Ever wonder how dynamic markets like Indonesia are shaping the future of foreign direct investment (FDI) and manufacturing? A new entity, Danantara Indonesia, has certainly captured my attention, and it’s a development that investors and business leaders should be watching closely.

With over two decades of guiding businesses through the vibrant, and at times complex, investment landscapes of Asia, including key markets like Vietnam, China, and Malaysia, I’ve seen numerous strategies unfold. The emergence of sovereign wealth funds and strategic investment agencies is a recurring theme, and Indonesia’s latest initiative, Danantara Indonesia, is a significant move. As IndraStra Global reported in February 2025, Danantara Indonesia has been established as a strategic investment management agency designed to optimize government investments and bolster the nation’s economic trajectory. This agency aims to act as a sovereign wealth fund, focusing on developing strategic industries and enhancing Indonesia’s global competitiveness. Danantara Indonesia also plays a pivotal role in helping to build national wealth through strategic investments and partnerships.

Here are some key takeaways about Danantara Indonesia:

• It’s a strategic investment management agency for Indonesia.
• Its primary goal is to optimize government investments for economic growth.
• It functions similarly to a sovereign wealth fund.
• Key focus areas include strategic industry development and enhancing global competitiveness.
• A significant emphasis is placed on sustainable development and industrialization.
• Danantara Indonesia aligns with government programs aimed at supporting industrial growth and sustainable development.

By developing strategic industries, particularly within Indonesia's strategic sectors, Danantara Indonesia supports the national strategic plan to strengthen national industry and drive long-term economic growth.

Setting the Stage: Indonesia’s Economic Growth Trajectory

Indonesia’s economic growth story is one of ambition, resilience, and strategic foresight. Over recent years, the nation has prioritized developing strategic industries to strengthen its position in the global market, particularly as a key player in the electric vehicle (EV) battery supply chain. Central to this vision is the Indonesia Investment Management Agency (INA), a strategic investment management agency established to optimize government investments and support investment development across critical sectors.

As a sovereign wealth fund, Danantara Indonesia is at the heart of this transformation. Its strategic investment platform is designed to channel resources into high-impact areas, with a special focus on building a sustainable and integrated battery raw materials ecosystem. By leveraging Indonesia’s abundant mineral resources and advancing sustainable mining management practices, Danantara Indonesia aims to not only drive economic growth but also ensure that development is both responsible and future-proof.

This approach aligns with government investments and programs aimed at supporting sustainable development and fostering a value-added industrial foundation. By targeting strategic industries and optimizing the deployment of state assets, Danantara Indonesia is positioning itself as a catalyst for Indonesia’s next phase of economic expansion—one that balances profitability with environmental stewardship and long-term national interests.

The Catalyst: Role of the Indonesia Investment Authority

The Indonesia Investment Authority (INA) stands as a pivotal force in accelerating Indonesia’s economic growth and industrial transformation. As a strategic partner, INA brings together technical excellence and a proven global track record in sustainable mining management, making it a cornerstone in the nation’s efforts to develop strategic industries and support investment development.

INA’s investment focus is on empowering domestic investment institutions and optimizing government investments to unlock new opportunities in Indonesia’s strategic sectors. By fostering an environment that attracts high-quality investments, INA is committed to supporting sustainable development and environmentally conscious mining practices. This not only enhances Indonesia’s competitive advantages but also ensures that industrial growth is aligned with international sustainability standards.

The collaboration between INA and Danantara Indonesia exemplifies a shared commitment to driving world-class nickel downstream investment and supporting the development of a robust, sustainable industry. Through this partnership, both entities are working to strengthen Indonesia’s position in the global market, support the national energy transition, and deliver tangible economic value for the country. INA’s role as a strategic investment management agency is instrumental in ensuring that government investments are deployed efficiently, supporting resilient infrastructure and the growth of Indonesia’s strategic industries.

Market Insights: Danantara's Compass for Developing Strategic Industries

Danantara’s focus is clear: to support sustainable development and industrialization, particularly in sectors crucial to Indonesia’s future. This isn’t just about pouring capital; it’s about smart, targeted investment. The agency is zeroing in on downstream industries, especially in minerals and specifically nickel mining operations. Danantara is committed to the responsible management of earth mineral resources and actively supports the nickel downstream industry to ensure sustainable growth and value addition. The agency is also involved in large scale mining projects and the development of mineral and downstream industries, positioning Indonesia as a leader in future metals essential for the global energy transition. These efforts are instrumental in building a robust national EV ecosystem.

The South China Morning Post highlighted in early 2025 that Danantara’s launch has sparked questions regarding its economic impact and transparency, underscoring the keen interest and scrutiny such significant funds attract. The agency’s declared commitment is to sustainable mining management and environmentally conscious practices, a critical factor in today’s investment climate where ESG (Environmental, Social, and Governance) principles are increasingly becoming a game-changer.

Strategic Framework: Governance and Collaborative Synergy for Sustainable and Responsible Solutions

No investment vehicle of this scale can operate effectively without a robust regulatory and governance structure. The Indonesia Investment Authority (INA) is set to play a vital oversight role for Danantara’s investments and operations. This collaboration is crucial to ensure that investments are not only profitable but also aligned with Indonesia’s national energy transition goals and broader sustainable development ambitions. Achieving the country's energy transition goals requires addressing significant energy transition challenges, particularly in developing sustainable mining and downstream industries that support the EV battery supply chain. This approach, in my experience, is key to risk-proofing strategies in emerging markets.

Transparency and accountability are often concerns with large-scale government-backed funds. Danantara Indonesia aims to address this through commitments to regular public financial reports and independent audits. Furthermore, its governance structure, including a supervisory board chaired by the SOE Minister, is intended to provide effective oversight. Adherence to international sustainability standards isn’t just a talking point; it’s a necessity for attracting long-term, high-quality global partners. Danantara’s governance framework emphasizes global level technical capabilities and a commitment to sustainable and responsible solutions, ensuring that industry growth aligns with both environmental standards and Indonesia’s long-term development objectives. As reported by FDI Intelligence, such funds are under pressure to demonstrate tangible economic benefits and responsible management.

Leadership in Action: Steering Danantara’s Vision

At the helm of Danantara Indonesia is a leadership team dedicated to realizing a more sustainable future for the nation’s strategic industries. The company’s Chief Investment Officer (CIO) plays a central role in shaping investment strategies that prioritize sustainable development, efficient mobility solutions, and the advancement of Indonesia’s national energy transition goals.

A key partner in this journey is Eramet, a leading global mining and metallurgy company headquartered in France, which has been active in Indonesia since 2006. Eramet’s expertise in sustainable mining management and its commitment to environmentally conscious mining have been instrumental in developing Indonesia’s largest nickel deposit. This partnership not only supports the growth of the nickel sector but also underpins Danantara Indonesia’s efforts to build a sustainable industry that meets international standards.

Danantara’s leadership is also focused on supporting resilient infrastructure and more reliable telecommunications systems, recognizing that these are essential foundations for industrial growth and a more sustainable future. By attracting high-quality investments and fostering strategic collaboration with global mining leaders, Danantara Indonesia is setting a benchmark for responsible asset management and sustainable industry development. The company’s vision is clear: to support Indonesia’s transition to a greener economy while enhancing the nation’s competitiveness on the global stage.

