Policies Toward Foreign Direct Investment

Bangladesh actively seeks foreign investment, particularly in the agribusiness, garment and textiles, leather and leather goods, light manufacturing, energy, information and communications technology (ICT), and infrastructure sectors. It offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Four sectors, however, are reserved for government investment:

• Arms and ammunition and other defense equipment and machinery;
• Forest plantation and mechanized extraction within the bounds of reserved forests;
• Production of nuclear energy;
• Security printing.

The Bangladesh Investment Development Authority (BIDA) is the principal authority tasked with promoting supervising and promoting private investment. The BIDA Act of 2016 approved the merger of the now disbanded Board of Investment and the Privatization Committee. BIDA performs the following functions:

• Provides pre-investment counseling services;
• Registers and approves of private industrial projects;
• Issues approval of branch/liaison/representative offices;
• Issues work permits for foreign nationals;
• Issues approval of royalty remittances, technical know-how and technical assistance fees;
• Facilitates import of capital machinery and raw materials;
• Issues approvals for foreign loans and supplier credits.

BIDA’s newly designed website has aggregated information regarding Bangladesh investment policies and ease of doing business indicators: http://bida.gov.bd/ .

The Bangladesh Export Processing Zone Authority (BEPZA) acts as the investment supervisory authority in export processing zones (EPZs). BEPZA is the one-stop service provider and regulatory authority for companies operating inside EPZs. In addition, Bangladesh plans to establish over 100 Economic Zones (EZs) over the next several years. The EZs are designed to attract additional foreign investment to locations throughout the country. The Bangladesh Economic Zones Authority (BEZA) is responsible for supervising and promoting investments in the economic zones (EZs).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own, operate, and dispose of interests in most types of business enterprises. Bangladesh allows private investment in power generation and natural gas exploration, but efforts to allow full foreign participation in petroleum marketing and gas distribution have stalled. Draft regulations in the area of telecommunication infrastructure currently include provisions precluding 100 percent foreign ownership.

Four sectors are reserved for government investment and exclude both foreign and domestic private sector activity:

• Arms and ammunition and other defense equipment and machinery;
• Forest plantation and mechanized extraction within the bounds of reserved forests;
• Production of nuclear energy;
• Security printing.

In addition, there are 17 controlled sectors that require prior clearance/ permission from the respective line ministries/authorities. These are:

1. Fishing in the deep sea;
2. Bank/financial institution in the private sector;
3. Insurance company in the private sector;
4. Generation, supply and distribution of power in the private sector;
5. Exploration, extraction and supply of natural gas/oil;
6. Exploration, extraction and supply of coal;
7. Exploration, extraction and supply of other mineral resources;
8. Large-scale infrastructure projects (e.g. flyover, elevated expressway, monorail, economic zone, inland container depot/container freight station);
9. Crude oil refinery (recycling/refining of lube oil used as fuel);
10. Medium and large industry using natural gas/condescend and other minerals as raw material;
11. Telecommunication service (mobile/cellular and land phone);
12. Satellite channels;
13. Cargo/passenger aviation;
14. Sea-bound ship transport;
15. Sea-port/deep seaport;
16. VOIP/IP telephone;
17. Industries using heavy minerals accumulated from sea beach.

While discrimination against foreign investors is not widespread, the government frequently promotes local industries and some discriminatory policies and regulations exist. For example, the government closely controls approvals for imported medicines that compete with domestically-manufactured pharmaceutical products and it has required majority local ownership of new shipping and insurance companies, albeit with exemptions for existing foreign-owned firms, following a prime ministerial directive. In practical terms, foreign investors frequently find it necessary to have a local partner even though this requirement may not be statutorily defined.

In certain strategic sectors, the GOB has placed unofficial barriers on foreign companies’ ability to divest from the country.

Business Registration

The Bangladesh Investment Development Authority (BIDA), formerly the Board of Investment, is responsible for screening, reviewing and approving FDI in Bangladesh. BIDA is directly supervised by the Prime Minister’s office and the Chairman of BIDA has Minister-equivalent rank. There have been instances where receiving approval was delayed. Once the foreign investor’s application is submitted to BIDA, the authorities review the proposal to ensure the investment does not create conflicts with local business. Investors note it is frequently necessary to separately register with other entities such as the National Board of Revenue. According to the World Bank’s 2017 Doing Business Report, business registration in Bangladesh takes 19.5 days on average with nine distinct steps (http://www.doingbusiness.org/data/exploreeconomies/bangladesh/ ).

BIDA’s “Roadmap to Investment in Bangladesh” is also available at: http://bida.gov.bd/road-map-to-investment-bangladesh .

Requirements vary by sector, but all foreign investors are also required to obtain clearance certificates from relevant ministries and institutions with regulatory oversight. BIDA establishes time-lines for the submission of all the required documents. For example, if a proposed foreign investment is in the healthcare equipment field, investors need to obtain a No Objection Certificate (NOC) from the Directorate General for Health Services under the Ministry of Health. The NOC states that the specific investment will not hinder local manufacturers and is in alignment with the guidelines of the ministry. Negative outcomes can be appealed, except for applications pertaining to the four restricted sectors previously mentioned.

A foreign investor also must register its company with the Registrar of Joint Stock Companies and Firms (RJSC&F) and open a local bank account under the registered company’s name. For BIDA screening, an investor must submit the RJSC&F Company Registration certificate, legal bank account details, a NOC from the relevant ministry, department, or institution, and a project profile (if the investment is more than USD 1.25 million) along with BIDA’s formatted application form.

Other Investment Policy Reviews

In 2013, Bangladesh completed an investment policy review (IPR) with the United Nations Conference on Trade and Development (UNCTAD): http://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=444&Sitemap_x0020_Taxonomy=Investment%20Policy%20Reviews%20(IPR);
#20;#UNCTAD%20Home .

Bangladesh has not conducted an IPR through the Organization for Economic Cooperation and Development.

A Trade Policy Review was last done by the World Trade Organization in October 2012 and can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp370_e.htm .

With EU assistance, Bangladesh conducted a trade policy review, the “Comprehensive Trade Policy of Bangladesh”, which was published by the Ministry of Commerce in September 2014. Current Bangladesh government export and import policies are available at: http://www.mincom.gov.bd/site/page/30991fcb-8dfc-4154-a58b-09bb86f60601/Policy .

Business Facilitation

The Government has had limited success in reducing the time required to establish a company. BIDA and BEZA are both attempting to establish one-stop business registration shops and these agencies have proposed draft legislation for this purpose. In February 2018, the Bangladesh Parliament passed the “One Stop Service Bill 2018,” which aims to streamline business and investment registration processes. Expected streamlined services from BIDA include: company registration, name clearance issuance, tax certificate and TIN, VAT registration, visa recommendation letter issuance, work permit issuance, foreign borrowing request approval, and environment clearance. BIDA also aims to automate 150 processes from 34 government agencies by December 2018.

Companies can register their business at Office of the Registrar of Joint Stock Companies and Firms: www.roc.gov.bd . However, the online business registration process is not clear and cannot be used by a foreign company to attain the business registration as certain steps are required to be performed in-person.

In addition, BIDA has branch/liaison office registration information on its website at: http://bida.gov.bd/ .

