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Foreign Contractor Tax in Vietnam: A Complete Guide for 2023

What is Vietnam’s foreign contractor tax?

Vietnam’s foreign contractor tax (FCT), often referred to as the withholding tax, is a tax that is applied to transactions conducted in Vietnam between a foreign company or sub-contractor and a Vietnamese company.

It is made up of two kinds of taxes. These are the value added tax (VAT) and, either personal income tax (PIT) for individuals, or corporate income tax (CIT) applicable to most foreign contractors that are registered as organizations.

What transactions does Vietnam’s foreign contractor tax apply to?

Vietnam’s foreign contractor tax is applicable when carrying out business in Vietnam under a contract signed with a Vietnamese party or signed with a foreign contractor. This includes the following transactions.

• A foreign entity’s sale of goods or commodities within Vietnam.This means goods delivered to places within the territory of Vietnam or whereby the foreign entity still controls the ownership, quality, pricing, or bears some costs related to the distribution of the goods in Vietnam;

• A foreign entity’s sale of goods or commodities which are associated with services to be performed in Vietnam. This includes but is not limited to: installation, commissioning, maintenance, and other types of services;

• A foreign entity’s provision of services in Vietnam. This includes online advertising and marketing, vehicles and machinery repair services, brokerage, training (except for online training), and shared telecommunications service charges. Note that there are certain exceptions stated in the regulations for tax exemption, including services performed and consumed completely outside Vietnam and a number of specific services performed outside Vietnam including advertising and marketing (not online);

• Other incomes receivable in Vietnam in any form. This is irrespective of the location where the business is carried out. It includes:
  • income from asset transfers/assignments/liquidations;
  • income from royalties and interest; and
  • compensation from contractual breaches.

What is Vietnam’s foreign contractor tax not applied to?

Not all foreign contractors are subject to Vietnam’s FCT as the laws do provide a few non-FCT cases. For example, pure purchase contracts whereby a Vietnamese customer signs a contract with a foreign entity to purchase goods or commodities from a foreign country and imports the merchandise into Vietnam.

How do you declare foreign contractor tax in Vietnam?

There are three methods of declaring FCT. These are the: direct method, declaration method (also known as the Vietnam Accounting System (VAS) method), and the hybrid method.

Direct method (or withholding method)

This is the most common and practical method.

Using the direct method FCT is declared and paid by the Vietnamese party. The Vietnamese party is responsible for the registration of the contracts with the tax authority, and withholding and paying the applicable FCT to the local tax department. This must be done prior to making payment to the foreign contractor.

Under the declaration method, the taxable revenue will depend on the nature of the overseas payment which either includes tax (net) or does not (gross).

Net contracts

A contract whereby the Vietnamese party is responsible for and pays the FCT is a ‘net contract’.

In this case, the contract payment must be grossed up by the appropriate FCT rates in order to determine the contractor’s taxable revenue.

Gross contracts

Alternatively, a contract whereby the foreign party is responsible for and pays the FCT is a ‘gross contract’.

If the contract requires payment on a gross basis, the FCT is borne by the foreign contractor and withheld from total taxable revenue before making payment to said foreign contractor.

Tax rates using the direct method

There are different tax rates for different categories. Which category a transaction falls into will depend on the nature/scope of the payment/contract and several foreign contractor withholding tax rates may apply to more complex contracts.

For example, where both services and goods or equipment are supplied and separate scopes of work and separate prices are applied.

If it is not possible to separate the value of each type of work/service, the tax authorities apply the highest rate to the whole contract.

Under this method, the FCT must be declared and remitted to the tax authority within 10 days of making payment to a foreign contractor. If there are multiple payments made to a foreign contractor on a frequent basis, FCT can be declared and remitted monthly to the tax authority by the 20th of each month.

Foreign Contractor Tax Rates

Declaration method (also known as the VAS method)

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Three Ways to Calculate Foreign Contractor Tax

Under this method, the foreign company or contractor is taxed in a similar manner to a Vietnamese company or contractor.

This means that, foreign contractors will be liable to declare and pay CIT at the applicable rate of 20% on their net profit earned from the project/contract. This is calculated by subtracting the total deductible expenses from total revenue. The foreign contractor, using the declaration method, must pay VAT on the difference.