Expert Insights & Stakeholder Perspectives

1. Pandu Sjahrir – Chief Investment Officer, Danantara

Pandu Sjahrir emphasizes Danantara's commitment to transparency, stating the fund will operate "like a public company" with full disclosure and audit standards. He highlights the professionalism of the team, asserting that members are "best in class" and would not risk their reputations for a project lacking substance. (Financial Times, 2025)

2. Jeffrey Sachs – Economist and Danantara Advisor

Jeffrey Sachs serves on Danantara's advisory board voluntarily, aiming to support Indonesia's sustainable development. His involvement underscores the fund's focus on long-term economic growth and sustainability. (Reuters, 2025)

3. Josua Pardede – Chief Economist, Permata Bank

Josua Pardede notes that the inclusion of prominent figures in Danantara's advisory board sends a strong signal about the fund's potential for robust governance. He suggests that the presence of such individuals acts as a deterrent against mismanagement, as their resignations would indicate issues within the organization. The Australian

4. Bhima Yudhistira – Director, INDEF

Bhima Yudhistira expresses concerns over the inclusion of controversial figures like Thaksin Shinawatra in Danantara's advisory board, citing past allegations of corruption. He warns that such appointments could undermine the fund's credibility and raise questions about its governance. The Australian

Impactful Alliances: Danantara's Strategic Partnership Blueprint

Strategic partnerships are the lifeblood of ambitious FDI initiatives. Recently, INA announce strategic partnership with Danantara Indonesia and Eramet, with the managing director playing a key role in formalizing this collaboration. These collaborations are designed to accelerate investment development, particularly in the targeted nickel downstream industry. INA combines technical excellence and INA's investment focus to strengthen Indonesia's competitive advantages and strengthen Indonesia's position in the global nickel and EV battery supply chain. By working with both domestic investment institutions and global partners, Danantara seeks to amplify Indonesia’s competitive advantages.

The Straits Times mentioned in February 2025 that the fund is looking towards achieving significant growth targets, which will heavily rely on these strategic partnerships and the effective deployment of capital into these chosen sectors. Collaborations with state-owned enterprises (SOEs) are also part of the strategy to optimize government investments and ensure alignment with national development objectives. Indonesia's Geological Agency is actively involved in supporting mineral exploration, especially given Indonesia's largest nickel deposit, which is crucial for the nation's industrial ambitions. It’s a pragmatic approach: combine local know-how with international expertise and capital.

These strategic partnerships and the development of an integrated electric vehicle (EV) battery raw materials ecosystem support industrial growth and enhance Indonesia's competitiveness in the global market.

SWOT Analysis of Danantara Indonesia

Strengths:

• Significant Asset Base: Managing assets worth approximately $900 billion, positioning Danantara among the world's largest sovereign wealth funds.
• Professional Leadership: Led by experienced professionals with a commitment to transparency and good governance.
• Strategic Focus: Aims to invest in key sectors like renewable energy, infrastructure, and technology to drive economic

Weaknesses:

• Governance Concerns: Potential risks of political interference and lack of independent oversight.
• Public Skepticism: Challenges in building public trust due to past experiences with state funds and concerns over transparency.

Opportunities:

• Economic Development: Potential to accelerate Indonesia's economic growth and reduce reliance on external financing.
• Global Partnerships: Opportunities to attract foreign investment and expertise through joint ventures and collaborations.

Threats:

• Market Volatility: Exposure to global financial fluctuations could impact investment returns.
• Reputational Risks: Associations with controversial figures may affect the fund's credibility and investor confidence.

Scenario Analysis

Best-Case Scenario:
Danantara successfully implements transparent governance practices, attracting substantial foreign investment. Strategic investments in infrastructure and technology sectors lead to sustainable economic growth, positioning Indonesia as a regional economic powerhouse. ASEAN Briefing

Base-Case Scenario:
Danantara achieves moderate success, with steady investment inflows and gradual improvements in SOE performance. While some governance challenges persist, the fund contributes positively to Indonesia's economic development.

Worst-Case Scenario:
Governance issues and political interference hinder Danantara's operations, leading to mismanagement of funds. Public trust erodes, and the fund fails to attract significant foreign investment, resulting in missed opportunities for economic growth.

The Path Forward: Opportunity and Vigilance for Economic Growth

So, is Danantara Indonesia a guaranteed catalyst for sustainable economic growth, or does it carry inherent risks? From my perspective, it possesses significant potential. Its strategic focus on high-growth, value-added industries like nickel processing, coupled with a stated commitment to sustainability and robust governance, positions it as a potentially powerful engine for Indonesia. Danantara's sustainable mining expertise is a key factor in ensuring long-term success and responsible resource management. The emphasis on downstream development is a smart move, akin to ensuring you not only own the mine but also the refinery and the factory, thus capturing a larger share of the economic pie.

The future outlook appears positive, with significant investments already earmarked for these strategic sectors. If Danantara can maintain its commitment to transparency, attract high-quality international partners, and navigate the complexities of large-scale industrial projects, it could indeed make a substantial contribution to Indonesia’s economic transformation and its journey towards a more sustainable and environmentally conscious economy. This is the kind of decisive, confident decision-making that can unlock growth potential.

Ready to unlock unprecedented growth by understanding these pivotal market shifts? Navigating the dynamic FDI landscape requires strategic insight that turns challenges into opportunities. Developments like Danantara Indonesia highlight the exciting potential within Southeast Asia.

Partner with us to transform challenges into strategic wins—because when it comes to securing your next breakthrough, the only way is forward! Let’s explore how your business can leverage these evolving opportunities. Invest in tomorrow’s breakthrough, today.

Setting up a corporate bank account is the next crucial step after building a successful business. Businessmen in Indonesia have a wide selection of choices where they can put their money since the country has the most developed financial sector. These include state-owned, private, and foreign banks that offer different services to corporations in meeting their financial obligations. On one hand, a number of options are available, but on the other hand, choosing an appropriate bank that will meet your company's goals of operation and its long-term vision might be quite challenging.

It is quite important to realize the importance of a corporate bank account as it acts as the backbone for handling daily transactions, payroll, and investments in tandem with local regulations in the financial sectors. In addition, corporate accounts tend to offer certain services that are useful in cash management and exchange capabilities for foreign trade along with trade finance solutions, all of which may have great influence on the operation of an organization.

This article will explain what a corporate bank account is, outline major banks operating in Indonesia, discuss the criteria for the choice of bank selection, detail the documents required for opening, and describe the step-by-step process involved in opening a corporate bank account. This will give a better view to the businesses regarding how they have to proceed in dealing with banks in Indonesia towards their growth and stability.

Key Takeaways:

• It should be noted that a corporate bank account is the very foundation of conducting daily business operations, salary payments, and investments, as well as meeting all the local legislation and regulations regarding finances.
• Corporate bank accounts can also provide value-added services for cash management, foreign exchange, and trade finance, adding much more value to enhancing your company's operation effectiveness.
• According to Indeed, an online job search platform, working as a job board and recruiting tool, a corporate bank account is a bank account opened for businesses to conduct and process all their financial transactions and belongings in the most organized manner (Indeed Editorial Team, 2023).

What is a Corporate Bank Account?

According to Indeed, a corporate bank account is a specially designed financial account for businesses in the direction of managing their financial transactions and assets effectively (Indeed Editorial Team, 2023). Indeed is an online job search platform; it works like a job board and also acts as a recruitment tool.

It is a crucial facility for corporations, enabling them to organize their funds and conduct their monetary operations smoothly. By large, three basic roles are played by corporate accounts, including:

Savings

Companies use corporate accounts as a means of securing their funds, which are usually set aside for future expenses or investments. The accounts provide a safe place where businesses can deposit money that might be required for long-term proposals or capital projects.

