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Industrial zones, export processing zones, and economic zones in Vietnam

I. Overview

Until June 2011, the country has 260 industrial zones (industrial zones are used to represent industrial zones, export processing zones, and economic zones) accounting for 72.000 ha.[1] As of early the year of 2013, the country established 280 industrial and export processing zones which had drawn above 64.8 billion USD in foreign direct investment (FDI).[2] Industrial zones are spreading in 57 provinces or cities, which are divided into three planned central areas: Southern central area with 124 IZs, accounting for 48% of the total number of IZs; Northern central area with 52 IZs, accounting for 20% of the total number of IZs; and Middle central area with 23 IZs, accounting for 10% of the total number of IZs. [3]

In Vietnam, the Ministry of Planning and Investment (MPI) is in the position of coordinating with relevant ministries, branches and People’s Committees of provinces and cities under central authority to formulate a master plan for development of industrial zones or economic zones and submit it to the Prime Minister for his approval.[4] The approved master plan for development of industrial zones or economic zones shall be used as the basis for consideration of the establishment of any industrial zone or economic zone; and for formulation of master planning or plans for investment in development of technical and social infrastructure systems servicing the development of an industrial zone or economic zone. On 21 August 2006, the Prime Minister promulgated Decision 1107/QD-TTg on approval of master plan for development of industrial zones or economic zones up to 2015 and orientated plan up to 2020. Decree 29/2008/ND-CP dated 14 March 2008 is a legal instrument to govern establishment, organization and operation and management of industrial, economic zone throughout the country.

II. Type of IZs

Industrial zones (IZs) means zones specializing in production of industrial goods and provision of services for industrial production, having fixed geographical boundaries, and being established pursuant to the conditions, order and procedures stipulated in these Regulations.

Export processing zones (EPZ) means industrial zones specializing in production of export goods and provision of services for production of export goods and export activities, having fixed geographical boundaries, and being established pursuant to the conditions, order and procedures applicable to industrial zones stipulated in these Regulations.

Economic zones (EZs) means zones having a separate economic space with an investment and business environment which is specially favourable for investors, and fixed geographical boundaries, and being established pursuant to the conditions, order and procedures stipulated in these Regulations

Bordergate economic zones (BEZs) means economic zones which are formed in onshore bordergate areas with an international bordergate or main bordergate and which are established pursuant to the conditions, order and procedures stipulated in these Regulations.

Is there a special economic zone in Vietnam?

During more than 20 years of developing industrial and economic zone in Vietnam, there has been in fact no special economic zones with international standard, and that all the existing economic zones established up to now are merely industrial zones in association with many limitations.[5] Recently, during the official visit to Phu Quoc Island, Deputy Prime Minister Vu Van Ninh called for in-depth study by scientist with a view to turning Phu Quoc into a special economic zone. [6] In addition, a few areas of Quang Ninh province in the north of Vietnam were said to be under feasibility study supported by China Center for Special Economic Zones Research-Key Research Institute of Humanities and Social Science for establishment of special economic zones in future.[7]

III. Investment incentives for industrial zones

In principle, industrial zones are preferential investment areas and entitled to the incentive policies as applied to the areas included in the list of areas with difficult socio-economic conditions. [8]

Best investment incentive

The following investment projects shall be entitled to the best incentives in accordance with the law on corporate income tax:

  • Projects in industries and sectors included in the list of specially preferential investment sectors which are carried out in the economic zones or industrial zones established in areas included in the list of areas with specially difficult socio-economic conditions.
  • Investment projects for construction and operating of infrastructure of non-tariff areas within economic zones. 
  • Investment projects in the high-tech sector in industrial zones and economic zones.
  • Investment projects with a large scale and important significance for the development of industries and sectors or the local socio-economic development in industrial zones or economic zones upon approval of the Prime Minister.

Persons with taxable income, including Vietnamese and foreign employees working in economic zones, shall be entitled to a fifty (50) per cent reduction of income tax. Any expenses for investment in construction, operation or lease of apartments and social infrastructure facilities servicing employees working in industrial zones and economic zones which are reasonable shall be deductible for the purpose of calculation of taxable income of enterprises with investment projects in economic zones or industrial zones.

