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Vietnam's Free Trade Agreements

Free trade agreements (FTAs) are when two or more countries agree on the terms of trade between them. They determine the value of tariffs and duties that countries impose on imports and exports. In 2007, with Vietnam’s ascension into the World Trade Organization (WTO) – it took a significant step integrating with world trade and subsequently entering into several free trade agreements. 

Over the past few years, Vietnam has been active in signing bilateral trade agreements with countries throughout the world. Additionally, due to its membership in the Association of Southeast Asian Nations (ASEAN), Vietnam has become a party to several FTAs that the regional trade bloc has signed. 

FTAs – The benefits

The benefits of the free trade agreements will enable Vietnam’s economic development to continue to shift away from exporting low-tech manufacturing products and primary goods to more complex high-tech goods like electronics, machinery, vehicles and medical devices. 

This can be done in two ways – first, through more diversified sourcing partners through larger trade networks and cheaper imports of intermediate goods from partner countries, which should boost the competitiveness of Vietnam’s exports. 

Second – through partnership with foreign firms that can transfer the knowledge and technology needed to make the jump into higher value-added production. An example of this is the recently launched VSmart phone manufactured by Vietnamese conglomerate Vingroup. 

Vietnam is touted as a low-cost manufacturer with several companies such as Samsung and Nokia setting up shop to manufacture and then export electronics, but the latest example shows how Vietnam can develop its own products from the transfer of know-how technology. 

Such sophisticated business practices and technology will help boost Vietnamese labor productivity and expand the country’s export capacity. 

With recent trade agreements like the CPTPP and the EVFTA – Vietnam seems to prioritize international trade integration trade partners outside ASEAN. 

Once in effect, such trade agreements will allow Vietnam to take advantage of the reduced tariffs, both within the ASEAN Economic Community (AEC) and with the EU and US to attract exporting companies to produce in Vietnam and export to partners outside ASEAN. 

Vietnam’s entry into these trade deals will also ensure alignment with national standards ranging from employee rights to environmental protection. Both the CPTPP and EVFTA require Vietnam to conform to the International Labor Organization’s (ILO) standards. The ILO has noted that this is an opportunity for Vietnam to modernize its labor laws and industrial relations systems.

Challenges posed by FTAs

The FTAs may also come with some added downsides. Such agreements are likely to trigger aggressive competition from foreign rivals on local businesses – particularly in the agriculture sector including meat and dairy products from the EU, Australia, and Canada. 

If local firms do not adapt, make use of new market opportunities and potential partnerships with foreign firms – they could find competing in the market challenging. 

The Vietnamese government would also need to continue on its path of reforms – strengthening the banking sector, removing corruption, refining legal and tax structures, and improving trade facilitation. 

Vietnam’s Ministry of Planning and Investment forecast that the CPTPP could increase Vietnam’s GDP by 1.3 percentage points by 2035, while the EVFTA could boost GDP by 15 percent. These trade deals along with already signed and upcoming FTAs are likely to ensure that Vietnam remains competitive in the short-to-medium term.

Vietnam's Double Tax Avoidance Agreements

In international trade, different tax systems put global investors in the unfavorable position offacing redundant taxes on the same income. A company will be subject to taxes in its resident country and in countries where it derives income, such as through foreign investments or the provision of goods and services.  

Foreign investors in Vietnam should therefore be aware of existing Double Taxation Avoidance Agreements (DTAs) between Vietnam and foreign countries, as well as how the standards in these agreements are applied in order to achieve maximum tax efficiency. 

As of 2020, Vietnam has signed DTAs with more than 70 countries and territories, including France, China, and Canada. These treaties eliminate double taxation through identifying exemptions or reducing tax payable in Vietnam for residents of the signatories of the agreements. 

Subject of DTAs

DTAs are applied to individuals or corporations who are residents of Vietnam, citizens of DTA countries, or both. 

Residents of countries that are signatories to DTAs are taxable subjects in their native countries under the law of that country. They are considered residents if they own residential property, have had periods of residence in the signatory country, or satisfy any other criterion of a similar nature.

Organizations are considered residents of Vietnam if they have established a business in Vietnam and operate under Vietnamese law. Examples include state companies, cooperatives, LLCs, JSCs, or private enterprises. 

Principles of Application

If there is a direct conflict between domestic tax laws and tax provisions in a DTA, tax provisions of DTA will apply. 

However, domestic tax laws will prevail when tax obligations included in the DTA do not exist in Vietnam or when tax rates in the agreement are higher than domestic taxes. 

For example, if a signatory country is entitled to impose a type of tax, which Vietnam does not recognize, then Vietnam’s tax law will apply. 

Furthermore, the provisions of a DTA will not affect the rights or immunities of members of diplomatic and consular missions, as per international treaties, which Vietnam has signed or to which it has acceded. 

Finally, DTAs typically only apply to income tax, while in Vietnam, DTAs impact both corporate and personal income tax.

Vietnam's Double Taxation Avoidance Agreements (as of 2020)
Algeria (Not yet in effect) Ireland Portugal
Australia Israel Qatar
Austria Italy Romania
Azerbaijan Japan Russia
Bangladesh Kazakhstan San Marino
Belarus North Korea Saudi Arabia
Belgium South Korea Serbia
Brunei Darussalam Kuwait (Not yet in effect) Seychelles
Bulgaria Laos Singapore
Canada Luxembourg Slovakia
China Macedonia (Not yet in effect) Spain
Cuba Malaysia Sri Lanka
Czech Republic Malta Sweden
Denmark Mongolia Switzerland
Eastern Uruguay Morocco Taiwan
Egypt (Not yet in effect) Mozambique Thailand
Estonia Myanmar Tunisia
Finland Netherlands Turkey
France New Zealand Ukraine
Germany Norway United Arab Emirates
Hong Kong Oman United Kingdom
Hungary Pakistan United States (Not yet in effect)
Iceland Palestine Uzbekistan
India Panama Venezuela
Indonesia Philippines  
Iran Poland  
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