vietnamese from 29 countries and territories had invested in 376 investment projects in Vietnam, in 42/63 provinces and cities across the country, focusing primarily on the processing and manufacturing industries, with a total capital of approximately $1.72 billion, not including the investment capital of overseas Vietnamese through other indirect forms or by investing in the form of domestic investment. In addition to the direct investment capital flow, there are also connections from overseas Vietnamese, bringing international businesses and corporations to invest and build projects in Vietnam.
Mr. Johnathan Hanh Nguyen, in addition to being known as the chairman and founder of Imex Pan Pacific Group (IPPG), is also an overseas Vietnamese known for his love of and desire to contribute to the development of Vietnam. In addition to the 10 billion USD that US investors committed in writing, there are more than 68 documents and letters exchanged between the IPPG and the US Congress and leaders of the two countries about the establishment of an international financial center to be located in Ho Chi Minh City and a regional financial center to be located in Da Nang.
Investors who are Vietnamese citizens but also have a foreign nationality may choose whether to apply market access conditions and investment procedures applied to domestic investors or foreign investors., according to Decree 31/2021/ND-CP, which details and governs the Law on Investment. Because they are exempt from many rules and binding legal obligations when investing as a domestic investor, overseas Vietnamese have invested in many projects in the nation without having their investments counted as FDI.
Vietnam currently has 6 airlines, but no airline specializes in freight transport. This will soon change with the arrival of IPP Air Cargo, invested by businessman Jonathan Hanh Nguyen and other businesses with 100% Vietnamese capital.
According to a recent report by the Ministry of Transport, IPP Air Cargo was granted the first business registration certificate by the Department of Planning and Investment of Ho Chi Minh City with a charter capital of 300 billion VND. If IPP Air Cargo is granted a flight license in November of this year, its domestic route network will begin in production hubs like Can Tho, Da Nang, Khanh Hoa, the Central Highlands, Hai Phong, and Quang Ninh. Hanoi and Ho Chi Minh City will serve as a hub for transshipment and provide connections to international destinations in Northeast Asia, Southeast Asia, South Asia, and Europe.
Since about 30% of remittances currently go to real estate, many analysts have noted that this large source of capital will be a crucial tool in restoring purchasing power in the real estate market. The current policy of allowing overseas Vietnamese to own and buy houses in Vietnam has also stimulated cash flow in real estate. Not to mention that housing prices in Vietnam remain low in comparison to those in developed countries. As the State Bank's policy places a greater emphasis on capital flows to business and production while restricting credit to potentially risky sectors like securities or real estate, remittances into Vietnam's real estate are likely to continue to rise.
Many overseas Vietnamese investors prefer projects in areas with good traffic connections and that can be managed and monitored remotely. Expensive products, such as beach villas and golf resort villas, remain relatively inexpensive in Vietnam when compared to the countries where many overseas Vietnamese reside.
In 2020, the government revised laws on investment and enterprise, in addition to passing the Law on Public-Private Partnership Investment, to further the goals of this Resolution. The revisions encourage high-quality investments, advanced technology use and development, and environmental protection mechanisms. On June 2, 2022, the Prime Minister issued Decision No. 667/QD-TTg on "Approval of the Strategy for Foreign Investment Cooperation in the 2021 - 2030 period", setting out enhanced goals and solutions for efficient foreign investment cooperation. The strategy calls for shifting foreign investments to high-tech industries and requiring those investments to include environmental protection provisions. In the long term, this could lead to an investment trend from foreign investors in general, and overseas Vietnamese in particular.
Foreign remittances, along with foreign direct investment, will continue to become integral parts of Vietnamese socio-economic growth. As more favorable conditions are created by the Vietnamese government in the future, more opportunities will present themselves for overseas Vietnamese to come back, invest in, and contribute to the development of the country as a whole. Contact Viettonkin for more insights and investment tips.
According to Investopedia, bad debt is a term referring to an amount of money that a creditor deems to be uncollectible and must write off as a result of a default on the part of the debtor. When businesses make use of credit from banks or other lenders, both parties are always aware of the risk that these credit lines become bad debts, despite low probabilities and naturally the best efforts of both parties to avoid such situations from occurring.
However, in such rare occurrences, investors and business managers should have a comprehensive understanding of the local regulations and practices regarding debts to make the best decisions moving forward. Often, when a debt becomes unpayable, businesses opt for either filing for bankruptcy or working with advisors to restructure the debt and revise their cash flow management, in order to improve business operations and feasibility of repayment.