In doing so, foreign contractors must undertake and comply with certain requirements with regard to accounting and tax filings that are required of Vietnamese companies. For example, they must register for a tax code for the project/contracts, issue VAT invoices to customers, collect VAT on their sales, claim input VAT credits, and pay CIT based on a declaration of revenue and expenses.

Adopting VAS for a project in Vietnam is entirely optional for foreign contractors. Deciding whether to do so will usually depend on whether the tax advantages outweigh the tax and administrative disadvantages.

Eligibility requirements

Foreign contractors that want to use the declaration method to calculate their foreign contractor tax obligations must meet the following criteria:

• They must have a permanent establishment in Vietnam or must be a resident for tax purposes.
• The execution of the project/contract in Vietnam lasts for 183 days or more, calculated from the effective date of the project/contract.
• They adopt the Vietnamese Accounting System (“VAS”), apply for tax registration and obtain a tax code (tax certificate) issued by the tax authority.

Hybrid method

The conditions for using the hybrid method are similar to those of the VAS method, except that the foreign contractors do not need to use the full VAS. Instead, the foreign contractors only need to comply with simplified VAS.

Under this method, the foreign contractor shall pay VAT as per the Declaration Method. CIT however, is calculated and collected per the Direct Method.

Using this method, VAT is determined based on the revenue minus expenses, whereas CIT is calculated based on the tax rates listed above.

In this situation, the foreign contractor shall declare and pay tax directly to the tax authority and must register the method with the local tax office for this purpose.

Tax treaties that may affect foreign contractor withholding tax

The income tax portion of FCT may be subject to tax exemptions or reductions by virtue of Vietnam’s Double Tax Avoidance Agreements under certain circumstances.

Vietnam’s Double Tax Avoidance Agreements (2022)

Top 7 FDI Destinations in Vietnam in 2022 and Why

Vietnam has been a hub for foreign direct investment in recent years as geopolitical tensions between the United States and China have seen multinationals looking south of the border to diversify their supply chains.

A number of locations have proven popular to these new market entrants. Here are seven of the most attractive destinations for foreign direct investment in 2022 in Vietnam

This article was compiled with data from Vietnam Briefing’s FDI Tracker.

1. Ho Chi Minh City

Taking the lion’s share of FDI in 2022 is Vietnam’s biggest city, Ho Chi Minh City. Vietnam’s financial hub, this booming economic center in the south has become a regional manufacturing and business magnet.

HCMC’s port is the biggest in Vietnam both in area and volume of goods that pass through it. It also has Vietnam’s busiest international airport and is located right in the center of Southeast Asia.

HCMC also has a population of around nine million of which around five million are of working age. It also boasts a number of international universities and training institutions producing a regionally, relatively high-caliber of skilled workers.

Not only that, but HCMC has a history of successful FDI ventures as well as policy favorable to foreign direct investors. It’s for these reasons, though not these reasons alone, that HCMC is Vietnam’s top FDI destination.

See also: Investing in Ho Chi Minh City: Why the Megacity’s Industry, Economy and Policy Are Key to Development

2. Binh Duong

HCMC’s provincial neighbor to the north, Binh Duong, comes in at number two in the most attractive destinations for FDI in Vietnam in 2022.

Binh Duong ranked sixth in Vietnam’s Provincial Competitiveness Index (PCI) in 2021. Feeding off its proximity to HCMC, factories have been built and continue to be built all over the province. It also came in first for infrastructure in the aforementioned PCI.

Those factories are spread over 30 industrial parks with a total area surface of over 12,670 hectares and an occupancy rate of 87.4 percent. The province also has another 12 industrial clusters with a total surface area of 790 hectares and an occupancy rate of 67.4 percent making it a manufacturing powerhouse and very attractive to international investors.

See also: Why Binh Duong is a Magnet for FDI in Vietnam – Vietnam Briefing News

3. Quang Ninh

Quang Ninh, in Vietnam’s north east, is more than just the home of the World Heritage listed Ha Long Bay. With its close proximity to the Port of Hai Phong, it has been a magnet for FDI in recent years, coming in third on the list for 2022.