The online business registration process is clear and complete but cannot be used by foreign companies to register their businesses as certain steps are required to be performed in-person.

Other agencies with which a company must typically register are as follows:

• City Corporation – Trade License;
• National Board of Revenue – Tax & VAT Registration;
• Chief Inspector of Shops and Establishments – Employment of workers notification.

The company registration process now takes around 15 workdays to complete. The process to open a branch or liaison office is approximately one month. The process for trade license, tax registration, and VAT registration requires seven days, two days, and three weeks, respectively.

Outward Investment

Outward foreign direct investment is generally restricted through the Foreign Exchange Regulation Act of 1947. As a result, the Bangladesh Bank plays a key role in limiting outbound investment. In September 2015, the government amended the 1947 Act by adding a “conditional provision” that permits outbound investment for export-related enterprises. Private sector contacts note that the few international investments approved by the Bangladesh Bank have been limited to large exporting companies with international experience.

Investment Incentives

Details regarding fiscal and non-fiscal incentives are available on the BIDA website:

• http://bida.gov.bd/incentives ;
• http://bida.gov.bd/fiscal-non-fiscal-incentives .

Current regulations permit a tax holiday for designated “thrust” (strategic) sectors and infrastructure projects established between July 01, 2011 and June 30, 2019. Industries set up in Export Processing Zones (EPZs) are also eligible for tax holidays.

Thrust sectors subject to exemption include: certain pharmaceuticals, automobile manufacturing, contraceptives, rubber latex, chemicals or dyes, certain electronics, bicycles, fertilizer, biotechnology, commercial boilers, certain brickmaking technologies, compressors, computer hardware, energy efficient appliances, insecticides, pesticides, petro-chemicals, fruit and vegetable processing textile machinery, tissue grafting and tire manufacturing industries.

Physical infrastructure projects eligible for exemptions include: deep sea ports, elevated expressways, road overpasses, toll road and bridges, EPZs, gas pipelines, information technology parks, industrial waste and water treatment facilities, liquefied natural gas (LNG) terminals, electricity transmission, rapid transit projects, renewable energy projects, and ports.

In addition to the above tax rebate, manufacturers located in rural areas and commencing commercial operations between July 1, 2014 and June 30, 2019 are eligible for tax exemptions of up to 20 percent for the first 10 years of production.

Independent non-coal fired power plants (IPPs) commencing production (COD) after January 1, 2015 are granted a 100 percent tax exemption for 5 years, a 50 percent exemption for years 6-8, and a 25 percent exemption for years 9-10. For coal-fired IPPs contracting with the GOB before June 30, 2020 and COD before June 30, 2023, the tax exemption rate is 100 percent for the first 15 years of operations. For power projects, import duties are waived for imports of capital machinery and spare parts.

The valued-added tax rate on exports is zero. For companies that only export, import duties are waived for imports of capital machinery and spare parts. For companies that primarily export (80 percent of production and above), an import duty rate of 1 percent is charged for imports of capital machinery and spare parts identified and listed in notifications to relevant regulators. Import duties are also waived for EPZ industries and other export oriented industries for imports of raw materials consumed in production.

Special incentives are provided to encourage non-resident Bangladeshis to invest in the country. Incentives include the ability to buy newly issued shares and debentures in Bangladeshi companies. A quota of 10 percent of primary shares has been fixed for non-resident Bangladeshis. Furthermore, non-resident Bangladeshis can maintain foreign currency deposits in Non-resident Foreign Currency Deposit (NFCD) accounts.

In the past several years, U.S. companies have experienced difficulties securing the investment incentives initially offered by the GOB. Several companies have reported instances of infrastructure guarantees (ranging from electricity to gas connections) not being fully delivered or tax exemptions being delayed, either temporarily or indefinitely.

Foreign Trade Zones/Free Ports/Trade Facilitation

Under the Bangladesh Export Processing Zones Authority Act of 1980, the government established an EPZ in Chittagong in 1983. Additional EPZs now operate in Dhaka (Savar), Mongla, Ishwardi, Comilla, Uttara, Karnaphuli (Chittagong), and Adamjee (Dhaka). Korean investors are also operating a separate and private EPZ in Chittagong.

Investments that are wholly foreign-owned, joint ventures, and wholly Bangladeshi-owned companies are all permitted to operate and enjoy equal treatment in the EPZs. Approximately a dozen U.S. firms – mostly textile producers – are currently operating in Bangladesh EPZs. Investors have begun to view intermittent infrastructure services, including electricity and gas connections, and increasing costs as making the EPZs less attractive.

In 2010, Bangladesh enacted the Special Economic Zone Act that allows for the creation of privately owned economic zones (EZs) that can produce for export and domestic markets. The EZs provide special fiscal and non-fiscal incentives to domestic and foreign investors in designated underdeveloped areas throughout Bangladesh. The International Finance Corporation provided assistance to the GOB to establish an EZ authority, Bangladesh Economic Zones Authority (BEZA), modeled after BEPZA, to implement the new law and oversee the establishment of EZs.

The government recently announced plans to create up to 100 new EZs and invited private companies to develop the zones. Several EZs are moving forward under this initiative: http://www.beza.gov.bd/ .

However, assurances regarding access to necessary infrastructure and other resources, including gas and power, have not been made.

Performance and Data Localization Requirements

Performance Requirements

The Bangladesh Investment Development Authority (BIDA) has set restrictions for the employment of foreign nationals and the issuance of work permits as follows:

1. Nationals of countries recognized by Bangladesh are eligible for employment consideration;
2. Expatriate personnel will only be considered for employment in enterprises duly registered with the appropriate regulatory authority;
3. Employment of foreign nationals is generally limited to positions for which qualified local workers are unavailable;
4. Persons below 18 years of age are not eligible for employment;
5. The board of directors of the employing company must issue a resolution for each offers or extension of employment;
6. The percentage of foreign employees should not exceed 5 percent in industrial sectors and 20 percent in commercial sectors, including among senior management positions;
7. Initial employment of any foreign national is for a term of two years, which may be extended based on merit;
8. The Ministry of Home Affairs will issue necessary security clearance certificates.

In response to the high number of expatriate workers in the ready-made garment industry, BIDA has issued informal guidance encouraging industrial units to refrain from hiring additional semi-skilled foreign experts and workers. Overall, the government looks favorably on investments that employ significant numbers of local workers and/or provide training and transfers of technical skills.

The GOB does not formally mandate that investors use domestic content in goods or technology. However, companies bidding on government procurement tenders are often informally encouraged to have a local partner and to produce or assemble a percentage of their products in country.

Data Storage Requirements

According to a legal overview by the Telenor Group, for reasons of national security or in times of emergency, several regulations and amendments, including the Bangladesh Telecommunication Regulatory Act 2001 (the “BTRA”), Information and Communication Technology Act 2006 (the “ICT Act”), and the Telegraph Act 1885 (the “1885 Act”), grant law enforcement and intelligence agencies legal authority to lawfully seek disclosure of communications data, and request censorship of communications. A draft Digital Security Act of 2016 (the “Digital Security Act”) has been approved by the cabinet and is pending review and adoption by Parliament.

On the grounds of national security and maintaining public order, the GOB can authorize relevant government authorities (intelligence agencies, national security agencies, investigation agencies, or any officer of any law enforcement agency) to suspend or prohibit the transmission of any data or any voice call, and record or collect user information relating to any subscriber to a telecommunications service.