Bad Debts in Vietnam
In Vietnam, according to the regulations of the State Bank of Vietnam (SBV), debts can be classified into 5 groups as follows:
Group 1: Qualified debts;
Group 2: Debts requiring special attention;
Group 3: Sub-standard debts;
Group 4: Doubtful debts; and
Group 5: Potentially irrecoverable debts.
Bad debts, also known as non-performing loans (NPLs), fall into the above-mentioned Groups 3, 4, and 5.
When a business has been confirmed to be in a situation of bad debt, it will be extremely difficult for them to continue borrowing from banks or other credit providers.
Even in the case of successful full repayment of both interest and principal, all information about the borrower, including past loans, current loans, overdue debt periods, the borrower's full name, and the borrower's full address, will continue to be stored and monitored at the Credit Information Center (CIC) for another 03 to 05 years after the final payment is made..
Thus, we strongly advise business owners, especially foreign owners, to avoid getting into bad debts.
Legal Update on Conditions for Offshore Loans
The SBV is working on a draft circular to replace Circular 12/2014/TT-NHNN, which was published in 2014 and regulated the terms for foreign loans applied to businesses that were not government-guaranteed. The new circular would tighten controls on credit institutions' and businesses' foreign borrowing activities, which have been rising quickly in recent years.
3 notable new points about conditions for foreign loans:
A ceiling on foreign borrowing costs;
Performing foreign currency derivative transactions to hedge exchange rate risk;
Requesting the borrower to select a representative organization to manage the collateral, which may be a credit institution, a foreign bank branch, or a legal organization established in Vietnam in the case of a foreign loan with collateral on Vietnamese soil.
In terms of the impact on FDI enterprises, the draft circular is expected to partially solve the problem of "thin capital" of FDI enterprises in Vietnam, which is deeply related to transfer pricing.
In a survey conducted in 2019 by the Ministry of Finance, among 140 businesses examined, all had loans that were more than four times their equity, and all of them were FDI businesses. Mr. Do Thien Anh Tuan (Fulbright University Vietnam) provides an example of a parent company that provides financial services with higher interest rates on the market and allows its subsidiaries and associates to borrow loans. Businesses can use this "trick" to repatriate profits since interest expense is an expense that can be deducted.
According to the draft circular, for short-term foreign loans, the draft stipulates that enterprises are only allowed to take short-term loans to pay debts arising within 12 months from the time of signing the loan agreement, but does not include debts arising from loan contracts with residents, payables arising from buying trading securities, contributing capital to purchase shares, buying investment properties, and receiving project transfers.
The SBV is rumored to have tightened regulations in order to promote economic growth while ensuring that enterprises with strong credit are supported in obtaining the capital they require for both production and operations. Good businesses can still raise capital from credit institutions in their home country or from credit institutions with whom they have a history of mutually beneficial relationships and connections. At the same time, systemic risks from speculative loans and high-risk foreign loans will be avoided thanks to the new regulations.
The regulations also seek to make the domestic financial sector of Vietnam more competitive.
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What is known as core technology - semiconductors - hold a vital position in global economic development. Thus, the manufacturing and producing this component is not an easy task, and without doubt, not any country has the capacity to do so. Yet, as the importance of the semiconductors is increasingly widely recognized, nations worldwide have made great attempts to independently produce the chips.
The burgeoning demand for semiconductors with perceived challenges in production capability
Semiconductor chips are the brain of any electronic appliances and advanced technologies, from television, smartphones, and computers to AI, 5G, and blockchain. This means they enable machines and appliances to perform key functions, namely data processing, storage, input and output management, among others.
Pat Gelsinger - CEO of Intel Corporation - assessed “We have seen the growing demand for semiconductors from the world's growing digital trends. This process has been fueled during the pandemic and it spurred demand for semiconductors.” With demand on the rise, countries with capacity in semiconductor production are dominating the market and becoming the main global supply.
However, manufacturing this core component is challenging!
This can be attributed to the sophistication in the making process of a semiconductor chip, which requires a diverse number of high-tech and advanced machines in the production chain. Along with that, a semiconductor is combined by rare and special input material. Thus, setting up a semiconductor production plant is a huge investment.
At the same time, the pandemic and most recently, the conflict between Russia and Ukraine have disrupted the global supply chain, severely affecting the production and distribution of the semiconductors. Meanwhile, major players in the market are now moving towards advanced chips due to the high profit margin. As a result, the supply of the semiconductors for daily electronic devices is in dire shortage.