In Vietnam’s 2021 PCI Quang Ninh came in first.

With its geographical location; access to highways and seaports; close proximity to China, as well as Vietnam’s capital Hanoi; and the provincial government’s push to attract greater FDI, Quang Ninh has quickly climbed the ranks.

Quang Ninh is a smart choice for foreign firms looking for a low cost, well prepared location in Southeast Asia from which to expand their footprint in the sub-continent.

See also: Quang Ninh and Guangdong – choosing your China+1 location

4. Bac Ninh

With over US$2 billion of new registered capital in Bac Ninh in 2022, this province roughly 40 kilometers to the north of Hanoi, comes in at number four on the list.

Back in 2017, Vietnam Briefing noted the potential for this relatively small province to attract vast sums of FDI. Vietnam Briefing’s then editor, Koushan Das, noted that its roads, rail, waterways, and industrial zones were all driving investment in the area.

That investment has continued over the past five years to make Binh Duong a leading destination for FDI in Vietnam.

5. Hai Phong

The port city of Hai Phong rounds out the top five with almost US$2 billion in FDI in 2022. Around 120 kilometers east of Hanoi, Hai Phong is the biggest coastal city in northern Vietnam. In 2021, it also had the seventh biggest population in the country.

Founded by the French this city has become an industrial powerhouse in Southeast Asia. Its port on the Cam River is one of the biggest in Vietnam. In 2021 it had a throughput of 5.69 million Twenty-Foot-Equivalent-Units (TEUs) representing an increase of just over 10 percent over 2020 and double its throughput in 2012.

A second seaport in the city, Tan Vu, also facilitated the import-export of 1 million TEUs in 2021, according to the General Office of Statistics.

The ability to move large volumes of goods by sea is one of Hai Phong’s most attractive features for foreign direct investors.

See also: Vietnam’s Hai Phong: An Industrial Gateway and Port City

6. Hanoi

Vietnam’s capital comes in at number seven in 2022, receiving a little over US$1.7 billion in FDI.

With just shy of 9 million people calling the city home, a number that continues to climb, in terms of labor, Hanoi has it in abundance. Not only that, but it is connected to the world via road, rail, air, and sea (via the Red River).

It’s also just a short drive from the coast, particularly the key port city of Hai Phong. This makes getting goods made in Hanoi out of the city and to the wider world much easier.

See also: What Hanoi’s FDI, Infrastructure Tell Us About its Business Environment

7. Thai Nguyen

Thai Nguyen in Northern Vietnam is lucky number seven in the top FDI destinations in Vietnam in 2022. Thai Nguyen is the home of Samsung’s biggest operation in Vietnam and has been the recipient of billions of dollars in investment from the South Korean firm.

This close working relationship with one of the world’s most profitable technology firms has propelled Thai Nguyen toward creating one of the most favorable business environments in the country.

In the UNDP’s Public Administration Reform (PAR) Index Thai Nguyen rose 40 places in the three years. In 2020 it was one of the top 15 provinces. This rapid rise through the ranks has made it a very attractive destination for foreign firms to which 2022’s FDI data will attest.

See also: Vietnam’s Thai Nguyen Province – Investment Guide for Investors

Summary

Overall, 2022 was an excellent year for foreign direct investment in Vietnam. Its role as a key alternative to China is becoming increasingly clear and its business environment is becoming more and more favorable for foreign investment.

All up, Vietnam has 63 provinces of which these are just the five most popular in 2022. There are also a number of up and coming locations where foreign investors can find greater opportunities with less competition.

These locations are easy to find with the right team and support.

EXPORT-IMPORT IN 2022

Sweden exports to Vietnam

Sweden imports from Vietnam

Denmark exports to Vietnam

Denmark imports from Vietnam

Norway exports to Vietnam

Norway imports from Vietnam

EVFTA

Vietnamese firms making relatively good use of EVFTA: survey

Vietnamese enterprises are making relatively good use of the EU-Vietnam Free Trade Agreement (EVFTA), a recent survey revealed.

The survey of enterprises’ awareness of the EVFTA was conducted by the Centre for WTO and International Trade under the Vietnam Chamber of Commerce and Industry (VCCI).