Under section 30 of the ICT Act, the GOB, through the ICT Controller, may access any computer system, any apparatus, data, or any other material connected with a computer system, for the purpose of searching for and obtaining any such information or data. The ICT Controller may, by order, direct any person in charge of, or otherwise concerned with the operation of a computer system, data apparatus, or material, to provide reasonable technical and other assistance as may be considered necessary. Under section 46 of the ICT Act, the ICT Controller can also direct any government agency to intercept any information transmitted through any computer resource, and may order any subscriber or any person in charge of computer resources to provide all necessary assistance to decrypt relevant information.

There is no direct reference in the BTRA to the storage of metadata. Under the broad powers granted to the BTRA, however, the GOB, on the grounds of national security and public order, may require telecommunications operators to keep records relating to the communications of a specific user. Telecommunications operators are also required to provide any metadata as evidence if ordered to do so by any civil court.

The ICT Controller enforces the ICT Act and the Bangladesh Telecommunication Regulatory Commission (BTRC) enforces the BTRA. The Ministry of Home Affairs grants approval for use of powers given under the BTRA. The ICT Act also established a Cyber Tribunal to adjudicate cases. If approved, the Digital Security Act would create a Digital Security Agency (DSA) empowered to monitor and supervise digital content. Also under the Digital Security Act, for reasons of national security or maintenance of public order, the Director General (DG) of the DSA would be authorized to block communications and to require that service providers facilitate the interception, monitoring, and decryption of a computer or other data source.

The Bangladesh Road Transport Authority’s (BRTA) Ride-sharing Service Guideline 2017 came into force on March 8, 2018. The new regulations included requirements that ride sharing companies keep data servers within Bangladesh.

Policies Towards Foreign Direct Investment

With GDP growth registering 5.07 percent in 2017, Indonesia’s young population, growing middle class, strong domestic demand, stable political situation, and conservative macroeconomic policy make it an attractive destination for foreign direct investment (FDI). Indonesia is also the largest economy in ASEAN. Indonesian government officials welcome increased FDI, aiming to create jobs and spur economic growth, and court foreign investors, notably focusing on infrastructure development and export-oriented manufacturing. However, vague and conflicting regulations, inefficient bureaucracy, inconsistent tax enforcement, poor existing infrastructure, rigid labor laws, sanctity of contract issues, and corruption remain significant concerns for foreign investors. U.S. firms have expressed hope that better coordination under Indonesia’s current administration will help to improve the investment climate.

The Investment Coordination Board, or BKPM, serves as an investment promotion agency, a regulatory body, and the agency in charge of approving planned investments in Indonesia. As such, it is the first point of contact for foreign investors, particularly in manufacturing, industrial, and non-financial services sectors. Through its One Stop Service Center, BKPM facilitates licensing and permitting processes of 21 ministries and agencies. Special expedited licensing services are available for investors meeting certain criteria, such as making investments in excess of approximately IDR 100 billion (USD 7.4 million) or employing 1,000 local workers.

Limits on Foreign Control and Right to Private Ownership and Establishment

Restrictions on FDI are, for the most part, outlined in Presidential Decree No.44/2016, commonly referred to as the Negative Investment List or the DNI. The Negative Investment List aims to consolidate FDI restrictions from numerous decrees and regulations, in order to create greater certainty for foreign and domestic investors. The 2016 revision to the list eased restrictions in a number of previously closed or restricted fields. Previously closed sectors, including the film industry (including filming, editing, captioning, production, showing, and distribution of films), on-line marketplaces with a value in excess of IDR 100 billion (USD 7.4 million), restaurants, cold chain storage, informal education, hospital management services, and manufacturing of raw materials for medicine, are now open for 100 percent foreign ownership. The 2016 list also raises the foreign investment cap in the following sectors, though not fully to 100 percent: online marketplaces under IDR 100 billion (USD 7.4 million), tourism sectors, distribution and warehouse facilities, logistics, and manufacturing and distribution of medical devices. In certain sectors, restrictions are looser for foreign investors from other ASEAN countries. Though the energy sector saw little change in the 2016 revision, foreign investment in construction of geothermal power plants up to 10 MW is permitted with an ownership cap of 67% while the operation and maintenance of such plants is capped at 49% foreign ownership. For investment in certain sectors, such as mining and higher education, the 2016 Negative Investment List is useful only as a starting point, as additional licenses and permits are required by individual ministries. A number of sensitive business areas, involving, for example, alcoholic beverages, ocean savage, certain fisheries, and the production of some hazardous substances, remain closed to foreign investment or are otherwise restricted.

Notably, the 2016 revision added construction services up to IDR 50 billion (USD 3.7 million) and construction consulting services with a value up to IDR 10 billion (USD 0.8 million) to the list of enterprises reserved for micro, small and medium enterprises (MSMEs). In addition, foreign investment in small-scale and home industries (i.e. forestry, fisheries, small plantations, certain retail sectors) is reserved for MSMEs or require a partnership between a foreign investor and local entity. Even where the 2016 DNI revisions lifted limits on foreign ownership, certain sectors remain subject to other restrictions imposed by separate laws and regulations.

In November 2016, Bank Indonesia issued regulation 18/40/PBI/2016 on the implementation of payment transaction processing. The regulation governs all companies providing the following services: principal, issuer, acquirer, clearing, final settlement operator, and operator of funds transfer. The BI regulation capped foreign ownership of payments companies at 20%, though it contained a grandfathering provision. BI’s July 2017 regulation 19/8/PBI/2017 on the National Payment Gateway (NPG) subsequently imposed a 20% foreign equity cap on all companies engaging in domestic debit switching transactions. Firms wishing to continue executing domestic debit transactions are obligated to form partnership agreements with a NPG switching company.

Foreigners may purchase equity in state-owned firms through initial public offerings. Capital investments in publicly listed companies through the stock exchange are not subject to Indonesia’s Negative Investment List unless an investor is buying a controlling interest.

Other Investment Policy Reviews

The latest World Trade Organization (WTO) Investment Policy Review of Indonesia was conducted in April 2013 and can be found on the WTO website: http://www.wto.org/english/tratop_e/tpr_e/tp378_e.htm 

The most recent OECD Investment Policy Review of Indonesia, conducted in 2010, can be found on the OECD website: http://www.oecd.org/daf/inv/investmentfordevelopment/indonesia-investmentpolicyreview-oecd.htm 

UNCTADs report on ASEAN Investment can be found here: http://www.unctad.org/en/PublicationsLibrary/unctad_asean_air2017d1.pdf 

Business Facilitation

Business Registration

In order to conduct business in Indonesia, foreign investors must be incorporated as a foreign-owned limited liability company (PMA) through the Ministry of Law and Human Rights. Once incorporated, a PMA must then receive an investment registration from BKPM. In 2017, BKPM simplified the process for obtaining an investment registration from three days to one and changed the name of the permit from principle license to investment registration. To apply for an investment registration, investors must provide: a company deed legalized by a notary; clearance for the Indonesian company’s name from the Ministry of Law and Human Rights; the company’s certificate of domicile; a tax identification number; and proof of registration with either the Ministry of Industry or Ministry of Trade. Investors are also required to participate in the Workers Social Security Program or BPJS.