In short, semiconductor production turns out to be the battle game of big fish and superpowers.
The current runners-up in the fierce competition of producing semiconductors.
The USA - the birthplace of semiconductors
The USA used to dominate over 50% of the semiconductor market thanks to the advantages of the first-mover. Yet, Taiwan and Korea soon took the lead, reducing the USA’s market share to 12%.
With the slogan “the American invented Semiconductor, the American will bring Semiconductor back home”, the USA has been attempting to regain its power in the market. Accordingly, the government has passed new policies on high-technology production, which stipulated the $USD 52 billion investment in initiatives, designs and manufacturing of semiconductors.
In addition, through the Science and Chips Act, the US also officially competed with China. The country offers diverse incentives, along with laying the restrictions on countries that cooperate with China, while calling for setting up manufacturing plants in the US.
Just behind Taiwan, Korea is the homeland of the largest world manufacturers, Samsung and SK Hynix Inc., to name a few. In Quarter II, 2021, Korea invested $USD 6,62 billion, up 48% over the same period in 2020 and ranking second globally. Besides, the Korean government planned to finance 950 billion won (approximately USD$ 700 thousand) to research and develop electrical and automotive chips from 2024 to 2030. Additionally, 1,25 trillion won (equal to over USD$ 875 million) will be spent on artificial intelligence chip development by 2029.
China - Big investor in semiconductors production
A report by the global industry association SEMI shows that in the second quarter of 2021, China invested USD$ 8.22 billion in chip-making equipment, up 79% year-on-year and up 38% over the first quarter of 2021.
The heavy investment in semiconductor manufacturing is part of China's strategy to become a technology powerhouse. The country has been trying to find a way out of dependence on foreign manufacturers in the semiconductor sector for decades.
According to the National Bureau of Statistics of China (NBS), China's production of integrated circuits (ICs) and industrial robots increased by 16.2% year-on-year in 2020. However, China is still not able to be self-sufficient in chip sources. In just 2020, China spent USD$ 350 billion importing chips for other manufacturing industries. Mainland China's manufacturing industry is still dependent on advanced chips of Intel (USA), Samsung (Korea) or TSMC (Taiwan).
The challenges remain for China as the country is under the US Law - restricting countries from cooperating with China - and its own zero-Covid policy. This will have a certain impact on the supply chain of several nations on relationships with China.
ASEAN - the rising player in the semiconductors production game
When semiconductor manufacturing was halted by a hard strike of Covid-19 pandemic and its global supply chain was once seriously disrupted, the world semiconductor makers recognized the risk of over-depending on China. Thus, they are moving towards new promising destinations. ASEAN is the most potential one!
ASEAN is uniquely positioned as a neutral region with a well-established and diverse semiconductor ecosystem. Since the 1970s, ASEAN knows semiconductors, and its governments continue to support investments in this sector
Amarjeet Singh - EY Asean Tax Leader; Partner, Ernst & Young Tax Consultants Sdn. Bhd.
In recent years, the ASEAN semiconductor industry has received a boost from FDI, increasing exports and integration into global value chains. According to the UN Comtrade, in 2019, US$200 billion semiconductor export volume came from ASEAN region, with 5 out of 11 ASEAN members being the top 15 global semiconductor exporters. Plus, ASEAN was also the second-largest semiconductor exporting region globally, accounting for 22.5% share of the world semiconductor export.
The astonishing figures in the semiconductor industry in ASEAN can be explained by the joint contribution of its members to the industry. In particular, Malaysia, Singapore, Vietnam, the Philippines and Thailand are at the forefront of R&D and IC design. At the same time, Malaysia and Singapore are regional leaders in wafer manufacturing, and equipment manufacturing. Malaysia, the Philippines, Thailand, Vietnam and Indonesia excel at ancillary manufacturing, while Singapore and Thailand lead in engineering software. In this way, the whole region is creating a great value on the global semiconductor value chain.
Figure 1: The spread of semiconductor specializations across the region (Source: EY)
Moreover, the government in each country is encouraging the development of high technologies and emphasizing on the production of semiconductors. For instance, under the Making Indonesia 4.0 roadmap of the Indonesian government, the electronics sector is one of Indonesia’s five targeted essential sectors. This sector attracted FDI inflow in excess of USD$ 3,3 billion from 2010 to 2020.