It found that nearly 94 per cent of enterprises in Việt Nam had heard or known about the EVFTA at different levels, which is the highest rate among the FTAs signed by the country at present. Three out of 10 businesses have relatively good knowledge and one in 10 have very good knowledge of the commitments related to business activities under the EVFTA.

Nguyễn Thị Thu Trang, director of the WTO and International Trade Centre, said the benefits provided from the deal should be big enough to attract attention from local enterprises. Attention varied across different sectors, but this FTA might be generating the most economic benefits.

According to the survey, four out of 10 enterprises reported they had gained from the EVFTA, especially preferential tariffs for exports and imports.

The majority of respondents also said they were benefiting from new opportunities under the EVFTA in terms of forming partnerships, receiving more orders, and gaining more revenue and profits from the engagement in supply chains to serve trade with the EU.

About 17 per cent of enterprises said they had benefited from preferential tariffs for at least one batch of exports under the EVFTA, and 16 per cent gained this benefit for import batches.

However, up to 59 per cent of enterprises also reported they hadn’t benefited from the agreement over the last two years, explaining that they hadn’t made any transactions with EU partners during the period to capitalise on the deal. Other reasons included businesses’ limited capacity or obstacles related to the agreement in the EU and Việt Nam.

Meanwhile, 4.2 per cent of firms noted they had suffered losses under the deal, mostly in terms of increased compliance costs and greater competition pressure from EU imports.

Trang said with nearly 20 per cent of enterprises having made use of the EVFTA in the first two years of enforcement, they had gained momentum for continued capitalisation of the EVFTA after the EU’s Generalised System of Preferences (GSP) expires. If businesses proactively learn about EVFTA-generated opportunities, they will have a smooth transition from the GSP to the EVFTA.

OTHER NEWS

An Introduction to Doing Business in Vietnam 2023

The latest guide from Dezan Shira & Associates, titled “An Introduction to Doing Business in Vietnam in 2023”, is out now and currently available to subscribers as a complimentary download in the Asia Briefing Publication Store.

This new 2023 edition of Doing Business in Vietnam looks at:

• How to Set Up in Vietnam
• Tax, Audit, and Accounting
• Human Resources and Payroll

The year 2022 was not without its challenges for Vietnam. Rising global inflation put Vietnam on a somewhat uncertain trajectory with many industries struggling to make ends meet as a rising US dollar took its toll. In manufacturing, for example, orders were well down on previous years and toward the end of the year, the sector entered a retraction, according to S&P Global’s Purchasing Managers Index.

This, however, has created fertile grounds for companies looking to move into the Vietnamese market by way of high-value, low-cost mergers and acquisitions. In the first six months of 2022, Vietnam ran up nearly US$5 billion in M&A transactions. This figure was close to surpassing M&A transactions for the entirety of 2021. This is likely to continue into 2023 with a credit crunch forcing domestic enterprises to look abroad for much needed capital.

Information technology, too, is another bright spot-on Vietnam’s 2023 horizon. The COVID-19 pandemic accelerated tech sector development and though this has slowed, it is still going strong. Businesses in IT would do well to look closely at what Vietnam has to offer in terms of skilled coders and developers that come at a relatively low-cost. The digitization of Vietnam’s economy is also a high priority for the Vietnamese government and this has led to a broad range of favorable policies to promote the sector.

Overall, Vietnam is still expected to see growth in the 6-8 percent range. This is largely attributed to a broad range of free trade agreements to which it is party. A number of these, moving into 2023, will see further tariff reductions on both imports and exports, which should further cement Vietnam’s reputation as an economic powerhouse and a rising start in global trade.

Garment exports expected at more than $45 billion in 2023

The Vietnam Textile and Apparel Association (VITAS) forecast garment exports to reach more than USS$45 billion in 2023, higher than this year value of $44 billion, driven by the opportunities provided by new-generation free trade agreements (FTAs).

VITAS President Vũ Đức Giang said that although difficulties would remain for the textile and garment exports in the first half of 2023, there were silver linings it could pin hopes on for the second half.

