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Overview of the latest regulatory changes ( first quarter of 2024 )

Vietnam’s legal environment is undergoing a profound transformation, which reflects the country’s determination to optimize the business environment, attract foreign investment and promote the digital transformation of the economy. In the first quarter of 2024, we witnessed the introduction and revision of a number of important regulations. These changes will have a broad and far-reaching impact on companies operating in Vietnam.

The first thing to bear the brunt is the promulgation of the new version of the “Implementation Rules of the Investment Law”, which will officially take effect on March 1, 2024. The revision of this detailed rule aims to further clarify and simplify foreign investment procedures, especially in the high-tech and environmental protection fields. It is worth noting that the detailed rules introduce a “negative list” management model, which clearly lists industries that are prohibited and restricted from foreign investment, while industries not included in the list will be open to foreign investment by default. This change will undoubtedly bring greater certainty and broader investment opportunities to foreign investors. However, companies need to pay close attention to the specific content and subsequent updates of this list to ensure that their investment plans comply with the latest regulations.

This was followed by major revisions to the E-Commerce Law, which reflect the Vietnamese government’s emphasis on the rapidly growing digital economy. The revised law strengthens supervision of cross-border e-commerce platforms, requiring them to establish local entities or designate legal representatives in Vietnam. This requirement may increase the operating costs of some cross-border e-commerce platforms, but it also provides them with opportunities to better integrate into the local market. In addition, the new law also strengthens relevant provisions on data protection and consumer rights protection, which means that e-commerce companies need to review and possibly upgrade their data management and customer service systems.

In the field of taxation, the Vietnamese Congress passed the Digital Service Tax Law, which is scheduled to be implemented on July 1, 2024. The law seeks to tax foreign businesses that provide cross-border digital services, including but not limited to social media, online advertising and cloud service providers. According to the draft, these companies may need to pay 2-5% tax on their income generated in Vietnam. Although this may increase the tax burden of some companies, it also provides a clear framework for their legal operations in the Vietnamese market. Enterprises should pay close attention to the specific implementation details of this law and adjust their financial strategies in a timely manner.

In terms of labor law, the Vietnamese government has introduced a new “Foreign Labor Management Regulations” to simplify the work permit application process for foreign employees and also increase the requirements for localized employment of enterprises. The new regulations relax work permit requirements for some senior managers and technical experts, but also require companies to develop more detailed training plans for local employees. This change not only facilitates the introduction of international talents for enterprises, but also promotes the development of local talents. Enterprises need to make corresponding adjustments in their human resources strategies.

In addition, the revision of the Implementing Rules of the Environmental Protection Law also deserves attention. The revised rules strengthen the requirements for corporate environmental responsibility, especially in waste management and energy efficiency. The new regulations introduce stricter environmental impact assessment standards and encourage companies to adopt clean energy and environmentally friendly technologies. Although this may increase the short-term costs of some companies, in the long run, it will help improve the company’s sustainable development capabilities and international competitiveness.

Finally, it is worth mentioning the further improvement of the “Details for the Implementation of the Cybersecurity Law”. The new rules clarify specific requirements for data localization and stipulate that certain types of data must be stored in Vietnam. This regulation may have a significant impact on the data management strategies of multinational companies, especially for data-intensive industries such as IT, finance and telecommunications.

Overall, these regulatory changes in the first quarter of 2024 demonstrate Vietnam’s determination to optimize the business environment, promote the development of the digital economy, and strengthen environmental protection and data security. These changes have brought new opportunities to enterprises, but also raised new challenges. Companies need to comprehensively assess the impact of these regulatory changes on their businesses and promptly adjust their strategies to adapt to the new regulatory environment. In the following chapters, we will provide a more in-depth explanation of these important regulatory changes and provide specific suggestions for response.

In-depth interpretation of key regulations

The new version of the “Implementation Rules of the Investment Law” (hereinafter referred to as the “New Rules”) officially implemented by the Vietnamese government on March 1, 2024 marks a major turning point in the country’s investment environment. This detailed rule is not only a further refinement of the 2020 Investment Law, but also reflects Vietnam’s determination and innovation in optimizing the business environment and attracting high-quality foreign investment. This section will provide an in-depth interpretation of this important regulation from multiple perspectives and provide investors with a comprehensive understanding and practical guidance.

