Vietnam Free Trade Zones – Complete Guide

In recent years, foreign individuals and organisations are moving towards the Vietnam Free Trade Zone to establish manufacturing businesses and take advantage of the tax advantages for product distribution and export. 

The country offers sizable industrial zones that have developed into key hubs for a variety of light to heavy industries.

FREE ZONES IN VIETNAM

VSIP (Vietnam-Singapore Industrial Park)

This is one of the best industrial parks of the highest caliber and was constructed in 1996. In six provinces in Vietnam, including Quang Ngai, Hai Duong, Nghe An, Hai Phong, Binh Dinh, and Bac Ninh, VSIP has industrial parks.

Some of the significant investment projects in VSIP include ventures in electronics, automotive components, consumer goods, and pharmaceuticals.

PHUOC DONG INDUSTRIAL PARK 

This industrial park, also known as PDIP, is located between the districts of Trang Bang and Go Dau. It is regarded as one of Vietnam’s most innovative and ecologically conscious commercial and manufacturing parks.

Biofuel, steel components, logistics, support services, building materials, and textiles are among the primary investment sectors for PDIP.

Hiep Phuoc Industrial Park  (HPIP) 

The Nha Be District of Ho Chi Minh City is where this industrial park is situated. HPIP is an industrial property with ready-built facilities covering over 4,000 hectares. Export operations are prospering in this industrial area due to its proximity to Ho Chi Minh City, Vietnam’s financial hub, and its well-developed transportation infrastructure.

Dinh Vu – Cat Hai Economic Zone

This is an important coastal free zone in Vietnam. It is a 22,540 hectares industrial zone and is ideally located in Hai Phong. Machinery, electronics, communications, chemical, scientific, and electrical equipment are the key industries in this free zone.

Hoa Khanh Industrial Zone ( HKIZ ) 

The Hoa Khanh Industrial Zone was built in 1997 and is situated in the central key economic zone of Da Nang, Vietnam.

It has a strong infrastructure that includes factories, warehouses, labour force, utilities, and more.

With its established transportation system, which includes close proximity to the Da Nang International Airport, the North South Railway, and the Tien sa and Han River Ports, it is very well connected to the rest of the world.

All fixed assets and other materials needed to maintain the machinery and are used to produce products and services are now exempt from taxation, according to the authorities.

Businesses are given a two-year tax holiday from paying corporate income taxes as well as a three-year tax rate reduction.

Companies can be launched in several of the zone’s major businesses, including the petrochemical industry, garment industry, and agricultural sectors.

Table comparing free zones in Vietnam

Infrastructure development in Industrial Zones

The success of an industrial zone is frequently determined by its infrastructure. Since the country’s infrastructure has been developing rather slowly in the midst of rapid industrialization, industrial zones that have historically struggled to draw businesses frequently lacked competent management and infrastructure.

Industrial zones in Vietnam have been upgrading their infrastructure to meet international standards as the country continues to draw FDI. 

Improvements include better industrial parks overall, but investors should pay close attention to evaluating the standard of manufacturing facilities and warehouses, as well as the availability of water and electricity, wastewater treatment facilities, garbage disposals, fire suppression systems, improved telecommunications, access to banks and post offices, logistic services, and internal roads.

Many industrial areas are close to major roadways that connect to airports, ports, and rail stations for convenient transportation and other amenities. The provinces with the finest infrastructure are Binh Duong, Da Nang, Vinh Phuc, Hai Duong, and Ba Ria-Vung Tau.

Incentives offered in specialized zones

Vietnam has a number of incentives depending on a number of variables, including the regional profile, to attract both domestic and foreign investment.

Tax incentives are given based on the business lines and location of the foreign invested enterprise and include exemptions or reductions of Corporate Income Tax (CIT), Value-Added Tax (VAT), and import tariffs for defined periods.

Education, healthcare, sports, culture, high technology, environmental protection, scientific research, infrastructure development, and software manufacture are among the industries that are encouraged by regulation. Disadvantaged or very disadvantaged areas, industrial parks, export-processing zones, hi-tech zones, and economic zones are examples of administrative divisions or locations with investment incentives.

For new investment projects in industrial zones, high-tech zones, and locations with challenging socioeconomic situations, preferential CIT has been set at 10% for a 15-year term.

Companies that operate in the fields of education and training, occupational training, healthcare, culture, sport, and the environment are eligible for the preferential CIT for the duration of their operational period. Other lower CIT slabs for businesses engaged in farming, breeding, processing agricultural and aquaculture products include 15% and 17%.

The CIT incentives are also available for large manufacturing projects with an investment capital of US$258,000 (6,000 billion VND) or more and minimum annual revenue of US$430,620,000 (10,000 billion VND) for at least three years after the first year of operations, or with at least 3,000 employees after three years of operation.

Investors are also provided with exemptions from import duties and incentives for leasing land. These subsidies and exemptions are subject to the type of business and the location of the investment.

BENEFITS OF SETTING UP A BUSINESS IN VIETNAM’S FREE TRADE ZONES

Foreign ownership

Vietnam’s free trade zones allow foreign investors to own 100% of their company, which means you don’t need to find a local partner or establish a joint venture to do business in the country. This makes it easier for foreign companies to enter the Vietnamese market and maintain control of their business.

Refer to Vietnam Company Formation for more information.

Tax benefits

Businesses operating within Vietnam’s free trade zones can benefit from preferential tax rates and incentives. For example, companies may be exempt from import and export taxes or enjoy a reduced corporate income tax rate. This can help reduce the overall cost of doing business in Vietnam.

Business-friendly policies

The Vietnamese government has implemented policies to make it easier for businesses to operate within the free trade zones. For example, there are streamlined customs procedures and faster processing times, which can reduce the time and cost of importing and exporting goods.

Well-connected to the world

Vietnam’s free trade zones are strategically located near major shipping routes and international airports, making it easier to transport goods to and from the rest of the world. Additionally, Vietnam has signed free trade agreements with several countries, which can make it easier to do business and increase market access.

Well-developed infrastructure

Vietnam’s free trade zones have modern infrastructure, including roads, ports, and airports. This can help reduce the cost of transportation and improve the overall efficiency of business operations.

Larger consumer market

Vietnam has a large and growing consumer market, with a population of over 97 million people. Operating within the free trade zones can provide businesses with access to this market, which can help drive growth and increase profitability.

Relationships with other countries

Vietnam has established relationships with other countries, including its membership in the ASEAN and participation in several free trade agreements. This can help businesses in the free trade zones access new markets and benefit from increased international trade.

CHALLENGES OF SETTING UP A BUSINESS IN VIETNAM

Competition

Vietnam’s free trade zones are becoming increasingly popular with foreign investors, which means there is more competition for resources, labour, and customers. This can make it difficult for new businesses to establish themselves and compete effectively.

Labour issues

Although Vietnam has a large pool of labour, finding qualified workers with the right skills can be a challenge. Additionally, there may be language and cultural barriers that make it difficult to communicate with employees.

Bureaucracy and regulation

Vietnam has a complex regulatory environment, and businesses operating within the free trade zones may still be subject to a range of regulations and requirements. Dealing with bureaucracy can be time-consuming and may require local knowledge and experience.