Vietnam’s special administrative and economic zones, a close look

The National Assembly (NA) said last week it would not consider a bill on the special administrative and economic zones (SAEZs) of Van Don, North Van Phong, and Phu Quoc in October as previously scheduled.

It said the bill needs further consultation with the public, organizations, experts and scientists, and can be taken up at later.

The establishment of these special economic zones reflects the government’s determination to attract new domestic and foreign investment.

The following are the key points in the draft Law on SAEZs:

Investment in special economic zones

With respect to special economic zones, the Government has prioritized different areas for development in each zone.

In Van Don, the priority areas are technology, supporting industries, tourism and culture, airports, seaports, and trade.

In North Van Phong, they include information technology, electronics, precision engineering, seaports, hotels, tourism, business–finance.

In Phu Quoc, the priorities are travel, hotels, trade, conferences, exhibitions, asset management, healthcare, education, and research and development.

In the SAEZs, strategic investors shall be entitled to numerous incentives.

Strategic investors are those with proven financial and management capacity and who can provide a written committment to apply and transfer advanced, new and clean technologies, will train and develop human resources, carry out investment in the SAEZs on a long-term basis and invest in the following projects in SAEZs.

Firstly, a minimum investment in services, tourism and amusement complex with casino services of VND45 trillion (about $2 billion), and the disbursement schedule shall be as agreed upon by the investor but not exceeding eight years from the issuance of the Investment Registration Certificate (IRC).

Secondly, a minimum investment in infrastructure in line with the plans of SAEZs of VND12 trillion (about $515 million) with the disbursement schedule not exceeding five years from the issuance of the IRC.

Thirdly, a minimum investment in production and priority sectors of VND6 trillion (approx. $257.5 million) with the disbursement schedule not exceeding three years from the issuance of the IRC.

Fourthly, a minimum investment in other business lines that have a great influence on socioeconomic development or generate added value of VND6 trillion (approx. 257.5 million) with the disbursement schedule not exceeding three years from the issuance of the IRC.

Regarding procedures for investment and business registration in the SAEZs, foreign investors would not have to obtain decision on investment policies, except in the case of public investment projects, those under the authority of the NA and/or casino businesses.

For projects that require decision on investment policies, procedures shall be in accordance with the 2014 Law on Investment and guiding regulations.

The people’s committee chairman shall issue the investment decision within one working day from the receipt of the decision from competent authorities in respect of a project.

Investors qualifying as strategic investors shall be entitled to preferential treatment in investment procedures, site clearance, compensation procedures, and selecting projects involving more than two investors.

For projects located in the SAEZs, the business registration shall be carried out at the public administrative center, which shall govern the three SAEZs, instead of the people’s council. This will simplify administrative procedures leading to efficiency.

Investment incentives

The foreign investors shall be entitled to land allocation from the Government for implementation of their investment projects. For investment projects that are in line with specialized industries in the SAEZs, the land lease terms shall not exceed 70 years subject to the people’s committee decision and could be longer but not more than 99 years for projects subject to the Prime Minister’s decision as per the 2014 Law on Investment.

Investors could be exempted from land and water surface rent from 15 years to the project implementation period, depending on the nature of the project.

Tax treatment

Foreign tourists shall be entitled to buy duty-free goods at tax-free zones in Van Don and North Van Phong with duty-free quotas for luggage for each entry according to the laws on import and export duties. Vietnamese tourists residing in the SAEZs for more than 24 hours will be able to purchase tax-exempt goods in a tax-free zone.

Imported machines, equipment, vehicles and materials for creating fixed assets for the projects shall be exempt from import tax.

Items imported for the operation of specific projects in SAEZs should be ones which cannot be manufactured in Vietnam and may be exempt from import tax for seven years from the operational date.

Additionally, those projects shall also be entitled to a special corporate income tax rate of 10 percent for 15 years, tax exemption for the first four years and a 50 per cent reduction for the succeeding nine years.

Settlement of disputes

A dispute between investors in these SAEZs, where there is at least one foreign investor holding at least 51 percent or more of the capital, shall be settled by Vietnamese arbitration or court or foreign/international arbitration.

The foreign investors could also take the disputes to a foreign court for settlement, except in those cases which are subject to the authority of Vietnamese courts.

A dispute between a competent state agency and a foreign investor shall be settled by Vietnamese arbitration or Vietnamese court unless otherwise agreed by both parties or prescribed in relevant international treaties.

Practical issues in Vietnam

To assure national development as well as foster economic growth, the Vietnamese government aims to create a sustainable environment for investment and open market entry for foreign investors to invest their capital in the Vietnamese industrial sector.

The SAEZs are established under the form of a miniature setup with special administrative institutions, where all forms of business activities are permitted to be set up.

In the initial period the government will provide foreign investors with a number of specialized incentives to attract foreign investment.

There are some preferential treatments that cause concern in society at the moment. Accordingly, the Government has clarified that though it is essential to develop the nation’s economy, the country’s independence, sovereignty, freedom and national interest shall take priority.

Keeping in view various concerns expressed by the public, the Government has come forward and considered these opinions and made key changes to the proposed SAEZ Law to ensure a sound legal framework and transparent policies for investment in SAEZs.

*Vaibhav Saxena is a legal consultant at VILAF law firm