First of all, the most eye-catching change in the new rules is the introduction of the “negative list” management model. The core of this model is to clearly list industries that are prohibited and restricted from foreign investment, while industries not included in the list are open to foreign investment by default. This transformation is of landmark significance, marking the transformation of Vietnam’s investment management system from a “positive list” to a “negative list”, greatly increasing the transparency and predictability of policies. Specifically, the new negative list has reduced the original 267 restricted industries to 227, of which the industries that are completely prohibited from foreign investment have been reduced from 51 to 35. This change not only expands the scope of foreign investment access, but also simplifies the investment approval process. For example, in Vietnam’s key development areas such as new energy and high-tech manufacturing, foreign investors will enjoy more convenient approval procedures and greater operational autonomy.

However, investors need to note that the “negative list” is not static. The new rules stipulate that the list will be updated regularly based on socioeconomic development status and international treaty commitments. This requires investors to remain vigilant and continue to pay attention to policy changes. At the same time, even if an industry is not on the negative list, investors still need to consider the requirements of other relevant regulations, such as industry-specific licenses, environmental impact assessments, etc.

Secondly, the new rules refine and expand the definition of “foreign investors”. It is worth noting that the new regulations include Vietnamese companies that are “substantively controlled by foreign investors” into the category of foreign investors. This change is intended to prevent circumvention of foreign investment restrictions by setting up local companies, but it may also affect some existing investment structures. For example, some businesses operating through a VIE (Variable Interest Entity) structure may need to reassess their legal status and compliance. Investors should carefully review their investment structures and seek the assistance of legal counsel when necessary to ensure compliance with the new regulations.

Third, the new rules strengthen the control of investments in areas sensitive to national security and national defense. Investment projects located on borders, islands or areas with important national defense implications will face stricter scrutiny. Although this regulation may limit investment opportunities in certain areas, it also clarifies potentially sensitive areas for investors and helps investors make more informed decisions during the project site selection stage. For companies interested in investing in these areas, it is recommended to communicate with local governments and relevant departments in advance to understand the specific requirements and possible challenges.

Fourth, the new rules optimize and refine investment incentive policies. Especially in high-tech, environmental protection, renewable energy and other fields, investors can enjoy more favorable tax policies and land use rights. For example, large-scale projects with an investment exceeding VND6 trillion (approximately US$250 million) can enjoy a preferential corporate income tax period of up to 30 years. These incentives will undoubtedly enhance Vietnam’s competitiveness in attracting high-quality foreign investment. However, investors need to be aware that these preferential policies often come with strict requirements such as technology transfer, localization rate or job creation. When applying for these preferences, enterprises should comprehensively evaluate their own capabilities to ensure that they can meet relevant conditions.

Fifth, the new rules strengthen the supervision and evaluation of investment project implementation. The government will establish a more complete project tracking mechanism and regularly evaluate the implementation of the project. For projects that fail to be implemented as promised, the government has the right to revoke investment permits or cancel preferential policies. This change means that investors need to be more careful in formulating investment plans, ensuring project feasibility, and strictly abiding by commitments during implementation. It is recommended that investors establish an internal project monitoring mechanism, regularly evaluate project progress, and report to relevant departments in a timely manner to maintain good government-enterprise relations.

Finally, the new rules also simplify the investment adjustment process. For example, for investment adjustments that do not involve a change in the main business or the addition of restricted industries, only notifications need to be made through the online system, and there is no need to reapply for approval. This change greatly improves the flexibility of investors to adjust business strategies and helps companies quickly respond to market changes. However, investors still need to note that certain major adjustments (such as increasing investment in restricted industries) still require approval from relevant departments.

In general, the new version of the “Implementation Rules of the Investment Law” reflects Vietnam’s determination and efforts in optimizing the business environment and improving administrative efficiency. It provides foreign investors with greater market access space and policy certainty, while also setting higher compliance requirements. For companies interested in entering or expanding investment in Vietnam, it is crucial to have a thorough understanding of this new detail. It is recommended that when formulating investment strategies, companies should make full use of the opportunities brought by the new policy, carefully assess potential risks, and seek professional legal and consulting services when necessary to ensure the scientificity and compliance of investment decisions. In a rapidly changing global economic environment, Vietnam is continuously improving its attractiveness as an investment destination through these policy innovations, providing an option worthy of serious consideration for international investors seeking growth opportunities.