In addition, major semiconductor manufacturers and ASEAN members have cooperated to set up their manufacturing plants and R&D centers. Particularly, foreign chipmakers have been establishing manufacturing operations in Malaysia since the 1970s, and the country has developed a position in the global supply chain as a major semiconductor assembly, testing and packaging location. At the same time, Samsung has also been constructing a new USD$ 220 million R&D center in Vietnam to develop products as well as in new technologies such as artificial intelligence, the internet of things (IoT) and big data. Meanwhile, Intel has invested USD$ 1.5 billion USD since its establishment in Vietnam. At the national level, the US and Malaysia have signed a memorandum of understanding (MoU) on collaborating to strengthen semiconductor supply chain resilience and promote sustainable growth.
Conclusion
The context of semiconductor competition is changing as the world manufacturers in the industry are finding their ways to dominate the game. With the unprecedented appearance of Covid-19 pandemic, key players have sought solutions to diversify their semiconductor supply chain, which give rise to ASEAN.
Yet, despite offering tremendous favorable conditions for the top semiconductor makers, the region still presents several challenges. The questions have been raised by various manufacturers “Which destination should I choose to settle down my business?” “How can I navigate myself through the local environment?”.... With 12-year practice in diverse industries and majors and a team of well-informed professionals in local markets and legal systems, Viettonkin can help you find out the answers in this article. Stay tuned and Let us be your trustworthy partner!
Prosperous, democratic, and strategically located off the Chinese coast, Taiwan has long been an important ally of the United States under the One China policy. However, in the context of the intense rivalry between the U.S. and China, along with several controversial claims U.S. President Joe Biden has recently made about protecting Taiwan in the case of an unprecedented attack by China, concerns start to emerge about whether the U.S. has changed its approach towards Taiwan. So what is the whole picture of the U.S.-Taiwan geopolitical relations?
Historical background of U.S.-Taiwan relations
The relationship between the U.S. and Taiwan has a turbulent and complicated history. The U.S. had long backed and recognized the Republic of China (i.e. Taiwan) but it ended at the end of 1978 when the U.S. moved to acknowledge the People’s Republic of China (i.e. China) due to the changing geopolitics of the Cold War. Since then, the U.S. has claimed that Taiwan is a part of China and the People’s Republic of China is the only legitimate government of China but has resolutely refused to acknowledge Chinese sovereignty over Taiwan. Thus, today, the U.S. continues to have formal relations with China and unofficial ones with Taiwan under the One China policy.
In particular, the U.S. passed the Taiwan Relations Act (TRA) in 1979 to safeguard its substantial security and commercial interest in Taiwan. Through the American Institute in Taiwan (AIT), the TRA also authorized the maintenance of ties between Americans and Taiwanese in terms of business, culture, and other areas.
The growing geopolitical importance of Taiwan to the U.S.
Taiwan is of great strategic importance to both the U.S. and China due to its geopolitical location. The island of Taiwan is located about 180 kilometers off the southeast coast of mainland China across the Taiwan Strait, with a total area of around 35,000 square kilometers. Undeniably, the island is an important link in the “first island chain”, which includes such pro-American countries as Japan, South Korea, and the Philippines. These islands and peninsulas together form a vital stronghold, helping the U.S. contain China’s influence and safeguard trade routes.
The island of Taiwan is perhaps the most important link in the “first island chain” due to its location central to Japan, with South Korea in the northeast and the Philippines in the southeast. It is also located the closest to China of all four islands and peninsulas mentioned. Goods and the navy that need to travel from South Korea or Japan to the south or vice versa will have to pass through the area of influence of Taiwan. In addition, Taiwan and the Philippines block access to the sea of important southern areas of China such as Guangzhou, Fujian, and Hong Kong.
According to Bloomberg, the Taiwan Strait is the arterial route for cargo ships from China, Japan, and South Korea to the west, carrying goods from Asian factories to Europe and America. Any action affecting this transport route will further disrupt the global supply chain, which has already been fragile because of the Covid-19 pandemic and the Ukraine conflict. China, as the world’s largest exporter, would be hit hard by any military action taking place along this crucial shipping route. During the past 7 months of 2022, approximately 48% of the total 5,400 container ships passed through the Taiwan Strait, bringing clothes, home appliances, mobile phones, and semiconductors from China and Taiwan to all five continents.
U.S. General Douglas MacArthur, who played a crucial role in the Pacific during World War II, highly appreciated the island in many battle strategies used by the U.S. to contain China during the Cold War. Specifically, he once referred to the island as the most powerful weapon of the U.S. Navy - an aircraft carrier. Today, with China’s growing military power and influence, the island of Taiwan does not hold much deterrent power but rather has a defensive meaning, preventing Beijing from projecting its influence out to the world.