Once an investor has obtained an investment registration, he/she may apply for a business license. At this stage, investors must: document their legal claim to the proposed project land/location; provide an environmental impact statement (AMDAL); show proof of submission of an investment realization report; and provide a recommendation from relevant ministries as necessary. BKPM Regulation No.13/2017 provides an exemption for investors in certain criteria (i.e. sectors that do not involve construction activities or that are eligible for investment incentives), who can directly obtain a business license simultaneously with the investment registration. Previously the business license process averaged 260 days. Following the 2015 establishment of a BKPM One Stop Service Center, which includes representatives of 21 ministries/agencies, the process has been reduced to 23.1 days according to the World Bank’s 2018 Ease of Doing Business report, which placed Indonesia 72^nd out of the 190 countries in the report. Special expedited licensing services are also available for investors meeting certain criteria, such as making investments in excess of approximately IDR 100 billion (USD 7.2 million) or employing 1,000 local workers, among other criteria. After obtaining an investment registration, investors in some designated industrial estates can directly start construction on projects. Companies can apply for other licenses, such as construction environment permits, after starting construction, though the permits must still be obtained before commercial production commences.

In August 2017, the government issued Presidential Regulation No. 91/2017, which created an investment task force and a nationwide “single submission system” for business licenses, designed to build on BKPM’s one-stop shop and further grow foreign investment. The task force will monitor and reduce investment impediments at both national and regional levels. It will also oversee the creation of a licensing “checklist” for special economic zones, industrial estates, free trade zones, and designated tourism zones to simplify the process of applying for licenses. The Online Single Submission (OSS) system is designed to share company application documents electronically between government ministries and agencies.

Foreign investors are generally prohibited from investing in micro, small, and medium enterprises in Indonesia, although the 2016 Negative Investment List opened some opportunities for partnerships in farming and catalog and online retail. In accordance with the Indonesian SMEs Law No. 20/2008, MSMEs are defined as enterprises with net assets less than IDR 10 billion (USD 0.8 million) or with total annual sales under IDR 50 billion (USD 3.7 million). However, the Indonesian Central Bureau of Statistics defines MSMEs as enterprises with fewer than 99 employees. The government provides assistance to MSMEs, including: expanded access to business credit for MSMEs in farming, fishery, manufacturing, creative business, trading and services sectors; a tax exemption for MSMEs with annual sales under IDR 200 million (USD 14.8 million); and assistance with international promotion.

The Ministry of Law and Human Rights’ implementation of an electronic business registration filing and notification system has dramatically reduced the number of days needed to register a company. Foreign firms are not required to disclose proprietary information to the government before investing.

Screening of FDI

BKPM is responsible for issuing “investment licenses” (the term used to encompass both investment registration and business licenses) to foreign entities and has taken steps to simplify the application process through better coordination between various government institutions. BKPM has launched an online portal for its National Single Window for Investment, which allows foreign investors to apply for and track the status of licenses and other services online. In an effort to streamline the investment licensing and permitting process, BKPM launched a national One-Stop-Service Center to coordinate many of the permits issued by more than a dozen ministries and agencies required for investment approval. In addition, BKPM now issues soft-copy investment and business licenses. While BKPM One Stop Service Center’s goal is to help streamline investment approvals, investments in the mining, oil and gas, plantation, and most other sectors still require multiple licenses from related ministries and authorities. Likewise, certain tax and land permits, among others, typically must be obtained from local government authorities. Though Indonesian companies are only require to obtain one approval at the local level, businesses report that foreign companies often must additional approvals in order to establish a business.

The Ministry of Home Affairs, the Ministry of Administrative and Bureaucratic Reform, and BKPM issued a circular in 2010 to clarify which government offices are responsible for investment that crosses provincial and regional boundaries. Investment in a regency (a sub-provincial level of government) is managed by the regency government; investment that lies in two or more regencies is managed by the provincial government; and investment that lies in two or more provinces is managed by the central government, or central BKPM. BKPM has plans to roll out its one-stop-shop structure to the provincial and regency level to streamline local permitting processes at more than 500 sites around the country.

Outward Investment

Indonesia’s outward investment is limited, as domestic investors tend to focus on the domestic market. BKPM has responsibility for promoting and facilitating outward investment, to include providing information about investment opportunities in and policies of other countries. BKPM also uses their investment and trade promotion centers abroad to match Indonesian companies with potential investment opportunities. The government neither restricts nor provides incentives for outward investment.

Investment Incentives

Indonesia provides incentive facilities through fiscal incentives, non-fiscal incentives, and other benefits. Fiscal incentives are in the form of tax holidays, tax allowances, and exemptions of import duties for capital goods and raw materials for investment. On April 9, 2018 Indonesia issued an updated tax holiday scheme that exempts certain businesses from paying corporate income taxes under Ministry of Finance Regulation No. 35/2018 and Ministry of Finance Regulation No. 103/2016. The new regulation expands the categories of eligible firms by allowing existing companies to apply for tax holidays for new investments. Previously, only new firms or market entrants could apply. The regulation grants a 100 percent tax holiday reduction, whereas the old regime provided tax holidays on a sliding scale. The period of tax holiday is extended up to 20 years; the minimum investment threshold is IDR 500 billion (36.8 million – five year holiday), while the largest tranche is reserved for investments above IDR 30 trillion (2.21 billion – 20-year holiday). In addition to the tax holiday, the Regulation No. 35/2018 also provide a 50 percent income-tax reduction for the following two years once the period of tax holiday has elapsed. The coverage of pioneer sectors was expanded to include the following seventeen industries:

1. Downstream basic metal;
2. Oil and gas refinery;
3. Petrochemical derived from petroleum, natural gas, and coal;
4. Inorganic basic chemical;
5. Organic basic chemical sourced from agriculture or forestry products;
6. Pharmaceutical raw materials;
7. Semi-conductors and other primary computer components;
8. Primary communication device components;
9. Primary medical device component;
10. Primary industrial machinery component;
11. Primary engine component for transport equipment;
12. Robotic components for manufacturing machine;
13. Primary ship component for shipbuilding industry;
14. Primary aircraft component;
15. Primary train component;
16. Power generation including waste-to-energy power plant; and
17. Economic infrastructures.

Government Regulation No. 9/2016 expanded regional tax incentives for certain business categories in May 2016. Apparel, leather goods, and footwear industries in all regions are now eligible for the tax incentives. In this regulation, existing tax facilities are maintained, including:

• Deduction of 30 percent from taxable income over a six-year period;
• Accelerated depreciation and amortization;
• Ten percent of withholding tax on dividend paid by foreign taxpayer or a lower rate according to the avoidance of double taxation agreement;
• Compensation losses extended from 5 to 10 years with certain condition for companies that are:
  • Located in industrial or bonded zone;
  • Developing infrastructure;
  • Using at least 70 percent domestic raw material;
  • Absorbing 500 to 1000 laborers;
  • Doing research and development (R&D) worth at least 5 percent of the total investment over 5 years;
  • Reinvesting capital; or,
  • Exporting at least 30 percent of their product.