Analysis of the impact of regulatory changes on different industries

A series of recent changes in Vietnamese laws and regulations, especially the introduction of the new version of the Implementing Rules of the Investment Law, have had a profound impact on all walks of life. These changes have not only reshaped Vietnam’s investment environment, but also brought new opportunities and challenges to different industries. The following will provide an in-depth analysis of the impact of these regulatory changes on several key industries in Vietnam to help investors and business managers better grasp market trends and make wise strategic decisions.

First, let’s focus on high-tech manufacturing. As a key development area for the Vietnamese government, high-tech manufacturing has benefited significantly from the new regulations. The “negative list” management model in the new version of the “Implementation Rules of the Investment Law” has greatly simplified the approval process for high-tech projects, while providing more favorable tax policies and land use rights. For example, large-scale high-tech projects with an investment exceeding VND6 trillion can enjoy a preferential corporate income tax period of up to 30 years. This will undoubtedly enhance Vietnam’s competitiveness in attracting investment in high-tech manufacturing fields such as semiconductors, new energy vehicles, and smart equipment. We expect that Vietnam will attract more production bases from global technology giants in the next few years. For example, Intel has announced an additional US$475 million investment in chip assembly and testing facilities in Vietnam. However, investors in high-tech manufacturing also face challenges, such as technology transfer requirements and increased localization rates. Companies need to develop long-term localization strategies, including supply chain localization and talent development plans, to meet these requirements and achieve sustainable development.

Secondly, e-commerce and digital services have also been significantly affected. The revision of the E-Commerce Law and the introduction of the Digital Services Tax Law have brought new opportunities and challenges to this rapidly growing industry. On the one hand, the improvement of regulations provides a clearer framework for the healthy development of the industry and is conducive to building a market environment for fair competition. On the other hand, cross-border e-commerce platforms need to establish a local entity or designate a legal representative in Vietnam, which may increase operating costs. In addition, the new digital services tax (expected to be 2-5%) may affect the profitability of some companies. However, we believe these changes will do more good than harm in the long term. With the standardization of the regulatory environment, consumer confidence will be improved, which will be conducive to the continued growth of the entire industry. For e-commerce companies, the key is to plan ahead, optimize localized operating models, and strengthen data management and consumer rights protection measures. At the same time, we will take advantage of the digital economic dividends brought by Vietnam’s huge young population (nearly 70% of the population is under 35 years old) to develop innovative localized services and products.

Let’s look at the real estate and infrastructure construction industries. New regulations bring opportunities to these industries, particularly in industrial real estate and infrastructure projects. The Implementing Rules of the Investment Law simplify the approval process for large-scale projects and encourage foreign investment to participate in infrastructure construction. This opens up new market space for real estate developers and construction companies. However, for projects located in sensitive areas such as borders and islands, the new regulations have strengthened scrutiny, and investors need to more carefully assess project risks. In addition, revisions to the Implementing Rules of the Environmental Protection Law have also put forward higher environmental protection requirements for real estate and infrastructure projects. We recommend that relevant companies pay close attention to the government’s urban planning and industrial layout policies, focusing on government-supported project types such as industrial parks and smart cities. At the same time, environmental impact assessments should be carried out in advance and green building and sustainable development concepts should be incorporated into project planning to adapt to increasingly stringent environmental protection requirements.

The financial services industry, especially the financial technology sector, is also facing new opportunities and challenges. The further improvement of the “Details for the Implementation of the Cybersecurity Law” has put forward clear requirements for data localization, which may increase the compliance costs of financial institutions. However, this also creates new business opportunities for local data centers and cloud service providers. At the same time, the government’s attitude of encouraging financial innovation provides a favorable environment for financial technology companies. For example, the Bank of Vietnam is promoting a regulatory sandbox mechanism to provide testing space for innovative financial products and services. We recommend that financial institutions and fintech companies actively participate in policy consultations, maintain good communication with regulatory agencies, and increase investment in localized data management solutions. In addition, considering that Vietnam still has a large population that is not covered by banking services, financial institutions should pay attention to innovation opportunities in the field of inclusive finance and develop products and services suitable for the local market.