The European and the US markets were expected to warm up from the second half of 2023, together with opportunities provided by new-generation FTAs, Giang said. For example, under the EU – Việt Nam FTA (EVFTA), many products exported from Việt Nam to the EU would enjoy zero tariff from 2023.

The visit of Prime Minister Phạm Minh Chính to Europe would also open significant opportunities for attracting investment in the garment and textile industry, especially in the production of raw materials.

The Vietnam National Textile and Garment Group (Vinatex) said though forecasts had been made early, its members were still surprised at unpredictable changes in 2022 such as the Russia-Ukraine conflict and surges in oil prices, inflation, and interest rates, which have caused demand to nose-dive in importing markets.

Yet Vinatex estimated its 2022 consolidated revenue at over VNĐ19.53 trillion VND ($826.84 million), up 15 per cent from last year and 8 per cent higher than the target, and consolidated profit at more than VNĐ1 trillion, up 14.6 per cent from the target. These figures are assessed as encouraging amid numerous market difficulties.

Pointing out three scenarios, Vinatex chairman Lê Tiến Trường said in the best-case one, the global economy will become stable and geopolitical conflicts over by the end of the second quarter, meaning exports in 2023 may go up 4 – 5 per cent from 2022.

In the middle-case scenario – instabilities will linger on, inflation remain, and interest rates still increase until Q3 – exports may stay unchanged compared to this year. And in the worst-case one where the world economy will enter a recession, the 2023 revenue may be about 5 per cent lower than that of this year.

Meanwhile, VITAS forecast its export revenue this year is likely to stand at nearly $44.5 billion, up 10 per cent from 2021.

For 2023, textile and garment exports may reach $47-48 billion in the positive scenario and $45-46 billion in the lower-case scenario, Vinatex noted, adding that how enterprises adapt to changes in markets will affect their growth in any circumstance.

In the positive scenario, instabilities in the global market will be brought under control and all activities of the sector may have recovered by the end of next year’s first quarter. In such case, $48 billion in revenue is achievable.

Giang, however, said that in the second scenario, under which the global market will recover in the latter half of 2023, export turnover may reach $45 billion.

In the current context, when international markets do not place long-term textile and garment orders, businesses can switch to producing lower-value items. In 2022, as they have started to diversify markets and products, growth is still sustained.

In any scenario, textile and garment markets will be unable to bounce back at least in the first half of 2023.

However, experts held that there are still certain bright spots next year, noting the COVID-19 pandemic is being put under control, the world getting used to a new normal, the Asia-Pacific predicted to be the fastest-growing region in 2023, China easing the zero-COVID policy, and logistics costs showing signs of declining.

Giang said that an important factor underpinning the growth of the textile and garment industry was the ability of domestic supply of raw materials which increased year over year. Domestic supply now meets 45-47 per cent of the demand for raw materials for garment and textile productions.

Increasing the local procurement rate was very important because only with this can Việt Nam enjoy preferential tariffs under FTAs, Giang said, adding that this was a great motivation for Việt Nam’s garment and textile industry to invest in fiber, yarn and raw materials production as well as to attract foreign direct investment (FDI).

Sustainability

Domestic garment companies are also switching to green production to meet the demand of the import markets.

According to Trường, raw materials production is the first step to implementing greening as required by the import markets like the US and Europe.

Therefore, Vinatex organised the production of yarn from recycled or organic materials. In the past five years, the production of fiber made from organic ingredients in cotton accounted for 30-35 per cent of the total output. In addition, factories were equipped with solar power which met around 20 per cent of their energy consumption.

Green production was the new standards that were introduced to push us to increase the capacity and be able to participate in global supply chain, Trường stressed.

Vitas submitted a draft strategy for the development of the garment and textile industry in 2021-30 period with a vision to 2030 to the Ministry of Industry and Trade and the Government for consideration.

According to Giang, the strategy would be an important basis for realising the industry’s sustainable development goals, from which enterprises would develop practical solutions to catch up with the global trends.

The focus would be placed on calling investment in establishing the supply chain of raw materials to solve the shortage of the domestic supply, greening the garment and textile sector and training of workforce to meet the demand, he said.

Investments in technology, automation and digital management would also be enhanced together with ensuring a transparent production and business market, he added.