The government also provides the facility of Import Duty Borne by the Government (Bea Masuk Ditanggung Pemerintah /BMDTP) with 0 percent import duty for certain industries to improve industrial competitiveness and public goods procurement. Through the issuance of Ministry of Finance Regulation No.12/2018, 28 imported raw materials for manufacturing plastics, cosmetics, polyester, resins, other chemical materials, machinery for agriculture, electricity, and pharmaceuticals received the facilities up to December 2018.

Research and Development

At present, Indonesia does not have formal regulations granting national treatment to U.S. and other foreign firms participating in government-financed or subsidized research and development programs. The Ministry for Research and Technology and Higher Education handles applications on a case-by-case basis.

Natural Resources

Indonesia’s vast natural resource wealth has attracted significant foreign investment over the last century and continues to offer significant prospects. But a variety of government regulations have made doing business in the resources sector increasingly difficult, and Indonesia now ranks near the bottom, 84^th of 91 jurisdictions in the Fraser Institute’s 2017 Mining Policy Perception Index. In 2012, Indonesia banned the export of raw minerals, dramatically increased the divestment requirements for foreign mining companies, and required major mining companies to renegotiate their contracts of work with the government. The ban on the export of raw minerals went into effect in January 2014. In July 2014, the government issued regulations that allowed, until January 2017, the export of copper and several other mineral concentrates with export duties and other conditions imposed. When the full ban came back into effect in January 2017, the government issued new regulations that again allowed exports of copper concentrate and other specified minerals but imposed even more onerous requirements. Of note for foreign investors, provisions of the regulations require that to be able to export non-smelted mineral ores, companies with contracts of work must convert to mining business licenses—and thus be subject to prevailing regulations—and must commit to build smelters within the next five years. Also, foreign-owned mining companies must gradually divest over ten years 51 percent of shares to Indonesian interests, with the price of divested shares determined based on fair market value and not taking into account existing reserves. The 2009 mining law devolved the authority to issue mining licenses to local governments, who have responded by issuing more than 10,000 licenses, many of which overlap or are unclearly mapped. In the oil and gas sector, Indonesia’s Constitutional Court disbanded the upstream regulator in 2012, injecting confusion and more uncertainty into the natural resources sector. Until a new oil and gas law is enacted, upstream activities are supervised by the Special Working Unit on Upstream Oil and Gas (SKK Migas).

Infrastructure

Since taking office in October 2014, President Jokowi and his administration have made infrastructure development a top priority. The government announced plans to add 35,000 megawatts of electricity capacity by 2019; in 2017 the government revised this target downward to 19,000 megawatts. The Jokowi administration also announced plans to create a maritime nexus, to include the development or expansion of 24 ports and other transportation infrastructure. The Indonesian government is also implementing a PPP scheme to develop broadband internet access throughout the country as part of its “Palapa Ring” initiative. The initiative, which will install over 12,000 kilometers of fiber optic cable, is divided into three segments. The western segment is nearing completion, the middle and eastern segments are expected to be complete by the end of 2019. Following completion of the Palapa Ring, Indonesia plans to deploy HTS (high throughput satellites) to connect remote and frontier areas for internet access, with a predicted value of IDR 7.7 trillion (approximately USD 570 million). The current institutional arrangement for infrastructure development still suffers from overlap of functions, lack of capacity for public-private partnership (PPP) projects in regional governments, lack of solid value-for-money methodologies, crowding out of the private sector from state-owned enterprises (SOE), legal uncertainty, lack of a solid land-acquisition framework, long-term operational risks for the private sector, unwillingness from stakeholders to be the first ones to step in the new and fragile system, and, especially, lack of an institutional champion. Currently infrastructure development is largely taking place through SOEs, with PPPs having only a marginal share of infrastructure projects.

Foreign Trade Zones/Free Trade/ Trade Facilitation

Indonesia offers numerous incentives to foreign and domestic companies that operate in special trade zones throughout Indonesia. The largest zone is the free trade zone (FTZ) island of Batam, located just south of Singapore. Neighboring Bintan Island and Karimun Island also enjoy FTZ status. Investors in FTZs are exempt from import duty, income tax, VAT, and sales tax on imported capital goods, equipment, and raw materials until the portion of production destined for the domestic market is “exported” to Indonesia, in which case fees are owed only on that portion. Foreign companies are allowed up to 100 percent ownership of companies in FTZs. Companies operating in FTZs may lend machinery and equipment to subcontractors located outside of the zone for a maximum two-year period.

Indonesia also has numerous Special Economic Zones (SEZs), regulated under Law No. 39/2000, Government Regulation No. 2/2011 on SEZ management, and Government Regulation No. 96/2015. These benefits include a reduction of corporate income taxes for a period of years (depending on the size of the investment), income tax allowances, and expedited or simplified administrative processes for import/export, expatriate employment, immigration, and licensing. As of mid-2017, Indonesia has identified twelve SEZs in manufacturing and tourism centers, with plans for 25 by 2019. Six SEZs are operational (though development is sometimes limited) at: 1) Sei Mangkei, North Sumatera; 2) Tanjung Lesung, Banten, 3) Palu, Central Sulawesi; 4) Mandalika, West Nusa Tenggara, 5) Lhokseumawe, Aceh and 6) Galang Batang, Bintan, Riau Islands. Six more SEZs are expected to operate in 2018: 1) Kuala Tanjung, North Sumatera; 2) Pulau Asam Karimun, Riau Islands; 3) Merauke, Papua; 4) Melolo, East Nusa Tenggara (NTT); 5) Nongsa, Batam, Riau Islands; and 6) Tanjung Kelayang, Pulau Bangka, Bangka Belitung Islands. In March 2016, the government began the process of transitioning Batam from an FTZ to SEZ in order to provide further investment incentives in Batam. This process is expected to be finished in 2019 and will not affect the status of the neighboring FTZs on Bintan and Karimun islands.

Indonesian law also provides for several other types of zones that enjoy special tax and administrative treatment. Among these are Industrial Zones/Industrial Estates (Kawasan Industri), bonded stockpiling areas (Tempat Penimbunan Berikat), and Integrated Economic Development Zones (Kawasan Pengembangan Ekonomi Terpadu). Indonesia is home to more than 70 industrial estates that host thousands of industrial and manufacturing companies. Ministry of Finance Regulation No. 105/2016 provides several different tax and customs facilities available to companies operating out of an industrial estate, including corporate income tax reductions, tax allowances, VAT exemptions, and import duty exemptions depending on the type of industrial estate. Bonded stockpile areas include bonded warehouses, bonded zones, bonded exhibition spaces, duty free shops, bonded auctions places, bonded recycling areas, and bonded logistics centers. Companies operating in these areas enjoy concessions in the form of exemption from certain import taxes, luxury goods taxes, and value added taxes, based on a variety of criteria for each type of location. Most recently, bonded logistics centers were introduced in 2016 to allow for larger stockpiles, longer temporary storage (up to three years), and a greater number of activities in a single area. By early November 2017, Indonesia had designated 76 bonded logistics centers, with plans to designate more in eastern part of Indonesia. KAPET zones, first announced in a 1996 presidential decree, are eligible for partial tax holidays, certain income tax exemptions and deductions, flexible treatment of amortization of capital and losses, and fiscal loss compensation.

