FDI

Best locations to start a manufacturing business in Vietnam

Tra Mac

January 14, 2021

Whether you are looking to outsource your business’ operations to Vietnam or setting up a business, choosing a location for manufacturing activities in Vietnam can be a daunting task for investors unfamiliar with the market. 

Factory locations may be located inside or outside industrial zones or special economic zones, export processing zones, or hi-tech zones. When choosing a location to set up manufacturing business, investors need to take into account the industry specialization, infrastructure, and scale of business operation. The following options are recommended to investors looking to set up factories in Vietnam.

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  1. Pre-built facilities

Investors can rent ready-built factories and warehouses for lease by companies registered in Vietnam. According to Vietnam’s Briefing in 2019, ready-built factories were in the highest demand with investors increasingly moving factories to Vietnam, recording more than an 85 percent occupancy rate. Binh Duong and Dong Nai in the southeast are the markets with the highest demand, given their access to transport infrastructure. This plan is suitable for small to medium scale businesses looking to lease land of less than 8 hectares. These facilities are designed in accordance with production and business requirements and international safety standards. This ensures brisk business set-up while gaining access to strategic economic regions. 

  1. Industrial zones 

This plan is suitable for investors looking to lease land with a lease term of 40-50 years and an area of more than 8 hectares. Industrial zones are specific areas earmarked by the government for the production of goods and services. Industries are usually concentrated in certain industrial zones, which provide incentives for businesses that set up there. Industrial zones are popular locations for manufacturing businesses in Vietnam. As of 2018, according to Vietnam briefing reports, there are 328 industrial zones countrywide, 249 of which are in operation.

Preferential tax rates are offered by the government to investors located in industrial zones in Vietnam. Other indirect taxes, such as Value Added or Special Consumption Tax, may also be reduced on a good-by-good basis. These tax incentives can help offset the higher wages and rental fees in these areas.

See more at Top locations to start businesses in Vietnam to learn more about Industrial zones and how to narrow down your list of potential business locations. 

  1. Export Processing Zones

In the case of investors seeking support from specific exporting regulations, it is required that the business be an Export processing enterprise (EPE). EPEs, as defined by Decree No 82/2018/ND-CP, are enterprises that are established and operate in an Export Processing Zones (EPZ) OR that specialize on a manufacturing product for export and operate in an industrial zone. EPEs are also required to be separated by fence systems, have ports, entrance and exit doors and fulfill requirements by customs authorities related to non-tariff areas and rules on import and export duty. Export processing zones are often located within industrial zones and focus on manufacturing goods for export.

Export processing zones have become a popular destination for foreign investors now that Vietnam has emerged as a China-plus-one destination for companies looking to outsource operations to reduce cost. Their tariff-free trade and access to low-cost labour make export processing zones an ideal location for manufacturing business in Vietnam. Due to their location within industrial zones, businesses can also enjoy tax incentives. EPEs set up in export processing zones are allowed to sell goods to the local market with import duties payable by the recipient. However, EPEs set up in industrial zones other than export processing zones are prohibited to sell to domestic enterprises in the Vietnamese market.

  1. High-tech zone

Hoa Lac Hi-tech Park in Hanoi is the first Hi-tech Park in Vietnam to receive special mechanisms and incentive policies, allowing investors and companies investing in Hoa Lac Hi-tech Park to enjoy preferential tax rates and other support. It was built as a center of research, development, and hi-tech application and consists of various functional zones such as research and development zone, software park, high tech industrial zone, education and training zone. However, the downside of this high-tech zone is that it is operating like industrial parks rather than like sci-tech hubs, except that the cost of factory rental is much higher. Thus, the high-tech zone receives no foreign-invested project and only 4 domestically high-tech projects in 2019. 

  1. Land lease from the state

Renting land directly from the state is suitable for investors who plan to lease land for 40-50 years or more and need a large area. The drawback of this plan is that it is a time-consuming and costly process to get approval for land use plannings as well as site clearance plans from the government

When a company intends to locate its business outside the industrial zone, export processing zone, hi-tech park, economic zone, etc., the investor must contact the Department of Natural Resources and Environment for consultation as to where to implement the projects. If a specific location has been decided outside an industrial zone, export processing zone, high-tech park … (for example, leasing facilities, factories of another enterprise …), the above company needs to work with The Province’s Department of Natural Resources and Environment to find out if the proposed site is consistent with the land use planning. 

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