Renewable energy industry. The Vietnamese government has vigorously promoted the transformation of the energy structure in recent years, and the new “Implementation Rules of the Investment Law” and “Implementation Rules of the Environmental Protection Law” provide more support for renewable energy projects. Especially in the solar and wind energy fields, foreign investors can enjoy preferential tax policies and land use rights. However, the industry also faces challenges such as inadequate grid infrastructure and policy uncertainty. For example, changes in electricity pricing policies for rooftop solar projects have caused market volatility. We recommend that renewable energy investors pay close attention to Vietnam’s energy development plan, especially the upcoming National Power Development Plan VIII, and consider cooperating with local companies to better respond to policy changes and infrastructure challenges. At the same time, pay attention to investment opportunities in emerging energy fields such as hydrogen energy and offshore wind power promoted by the Vietnamese government.

Generally speaking, Vietnam’s latest regulatory changes have brought varying degrees of impact to various industries. These changes reflect the Vietnamese government’s determination to optimize the business environment, promote industrial upgrading and sustainable development. For investors and companies, the key is to fully understand the policy intentions behind these changes and accurately assess their impact on their own businesses. While seizing new opportunities, companies also need to actively respond to new challenges, including improving localization levels, strengthening compliance management, and promoting technological innovation.

Compliance Suggestions and Implementation Guidelines

In Vietnam, a market where the legal environment is rapidly evolving, compliance is not only a basic requirement for business operations, but also a key factor in gaining competitive advantage. With the introduction of a series of new regulations such as the new version of the Implementing Rules of the Investment Law, the revision of the E-Commerce Law, and the Digital Services Tax Law, companies need to adopt a comprehensive and systematic approach to address compliance challenges. The following provides practical compliance suggestions and implementation steps for enterprises to help them achieve compliance operations and sustainable development in the Vietnamese market.

First, enterprises should establish a sound compliance management system. This is not just about setting up a compliance department, but about integrating compliance awareness and practices into all aspects of corporate culture and daily operations. Enterprises can start from the following aspects:

• Clarify compliance responsibilities. Everyone from the board of directors to lower-level employees should be clear about their compliance responsibilities.
• Develop detailed compliance policies and procedures covering all aspects such as anti-bribery, data protection, labor compliance, and environmental protection.
• Establish an effective risk assessment and monitoring mechanism, regularly assess compliance risks, and discover and solve problems in a timely manner.
• Conduct ongoing compliance training to ensure all employees are up-to-date on legal requirements and company policies.

It is worth noting that in Vietnam, compliance is not just about complying with statutory laws, but also about understanding and adapting to local business culture and practices. For example, in Vietnam, personal relationships play an important role in business interactions, but this can also bring potential risks of conflicts of interest. Businesses need to develop clear guidance to help employees find the balance between maintaining good business relationships and adhering to compliance requirements. At the same time, companies should also actively maintain communication with local regulatory agencies and participate in policy consultations. This will not only help keep abreast of policy trends, but also win a good reputation for the company.

In terms of specific implementation, companies can adopt a phased strategy. The first phase is compliance assessment and planning. Enterprises should comprehensively assess their compliance status against the latest laws and regulations and identify potential risk points. Based on the assessment results, develop a detailed compliance plan, including areas for improvement, specific measures, timelines and responsible persons. This stage usually takes 1-2 months and may require the assistance of professional legal counsel.

The second stage is policy formulation and process optimization. According to the compliance plan, enterprises need to formulate or update various compliance policies, such as anti-corruption policies, data protection policies, environmental management policies, etc. At the same time, existing business processes must be sorted out and optimized to ensure that every link meets compliance requirements. For example, add supplier compliance review steps to the procurement process and add compliance review links to marketing activities. This stage may take 2-3 months, during which the opinions of various departments should be extensively solicited to ensure the operability of policies and procedures.

The third phase is system implementation and training. This phase focuses on implementing new policies and procedures into actual operations. Businesses may need to upgrade IT systems to support new compliance requirements, such as data protection and privacy management systems. At the same time, comprehensive compliance training must be provided to all employees, especially special training for employees in high-risk positions. Training should not be a one-time event, but should establish a regular training mechanism and update training content regularly. This stage usually takes 3-6 months, depending on the size and complexity of the business.

The fourth phase is monitoring and continuous improvement. Compliance is a dynamic process, and companies need to establish an effective monitoring mechanism and regularly evaluate the implementation and effectiveness of compliance measures. This can be done through a variety of means, including internal audits, third-party assessments, employee feedback, and more. At the same time, companies should establish smooth reporting channels and encourage employees to report potential violations. Based on monitoring results, companies should continuously optimize and improve compliance measures. This is an ongoing process and businesses should conduct a comprehensive compliance review at least annually.