Shipments from FTZs and SEZs to other places in the Indonesia customs area are treated similarly to exports and are subject to taxes and duties. Under Ministry of Finance Regulation 120/2013, bonded zones have a domestic sales quota of 50 percent of the preceding realization amount on export, sales to other bonded zones, sales to free trade zones, and sales to other economic areas (unless otherwise authorized by the Indonesian government). Sales to other special economic areas are only allowed for further processing to become capital goods, and to companies which have a license from the economic area organizer for the good relevant to their business.

In September 2017, the government issued Presidential Regulation 91 on the Acceleration of Business Operations, aiming to reduce and simplify the Indonesian business licensing regime, including in special economic zones. Under this regulation, Indonesia has established national, ministerial, provincial and regional task forces to examine inefficiencies in the process of starting a business, including business licensing practices, the availability of one-stop business registration in SEZs and FTZs, and data sharing between different jurisdictions. The Coordinating Ministry for Economic Affairs, which is leading implementation of the regulation, reports that all Indonesian provinces, FTZs, and SEZs, and more than 90% of regencies (kabupaten) had established one-stop business licensing services by February 2018. Under the new rules, businesses that apply for a license under a one-stop system must begin setting up within 90 days unless given an extension. The regulation also provides that the central government may take control of business licensing if a local government unduly delays business license issuance.

Performance and Data Localization Requirements

Performance Requirements

Indonesia expects foreign investors to contribute to the training and development of Indonesian nationals, allowing the transfer of skills and technology required for their effective participation in the management of foreign companies. Generally, a company can hire foreigners only for positions that the government has deemed open to non-Indonesians. Employers must have training programs aimed at replacing foreign workers with Indonesians. If a direct investment enterprise wants to employ foreigners, the enterprise should submit an Expatriate Placement Plan (RPTKA) to the Ministry of Manpower.

Indonesia recently made significant changes to its foreign worker regulations. Under Presidential Regulation No. 20/2018, issued on March 29, 2018, the Ministry of Manpower now has two days to approve a complete RPTKA application, and an RPTKA is not required for commissioners or executives. An RPTKA’s validity is now based on the duration of a worker’s contract (previously it was valid for a maximum of five years). The new regulation no longer requires expatriate workers to go through the intermediate step of obtaining a Foreign Worker Permit (IMTA). Instead, expatriates can use an endorsed RPTKA to apply with the immigration office in their place of domicile for a Limited Stay Visa or Semi-Permanent Residence Visa (VITAS/VBS). Expatriates receive a Limited Stay Permit (KITAS) and a blue book, valid for up to two years and renewable for up to two extensions without leaving the country. Regulation No. 20/2018 also abolished the requirement for all expatriates to receive a technical recommendation from a relevant ministry. However, ministries may still establish technical competencies or qualifications for certain jobs, or prohibit the use of foreign worker for specific positions, by informing and obtaining approval from the Ministry of Manpower. Foreign workers who plan to work longer than six months in Indonesia must apply for employee social security and/or insurance.

Regulation No. 20/2018 provides for short-term working permits (maximum 6 months) for activities such as conducting audits, quality control, inspections, and installation of machinery and electrical equipment. Provisions of existing regulations such as Ministry of Manpower Regulations No. 16/2015 and No. 35/2015, remain in effect so long as they do not contradict Presidential Regulation No. 20/2018. Any expatriate who holds a work and residence permit must contribute USD 1,200 per year to a fund for local manpower training at regional manpower offices. Some U.S. firms report difficulty in renewing KITASs for their foreign executives. Ministry of Manpower Regulation No. 35/2015 abolished a requirement that enterprises meet a 10:1 ratio of domestic to foreign workers and eliminated the need for work permits for most business travelers. Ministry of Manpower No. 16/2015 abolished the local language proficiency requirement for foreign employees, though foreign employers are required to facilitate language education and practice for expatriate workers. In February 2017, the Ministry of Energy and Natural resources abolished regulations specific to the oil and gas industry, bringing that sector in line with rules set by the Ministry of Manpower.

With the passage of the defense law in October 2012 and subsequent implementing regulations in October 2014, Indonesia established a policy that imposes offset requirements for procurements from foreign defense suppliers. Current laws authorize Indonesian end users to procure defense articles from foreign suppliers if those articles cannot be produced within Indonesia, subject to Indonesian local content and offset policy requirements. On that basis, U.S. defense equipment suppliers are competing for contracts with local partners. The 2014 implementing regulations still require substantial clarification regarding how offsets and local content are determined, and Indonesia has not yet completed production of an official English-language translation. According to the legislation and subsequent implementing regulations, an initial 35 percent of any foreign defense procurement or contract must include local content, and this 35 percent local content threshold will increase by 10 percent every five years following the 2014 release of the implementing regulations until a local content requirement of 85 percent is achieved. The law also requires a variety of offsets such as counter-trade agreements, transfer of technology agreements, or a variety of other mechanisms, all of which are negotiated on a per-transaction basis. The implementing regulations also refer to a “multiplier factor” that can be applied to increase a given offset valuation depending on “the impact on the development of the national economy.” Decisions regarding multiplier values, authorized local content, and other key aspects of the new law are in the hands of the Defense Industry Policy Committee (KKIP), an entity comprising Indonesian interagency representatives and defense industry leadership. KKIP leadership indicates that they still determine multiplier values on a case-by-case basis, but have said that once they conclude an industry-wide gap analysis study they will publish a standardized multiplier value schedule. According to government officials, rules for offsets and local content apply to major new acquisitions only, and do not apply to routine or recurring procurements such as those required for maintenance and sustainment.

WTO/TRIMS

Indonesia notified the WTO of its compliance with Trade-Related Investment Measures (TRIMS) on August 26, 1998. The 2007 Investment Law states that Indonesia shall provide the same treatment to both domestic and foreign investors originating from any country. The government pursues policies to promote local manufacturing that could be inconsistent with TRIMS requirements, such as linking import approvals to investment pledges, or requiring local content targets in some sectors.

Data Localization Requirements

In 2012, Indonesia issued Government Regulation No. 82/2012 requiring certain “public service providers” to establish data storage and disaster recovery centers on Indonesian soil. The regulation went into effect in October 2017 and several ministries have issued data localization regulations, including regulations related to data privacy, peer-to-peer lending, and insurance. As of January 2018, the Indonesian government has prepared a draft amendment to Government Regulation No. 82/2012 that would classify data into three categories: strategic, high-level, and low-level. The draft amendment offers vague definitions of these categories, defining strategic data as data potentially disruptive to the national economy, defense, security, governance, transportation and communication, and/or data that can contribute to humanitarian disaster. The proposed amendment would require that “strategic” data be managed, stored, and processed only in Indonesia. The draft regulation would allow high- and low-level data to be managed, stored, and processed overseas so long as it does not reduce the effective implementation of Indonesian legal jurisdiction. It remains unclear how the proposed regulation would affect existing data localization requirements and what additional requirements may be imposed if the revised regulation is issued.