Special treatment for EPZs and EPZ enterprises

Special provisions applicable to export processing zones and export processing enterprises shall comprise: 

  • Export processing zones and export processing enterprises may apply the regulations on non-tariff areas in accordance with law. The status of being an export processing enterprise shall be stipulated in the investment certificate.
  • Export processing zones and export processing enterprises may be separated from the outside territory by a fence, and have entry and exit gates and doors, and they must enable inspection by customs and relevant agencies.
  • Export processing enterprises may purchase stationery, food, foodstuffs and consumer goods from the domestic Vietnamese territory to serve the operations of the office apparatus and consumption by officials and employees working in the enterprise.  Export processing enterprises may elect to carry out or not to carry out export, import and custom procedures for such goods.
  • Customs procedures, customs inspection and supervision for imported and exported goods of export processing zones and export processing enterprises shall be implemented in accordance with the law on customs.
  • Exchanges of goods between export processing zones, export processing enterprises and other areas in the Vietnamese territory, except for non-tariff areas, shall constitute import, export transactions.
  • Officials and employees working in export processing zones and export processing enterprises shall not have to declare with customs when they  bring foreign exchange from Vietnamese domestic territory into the export processing zone and export processing enterprise, and vice versa.

IV. Conditions for establishment of IZs

Investment procedures for setting up industrial zones will follow the Law on Investment and its implementing regulations.

1. Industrial zones

Conditions for establishment of an industrial zone:

  • Being consistent with the approved master plan for development of industrial zones; and
  • At least 60% of the total aggregate area of industrial land of industrial zones which have been established in the locality of a province or city under central authority has been leased or sub-leased to projects for which investment registration has been made or which have been issued with an investment certificate.

With respect to industrial zones which have an area of five hundred (500) hectares or more and in which numerous investors participate in investment in construction and commercial operation of infrastructure in separate areas or industrial zones attached to another urban area or concentrated business area in an overall plan, a master plan must be formulated in accordance with guidelines provided by the Ministry of Construction before formulation of a detailed master plan.

The opinions in writing of the Ministry of Construction and relevant branches about a detailed master plan for construction of an industrial zone shall be required before the provincial People’s Committee approves such plan in the following cases: Industrial zones which have an area of five hundred (500) hectares or more or are situated in a position next to a national highway or near areas for national defence or preservation of historical relics, famous landscapes or national or regional ecological preservation areas or which are located in Category I, II or special urban areas.

2. Economic zones

The conditions for establishment of an economic zone are as follows:

  • Being consistent with the approved master plan for development of economic zones;
  • Being situated in a geographical position favourable for regional economic development
  • Having a deep water seaport or being near an airport or for connection with a national or international important traffic route; being easy to control and convenient for domestic or overseas exchange; having favourable conditions and resources for investment and development of technical infrastructure;
  • Having an area of ten thousand (10,000) hectares or more and satisfying requirements for general development of the economic zone;
  • Having the ability to attract large-scale or important investment projects and project works and affecting the socio-economic development of the whole region;
  • Having the ability to mobilize local potentiality and affecting development of surrounding areas;
  • Not causing any negative impact on natural preservation zones; or any adverse effect on or damage to tangible cultural relics, famous landscapes, or groups of buildings with a historical, aesthetic or scientific value; being consistent with arrangements for national defence and ensuring national defence and security; and facilitating satisfaction of requirements relating to the environment, ecology and sustainable development.

3. Bordergate economic zone

The conditions for establishment of an economic zone are as follows:

  • Being consistent with the approved master plan for development of economic zones;
  • Having an international bordergate or main bordergate as stipulated in Decree 32-2005-ND-CP of the Government dated 14 March 2005 issuing Regulations on Onshore Bordergates; including adjacent administrative units without separation in terms of space;
  • Connecting favourably with national important traffic routes; exchanging favourably with
  • neighbouring countries through an onshore bordergate of a foreign country; having favourable
  • conditions and resources for investment in technical infrastructure;
  • Satisfying requirements for general development of the bordergate economic zone including commercial activities, import and export, temporary import for re-export, transportation of goods in transit, industrial production, tourism and services; having conditions for mobilizing potentiality in the locality and surrounding areas; and having the ability to develop trade and to attract investment;
  • Attaching economic development to maintenance of security, politics, social order and safety,  and protection of national sovereignty in border areas;
  • Not causing any negative impact on natural preservation zones; or any adverse effect on or damage to tangible cultural relics, famous landscapes or groups of buildings with a historical, aesthetic or scientific value; and facilitating satisfaction of requirements relating to the environment, ecology and sustainable development.
  • Being consistent with the approved master plan for development of economic zones;

[1] http://vic-vn.com/gismpi/index.php

[2]http://www.khucongnghiep.com.vn/en/trends/tabid/125/articleType/ArticleView/articleId/771/Investors-eye-up-industry-potential.aspx

[3] http://vic-vn.com/gismpi/index.php

[4] Article 4 of Decree 29

[6] http://english.vov.vn/Economy/Phu-Quoc-urged-to-become-a-special-economic-zone/264947.vov

[7] http://www.ccsezr.org/enews/news_detail.php?newsid=3019

[8] Article 16 of Decree 29