A Deep Dive into Vietnam Industrial and Economic Zones 

1. Introduction 

As Vietnam solidifies its position as a burgeoning hub for global investment, the allure of its industrial zones and economic zones beckons entrepreneurs and investors alike. Enshrined in the robust framework of the Law on Investment 2020, these zones emerge as epicenters of opportunity, offering a spectrum of incentives and support from the Vietnamese government. 

In this article, we embark on a journey to unravel the intricacies of investment incentives within Vietnam's industrial and economic zones. From exploring the strategic advantages of these zones to navigating the regulatory landscape, we provide a comprehensive guide for investors seeking to unlock the full potential of their ventures in this dynamic Southeast Asian economy. Additionally, we will share essential tips to consider before venturing into these strategic investment zones, ensuring a well-informed approach to maximizing opportunities and navigating potential challenges. 

2. Regulatory definition 

Special zones, as defined by legislation, encompass distinct categories:   

• Industrial zones: Designated areas with defined geographical boundaries, specialized in the production of industrial goods and the provision of services tailored for industrial processes. 
• Economic zones: Defined geographical areas comprising multiple dedicated areas, strategically aimed at attracting investments, fostering socio-economic development, and safeguarding national defense and security objectives. 
• Export processing zone: Industrial parks exclusively dedicated to the manufacturing of exported goods and the provision of services aligned with the requirements of exported goods production and export purposes. These zones operate under regulatory provisions akin to free zones outlined in customs duties laws.
• Hi-tech zones: Industrial parks that attract hi-tech and IT investment projects falling within categories entitled to special investment incentives, as per the stipulations in the law on investment. These zones encompass projects involving technology transfers listed in the technologies eligible for incentives, as outlined in the law on technology transfer. Additionally, they cater to technology incubators, science and technology business incubators, as per the laws governing high technology, science, and technology. Such zones host investment projects in creative entrepreneurship, innovation, research and development, and education and training, utilizing a minimum of 30% of industrial land to attract these ventures. 3. What incentives are potentially accessible to investors?

3.1 Tax incentives 

In Economic and Hi-tech zones, novel investment endeavors are eligible for a preferential Corporate Income Tax (CIT) rate of 10%, applicable over a span of 15 years with a tax exemption period of 4 years and a subsequent 9-year duration of 50% tax reduction. Conversely, within Industrial zones, newly established investment projects are granted a CIT rate of 17% for a period of 10 years, comprising by 2-year period of exemption and a subsequent 4-year duration of 50% tax reduction.

In the event that a new investment project fails to yield taxable income during its initial three years, the tax exemption or reduction period is postponed until the commencement of the fourth year. 

3.2 Other facilities 

• Costs and expenditures related to the construction, operation, purchase, hire-purchase, or rental of residential dwellings, public service or utility facilities for workers and staff within industrial parks and economic zones, along with the technical infrastructure linked to these zones, are classified as deductible expenses for the computation of taxable income in accordance with the provisions of the corporate income tax law.

• Investment projects focused on constructing residential dwellings, public service, and utility facilities for the workforce in industrial parks or economic zones are eligible for incentives as outlined in regulations concerning social housing construction and relevant legislation.

• Investors undertaking projects within these zones receive support from competent authorities, following the 'one-stop shop and on-site' mechanism, in navigating administrative procedures related to investment, enterprises, land, construction, environment, labor, and trade. 

• They are also prioritized for participation in training programs, human resource development, start-up assistance, small and medium-sized enterprise support, and other initiatives facilitated by state agencies. 

• Furthermore, these investors, engaged in manufacturing products on the prioritized list of supporting industry products, as per the law on supporting industry development, receive prompt assistance from competent state agencies in completing incentive confirmation procedures within a maximum period of 30 days.

3.3 For export processing zones

Export processing zones, by virtue of their specialized nature, align with the overarching principles of duty-free zones, wherein both are instrumental in promoting international trade and economic development. The incentives afforded to entities within EPZs mirror those traditionally associated with duty-free zones, thereby fostering an environment conducive to the seamless flow of goods and services across borders.

In practical terms, entities operating within export processing zones are bestowed with incentives akin to their duty-free counterparts. These incentives encompass, but are not limited to, exemptions from customs duties, reduced or zero-rated taxes, and streamlined regulatory procedures. This symbiotic relationship between EPZs and duty-free zones reflects a deliberate strategy to stimulate economic growth, attract foreign investment, and bolster international trade activities.

4. Key takeaway

Prior to engaging in investments within designated special zones, a meticulous evaluation is imperative and we wish to point out some key factors:

• Strategic alignment of the chosen special zone with the intended business sector: 

These zones are purposefully crafted to accommodate investment projects in robust manufacturing sectors, and as per governmental directives, each zone is intricately designed to fulfill specific economic objectives for both the provincial jurisdiction and the broader national context.

Investors are strongly advised to conduct comprehensive evaluations of multiple zones to ensure a harmonious fit with their project objectives, manufacturing scale, and production requirements vis-à-vis the scale and designated scope of the chosen zone. The chosen location should align seamlessly with the scope and encouraged business sectors outlined by the respective zone. This strategic alignment safeguards against potential challenges associated with relocating, installing machinery post-investment or even the corresponding corporate records.

• Documentation facilitation for lease agreements: 

Notwithstanding a relatively higher lease fee compared to alternative locations, special economic zones stand out due to their well-established infrastructures, streamlined logistics, and indispensable services. Notably, the management boards of these zones preemptively execute additional procedures integral to the project setup process, including environmental impact assessments and the acquisition of fire-fighting and protection certificates. This proactive approach, while entailing considerable time and financial investment, serves to expedite and streamline these crucial processes, enhancing the overall efficiency of project implementation within the zones. 

• Operational duration of the zones: 

Basically, standard investment projects situated outside economic zones are ordinarily endowed with a 50-year operational span, while economic zones may potentially extend this temporal limit to 70 years. It is noteworthy, however, that the temporal trajectory of a given project within special zones is intrinsically linked to the sanctioned operational duration of the zone, a determination vested in relevant authorities. Such critical information is accessible through the oversight of the zones' management board, and investors retain an absolute entitlement to seek and obtain such data, fostering transparency and informed decision-making.

• Transparency of investment incentives in certificates: 

In adherence to existing legislation, investors shoulder the responsibility of discerning pertinent investment incentives. The subsequent procedural steps to avail these incentives demand collaboration with diverse authorities, encompassing tax, finance, customs, and other competent bodies, each corresponding to the specific nature of the investment incentive in question. Therefore, the investors, when submitting documents to the certificate issuance authority, are advised to outline their specific incentives within their proposals. This explicit detailing ensures a lucid representation in the issued certificates, thereby furnishing strong documentation for continued collaboration with various government agencies. 

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