Policies Towards Foreign Direct Investment

Vietnam continues to welcome FDI and foreign companies play an important role in the economy. According to the Government Statistics Office (GSO), FDI exports accounted for 73 percent of total exports in 2017 (an increase of 47 percent since 2000), while the contribution from foreign companies toward overall GDP increased from 13 percent to 21 percent over the same period. Improvements in the business environment, including economic reforms intended to enhance competitiveness and productivity, helped drive FDI inflows. Vietnam improved its ranking in the World Bank’s Doing Business Index (from 82 in 2017 to 68 in 2018) and World Economic Forum’s Competitiveness Index (from 60 in 2016 to 55 in 2017). According to the 2018 Organization for Economic Co-operation and Development (OECD) Investment Policy Review, Vietnam has an average level of openness compared to other OECD countries, though it is second to Singapore within ASEAN. OECD ranked Vietnam’s openness to FDI as higher than that of South Korea, Australia, and Mexico.

Vietnam seeks to move up the global value chain by attracting FDI in sectors that will facilitate technology transfer, increase skill sets in the labor market, improve labor productivity, and target high-tech, high value-added industries with good environmental safeguards. Assisted by the World Bank, the government is drafting a new FDI Attraction Strategy for 2030. This new strategy is intended to facilitate technology transfer and environmental protection, and will supposedly move away from tax reductions to other incentives, such as using accelerated depreciation and more flexible loss carry-forward provisions.

Vietnam’s business climate-related legal reforms also facilitated FDI inflows. The 2017 Provincial Competiveness Index (PCI), which ranks provinces by transparency and business facilitation, cited several positive regulatory changes, including Decree 78, issued in November 2015, which expanded online business registration, greatly reduced the required business registration documents, and reduced the time required to issue the Enterprise Registration Certificate (ERC) from five days to three. The waiting time to register and open a foreign-invested enterprise (FIE) has also steadily decreased in recent years. In 2017, the government modified the 2014 Investment Law to reduce the number of banned provisional sectors, and it enabled existing operations to shift more easily into new business activities not listed in their original ERC. As a result, the PCI found FIEs were able to obtain an investment license and complete their business registrations in half the time it took in 2010. According to the Ministry of Planning and Investment’s (MPI) Authority Business registration national database, the average time to register a company was only 2.36 days in 2017.

Although there are foreign ownership limits (FOL), the government does not have laws discriminating against foreign investors; however, the government continues to favor domestic companies through various incentives. Regulations are often written to avoid overt conflicts and violations of bilateral or international agreements, but in reality, U.S. investors feel there is not always a level playing field in all sectors. In the 2017 Perceptions of the Business Environment Report , the American Chamber of Commerce (AmCham) stated: “Whether a result of corruption, protectionism, or the government trying to pick winners and losers, our members often see areas where inconsistencies, inefficiencies, and unfair practices persist. We believe that it is vital that laws and rules are enforced fairly and equally. Better results in this area will improve the trust that people have in their decision makers.”

MPI oversees an Investment Promotion Department to facilitate all foreign investments, and most of provinces and cities have investment promotion agencies. The agencies provide information, explain regulations, and offer support to investors when requested.

The semiannual Vietnam Business Forum allows for a direct dialogue between the foreign business community and government officials. The U.S.-ASEAN Business Council (USABC) also hosts an annual visit for its members to engage directly with senior government officials. The government maintains frequent dialogue with foreign investors, and meets with U.S. companies to try to resolve issues.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own businesses in Vietnam, except in six prohibited areas (illicit drugs, wildlife trading, prostitution, human trafficking, human cloning, and chemical trading). If a company wants to operate in 243 provisional sectors, it must satisfy conditions in accordance with the Investment Law. Foreign investors must negotiate on a case-by-case basis for market access in sectors that are not explicitly open. The government occasionally issues investment licenses on a pilot basis with time limits, or to specifically targeted investors.

Vietnam allows foreign investors to acquire full ownership of local companies, except when mentioned otherwise in international and bilateral commitments, including equity caps, mandatory domestic joint-venture partner, and investment prohibitions. For example, as specified in the Vietnam’s World Trade Organization (WTO) commitments, highly specialized and sensitive sectors (such as banking, telecommunication, and transportation) still maintain FOL, but the Prime Minister can waive these restrictions on a case-by-case basis. Vietnam also limits foreign ownership of state-owned enterprises (SOEs) and prohibits importation of old equipment and technologies more than 10 years old. No mechanisms disadvantage or single out U.S. investors.

Merger and acquisition (M&A) activities can be tricky if the target domestic company is operating in a restricted or prohibited sector. For example, when a foreign investor buys into a local company through an M&A transaction, it is difficult to determine which business lines the acquiring foreign company is allowed to maintain and, in many cases, the targeted company may be forced to reduce its business lines.

Vietnamese authorities evaluate investment-license applications using a number of criteria, including: 1) the investor’s legal status and financial capabilities; 2) the project’s compatibility with the government’s “Master Plan” for economic and social development and projected revenue; 3) technology and expertise; 4) environmental protection; 5) plans for land-use and land-clearance compensation; 6) project incentives including tax rates, and 7) land, water, and sea surface rental fees. The decentralization of licensing authority to provincial authorities has, in some cases, streamlined the licensing process and reduced processing times. However, it has also caused considerable regional differences in procedures and interpretations of investment laws and regulations. Insufficient guidelines and unclear regulations can prompt local authorities to consult national authorities, resulting in additional delays. Furthermore, the approval process is often much longer than the timeframe mandated by law. Many U.S. firms have successfully navigated the investment process, though a lack of transparency in the procedure for obtaining a business license can make investing riskier.

Provincial People’s Committees approve all investment projects, except the following:

• The National Assembly must approve investment projects that:
  • have a significant environmental impact;
  • change land usage in national parks;
  • are located in protective forests larger than 50 hectares; or
  • require relocating 20,000 people or more in remote areas such as mountainous regions.
• The Prime Minister must approve investment project proposals:
  • to build airports, seaports, or casinos; to explore, produce and process oil and gas; or to produce tobacco;
  • with an investment capital of more than VND 5,000 billion (USD 233 million);
  • with foreign investors in sea transportation, telecommunication or network infrastructure, forest plantation, publishing, or press; and
  • involving fully foreign-owned scientific and technology companies or organizations.

Other Investment Policy Reviews

No third-party international investment policy reviews were conducted in the last three years. Vietnam went through an OECD investment policy review in 2009. The WTO reviewed Vietnam’s trade policy in 2013 and the report is online. (https://www.wto.org/english/tratop_e/tpr_e/tp387_e.htm  ). U.N. Conference on Trade and Development’s (UNCTAD) conducted an investment policy review in 2008.

Business Facilitation

Vietnam’s business environment continues to improve due to new laws that have streamlined the business registration processes. The 2016 PCI report found that 91 percent of companies are able to operate their business three months after starting the process. Specifically, the study found, as a result of the 2014 Investment Law and 2015 Implementing Decree 78 that reduced the timeline for receiving the Enterprise Registration Certificate, the entry requirements for foreign investors are no longer perceived to be a significant hurdle. Vietnam’s legal system considers any company with over 51 percent local ownership to be domestically invested, making it eligible for a more simplified licensing process.

Vietnam’s nationwide business registration site is http://dangkykinhdoanh.gov.vn . In addition, as a member of the UNCTAD international network of transparent investment procedures, information on Vietnam’s investment regulations can be found online (http://vietnam.eregulations.org/ ). The website provides information for foreign and national investors on administrative procedures applicable to investment and income generating operations, including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal and regulatory citations for seven major provinces. The 2018 World Bank’s Doing Business Report stated it took on average 22 days to start a business. Vietnam is one of the few countries to receive a 10-star rating from UNCTAD in business registration procedures.