During the implementation process, companies may encounter various challenges. For example, employees may resist new compliance requirements as adding to their workload. In this regard, corporate leadership needs to lead by example, emphasize the importance of compliance, and incorporate compliance performance into the performance evaluation system. Another common challenge is maintaining consistent compliance standards across different departments and subsidiaries. This requires establishing a unified compliance management platform and strengthening coordination and information sharing among various departments.

For companies that have just entered the Vietnamese market, it is recommended to give priority to the following high-risk areas: First, labor compliance. Vietnam’s labor laws are relatively strict, and companies need to pay special attention to working hour management, social security payments, occupational health and safety, etc. The second is tax compliance. Vietnam’s tax policies are complex and ever-changing. Enterprises should hire professional tax consultants to ensure accurate understanding and compliance with various tax regulations. The third is environmental compliance. With the revision of the “Environmental Protection Law Implementation Rules”, environmental protection requirements have become increasingly stringent. Enterprises should plan early and integrate environmental protection measures into all aspects of production and operations.

For businesses that have been operating in Vietnam for many years, they need to focus on emerging compliance areas such as data protection and cybersecurity. With the improvement of the Implementation Rules of the Cybersecurity Law, enterprises need to review existing data management practices and may need to invest in new IT infrastructure to meet data localization requirements. At the same time, it is also necessary to pay close attention to the implementation details of the Digital Services Tax Law and evaluate its potential impact on business models and financial performance.

Finally, it is worth emphasizing that in Vietnam, compliance should not be viewed as a mere cost center but as a strategic tool for value creation. Good compliance practices can not only help companies avoid legal risks, but also enhance customer trust, enhance brand image, and even become a key factor in winning government support and preferential policies. Therefore, corporate leadership should regard compliance as part of core competitiveness and give sufficient attention and resource support.

Case analysis

In Vietnam’s rapidly developing technology market, the experience of TechVision Company (pseudonym) provides us with a profound compliance practice case. This multinational technology company headquartered in Singapore entered the Vietnamese market in 2018 and mainly provides cloud computing and big data analysis services. TechVision’s case vividly demonstrates how a foreign-invested enterprise navigates the ever-changing regulatory environment in Vietnam, especially in terms of compliance practices in data security and localization.

When TechVision entered the Vietnamese market, it quickly attracted a large number of local customers, including several large state-owned enterprises and financial institutions, with its advanced technology and global experience. However, with the official implementation of Vietnam’s Cybersecurity Law in 2019, TechVision faced serious compliance challenges. The law requires user data to be stored in Vietnam and provides data inquiry access to the government, which conflicts with TechVision’s globally unified data management policy.

Faced with this challenge, TechVision’s management initially adopted a wait-and-see approach, hoping to ease the strict requirements of the regulations through lobbying and pressure from industry associations. However, this strategy quickly proved unsustainable. At the beginning of 2020, the Vietnamese government began to increase its enforcement efforts. TechVision received a formal warning from Vietnam’s cybersecurity management department, requiring it to complete data localization within 6 months, otherwise it would face the risk of high fines or even business suspension.

This incident became a turning point in TechVision’s strategy change. The company quickly established a cross-department compliance working group, reporting directly to the Asia Pacific CEO. The working group took several key steps:

• Comprehensive compliance assessment: Local legal counsel and an international consulting firm were hired to conduct a comprehensive audit of the company’s data processing processes and identify all aspects that were not in compliance with Vietnamese regulations.
• Develop a phased implementation plan: Based on the assessment results, an 18-month compliance transformation plan was developed. The plan is divided into three phases: emergency response, system reconstruction and continuous optimization.
• Technical solution design: Working with the global technical team, we designed a solution that complies with Vietnamese regulatory requirements and can be seamlessly integrated with global systems. This includes establishing a local data center in Vietnam, developing data classification and management tools, and establishing secure cross-border data transfer mechanisms.
• Stakeholder communication: Maintain close communication with customers, government agencies and industry associations to explain the company’s compliance program and obtain feedback and support.
• Employee training and culture shift: Intensive training was provided to all Vietnamese employees and relevant global team members, emphasizing the importance of data compliance and specific operational guidance.