Banking

Corporate accounts facilitate smooth daily financial activities, like the payment to vendors, payroll disbursement, and other business purchases. Centralization of such processes enables business enterprises to manage their banking transactions with more effectiveness for smoother financial operations.

Investing

Some companies invest their dividends or surplus revenue into corporate accounts that automatically reinvest such returns. This helps the company to increase its assets and probably improve profitability with strategic investment over time.

The Best Banks in Indonesia 2024

According to Aspire, a fintech company which offers a wide array of financial services to enterprises and startups, and CNBC Indonesia, a global business news network, the best banks in Indonesia in 2024 maintained their dominance, especially in the corporate banking sector, where asset management is the key to their growth. This corresponds with information provided by Ekky Pramana (2024) and Muhammad Khadafi (2024).

The top banks by asset size in the first quarter of 2024 are Bank Mandiri, BRI, BCA, BNI, and BTN. These firms also continued to show consistent growth in assets during the period under review, with most of the Bank showing one-digit increases despite some posting double-digit increases such as Bank Mandiri and BRI.

Bank Mandiri

Among all, Bank Mandiri is one of the most popular choices for businessmen with flexible variants of corporate accounts, such as Mandiri Tabungan Bisnis. This account provides multi-currency options, outward RTGS and SWIFT transactions, a debit card with customizable limits, and many more.

Bank BRI

BRI is Indonesia's oldest state-owned bank and also one of the more popular options for corporate accounts, due to its presence in more remote areas compared to many of its competitors. Their BriTama Bisnis account offers higher transaction limits and free personal accident insurance for the business owners.

Bank BCA

Meanwhile, BCA has Tahapan Gold BCA, which caters to corporate demand with a competitive interest rate. Detailed transaction reporting is made available by SMS and email, among other financial solutions offered to corporations.

Bank BNI

What makes BNI Taplus Bisnis even more special is the offering of Gold and Platinum debit cards, in which every transaction is notified in real time, and the account is digitally manageable for ease for corporate clients.

Bank OCBC

For companies with international operations, OCBC NISP Business Smart Current Account boasts a very strong multi-currency option, enabling seamless global transactions.

CIMB Bank Niaga

For smaller businesses or SMEs, CIMB Niaga XTRA Savers offers an economical alternative with low initial deposits and services such as Auto Sweep and Pick Up, which are perfect for companies requiring only meager capital.

How to Choose a Bank for Your Corporate Account

In selecting a bank for opening a corporate account, one must consider many factors to get the right one that should apply to their financial and operational objectives. Herein is the stuff a business needs to consider when selecting a bank for a corporate bank account as suggested by Forbes Finance Council, an organization for senior-level finance executives created by Forbes (Forbes Finance Council, 2022).

Availability of Internet Banking

This would include internet banking availability and ease of transactions important to be provided for daily business operations based on convenience and efficiency of managing finances. Minimum deposit requirements and monthly fees are also important to be reviewed for affordability, especially for start-ups or small businesses.

Service and Amenities

Other factors, which are equally important, are the services and facilities provided, which may comprise customized corporate solutions, credit products, or cash management services that a company would need. Equally important, if not more so, is the reputation and reliability of the bank, particularly in the long run, as this may impact trust and confidence.

Currencies

For companies doing international business, the availability of types of currency used in transactions is crucial to reducing costs associated with foreign exchange. For companies attempting to align their financial decisions with ethics or values such as sustainability and community investing, bank values are also becoming increasingly important.

Security Features and Quality of Customer Service

Finally, security on behalf of the bank and the quality of customer service can make all the difference, particularly in a business that requires dedicated support or deals with sensitive financial information. Ensuring the bank provides top-notch protection combined with responsive and professional service helps forge a rewarding and long-term relationship.

Requirement to Open a Corporate Bank Account

Opening a bank account in the name of a company requires some legal and administrative documents, especially when that company is individually owned. Below is the general requirement, quoting Ekky Pramana, an experienced writer specializing in finance and business management at Aspire (Ekky Pramana, 2024):

1. Identity of Individuals and Companies

Personal identity is required, in which the person in charge of the company is using a valid identity, such as:

• For Indonesian Citizens: KTP (Indonesian Identity Card).
• For Foreigners: Passport and KITAS - Temporary Stay Permit. Additionally, the company shall provide its own documents of identification, such as the deed of establishment of the company and proof of legality.

2. Company Registration Documents

Upon verification that the company is properly registered, it needs to provide a Surat Keterangan Usaha or an SKU. This will reflect the name, address, and the tax identification number of the company. Other supporting legal documents for registration include:

• Establishment Deed legalized by the Ministry of Law and Human Rights.
• Business Identification Number for the company and its founder.
• Company domicile permit.
• NIB or Single Business Identification Number.
• Business License obtained through the OSS Online Single Submission system.

3. Corporate Documents

For businesses that are non-individual entities, such as PTs, foundations, or cooperatives, this would be adding more documents on top of the previous requirement list:

• Establishment Deed and amendments of AD/ART with the latest date.
• Letters of Authority, where it includes a list of persons appointed to operate the account.

4. Financial Compliance and Tax Documents

The Company shall submit the NPWP along with NPWP of persons responsible for the account. Tax compliance is very crucial for any company intending to open a corporate account.

5. General Requirements

It cannot comprise individual or corporate entities blacklisted by Bank Indonesia. They should fill in and sign the bank account opening form. In respect of a specific business sector, a business permit in the relevant field of activity may be required as well.

6. Initial Deposit

Opening a corporate account usually requires an opening balance, which varies in size from bank to bank. For instance, the opening balances for both BNI Taplus and BRItama are IDR 1,000,000.

Also Read: All About Indonesia Corporate Tax Rate

Process of Opening of a Corporate Bank Account in Indonesia

Incorporating your corporate bank account in Indonesia involves, among others, the following steps that companies will have to go through.

Submission of Required Documents

This includes the photocopy of the certificate of business registration, tax identification (NPWP), articles of association, and identification of shareholders and authorized signatories, to be reviewed by the bank.

Bank Issues Board Resolution

A Board Resolution is issued by the bank for the appointment of an Authorized Person for the management of the account. This document must in turn be signed by the board and returned, usually via email.

Fully Accomplished Account Opening Form

The bank will provide an Account Opening Form, which the company completes with details of its structure and signatories. After completion, the form is returned to the bank for review.

Original Documents Submission

The company submits the original signed documents to the bank, which go into the official records. These documents include the Board Resolution and the Account Opening Form.

Initial Deposit

A minimum deposit of 1 million is required to activate this account. Multiple accounts can be granted in different currencies if deposits equal to the value are credited to this account.

Acitivize Account

To regard this an active account, a transaction should be frequently carried out on this account. If this account is left dormant for 6 months, it may be automatically deactivated.

Internet Banking

The company may enroll in web-based banking at the time of, or subsequent to the opening of an account, to ensure efficiency in managing the transaction.

Adherence to Laws and Regulations

The bank adheres to the regulations from OJK and Bank Indonesia. Other requirements, such as checks or documents, may be required.

Smoother Process of Opening of Corporate Bank Account in Indonesia

Opening of corporate bank accounts in Indonesia sometimes gets a bit tedious if not supported rightly. Viettonkin supports the companies with the right expertise to smoothen such a process and sees that all the local regulations are met with minimum delay.

From preparing the documentation to liaising with banks, Viettonkin's experienced consultants will help you through. We can offer you tailor-made services that will ensure your company's banking needs are taken care of as fast and effectively as possible, enabling you to focus on developing your business in Indonesia.

Contact Viettonkin today to smoothen your company's banking setup and achieve its expansion goals. To learn more about how the Experts for Expansion can help you, click here.

