Vietnam to Provide Economic Assistance to Foreign Firms Affected by Recent Riots

May 23, 2014 Posted by Vietnam Briefing Reading Time: 5 minutes

HANOI – In response to the recent violence against foreign factories in Vietnam, the government has released a number of pieces of legislation aimed at restoring order and helping companies rebuild. The two main legal documents are Circular 01/CD-BTC and Circular No. 207/TB-VP.

Relevant Legislation

On May 16^th, the country’s Ministry of Finance released a new Circular on the procedures for ensuring safety and resuming production after workers’ protests. Circular 01/CD-BTC requires the General Department of Taxation, the General Department of Customs, the Insurance Supervisory Authority, as well as local Departments of Finance to provide immediate assistance to foreign businesses which were damaged during the anti-China protests.

A further piece of legislation recently issued by the government came out on May 20^th. Circular No. 207/TB-VP, in which Prime Minister Nguyen Tan Dung orders local authorities to simplify bureaucratic procedures, is intended to encourage firms to resume operations as soon as possible.

The Circular also requires local administrations to act quickly in order to verify and recover necessary documents needed to calculate asset impairments. In the case of loss of a total loss of documents, firms can resort to their own pledges and post-test assessments to evaluate the extent of the damage.

To aid in the completion of these goals, the Prime Minister has required the Ministry of Finance to collaborate with related administrative organs and departments in order to instruct insurance carriers how to underwrite the costs of damages and quickly calculate the coverage.

In response, the Ministry of Finance has steered the General Department of Taxation towards providing a time extension for filing tax returns for transactions originating before May 2014. The maximum duration of this extension period is two years. Firms affected by the riots will not be fined for late payment. The amount eligible for deferral is equal to the extent of the damages suffered.Input VAT for damaged goods and services without compensation are deducted or refunded to the affected firms in case of a loss of documents and invoices. Additionally, the luxury tax will be reduced by up to 30 percent in 2014; however it cannot exceed the value of the damaged property after indemnification.

Additionally, corporate income tax deductions will be allowed for losses or damages not indemnified for (or not covered by insurance); and interest expenses on loans used to contribute charter capital, to the extent these loans are used to pay for losses or damages.

Furthermore, the Circular will provide sales tax reduction and/or exemption on exports and imports of damaged goods and goods to replace those damaged. The customs body will also allow the clearance of export – import shipments of affected firms which owe tax debts.

More assistance will also be provided by the People’ Committees of provinces and municipal cities affected by the riots, these Committees will assist enterprises by providing them with reductions and/or exemptions on their land rents.

In order to ensure a sufficient supply of labor to the affected regions, the Ministry of Labor, Invalids and Social Affairs is simplifying the visa application process in order to make hiring easier for foreign investors and workers.

The original version of Circular No. 207/TB-VP (in Vietnamese) can be found here.

Restoring Confidence

Vietnam and China have had a history of conflict over disputed territories in the region. The current unrest has come about as a result of provocative actions by China in regards to their locating a US$1 billion deep-sea oil rig in waters near the disputed Paracel Islands.

Initial protests were peaceful in Vietnam, however, later protests turned into riots as bad elements in the crowds began breaking into foreign owned factories, many of which were burned and looted. The largest of these protests have centered on the industrial parks in southern Vietnam (Binh Duong and Dong Nai provinces) and Ha Tinh province.

Beginning at the end of last week, the Vietnamese authorities became much more aggressive in clamping down on the protest around the country, particularly in Hanoi and Ho Chi Minh City. The government’s communications department sent a direct message to all Vietnamese mobile phone users from Prime Minister Nguyen Tan Dung urging people to remain calm and refrain from conducting any illegal collective action.

There has been an understandable worry that the recent protests and riots would negatively affect Vietnam’s position in the world’s supply chain – the resumption of operations by companies such as China Steel Corporation and Formosa Chemicals & Fiber Corporation has helped alleviate this anxiety.

“Everything is back to normal. We’ve been given strong indications from the Vietnamese government that they will see that order is restored in due course”, said Jerry Shum, a spokesman for Yue Yuen Industrial Holdings Ltd , the world’s biggest sports-shoe maker which supplies Nike and Adidas.

According the operators of the two Vietnamese –Singapore Industrial Parks in the south of the country, 80 percent of their 326 factories have resumed normal operations. Companies from Hong Kong, Singapore and Taiwan have also announced that their investment strategies in Vietnam remain unchanged.

On a related subject, the Taiwanese chamber of commerce in Vietnam is assessing the extent of damage in order to provide estimates that firms will use for compensation claims. Formosa Plastics Group, the largest Taiwanese investor in Vietnam, has announced that it will seek US$3 million in compensation from the government. DDK Group Co., Ltd, which produces saddles for bicycles, has declared US$4 million in damages – the company’s insurance will cover about US$2 million and the remainder of the loss is expected to be covered through compensation provided by the Vietnamese government.

Despite the unfortunate events of last week, these current governmental actions have been positively viewed by many foreign investors and have helped them continue to maintain their faith in Vietnam’s investment potential.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email vietnam@dezshira.com or visit www.dezshira.com.

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