During the implementation process, TechVision encountered many challenges. The first is the cost issue. The investment in establishing a local data center and reconstructing the system far exceeded expectations, reaching nearly 10 million US dollars. The second is the technical challenge, how to maintain the consistency and efficiency of global services while ensuring data localization. Once again, there is the issue of customer confidence, with some international customers expressing concerns about data being stored in Vietnam.

However, through the firm commitment of the management and the unremitting efforts of the team, TechVision not only successfully completed the compliance transformation within the specified deadline, but also achieved some important unexpected results:

• Strengthening the local market position , as one of the first foreign-funded technology companies to complete data localization, TechVision won the trust of the government and customers, and its market share increased by 30% in the following year.
• Driving product innovation , data management tools developed to meet localization requirements later became the company’s standard offering for highly regulated markets around the world.
• Local talents have been cultivated . Through compliance projects, the company has cultivated a group of comprehensive talents who are familiar with international standards and local requirements, becoming an important asset of the company.
• Improved government relations and close communication with government departments during the compliance process earned the company the respect of policymakers, and was later even invited to participate in discussions on the formulation of regulatory standards.

echVision’s case provides us with several important insights:

First, in a rapidly changing regulatory environment, forward-looking compliance planning is critical. Enterprises should pay close attention to policy trends and prepare for possible changes in advance instead of reacting passively. Compliance transformation should be viewed as a strategic investment, not just a cost center. Although the initial investment may be large, in the long run, it can bring competitive advantages and new development opportunities to the company.

The balance between localization and globalization strategies is a common challenge faced by multinational companies. TechVision has successfully found a balance between meeting local requirements and maintaining global consistency through technological innovation, and this experience is worth learning from. Compliance is not only a legal and technical issue, but also a change management process. Enterprises need to pay attention to cultural transformation and employee training, and integrate compliance awareness into all aspects of daily operations.

Maintaining active communication and cooperation with regulators is crucial. Proactive participation in policy discussions not only helps shape a favorable regulatory environment but also earns companies valuable insights and policy influence.

Overall, TechVision’s case vividly illustrates the complexity and strategic value of successfully implementing compliance transformation in the Vietnamese market. It reminds us that in this market full of opportunities and challenges, considering compliance as part of core competitiveness can turn potential threats into a driving force for corporate innovation and growth. For all enterprises operating in Vietnam or planning to enter the Vietnamese market, TechVision’s experience undoubtedly provides valuable reference and inspiration.

 Expert Q&A column

In the expert Q&A column of this article , we have invited a senior legal consultant with more than 20 years of working experience in Vietnam to answer hot questions about market compliance in Vietnam. Here are some selected Q&A content:

Q1: We are a cross-border e-commerce platform planning to enter the Vietnamese market. I heard that Vietnam has recently revised the “E-Commerce Law” and has new requirements for cross-border e-commerce. Do we need to set up a physical company in Vietnam? If so, what is the approximate process and cost?

A1 : Indeed, Vietnam’s revised E-Commerce Law has put forward new requirements for cross-border e-commerce platforms. According to the latest regulations, cross-border e-commerce platforms with annual revenue exceeding VND100 million (approximately US$4,300) need to establish a representative office in Vietnam or designate a legal representative. This means you don’t necessarily need to set up a full corporate entity, but at least a legal representative needs to be present.

The process of setting up a representative office is relatively simple and usually takes 2-3 months. The main steps include: preparing necessary documents (such as company articles of association, board resolutions, etc.), applying for a license from the Vietnamese industrial and commercial department, leasing office space, and handling tax registration, etc. In terms of cost, in addition to the fees stipulated by the government (about 1,000-1,500 US dollars), lawyer fees, translation fees, office rent, etc. also need to be considered. The overall initial investment is about 10,000-15,000 US dollars.

But I recommend that you carefully evaluate the size of your business and your long-term growth plans. If you expect your business to grow rapidly, setting up a subsidiary directly may be more beneficial for future development. The process of establishing a subsidiary is more complicated, time-consuming and costly, but it gives you greater operational autonomy.

Q2: Our company has just received an investigation notice from the Vietnamese tax department, requesting transfer pricing documents for the past three years. We didn’t prepare these documents before, what should we do now? Is there any remedy?