You Might Also Like: Important Guide to Business Licenses for New Companies in Indonesia

Indonesia is not a country to look away from, considering it one of the growing business hubs in Southeast Asia. Understanding the Corporate Tax Rate of a country is important for local as well as foreign investors, but the journey of understanding the tax systems can be pretty tricky, especially in companies willing to extend their business to Indonesia.

In this blog, go through a detailed overview of Indonesia's corporate tax rates, factors that affect the calculation of corporate tax, and the reporting requirements of taxes.

Key Takeaways:

• Understanding the Corporate Tax Rate of a country is important for local as well as foreign investors, but the journey of understanding the tax systems can be pretty tricky, especially in companies willing to extend their business to Indonesia.
• The Corporate Tax Rate in Indonesia is a tax payment collected from companies. 
• Corporate income tax in Indonesia is payable by the end of the fourth month following the close of the fiscal year, while corporate income tax returns are due to be filed on or before the end of the fourth month after the close of the fiscal year.

What is the Corporate Income Tax Rate in Indonesia?

The Corporate Tax Rate in Indonesia is a tax payment collected from companies. Corporate income tax in Indonesia is payable by the end of the fourth month following the close of the fiscal year, while corporate income tax returns are due to be filed on or before the end of the fourth month after the close of the fiscal year. The amount is based on net income they obtain while exercising their business activity, usually during one business/fiscal year.

Indonesia's Current Corporate Income Tax for 2024

According to the Government In accordance with Government-side revision of Article 2 of Regulation Of The Minister of Finance of The Republic Of Indonesia Number 40 of 2023, the government has confirmed and declared that the rate of Corporate Income Tax for Tbk Companies shall be 22% instead of the previous 25%.

Public Company Corporate Income Tax Rate

There are different tax rates for Public Company Corporate Tax Rate. If the public company meets the minimum listing requirement of at least 40% and other requirements, it gets a 3% discount on the standard rate, resulting in an effective rate of 19%.

Small and Medium Enterprises (SME) Corporate Tax in Indonesia

PWC is among the Big 4 accounting firms in Indonesia that shares just how Small and Medium Enterprises have tax relief (PWC, 2024).

Small businesses, i.e., corporate taxpayers whose annual turnover is less than 50 billion Rupiah, enjoy a 50% discount from the standard rate, levied pro rata on taxable income for total turnover up to Rp4.8 billion. Companies, whose total turnover is less than Rp4.8 billion, are charged a final income tax of 0.5% of their turnover.

PPh Foreign Companies in Indonesia

Based on Klikpajak.id, there are some of the obligations of taxation of foreign companies in Indonesia.

Income Tax (PPh)

Annual PPh for PE Companies: annual income tax rate of 22% from the income obtained.

PPh Article 26: Collected if the foreign company derives income from certain transactions such as dividends, interest including premiums and discounts and compensation in connection with debt collateral return, and others according to the provision. The income tax rate for foreign companies differs depending on the tax object. 

Value Added Tax (VAT)

In addition, foreign corporate taxpayers also have to be charged with value-added tax concerning the procurement or provision of taxable goods or services.

Presently, 11% is being used as the VAT rate. Pursuant to the HPP Law, the government intends to raise the rates in succeeding years.

As a taxpayer who conducts transactions of taxable goods or services, you must manage value-added tax, starting from invoicing for tax, depositing the amount that must be paid, up to filing SPT Masa PPN. 

You might also like: A Complete Guide to Business Licenses in Indonesia for New Companies

Factors Affecting Corporate Tax Calculation

Understanding the different factors that affect corporate tax calculation in Indonesia will help foreign companies to optimize their tax liabilities. Here's a closer look at key elements that impact corporate tax assessments.

Taxable Income vs. Gross Income

Difference Between Taxable Income and Gross Income

Gross income simply refers to the total revenue generated by a business prior to subtracting something. On the contrary, taxable income refers to the net income, which shall be levied against tax upon application of allowable deductions. Basically, taxable income will reveal an actual representation of the income earned by a company that must be levied to taxation.

How Indonesia Defines and Calculates Taxable Income

In Indonesia, taxable income arises from the gross income deducted by allowable expenses. The DJP has very stringent laws on what constitutes income and is hence subject to taxations. The business should keep accounting books to correctly and accurately record its income and any allowable deductions. For further details, visit the DJP website.

Double Taxation Treaties

How Double Taxation Treaties (DTTs) Reduce Tax Liabilities

Indonesia has signed numerous agreements related to the avoidance of Double Taxation Treaties with various countries, and such income shall not be subject to tax in more than one jurisdiction. These treaties also allow foreign investors to enjoy withholding tax rates on dividends, interest, and royalties at lower rates. By utilizing DTTs, companies can greatly reduce their overall tax liability.

Please refer to the DJP Double Taxation Agreement page on the official website for an exhaustive list of Indonesia's DTTs and their specific provisions.

What deductible expenses are companies' entities to?

Business expenses incurred for deriving income may also be deductible. This cost includes:

Depreciable/amortizable assets

The cost of the extension of rights of construction use, rights of business use, rights of usage, and a goodwill with a useful life more than one year, excluding the land held and used for business purposes

Organization and start-up expenditures

The organization's incorporation and capital expansion expenses are fully deductible in the year the expenditure was incurred or may be amortized at the above rates using either the straight-line or declining-balance methods.

All expenditures that have a useful life longer than one year, contracted prior to the beginning of business operations, are capitalized and amortized using the above rates.

Interest Expense

Interest paid in the ordinary course of business is deductible up to a limit if the loan is used for business purposes. Those methods which are commonly used overseas-the debt-to-equity ratio or the proportion of EBITDA-are appropriate for the limitation of the deduction of interest.

Interest on loans secured by time deposits are not deductible; this is because such income is subjected to final taxation.

It is also not deductible to pay interest on loans used in acquiring shares in which the dividends are not taxable as income.

Other Deduction

• Bad debts
• Charitable contributions
• Benefits in kind
• Fines and penalties
• Taxes
• Net operating losses
• Payments to foreign affiliates

You can check detailed deduction expenses on the PWC website, here.

Corporate Tax Compliance and Reporting Requirements

Of course, the need to understand corporate tax compliance and reporting in Indonesia becomes important. Particularly, foreign companies have to ensure that they are compliant with relevant legislation, thereby trying to avoid fines by knowing the exact requirements and deadlines.

See below for tax compliance and reporting in Indonesia.  

Filing Corporate Taxes in Indonesia

Annual Reporting Obligations

In Indonesia, filing a corporate tax return is required annually, typically by April 30th of the subsequent fiscal year. To support an Annual Tax Return [], the company needs to be prepared with documents that serve as proof of income received and deducted, including their tax dues. Companies are highly required to keep proper records to support reports. For more information, please see DJP Tax Reporting Requirements here.

Penalties for Non-filing

There are substantial penalties for failing to file on time. Corporate late filings can be assessed penalties of 2% to 4% per month, depending on the time elapsed, of the unpaid tax. Interest and additional taxes will also be owed on penalty filings that were filed incorrectly .

e-Filing and Internet sites

With the implementation of an electronic filing system that allows businesses to submit their tax return electronically, Indonesia has entered the digital era regarding tax administration. This platform has smoothened the filing process, whereby in turn, will ease things up for companies to comply better with the filing process.

See here for a Guide on Income Tax Return Filing by MSME Taxpayers.

How Does Indonesia Compare with Other ASEAN Countries?