Wood exports to hit record of 18 billion USD this year

The export turnover of wood and wood products is expected to set a record high of 18 billion USD in 2023, with wood pellets and woodchips forecast to enter the one-billion USD club.

President of the Vietnam Timber & Forest Products Association (Viforest) Do Xuan Lap said that the figure will represent a growth rate of 7-9%.

To that end, the industry will focus on raising the competitiveness of enterprises by reducing the use of imported wood, applying science and technology in improving labour productivity, and stepping up digital transformation to cut production costs.

In fact, in the fourth quarter of 2022, the number of orders decreased, and the gloomy atmosphere may linger on until the end of the first quarter of 2023. However, most of businesses believe that the situation may begin brightening from the second quarter.

Pellets and woodchips are also hoped to be a motivation for the development of the sector this year.

Nguyen Thanh Phong, head of the wood pellet branch under the Viforest, said that Vietnam earned over 700 million USD from exporting nearly 4.7 million tonnes of pellets last year, up 35% in volume and 81% in value year-on-year,

Currently, Vietnam is the world’s second biggest exporter of wood pellets, and the export value of this product is predicted to surpass 1 billion USD this year.

Seafood exports reach record $11b in 2022

Despite huge challenges, the seafood sector in 2022 posted a new record in export value of US$11 billion, up 24 per cent year-on-year and 22 per cent higher than the year’s target of $9 billion.

Lê Hằng, communications director of Việt Nam Association of Seafood Exporters and Producers (VASEP), said that this was the highest export value in more than 20 years.

Of the amount, shrimp exports hit a record $4.3 billion, pangasius exports reached $2.4 billion, and tuna exports were $1 billion, she added.

Việt Nam’s largest seafood export markets are the US, Japan, China and the EU.

Seafood exports to the US reached more than $2.1 billion last year. Meanwhile, exports to China hit a record $1.8 billion, up 57 per cent year-on-year.

Exports to the EU and South Korea brought in $1.3 billion and $950 million, respectively.

Seafood exports to ASEAN countries reached $767 million, up 27 per cent year-on-year.

Challenges ahead

According to Hằng, inflation is forecast to greatly affect consumer sectors globally, reducing seafood exports in the first quarter of 2023.

The seafood industry will also face tough competition from competitors that offer lower costs and prices such as Ecuador and India.

Export orders have fallen sharply, and many seafood processing enterprises have not received contracts for the first quarter of 2023.

Market demand will not recover until at least the second quarter or the second half of 2023, according to the director.

Seafood businesses are also facing problems accessing loans. Many large enterprises with large capital needs can not afford to purchase aquatic products and materials for production.

Some must operate at half capacity, affecting the industry’s growth and exports. Some businesses have had to stop construction of their seafood production facilities.

Currently, 279 members of the association, which contributed more than 80 per cent of the country’s total seafood exports, are having difficulties in accessing loans.

Hằng recommended exporters search for new export markets that are less affected by inflation such as ASEAN countries, the Middle East and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) countries.

Exporters should focus on China, a traditionally lucrative market which is no longer following the “zero COVID” approach, and facilitate exports to this market.

Việt Nam is currently the world’s third largest exporter of fish products, after China and Norway.

Seafood exports are expected to hold a 7 per cent share of the total seafood exports in the global market, according to VASEP.

Electronic firms continue to shift investment to Vietnam

In continuation of moving their production hubs, this year many of the giants in the world of technology and electronics have announced business expansion plans in Vietnam.

Recently, Apple revealed that it will move its MacBook production chain to Vietnam in 2023. It has asked Foxconn, its biggest supplier, to launch a MacBook production chain in Vietnam from May this year, while making plans to produce Mac Pro in Vietnam.

In 2025, about 20% of the total number of iPads and Apple Watches will be produced in Vietnam, along with 5% of the MacBook and 65% of  the AirPods. Currently, 25 out of the 190 partners of Apple are running their factories in Vietnam.

Foxconn, after investing 1.5 billion USD in Vietnam, plans to invest additional 300 million USD in Fukang factory in Quang Chau industrial park in Bac Giang province.