A2 : This is indeed a tricky situation, but please don’t panic. The Vietnamese tax authorities have indeed tightened their scrutiny on transfer pricing of multinational companies in recent years, and your situation is not unusual.

First, I recommend that you immediately contact a professional tax advisor or accounting firm who can help you quickly prepare the required documentation. While ideally these documents should be prepared in real time, many companies do not begin remediation until they are notified.

Second, honesty is the best policy. Explain to the tax authorities the reason for your previous failure to prepare the documents in time, express a positive and cooperative attitude, and request a reasonable time to prepare and submit the documents. Normally, the tax authorities will grant a grace period of 1-2 months.

When preparing your documentation, focus on the following areas:

• Ensure that all related party transactions have sound business justification and market pricing basis.
• Collect data on comparable transactions during the same period to demonstrate that your pricing is arm’s length.
• Disclose any possible problems truthfully and proactively propose adjustment plans.

It is important to note that supplementary submission of documentation may trigger a fine, usually VND1 million (approximately US$43) per day, for up to 90 days. But these penalties are relatively small compared to potential transfer pricing adjustments and larger fines.

In the long term, I strongly recommend that you establish a robust transfer pricing policy and document preparation process to avoid similar situations in the future.

Q3: We are a multinational technology company and are considering moving part of our R&D operations to Vietnam. We are worried about the protection of intellectual property rights. Is Vietnam’s legal protection strong enough in this regard? Is there anything I need to pay special attention to?

A3 : You raised a very important question. Vietnam’s intellectual property protection system has improved significantly over the past decade, especially after joining various international treaties and free trade agreements. Vietnam is now a member of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which provides a basic framework for intellectual property protection.

However, some challenges remain in practice. Enforcement is sometimes insufficient and the litigation cycle may be lengthy. But overall, the legal framework is adequate for companies that actively protect their rights. Here are some specific suggestions:

• Register your intellectual property rights as early as possible. Vietnam adopts the “first-come-first-serve” principle, so even if you have registered in other countries, you need to register separately in Vietnam.
• Provide intellectual property training to employees and clarify the ownership of intellectual property rights in labor contracts.
• Sign detailed confidentiality agreements and intellectual property protection clauses with partners.
• Consider retaining core technologies at the headquarters and outsourcing only some modular R&D tasks to Vietnam.
• Establish an internal monitoring mechanism to regularly check whether there are infringing products on the market.
• If infringement is discovered, act quickly. Vietnamese law allows both administrative and judicial channels to deal with infringement issues.

Overall, while there is room for improvement in IP protection in Vietnam, it is entirely feasible to transfer R&D operations to Vietnam as long as appropriate precautions are taken. In fact, many multinational technology companies such as Samsung and Intel have set up large R&D centers in Vietnam, which itself shows a certain degree of confidence.

Q4: I recently heard that the Vietnamese government is promoting digital transformation. Does this have any impact on foreign-funded enterprises? What preparations do we need?

A4 : Your observation is very accurate. The Vietnamese government is indeed vigorously promoting digital transformation, which brings opportunities and challenges to foreign-invested enterprises.

First of all, this means that the demand for digital solutions in the Vietnamese market will increase significantly, especially in areas such as e-government, smart cities, and digital finance. If your company has expertise in these areas, you can actively seek cooperation opportunities.

Secondly, enterprises themselves also need to accelerate digital transformation to adapt to the new environment. For example, Vietnam is promoting an electronic invoice system, and by the end of 2022, all businesses will need to use electronic invoices. This requires companies to upgrade their financial systems.

Furthermore, digital transformation also brings new compliance requirements. For example, the Cybersecurity Law requires certain types of data to be stored in Vietnam, which may require companies to adjust their IT architecture.

To prepare for these changes, I recommend that companies:

• Review existing IT systems and data management processes to assess whether they comply with Vietnamese legal requirements.
• Invest in digital skills training for your employees to ensure your team can adapt to the digital environment.
• Pay attention to the digitalization-related support policies and projects launched by the government, such as tax incentives, subsidies, etc., and actively apply for them.
• Consider partnering with local technology companies to accelerate the digital transformation process.
• Strengthen cybersecurity measures because as digitalization increases, so do cybersecurity risks.

Overall, the digital transformation trend in Vietnam provides new development opportunities for enterprises, but it also brings new challenges. Businesses need to find a balance between compliance and innovation to take full advantage of the opportunities presented by this trend.