There are no mechanisms ensuring equitable treatment for women-owned businesses. The government provides business facilitation measures to ethnic minorities through various national supporting programs.

Outward Investment

The government does not have a clear mechanism to promote or incentivize outward investments. The majority of companies engaged in overseas investments are large SOEs, which have strong government-backed financial resources. The government does not implicitly restrict domestic investors from investing abroad. Vietnamese companies have made increased investments in the oil, gas, and telecommunication sectors in various developing countries.

Investment Incentives

Foreign investors are exempt from import duties on goods imported for their own use that cannot be procured locally, including machinery, vehicles, components and spare parts for machinery and equipment, raw materials, inputs for manufacturing, and construction materials. Remote and mountainous provinces are allowed to provide additional tax breaks and other incentives to prospective investors.

In addition, projects in the following areas are entitled to investment incentives such as lower corporate income tax, exemption of import tariffs, or land rental: high-tech; research and development; new materials; energy; clean energy; renewable energy; energy saving products; automobiles; software; waste treatment and management; primary or vocational education; or projects located in remote areas or industrial zones.

Vietnam promotes foreign investment in certain priority sectors, and in geographic regions that are remote or underdeveloped. The government encourages investment in the production of new materials, new energy sources, metallurgy and chemical industries, manufacturing of high-tech products, biotechnology, information technology, mechanical engineering, agricultural, fishery and forestry production, salt production, generation of new plant varieties and animal species, ecology and environmental protection, research and development, knowledge-based services, processing and manufacturing, labor-intensive projects (using 5,000 or more full-time laborers), infrastructure projects, education, training, and health and sports development.

Foreign Trade Zones/Free Ports/Trade Facilitation

In recent years, Vietnam has prioritized efforts to establish free trade zones (FTZs). Vietnam currently has approximately 300 industrial zones (IZs) and export processing zones (EPZs). Many foreign investors report that it is easier to implement projects in industrial zones because they do not have to be involved in site clearance and infrastructure construction. Enterprises pay no duties when importing raw materials if they export the finished products. Customs warehouse keepers in FTZs can provide transportation services and act as distributors for the goods deposited. Additional services relating to customs declaration, appraisal, insurance, reprocessing, or packaging, require the approval of the provincial customs office. In practice, the time involved for clearance and delivery can be lengthy and unpredictable.

Performance and Data Localization Requirements

Vietnam does not mandate that businesses hire local workers, including for senior management roles or on the board of directors. However, companies must prove their efforts to hire suitable local employees were unsuccessful before recruiting foreigners. This does not apply to board members elected by shareholders or capital contributors. In February 2016, the government issued Decree No.11/2016/ND-CP, guiding a number of articles of the Labor Code on foreigners working in Vietnam, which entered into force in April 2016. Decree 11 included positive changes, including changes to the conditions, paperwork, and timeline for work permit applications and exemptions, and clarification that the work-permit and exemption-certificate requirements did not apply to foreigners coming to work for less than 30 days with less than 90 days of cumulative working time in one year.

The government does not have a forced localization policy per se, but has been increasingly adopting policies to encourage or require foreign investors to use domestic content in goods and technology. For example, Circular 14/2015/TT-BKHDT applied high tariffs to imported automotive parts to protect domestic production and encourage foreign auto manufacturers to source component parts locally. Another example is Draft Decree 54/2017/ND–CP, proposed in July 2017, which stipulates FIEs can import drugs into Vietnam, but are not permitted to transport, store, or distribute drugs.

There are currently no measures that prevent or unduly impede companies from freely transmitting customer or other business-related data outside of Vietnam. The most important regulation is Decree 72/2013/ND-CP, on the management, provision and use of Internet services and online information. While Decree 72 technically requires organizations establishing “general websites,” or social networks and companies providing online gaming services or services across mobile networks to maintain at least one server in Vietnam, in practice the regulation is only applied to domestic firms, and the only sporadically. It also establishes requirements for storing certain types of data (personally identifiable information of users, user activity logs, etc.), but it is unclear if that information must be stored on a local server. In 2016, the Ministry of Information and Communications (MIC) issued Circular 38/2016/TT-BTTT, one of the implementing circulars of Decree 72. The circular does not require localization of servers, though it does require offshore service providers with a large number of users in Vietnam to comply with local content restrictions. Specific requirements under Circular 38 apply to offshore entities that provide cross-border public information into Vietnam (including websites, social networks, online applications, search engines and other similar forms of services) and that (a) have more than one million hits from Vietnam per month or (b) lease a data center to store digital information in Vietnam in order to provide its services.

However, the government is exploring draft legislation to require data localization for cross-border services. In 2017, the Ministry of Public Security (MPS) released a draft law on cybersecurity that would require Vietnamese users’ data to be stored in Vietnam and would require all cross-border service providers to host servers within Vietnamese territory. The National Assembly is expected to vote on the law in May or June 2018. The Ministry of Finance (MOF) is also proposing draft legislation in 2019 to request cross-border service providers via Internet protocol to have a representative office in Vietnam, citing the necessity of local office requirements for taxation purposes.

There are no requirements that foreign IT providers have to turn over source code and/or provide access to encryption. Vietnam has no international commitments in this area and does not permit cross-border online gaming. Therefore, gaming providers tend to establish a joint venture with a Vietnamese company and locate one server in Vietnam. Regarding financial data localization, Circular 31 requires backup information, but does not impede cross-border data flows.

The MIC is the lead agency for administrative enforcement of cyber-related regulations, including data-storage requirements, though the 2017 draft law on cybersecurity would cede that role to MPS. MPS’s cyber division may now also get involved if there is a suspected criminal violation of data-storage rules.

When Vietnam joined the WTO in 2007, it established minimum commitments on market access for U.S. goods and services, as well as equal treatment for Vietnamese and foreign companies. Vietnam undertook commitments on goods (tariffs, quotas, and ceilings on agricultural subsidies) and services (provisions of access to foreign-service providers and related conditions). It has also committed to implementing agreements on intellectual property (the Trade-Related Aspects of Intellectual Property Rights Agreement), customs valuation, technical barriers to trade, sanitary and phytosanitary measures, import licensing provisions, anti-dumping and countervailing measures, and rules of origin. As part of its WTO accession, Vietnam also committed to remove performance requirements that are inconsistent with the agreement on Trade-Related Investment Measures (TRIMs). The 2014 Investment Law specifically prohibits the following: giving priority to domestic goods or services; compulsory purchases from a specific domestic firm; export of goods or services at a fixed percentage; restricting the quantity, value, or type of goods or services exported or sourced domestically; fixing import goods at the same quantity and value as goods exported; requirements to achieve certain local content ratios in manufacturing goods; stipulated levels or values on research and development activities; supplying goods or services in a particular location; and mandating the establishment of head offices in a particular location.

The government updates, on an ad hoc basis, the list of investment priority high-tech products and companies investing in research and development for items that are entitled to the highest tax incentives and may be eligible for funding from the National High-Tech Development Program. Companies that develop infrastructure for high-tech parks will also receive land incentives.