Vietnam is Southeast Asia's third-largest market and one of the world's fastest-growing economies, making it an appealing destination for international investors. With a strong economic performance in the first half of this year, Vietnam's GDP is expected to expand at a rate of around 4.8% by the end of 2021.

Apart from the investment climate, there are several reasons why international investors consider investing in Vietnam. The top 7 compelling reasons to invest in the country are outlined in this article.

Sustainable Investments

As indicated by its objective of reaching carbon emission neutrality by 2050, Vietnam recognizes that the need for a green energy transition has never been more pressing.

Therefore, the country has the most extensive installed solar power capacity in Southeast Asia and was one of the top ten countries globally with the greatest solar energy capacity built in the year 2020.

By 2030, the nation wants to treble its installed wind and solar power generating capacity to 31-38 gigawatts, necessitating investment. This has paved the way for international investors to invest in Vietnam's untapped opportunities presented by the Wind Energy sector.

Young & Inexpensive Workforce

Vietnam is one of the most populated countries in Asia, with 100 million people. Although the elderly population has been gradually increasing in recent years, the country still enjoys a relatively young population with a median age of 32.5 in 2020. On average, 1 million employees enter the workforce every year, strengthening the country’s human resources.

Moreover, minimum wages in Vietnam remained the same in 2021 as in 2020, at 190 USD/month. As a result, a young and cheap workforce acted as a catalyst in fostering the country's economic development.

Lucrative Government Incentives

Preferential tax rates (lower tax rates) and tax vacations are the two primary corporate income tax (CIT) incentives in Vietnam. Companies can also benefit from customs tariff incentive programs and land leasing exemption rules, which assist in cutting costs.

Preferential Tax Rates

Companies have the option of paying CIT at a lesser rate than the customary 20%. There are three tiers of preferential treatment: 10%, 15%, and 17%. Depending on the precise terms, these cheaper charges may apply for the duration of a project or a predetermined period. With a few exceptions, such as high-tech businesses or projects, the favorable tax rate generally begins in the first year of income generation.

Tax Holidays

Companies can qualify for a certain period during which they are exempt from paying CIT, usually 4 years. Companies may obtain a partial tax holiday once a tax holiday is completed, requiring them to pay just half of the tax due. The tax-free period usually begins the first year of profit or the fourth year of income-generating, whichever comes first. Companies may be eligible for a tax vacation and favorable tax rates in certain circumstances.

An Ideal Setting

Vietnam's strategic location in the center of Southeast Asia makes it a desirable trading destination. It's also worth noting that it shares borders with China and several international shipping lanes.

Vietnam's largest cities are similarly well-positioned. Hanoi is located in the north, whereas Ho Chi Minh City is located in the south. This makes doing business both within and outside the country seamless. Apart from these two cities, Da Nang also has many business opportunities.

Lucrative Trade Agreements

Vietnam has a variety of trade agreements in place, which makes conducting business in the country a relatively simple process. These trade agreements make it easier for foreign investors to establish companies and benefit from lower tariffs. The following are some noteworthy trade agreements:

• EU-Vietnam Trade Agreement: The EU-Vietnam trade deal is the EU's most comprehensive trade pact with a developing nation. The EU-Vietnam trade deal is expected to eliminate tariffs on 99% of all items exchanged between the two countries.
• ASEAN Free Trade Area: The Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA) is a commerce bloc agreement that supports local trade and industry in all ASEAN nations while also enabling economic integration with regional and international partners. The key objectives of AFTA are to improve ASEAN's competitiveness as a global manufacturing base by removing tariffs and non-tariff barriers within ASEAN and attracting more foreign direct investment to the region.
• UK-Vietnam Free Trade Agreement: According to the UK government publishing services, since the EU-Vietnam Free Trade Agreement has come into force, 65% of all tariffs have been abolished. After a 6 to 9-year time frame, tariff cuts will grow to 99%. Tariffs will be cut under a plan that calls for equal yearly reductions. As a result, customers and companies will profit from cheaper pricing on apparel, fabric, and footwear.

Other relevant trade agreements and affiliations include the following:

• Member of ASEAN
• Bilateral Trade Agreement (BTA) with the US
• Trans-Pacific Partnership (TPP)
• Free Trade Agreement (FTA) with Japan
• FTA with Korea

Political & Economic Stability

Vietnam is a politically stable country with the Communist Party of Vietnam (CPV) exercising control over it. The government's principal goal is economic growth and upholding the one-party state structure, territorial integrity, and social order. It aims to achieve middle-income status by 2025, upper-income status by 2030, and developed, high-income status by 2045. It believes that achieving this will need further economic change and long-term prosperity.

Moreover, Vietnam's economy has undergone a dramatic change, with millions of people lifted out of poverty. Despite the COVID-19 pandemic, it remains one of the world's fastest-growing economies, with 2.9% GDP growth projected for 2020 (the country's economy increased by 7% in 2019). According to the IMF, the country's GDP is predicted to be US$341 billion, ranking it 38th globally and 4th in ASEAN, becoming an attraction to global investors.

Supply Chain Shift From China

As the United States continues to impose tariffs on Chinese exports, Vietnam appears to be one of the nations that would profit the most from businesses seeking to diversify away from Asia's biggest industrial hub, China. Analysts feel that the pandemic has emphasized the need for businesses to diversify their supply chains away from China, where the problem originated, and leverage the potential of growing markets such as Vietnam.

Conclusion

Vietnam continues to capture foreign investors with these socio-political and economic advantages. Business owners can greatly benefit from its dynamic workforce and favorable conditions to make their first investment.

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