Another Apple’s supplier, Goertek has announced its additional 300 million USD investment in Bac Giang. Meanwhile, Lxshare, which will assemble iPhone 15 Pro Max, is running six factories in Vietnam with a total of 40,000 labourers.

At the same time, computer producer Dell is striving to make sure all of its chips are produced outside China.

Electronics firm Pegatron is also building a factory worth about 481 million USD in Hai Phong, while moving its R&D centre from China to Vietnam at a suitable time.

Many other big companies such as OPPO, HP and Brose are also considering the relocation of production plants to Vietnam, while others, including Xiaomi, Bosch, Panasonic, Amkor, Sharp and Compal, also plan to expand its business presence in the country.

Particularly, Korean firm Samsung, after pouring 18 billion USD and launching Southeast Asia’s largest R&D centre in Vietnam, also plans to raise its investment in Vietnam to 20 billion USD in the coming time.

Another Korean electronics company, LG, is also making plans to inject additional 4 billion USD in Vietnam.

Dr. Ho Quoc Tuan, a lecturer at Bristol University, commented that Vietnam is benefiting from the diversification of production locations of international businesses.

Experts attributed the phenomenon to Vietnam’s advantages such as low-cost workforce, and the country’s engagement in 15 free trade agreements covering more than 50 countries, as well as Vietnam’s political stability.

Vietnamese shrimp exporters see profits in 2022 thanks to FTAs

The Vietnamese shrimp industry has made it through a tough year of weakening demand and come out afloat, according to business leaders.

Hồ Quốc Lực, chairman of the Sao Ta Foods JSC, revealed that his company had had a hard time dealing with falling revenues and mounting costs.

The falling revenues came from the fact that high inflation in the US and EU has sapped consumption, leading to fewer orders from abroad.

The depreciation of the euro against the Vietnamese đồng, and the mounting transport costs in major importing countries fuelled the situation, adding to its bills.

Amid the unfavourable conditions, the company has doubled down on processed seafood to target high-end markets to make up for its reduced earnings, and succeeded.

He said Japan was its alternative market that has an appetite for extensively-processed shrimp, in terms of which Vietnamese companies have a huge competitive advantage over Ecuadorian and Indian rivals.

Thanks to its change in customer base, the company has managed to maintain sales and turn the low transport costs in the market to its advantage. In fact, Japan has become its largest importer in the past two years.

Trương Đình Hòe, general secretary of the Vietnam Association of Seafood Exporters and Producers (VASEP), estimated total Vietnamese shrimp exports in 2022 at US$4.3 billion, up 10 per cent year-by-year.

He said free trade agreements (FTA), including CPTPP and EVFTA, were one factor that has helped Vietnamese shrimp producers to pull off such a high figure in difficult times.

The agreement put Vietnamese shrimp at a tariff advantage over those from non-FTA countries and allowed the seafood to enter foreign markets more easily. Specifically, Vietnamese shrimp exports to Canada, Mexico, and Australia rose by 30 per cent on the back of the trade deals.

Perseverance was another factor. Hòe said Vietnamese shrimp producers kept shrimp farms up even at the peak time of the pandemic. This risky move has kept output stable and enabled faster post-pandemic production recovery.

“One lesson learned from the pandemic: perseverance is the key to recovery. Thanks to their perseverance, shrimp producers took less time to recover than those operating in other industries,” said Hòe.

Lê Hằng, communication director of VASEP, shared Hòe’s view, saying the FTA was a major factor that was helping Vietnamese seafood exports sustain the momentum in 2022.

Remarkably, Vietnamese seafood exports to CPTPP countries went up 31 per cent during the year, raking in US$2.9 billion. She said FTA-induced tariff advantages had been fully exploited to boost sales, filling the gap left by the weakening demand in other countries.

The director believed that FTA countries, especially ASEAN and China, would remain the best alternatives for inflation-ravaged importers in 2023.

“China is expected to ease the ‘Zero Covid’ policy in the short term, unlocking a market of 1.5 billion potential customers to Vietnamese seafood producers,” said Hằng.

With such a great opportunity in sight, she urged the producers to stockpile raw materials and mobilise capital to get the upper hand once the country is fully opened.