In 2023, Indonesia's corporate income tax rate is 22%. For the other ASEAN countries, it is as follows, accordingly:

• Malaysia: 24%
• Singapore: 17%
• Thailand: 20%

Tax Incentives and Holidays for Foreign Investors

Corporate Income Tax Incentives for Foreign Investor

Tax withheld or paid abroad by resident taxpayers in respect of income derived abroad may be credited against the tax payable in Indonesia within the same fiscal year.

Tax Holidays and Other Incentives

Tax Holiday

Capital investments up to IDR 500 billion may be allowed a tax holiday by MoF, whereby 100% of CIT may be exempted for five to twenty years. A company enjoys a 50 percent reduction of CIT for two years beyond the holiday period.

Businesses can also receive a five-year, 50% CIT discount for investments that total less than IDR 500 billion but over IDR 100 billion. For such companies, there is a follow-on reduction of 25% over the following two years.

Tax Allowance

The MoF can grant tax holidays to PT firms whose investments fall within specific areas. Benefits include:

A 30% reduction of net taxable income derived from investments in tangible fixed assets, apportioned over six years. The right to claim accelerated depreciation and amortization deductions. A reduced WHT rate of 10% on dividends paid to non-residents. An extended carry-forward for tax losses of up to ten years. CONDITIONS FOR APPLICATION: High value of investment or export-oriented. Generating a large number of jobs. High percentage of local value added content.

Applications for such benefits also need to be submitted through the OSS system and follow procedures for approval by the MoF.

Conclusion

In conclusion, understanding corporate tax rates is crucial for businesses looking to optimize their financial strategies and remain compliant with ever-evolving regulations. Whether you're a local enterprise or a multinational corporation, navigating tax complexities requires expertise. Viettonkin Consulting offers tailored services to help companies manage their tax obligations effectively, ensuring compliance and offering insights on minimizing tax burdens. 

By partnering with experienced consultants, businesses can focus on growth while staying ahead of tax challenges. Visit our website to learn more.

You might also like: PT PMA Indonesia: A Gateway to Foreign Investors

Unveil the pillars of Vietnam's financial strength through the lens of blue chip companies. As stalwarts of stability and growth, these entities wield significant influence over investment portfolios, shaping the country's economic landscape. Join us as we delve into the intricate tapestry of Vietnam's stock market, deciphering the impact of these blue chip companies on investment strategies. Brace for a revealing journey as we offer a glimpse into the commanding presence of the top 10 blue chip companies listed on Vietnam's stock exchange.

Overview of Vietnam's Stock Market

For three consecutive years, Vietnam Report proudly presents the VIX50 Ranking, acknowledging the Top 50 esteemed and high-performing public companies. This recognition celebrates companies demonstrating financial prowess, sustainable development, governance excellence, and industry leadership. As of the ranking's release, the combined capitalization of these 50 enterprises represents over 57% of the entire market, boasting an impressive average ROE of 21.1% in 2022. The 5-year average compound growth rates for revenue and profit stand at 14.1% and 26.3%, respectively. With 29 enterprises exceeding $1 billion in capitalization, 25 surpassing $1 billion in revenue, and 43 achieving profits over VND 1,000 billion, the VIX50 highlights firms with robust financial foundations. This accolade aims to recognize their exceptional contributions in delivering quality products and services, fostering a positive public and investor perception. The unwavering support from the business community has positioned VIX50 as a premier platform for esteemed evaluations by investors, financial institutions, and the media.

As we delve into this article, our focus sharpens on the subset of these distinguished entities—the top 10 blue chip companies within the VIX50 Ranking. A keen analysis of these market giants reveals valuable insights into their strategic positioning, market capitalization, and key indicators.

Blue Chip Companies in Vietnam

Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) - VCB

Vietcombank stands as the premier banking and financial services provider in Vietnam. Recognized both domestically and internationally, Vietcombank plays a pivotal role in fostering economic stability and growth. With over 560 branches and a robust business performance, Vietcombank continues to demonstrate its financial prowess. In 2019, the bank achieved remarkable results, with a total capital mobilization exceeding 1,039 trillion VND and a profit milestone of 23,155 billion VND. Vietcombank's strategic vision aims to secure its position as the No. 1 Bank in Vietnam, striving for global recognition among the top 100 banks in Asia.

PetroVietnam Fertiliser and Chemicals Corporation (PVFCCo) - DPM

PVFCCo, a subsidiary of the Vietnam National Oil and Gas Group, leads the Vietnamese fertilizer industry. With products meeting international standards, PVFCCo's "Phu My" brand dominates the market, boasting a market share of over 40%. The company's extensive distribution network and strategic warehouses ensure a stable supply, not only meeting domestic demands but also expanding into international markets such as New Zealand, Jordan, and Cambodia.

FPT Joint Stock Company - FPT

FPT, the largest Information Technology - Telecommunications Group in Vietnam, is a key player in software export, system integration, and IT services. With a global presence in 45 countries, FPT stays at the forefront of technology trends, including S.M.A.C. and IoT. In 2020, the company reported revenue and pre-tax profit of VND 29,830 billion and VND 5,261 billion, respectively, emphasizing its commitment to digital transformation and robust business model development.

Vietnam Technological and Commercial Joint Stock Bank (Techcombank) - TCB

Techcombank, aspiring to be the best bank in Vietnam, focuses on providing comprehensive financial solutions. With total assets reaching 383 trillion VND, a widespread service network, and cutting-edge technology, Techcombank aims to create Vietnamese pride. The bank's visionary strategy transcends profit goals, emphasizing a mission to contribute positively to society.

Military Commercial Joint Stock Bank (Military Bank) - MBB

Military Bank stands as a multifunctional financial corporation with 296 transaction points nationwide. Consistently profitable for over 26 years, Military Bank has weathered economic challenges and exceeded targets. In 2020, Military Bank's total consolidated assets reached VND 494,982 billion, showcasing its resilience and growth even in the face of the COVID-19 pandemic.

Vietnam International Commercial Joint Stock Bank (VIB) - VIB

With a retail proportion accounting for 90% of the credit portfolio, VIB distinguishes itself with a robust focus on individual customers. Rapid growth in retail loans, strong asset quality, and a diversified income structure position VIB as a market leader. The bank's efforts in the retail segment are evident in its outstanding growth, making it one of the top profitable banks in the industry.

Ho Chi Minh City Development Commercial Joint Stock Bank (HDBank) - HDB

HDBank, listed on HOSE since January 5, 2018, has swiftly become one of the leading banks in Vietnam. With a focus on a vast green ecosystem, HDBank offers a range of financial and banking services, contributing significantly to economic development. HDBank's commitment to technology and the Happy Digital Bank mission showcase its dedication to customer satisfaction.

Asia Commercial Joint Stock Bank (ACB) - ACB

ACB, a leading bank with diverse business lines, operates with principles of professional management and sustainable growth. With over 350 branches and a wide-reaching service network, ACB is committed to providing comprehensive financial services. The bank's subsidiaries and affiliates, including ACB Securities Company and ACB Financial Leasing Company, further contribute to its financial strength.

Vinhomes Joint Stock Company - VHM

Vinhomes, the No. 1 real estate investment, business, and management company in Vietnam, leads the market with sustainable development and premium service quality. Pioneering ideal living experiences, Vinhomes shapes a new lifestyle with meticulously planned residential areas. The company's transparency and efficiency align with its core values, contributing to the transformation of Vietnam's urban areas.

Duc Giang Chemicals Group Joint Stock Company - DGC

Duc Giang Chemicals Group is a front-runner in industrial chemicals, consistently striving for excellence. As a leading enterprise, Duc Giang Chemicals Group's focus on phosphate chemicals aligns with its ambition to produce compounds for pharmaceutical use. Specializing in the production of washing powder and detergents, the company adheres to ISO 9001:2000 standards, ensuring quality products for diverse applications.

