Vietnam’s Industrial Zones Ready to See Significant FDI Inflow

Vietnam is home to over 350 industrial, all of which offer investment incentives and growth opportunities to international investors.

The Vietnamese Ministry of Finance issued Circular No. 35/2022/ND-CP on May 28, 2022, with provisions to incentivize investments in the country’s economic and industrial zones. The latest Circular gives guidance for the development and management of industrial zones in the country as well as on tax incentives for investment in high-tech projects, Transfer of technologies, and investment in underdeveloped zones.

A foreign investor should be mindful of all the incentives offered by the government before expanding to an industrial zone in Vietnam. As you’ll find in this article, tax incentives are especially beneficial to those who invest in condominium units, housing developments, operations, or rentals. It also applies to infrastructure developments in industrial and economic zones for employees’ medical, cultural, and recreational needs. 

Benefits Offered by Vietnam’s Industrial Zones

At present, Vietnam has 250 Industrial Zones (IZs) and Export Processing Zones (EPZs), which are divided into four economic zones:

  • Central Key Economic Zones (CKEZ)
  • Northern Key Economic Zones (NKEZ)
  • Southern Key Economic Zones (SKEZ)
  • Mekong River Delta Economic Zones (MeKEZ)

Vietnamese industrial zones are popular with foreign entrepreneurs for the following reasons:

1. Reap the Income Tax Benefits

Article 22 of Circular 35/2022/ND-CP lists the requirements to receive investment incentives for industrial parks and economic zones.

  1. Industrial parks located in areas facing socioeconomic disadvantages
  2. An economic zone designated to be an investment incentive area or an area facing extreme socio-economic disadvantages 
  3. Investment projects on construction and business of infrastructure facilities of industrial parks, functional sections inside economic zones, and investment projects inside industrial parks or economic zones (under relevant legislation)
  4. Construction, operation, purchase, hire-purchase, or rental of residential houses, public service or utility facilities for workers and staff members of industrial parks, economic zones; technical infrastructure connected to industrial parks, functional sites connected to the investment projects within industrial parks or economic zones (eligible as income deductibles under the Law on Corporate Income Tax)
  5. Construction of residential houses, public service, and utility facilities for workers and employees of industrial parks or economic zones (under regulatory provisions on building social housing and other relevant legislation)
  6. Investors having investment projects within industrial parks or economic zones shall be assisted by competent authorities in carrying out administrative procedures regarding investment, enterprises, land, construction, environment, labor and trade under the “one-stop shop and on-site” mechanism, and recruiting employees and dealing with other related issues during the project execution process.

For a period of 15 years, companies in Vietnam’s economic free zones can enjoy a reduced corporate income tax rate (CIT) of 10% if eligible. Moreover, both local and international employees are eligible to receive tax reductions in their personal income. Approved projects are exempted from corporate income tax for a maximum of 4 years.

The CIT rate on high-tech projects is eligible to be reduced by 10% for a maximum of 30 years. Education and health projects are also eligible for a 10% tax reduction.

2. Enjoy Additional Government Incentives

Moreover, value-added tax (VAT) and excise tax (for certain restricted goods and services) are not applied to imported, manufactured, or processed goods within industrial zones. Vietnam industrial zones offer a 5-year tax holiday on raw materials imported for manufacturing.

3. More Benefits for Trading Companies

Goods traded in the ASEAN region are eligible for tariff cuts. Moreover, the government provides infrastructural development assistance to businesses established in socio-economically challenged areas.
Companies are also eligible for preferential grants and are exempt from land rental fees by the government.

Vietnam also has considerably low operating costs compared to other countries. Notably, the minimum wage ranges from USD 138 to USD 200 per month, making it easy for companies to find low-cost workers.

Foreign Investment in Vietnam’s IZs

As of September 2022, Vietnam has around 35,725 ongoing projects signifying a total registered capital of USD 431.5 billion.

In February 2022, Framas Group, a German firm specializing in injection molding machines, entered into a ten-year-long contract to lease a factory area of 20,000 square meters in Dong Nai Province.

Another deal signed was between LOGOS, an Australian logistics real estate operator, and Manulife Investment Management. These two companies have come together to set up a business in an area of 116,000 meters.

A Memorandum of Understanding (MoU) has been signed between CapitalLand Development and Bac Giang Province worth USD 1 billion. The funds will be used for investing in the first urban industrial logistics project in Vietnam.

In 2022, foreign investment worth USD 924 million has been allocated to Thai Nguyen Province, out of which $920 million has been supplied by Samsung Electro-Mechanics Vietnam.

In the first quarter of the year 2022, Danish firm LEGO established its production facility in Binh Duong Province. It infused an investment worth USD 1.3 billion.

Moreover, Vietnam’s industrial property market continues to lure foreign investors. For instance, HuaLi Group (Taiwan) has entered into an agreement with investors from Hoang Mai Industrial Park and WHA Industrial Zone 1. This firm from Taiwan aims to finish the construction of a footwear factory for export by March 2023.

Upon reaching full operational capacity, the production unit will be responsible for the manufacture of 25 million pairs of shoes annually. Moreover, it would also generate employment for almost 16,000 Vietnamese locals.

Another factory worth USD 38 million will be built in WHA1 – Nghe An by Huali Group by June 2023, which is expected to employ 8,000 people and manufacture 13 million pairs of shoes annually.

RELATED: How to Select Industrial Zones for Your Production Diversification to Vietnam

Opportunities in IZ Real Estate Investment

Vietnam garnered a lot of foreign investment during the pandemic.  It has attracted USD 230 million worth of foreign direct investment (FDI), including new registrations and capital adjustments in IZs. Domestic investment worth more than USD 304 million has been made. For instance, Coca-Cola has invested in a factory valued at USD 136 million in Phu An Thanh Industrial Park in Ben Luc district.  

The growth of industrial zones is the primary driver of increased employment and the upliftment of the local economy. However, several obstacles may prove to impede the development. Consequently, the circular was adopted to address the issues listed below.

Lack of Housing in Industrial Zones

According to the Vietnam General Confederation of Labor, just 1.5 million of the 2.7 million people employed in Vietnam’s industrial zones have suitable accommodation in or near the industrial zones. Moreover, foreign laborers account for more than half of the workforce.

The number of workers willing to migrate into, or near, industrial zones is undeniably high, and so is the potential for real estate and property development and investment. These less developed areas, particularly in central Vietnam, provide investors with significant real estate, housing, and infrastructure opportunities and secure great returns. Moreover, these areas struggle to retain competent workers, which is why improvements in amenities can draw manpower and talent.

For instance, Samsung spends heavily on modern housing and facilities for its 100,000 employees in industrial zones in Vietnam’s Nguyen Bac Ninh districts.

Housing Development Incentives

Authorities have made efforts to encourage the development of housing, public service, and utility facilities intended for workers and employees working in industrial parks or economic zones.

The State incentives shall be given to entities and persons investing in construction of residential buildings providing accommodations for rent, purchase, or hire-purchase for workers, employees, or staff members. Residential buildings providing accommodations, public service, and utility facilities intended for workers and employees working in industrial parks and economic zones to be developed must meet construction standards and regulations; dimensional, quality, aesthetic, safety, and environmental requirements in construction under the law.

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