Taiwan deserves the title of “an unsinkable aircraft carrier” not just because of its location but also its topography. The island is surrounded by water on all four sides and thus any attack on Taiwan will have to be by air or by sea.
Furthermore, the U.S. government aims to keep its credibility in East Asia by honoring its long-standing commitment to the Taiwanese people. Through its military presence and alliances, the U.S. intends to continue to be the primary guarantor of East Asian security and the balance of power. If the U.S. just left Taiwan for China, its position in Asia would be significantly undermined and China would be able to drive the U.S. out of the region.
Another factor that makes Taiwan important to the U.S. lies in its economic success. Trade ties between the two are substantial. According to the U.S. Congressional Research Service, Taiwan is the eighth-largest trading partner of the U.S., with total goods trade estimated at $114.1 billion in 2021. Taiwan has also risen to the top of the world rankings for computer and telecommunication component technology, playing a crucial role in the growth of this vital sector.
With the Taiwan Semiconductor Manufacturing Company (TSMC) supplying half of the world's yearly supply of chips, semiconductor chips have grown in importance as a diplomatic asset for Taiwan in recent years. Nearly all key U.S. technology companies now have a presence in Taiwan. The U.S. acquires its most cutting-edge chips for military hardware that cannot be produced domestically from TSMC. Taiwan is also the second-largest market for U.S. semiconductor equipment. The island has proven even more vital to the U.S. as the U.S.-China technological war becomes more intense. With the support of the Biden administration, TSMC bought a site in Arizona in 2021 to construct a chip factory there, which is expected to be completed by 2024.
Notable fields of cooperation in U.S.-Taiwan geopolitical relations
Trade and investment
The economy of Taiwan is well developed with an estimate of about $786 billion in goods and services in 2021. Commercial, financial, and trade ties between the U.S. and Taiwan are robust and ever-growing. The American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the United States (TECRO) have hosted the Economic Prosperity Partnership Dialogue between the U.S. and Taiwan since 2020 in an effort to strengthen their economic and commercial ties in areas such as supply chain security and resilience, investment screening, health, science and technology, and the digital economy. To provide a forum to create business initiatives and find potential measures to reinforce vital supply chains, the U.S. Department of Commerce introduced the Technology, Trade, and Investment Collaboration framework with Taiwan in 2021.
The U.S. is Taiwan’s second-largest trading partner, while Taiwan’s trade with the U.S. ranks eighth overall. The U.S. exports of goods and services to Taiwan fueled an estimate of 188,000 American jobs in 2019.
In 2020, total investments made by Taiwanese companies in the U.S. were close to $137 billion. Manufacturing, wholesale trade, and depository institutions make up the majority of Taiwan's direct investment in the U.S.. These investments directly create an estimate of 21,000 jobs in the U.S. and $1.5 billion in U.S. exports.
Science and technology
Taiwan and the United States collaborate in fundamental and cutting-edge research in a variety of fields, including physics, atmospheric science, meteorology, nuclear energy, environmental conservation, space science, bio-medical and life sciences, etc. As of December 2021, the two signed over 270 bilateral collaborative agreements in an attempt to advance research and technology.
Military
Under the Trump administration, the U.S. strengthened its relations with Taiwan over China’s rising military concerns, particularly by selling more than $18 billion worth of weaponry to the Taiwanese military, which is the highest sum ever seen in any U.S. presidency.
The Biden administration has adopted a similar strategy, maintaining arms sales and endorsing the Trump administration’s decision to facilitate more informal meetings between the U.S. and Taiwanese officials. Additionally, the U.S. engages Taiwan in military training and dialogues, frequently deploys ships across the Taiwan Strait to show its military presence in the region, and has encouraged Taiwan to raise its defense budget.
A promising picture of economic cooperation between U.S.-Vietnam and Taiwan-Vietnam
Taiwan-Vietnam economic cooperation opportunities
Taiwan has long been among Vietnam’s major economic partners. It ranked fourth among investing nations in 2021 with 2,845 projects totaling more than $35.3 billion in registered cumulative capital. With roughly $25.3 billion in two-way trade, Taiwan emerged as Vietnam’s fifth-largest trading partner, with $20.7 billion in exports to Vietnam and $4.5 billion in imports from Vietnam. Notably, Taiwan was the fourth-largest market for tourism in 2021 and was the top importer of Vietnamese labor, with over 205,000 Vietnamese workers there.