Investment Insights and Strategies

The Blue Chip Advantage: Stability and Growth in the Stock Market

Investors seeking stability and growth in the Vietnam stock market find a compelling advantage in blue-chip companies. Blue chips, represented by the top-performing stocks, offer a reliable foundation for investment portfolios. These companies, often market leaders in their respective industries, have demonstrated resilience and sustainable growth over time. Choosing blue-chip stocks provides investors with a strategic approach to navigate market fluctuations, minimizing risks while fostering long-term wealth accumulation.

Investor Considerations: Analyzing Financial Health and Opportunities

Before delving into stock investments, prudent investors prioritize a thorough analysis of financial health and potential opportunities. Evaluating key financial indicators, such as earnings reports, debt-to-equity ratios, and cash flow statements, is crucial. Understanding a company's performance and its position within the market allows investors to make informed decisions. Additionally, staying abreast of market trends, regulatory changes, and macroeconomic factors contributes to a comprehensive investment strategy. By considering both micro and macro perspectives, investors can align their portfolios with the dynamic nature of the Vietnamese stock market.

Building a Robust Portfolio: Tips for Successful Stock Market Investment

Building a robust stock portfolio requires a strategic and diversified approach. Successful investors carefully select a mix of stocks across various sectors to mitigate risk and optimize returns. Diversification not only safeguards against industry-specific downturns but also capitalizes on emerging opportunities. Regularly reviewing and rebalancing portfolios ensures alignment with changing market conditions. Moreover, adopting a long-term perspective and staying disciplined during market fluctuations contribute to sustained success. Engaging with reliable financial advisors and leveraging analytical tools enhances an investor's ability to make informed decisions, ultimately paving the way for a resilient and prosperous stock market journey.

Final Thoughts

Concluding our exploration of the formidable impact of blue chip companies on Vietnam's stock market, it's apparent that these corporate giants form a secure basis for strategic investment. Highlighting their enduring importance adds depth to one's comprehension of the Vietnamese financial market. By acknowledging the stability and growth potential ingrained in these listed companies, investors can adeptly navigate the intricacies of the stock market. Consider harnessing Viettonkin's expertise to unlock opportunities and receive customized guidance in your investment journey within the dynamic stock market.

The Vietnamese stock market, a dynamic arena for financial growth, demands investor attention. Staying informed is the key to smart investment decisions. In this landscape, awareness is not just an advantage; it's a necessity. Join us as we unravel the intricacies of the Vietnamese stock market, providing insights into its current state, performance analysis, and emerging opportunities. Preview potential sectors and understand the necessity of continuous learning in this ever-evolving financial market. This guide prepares you for the exciting journey of strategic and informed stock investment in Vietnam.

Current State of the Vietnamese Stock Market

Market Participation and Foreign Investor Trends

Recent data from the Vietnam Securities Depository (VSD) reveals a vibrant landscape, with 8% of Vietnam's population, totaling 7.76 million individuals, actively participating in the stock market. In September 2023, 172,695 new stock accounts were opened, primarily by individual investors. Despite a slight decrease compared to the previous month, the numbers remain robust, marking the second-highest level in over a year. Foreign investors joined the fray with 253 new accounts, bringing the total to 42,711 accounts. Notably, a Q4 strategic report by KIS Vietnam Securities Corporation indicates heightened trading activities among foreign investors, reaching the year's peak. The market's liquidity soared, hitting an impressive US$1.5 billion in a recent session.

Factors Driving Stock Market Inflows

A crucial factor driving the influx of capital into the stock market is the declining savings interest rate. As the interest rates on savings decrease, experts forecast a continuing trend of investors redirecting nearly US$20.5 billion of maturing savings into the stock market. The decrease in deposit interest rates encourages more significant cash flows into the stock market, a trend that gained momentum in the second quarter of the year. With the anticipation of further interest rate reductions, domestic investors are increasingly diverting their funds from traditional bank deposits to more dynamic investment channels, including stocks. Additionally, positive forecasts for economic growth in the coming months further bolster investor confidence, anticipating a rebound in the business performance of listed firms.

Profits and Industry Dynamics

Despite short-term economic challenges impacting enterprise performance, certain industry groups are positioned for positive profit growth. Noteworthy sectors include steel, securities, oil and gas, and technology. In the securities sector, increased market liquidity in the third quarter has driven positive business results, particularly in the brokerage and lending segments. Steel businesses, which faced substantial losses in 2022, are witnessing improvements in the second half of this year. The oil and gas sector benefits from a recovery in oil prices, predicted to hover around $90/barrel. Forecasts suggest a positive outlook for oil prices due to demand recovery and ongoing reduction policies by Russia and OPEC+. Recent geopolitical conflicts also contribute to short-term support for oil prices.

Emerging Opportunities for Stock Investors

Regulatory Environment and Market Transparency

The foundation for emerging opportunities in the Vietnamese stock market lies in a robust legal framework. The 2019 Securities Law, the 2020 Investment Law, and the 2020 Law on Enterprises, supported by guiding documents, foster optimal conditions for investment. These measures facilitate information accessibility in English, streamlined investor registration, and account opening, enhancing market transparency. The adherence to stringent settlement practices for violations and proactive English information disclosure, especially among VN30 Index businesses, reflects a commitment to market health.

Growth Stocks in Top Industries

Vietnam Report identifies the top six industries with the most promising growth stocks: Banking, Food Production, Power Production and Distribution, Oil and Gas Production, Tourism and Recreation, Pharmaceuticals, Construction, and Materials. The dynamic landscape is evident in the Top 50 prestigious and effective public companies of 2023, showcasing the remarkable ascent of the banking sector. The shifting ranks, marked by the emergence of Vietcombank and other key players, underscore the resilient performance of the industry despite challenges like the COVID-19 pandemic.

Influential Factors on Enterprise Reputation

Corporate liquidity and valuation stand out among the top factors influencing the reputation and efficiency of public enterprises in 2023. Surprisingly, dividend policy rises to the 6th position, emphasizing its growing impact on corporate governance. Consistent dividend payouts and growth rates serve as crucial indicators for investors assessing long-term financial stability. Communication-related factors also emerge as influential, underscoring the importance of effective corporate communication in shaping business prestige and effectiveness.

Key Considerations for Stock Investors

Crafting Effective Risk Management Strategies

In the ever-evolving stock market, effective risk management is critical for investors. Diversification remains a fundamental strategy to mitigate the risks associated with market fluctuations. Allocating investments across various sectors and industries can help safeguard portfolios from the impact of specific economic challenges. Additionally, staying informed about market trends, economic indicators, and geopolitical events enables investors to make proactive decisions. Regularly assessing risk tolerance and adjusting investment strategies accordingly ensures a balanced and resilient portfolio in the dynamic stock market landscape.

Staying Informed on Regulatory Updates

Regulatory updates wield significant influence on stock market decisions. Investors must stay abreast of any changes in securities laws, market regulations, and compliance standards. Proactive adaptation to regulatory shifts is crucial for maintaining compliance and making well-informed investment choices. Engaging with financial advisors and legal experts can provide valuable insights into the implications of regulatory changes. A thorough understanding of the legal landscape enhances investors' ability to navigate challenges, seize opportunities, and uphold ethical investment practices.

Navigating Market Volatility with Informed Strategies

Market volatility is inherent, and investors must navigate it with informed strategies. Establishing a long-term perspective helps withstand short-term market fluctuations. Setting clear investment goals and maintaining discipline in adherence to those goals contributes to a strategic and focused approach. During periods of volatility, identifying fundamentally strong stocks and adopting a patient investment strategy can yield favorable results. Embracing volatility as an inherent aspect of the stock market journey positions investors to make rational decisions and capitalize on opportunities that arise amidst market fluctuations.

Final Thoughts

In wrapping up our exploration of the Vietnamesestock market, we underscore the importance of adaptability and continuous learning for stock investors. The market's dynamic landscape offers both challenges and opportunities, demanding a strategic approach and effective risk management. As we navigate through key insights, it's clear that the Vietnamese stock market is ripe for strategic investment. For those seeking expertise in stock market analysis and comprehensive guidance, Viettonkin stands ready to assist. Seize the potential, enhance your strategic investing, and explore Viettonkin's support in your stock investment endeavors.

In the realm of international business and investment, a comprehensive understanding of the taxation systems in Vietnam and Thailand is indispensable. As both countries vie for global attention, the distinctions in their tax systems, tax rates, and tax structures carry immense weight in the choices made by businesses and investors. From corporate income tax to VAT and other levies, the variances in tax incentives and structures can significantly impact financial strategies and overall operations. Navigating these taxation differences is imperative for making well-informed decisions that can pave the way for long-term success in Southeast Asia.

Taxation Structures and Rates in Vietnam

Vietnam's taxation structure is a multifaceted framework essential for businesses and investors operating in the country. This structure comprises several key elements, with Corporate Income Tax (CIT), Personal Income Tax (PIT), and Value Added Tax (VAT) being the most prominent.

Value Added Tax (VAT) in Vietnam

• 0% VAT: Applied to goods and services like exported goods, goods sold to non-tariff areas, export processing companies, and international transportation services, this rate plays a significant role in facilitating international trade.
• 5% VAT: This is typically applied to essential goods and services, making it more accessible for the general population. It covers items such as clean water, teaching aids, and medical equipment.
• 10% VAT: Representing the standard rate, this applies to activities not specified as exempt from VAT or subject to a lower rate.

Personal Income Tax (PIT) in Vietnam

Vietnam's PIT system is progressive, with rates ranging from 5% to 35%. Recent changes in the tax landscape focus on combating tax evasion and regulating Transfer Pricing Decrees, impacting how multinational corporations interact with local entities.

Corporate Income Tax (CIT) in Vietnam

Regarding CIT, the standard rate is 20%. However, the oil and gas sector faces rates between 32% and 50%, while businesses involved in prospecting and mineral resource exploitation deal with CIT rates of 40% or 50%. These variations depend on project location and conditions.

Tax incentives in Vietnam

Vietnam offers several tax incentives aimed at attracting foreign investment and fostering economic growth. These incentives can encompass tax holidays, preferential tax rates, and exemptions, and their availability depends on factors such as location, industry, and project size. Various sectors, including education, healthcare, high technology, and environmental protection, are encouraged by the Vietnamese government to benefit from these incentives. Specific social sectors, like education and healthcare, can enjoy the 10% rate for the entire duration of their projects.

Moreover, Decision 29/2021, in effect since October 6, 2021, provides guidance on special investment incentives applicable to qualified Research and Development (R&D) and large investment projects outlined in the Law on Investment. The CIT incentives for these projects differ based on specific criteria. The most favorable package includes a preferential tax rate of 5% for 37 years, six years of tax exemption, and a 50% CIT reduction for the following 13 years. Land and water rental fees may also be exempted or reduced for a specified period.

Taxation System in Thailand

Value Added Tax (VAT) in Thailand

VAT, a cornerstone of the Thai tax system, is primarily levied at a standard rate of 10%. Nevertheless, Thailand also implements a 0% VAT rate for specific items and services, such as those associated with exports and international transportation, along with transactions involving government agencies and state enterprises under foreign aid programs.

Personal Income Tax (PIT) in Thailand

PIT in Thailand adheres to a progressive structure, meaning that tax rates fluctuate in accordance with individuals' income levels. For residents, the rates span from 5% to 35%, while non-residents are subject to flat rates, typically set at 15%.

Corporate Income Tax (CIT) in Thailand

CIT in Thailand is typically assessed at a flat rate of 20% on net profits for most businesses. Nevertheless, specific sectors, especially those under investment promotion schemes like the Board of Investment (BOI), may have varied rates. Businesses and partnerships with capital below 5 million Thai baht and revenue under 30 million Thai baht are subject to specific rates: 0% for up to 300,000 Thai baht, 15% for revenue between 300,001 and 3 million Thai baht, and 20% for earnings exceeding 3 million Thai baht.

Beyond these core taxes, Thailand also imposes Specific Business Tax (SBT), Stamp Duty, and Excise Tax. SBT is relevant to specific businesses and activities, while Stamp Duty is levied on various documents like contracts and licenses. Excise Tax pertains to specific goods and services, such as alcoholic beverages, tobacco, and petroleum.

Tax incentives in Thailand

In the realm of tax incentives, Thailand offers a range of provisions designed to foster foreign investment and stimulate economic growth. These incentives encompass exemptions and reductions in taxes, such as import duties and corporate income tax, with various incentives linked to investment size, location, and promoted activities. For instance, investors may encounter import duty exemptions for items used in research and development (R&D), reductions in corporate income tax rates, and even exclusions of dividends from promoted enterprises from taxable income during specific periods. Double deductions, deductions of infrastructure installation or construction costs, and more incentivize businesses and investors, making Thailand a compelling destination for those seeking tax advantages and investment opportunities.

Key Differences and Comparisons: Vietnam vs. Thailand Taxation

Vietnam’s Taxation Landscape

Vietnam's taxation system exhibits a dynamic landscape with several layers of taxes, including Corporate Income Tax (CIT), Personal Income Tax (PIT), Value Added Tax (VAT), and various other taxes. The structure is complex yet navigable, offering several tax incentives aimed at fostering foreign investment and business growth. However, businesses often encounter certain challenges such as occasional bureaucratic inefficiencies and the need for a thorough understanding of the regulatory landscape.

Thailand’s Taxation Environment

On the other hand, Thailand's taxation framework also encompasses essential elements such as Corporate Income Tax (CIT), Personal Income Tax (PIT), Value Added Tax (VAT), and additional taxes like Specific Business Tax (SBT) and Stamp Duty. Thailand's tax system boasts a wide range of tax incentives that serve as powerful catalysts for attracting foreign investment. However, businesses may face certain challenges, including a potentially more complex tax structure and the need for comprehensive compliance with local tax regulations.

Factors for Consideration

Considering the implications of taxation in both countries is crucial when evaluating the best locations for investment and business setup. While Vietnam offers a more straightforward tax system in some respects, Thailand provides an array of attractive incentives for businesses, making both countries compelling options for various types of investors. It's essential to carefully assess the tax implications in each country, weighing the challenges and opportunities they present, to make well-informed decisions about the best fit for your business operations.

Final Thoughts

In summary, comprehending the nuances of taxation in Vietnam and Thailand is crucial for businesses and investors. Our comparative analysis has illuminated the distinctions and opportunities within each country's taxation system. As you navigate the intricacies of tax rates, remember that expert guidance is your most valuable asset. Viettonkin is prepared to assist, offering comprehensive services to manage taxation matters in Vietnam and Thailand. Take the next step toward a successful investment journey by exploring the support and solutions Viettonkin provides.