Taiwan’s new government of Tsai Ing-wen has unveiled its New Southward policy to promote trade and investment ties with ASEAN nations. Vietnam is potentially regarded as a key economic partner of Taiwan in its new strategy due to Vietnam’s implementation of the economic liberalization policy and efforts to lift trade barriers through free trade agreements (FTAs, TPP, RECP, etc.). More Taiwanese businesses have recently invested in Vietnam, and multinational corporations have also moved production plants there, expanding Vietnam's potential for economic cooperation and elevating its status in the global supply chain.
U.S.-Vietnam economic cooperation opportunities
Ever since diplomatic relations between the U.S. and Vietnam were normalized, the trade between the two countries has significantly increased. Noticeably, according to the General Department of Customs, bilateral trade between Vietnam and the U.S. reached a record-high $111.56 billion in 2021, an increase of about $21 billion from the year before. This figure makes the U.S. Vietnam’s second-largest trading partner now.
Vietnam has also benefited in various ways from the U.S.-China trade war. Vietnamese exporters have noticed a rise in demand for their goods, particularly clothing and textiles. For U.S. investors taking advantage of the China plus one strategy, which entails moving or expanding operations to other countries to enhance market access, Vietnam has emerged as a viable alternative to China.
Major U.S. companies have already moved production lines to Vietnam, including Apple, Intel, Qualcomm, Universal Alloy Corporation (UAC), Nike, and KeyTronicEMS. U.S.-based Universal Alloy Corporation (UAC) has invested $170 million in the Da Nang Hi-Tech Park to produce electronics for Boeing and Airbus aircraft. Another U.S. investor, Vector Fabrication Inc., has also invested $59 million in Vietnam at the Da Nang Hi-Tech Park.
For foreign investors, Vietnam offers a number of advantages over other Asian countries, including a fairly efficient and stable governmental structure, regulatory and cultural familiarity for businesses accustomed to operating in China, highly competitive labor costs, and close proximity to existing Asian supply chains. Although the Covid-19 pandemic and U.S.-China trade war have generated great opportunities to entice manufacturing companies to migrate, Vietnam’s greatest challenge now is how to manage its expansion sustainably.
Conclusion
While Taiwan’s public and political parties are inclined to retain the status quo and the Biden administration is expected to continue pursuing its one-China policy, China’s more assertive measures towards Taiwan suggest that further crises in the Taiwan Straits are still likely to occur. However, the geopolitical ties between the U.S. and Taiwan have been greatly strengthened over time, particularly in the economy. Therefore, there are ample prospects for U.S. and Taiwanese investors to establish lucrative businesses in politically stable nations like Vietnam.
In the journey to seek new business opportunities in Vietnam, please let Viettonkin be your right-hand man. Let’s contact Viettonkin now!
Vietnam is emerging as a prime destination for foreign direct investment (FDI), driven by rapid economic growth, favorable government policies, and an investor-friendly business environment. This eBook provides a deep dive into Vietnam’s economic landscape, highlighting key industries such as manufacturing, real estate, and digital banking that attract FDI. It also explores the government’s proactive measures to streamline investment procedures, improve infrastructure, and offer tax incentives for foreign enterprises. Additionally, it covers crucial insights into market entry strategies, regulatory requirements, and socio-cultural factors that influence business success in Vietnam.
Download the eBook now to gain expert insights into successfully navigating Vietnam’s dynamic investment landscape!
Vietnam is emerging as a prime destination for foreign direct investment (FDI), driven by rapid economic growth, favorable government policies, and an investor-friendly business environment. This eBook provides a deep dive into Vietnam’s economic landscape, highlighting key industries such as manufacturing, real estate, and digital banking that attract FDI. It also explores the government’s proactive measures to streamline investment procedures, improve infrastructure, and offer tax incentives for foreign enterprises. Additionally, it covers crucial insights into market entry strategies, regulatory requirements, and socio-cultural factors that influence business success in Vietnam.
Download the eBook now to gain expert insights into successfully navigating Vietnam’s dynamic investment landscape!
Founded in 2009, Viettonkin Consulting is a multi-disciplinary group of consulting firms headquartered in Hanoi, Vietnam with offices in Ho Chi Minh City, Jakarta, Bangkok, Singapore, and Hong Kong and a strong presence through strategic alliances throughout Southeast Asia. Our firm’s guiding mission is aimed towards facilitating intra-ASEAN investments and connecting investors in Southeast Asia with the rest of the world, thus promoting international business relationships and strengthening inter-nation connections.