The emergence of the Global Minimum Tax (GMT) has triggered a significant paradigm shift in the realm of international taxation, particularly affecting Foreign Direct Investment (FDI) in Vietnam. Understanding the implications of GMT is crucial in navigating the evolving landscape of taxation. With its profound impact on various aspects of the global economy, GMT's significance in the context of Vietnam's taxation landscape cannot be overstated. This introduction sets the stage for a comprehensive exploration of the intricate effects and implications of GMT on foreign investment in Vietnam.

The Effects of GMT on FDI in Vietnam

GMT's Impact on Vietnam: Reshaping Taxation and Foreign Investment

The introduction of the global minimum tax (GMT), also known as the Pillar 2 solution, carries significant implications for Vietnam's tax landscape. In December, the European Union officially ratified a directive, stipulating that companies must adhere to a minimum tax rate of 15% starting in 2024. Countries with substantial foreign investments in Vietnam, such as South Korea and Japan, are set to implement new tax policies or announce draft tax reforms, marking a shift towards GMT for the fiscal year 2024.

In Vietnam, the state budget revenue from Corporate Income Tax (CIT) in the years 2020-2022 ranged from 18% to 21%. Foreign Direct Investment (FDI) enterprises contributed between 7.5% and 8.5% of this revenue. If the global minimum tax is not applied, Vietnam may introduce top-up CIT for FDI enterprises currently enjoying lower tax rates, thus bolstering state budget revenue. However, if GMT is applied, revenue eligible for tax incentives will be redirected to the budgets of more developed nations. Furthermore, when GMT is applied to local enterprises engaged in offshore investment with subsidiaries in other countries and paying CIT below the minimum threshold, Vietnam can collect top-up CIT, thereby augmenting state budget revenues.

Vietnam's alluring corporate income tax incentives have been pivotal in attracting FDI, with around 335 projects in the processing and manufacturing industries enjoying tax rates below 15%. These projects collectively represent 30% of the total FDI inflow, estimated at $131.3 billion. The country houses 619 multinational enterprises (MNEs) with 1,017 subsidiaries that reported consolidated revenue exceeding 750 million euros in 2021. As of 2024, if GMT comes into effect, 112 MNEs in Vietnam will be directly affected, with South Korea and Japan collectively collecting over $462.5 million in additional taxes.

As of March 20, data provided by the Ministry of Planning and Investment reveals that Vietnam currently has 1,625 offshore investment projects, among which 141 state-invested enterprises constitute a significant portion, accounting for 53.3% of the nation's total investment. The application of GMT could lead to additional tax obligations for local enterprises involved in offshore investments.

GMT Impact on Tax Incentives and Strategies for Attracting FDI

First and foremost, the adoption of GMT measures is set to nullify the very tax incentives that have consistently piqued the interest of significant foreign investors. Presently, numerous corporations in Vietnam benefit from tax incentives ranging from 2.75 to 5.95 percent, considerably lower than the stipulated 15 percent tax rate. The looming application of GMT in 2024 will necessitate tax rate adjustments for at least 1,015 Foreign Direct Investment enterprises operating within Vietnam.

Discussion surrounding the global minimum corporate tax reveals the potential adverse impacts on multinational companies, including those actively investing in Vietnam. In response to this impending change, experts suggest that Vietnam should formulate an investment policy geared towards attracting strategic foreign investors.

To mitigate the implications of global minimum tax (GMT) on foreign enterprises, Vietnamese tax officials are actively exploring tailored support mechanisms. The General Department of Taxation (GDT) under the Ministry of Finance is engaged in discussions concerning resources that can be allocated to assist Foreign Invested Enterprises (FIEs) impacted by the impending GMT regulation, slated for implementation in early 2024. Vietnam's extensive list of foreign partners, hailing from 142 countries and territories, with a significant concentration in East Asia, underscores the importance of these support measures. The forthcoming support is designed to align with each enterprise's unique characteristics, helping them compensate for the tax incentives affected by the GMT regulation. Enterprises will have access to this support mechanism through registration procedures, following the fulfillment of their tax obligations. Proactively participating in the GMT implementation process is crucial for Vietnam's international integration efforts, tax system reforms, and overall economic and social development.

Implications of GMT from the Tax Administration Perspective

Implications of GMT under Tax Administration

The implementation of GMT has far-reaching implications for tax administration in Vietnam, including:

• Impact on Revenue: GMT introduces a minimum global tax rate that corporations must adhere to. This adjustment can positively impact Vietnam's tax revenue as companies may find themselves paying higher taxes, thereby bolstering the state budget.
• Changes in Taxation: Tax authorities in Vietnam are tasked with adapting to the new tax regulations, aligning them with global standards, and ensuring that multinational enterprises (MNEs) comply with GMT rules. This adjustment may necessitate changes in tax codes and policies to maintain conformity with evolving international tax standards.
• Monitoring Foreign-Invested Enterprises: Vietnam's tax administration will need to intensify monitoring of foreign-invested enterprises (FIEs) to assess their tax liabilities under the GMT framework. FIEs, which often benefit from various tax incentives, may experience changes in their tax obligations, necessitating a reassessment.
• Policy Reforms: The introduction of GMT in Vietnam is poised to expedite policy reforms and intensify the country's international integration efforts. Tax administration plays a pivotal role in implementing and enforcing these reforms to ensure effective compliance with global standards.

In summary, the implications of GMT under tax administration in Vietnam encompass changes in revenue, adaptations in taxation policies, heightened monitoring of FIEs, and the imperative need for policy reforms to harmonize with evolving global tax standards.

Recommendations for Foreign Investors in Vietnam

As foreign investors navigate the evolving tax landscape shaped by GMT, several strategic considerations come to the forefront:

• Policy Follow-Up and Advocacy: Foreign investors should closely follow the development of GMT regulations and advocate for policies that align with their business objectives. Staying informed and actively participating in policy discussions can help businesses adapt effectively.
• Proactive Impact Assessment: Each business needs to proactively assess the impact of GMT, particularly at the group level, to prepare for impending policy changes. Understanding how GMT affects their tax obligations and operations is instrumental in developing strategies to manage this new tax era effectively.

Final Thoughts

In summary, the advent of Global Minimum Tax (GMT) heralds a transformative era in international taxation and its far-reaching effects on foreign direct investment (FDI) in Vietnam. This new global tax landscape carries implications for both local and foreign companies, from revenue changes to policy reforms. Navigating this shift in tax rates and administration is complex, making expert guidance and compliance support vital. Viettonkin is your partner in successfully managing taxation and compliance matters in the GMT era, ensuring that your foreign investment ventures in Vietnam thrive.

Vietnam, a nation marked by its breathtaking landscapes and vibrant culture, has transformed into an economic powerhouse in Southeast Asia. As foreign investors set their sights on Vietnam, they recognize that the journey toward sustainable growth hinges on robust infrastructure. The backbone of a thriving economy, infrastructure lays the foundation for trade, investment, and innovation. Modern transportation networks, energy grids, and digital connectivity form the arteries that pump vitality into every corner of the nation. Thus, understanding the current landscape of infrastructure financing becomes a compass guiding investors towards lucrative opportunities.

Current landscape of infrastructure financing in vietnam

Vietnam's vision for the future is painted on an infrastructure canvas that spans transportation, energy, technology, and urban development. Projects like the North-South Expressway, which seeks to connect the country's two major cities, Ho Chi Minh and Hanoi, epitomize the scale and ambition of these initiatives. Urban hubs like Ho Chi Minh City and Danang are poised for transformation through smart city solutions. These projects mirror Vietnam's determination to craft an infrastructure ecosystem that fosters efficiency, sustainability, and competitiveness.

Yet, the path to realizing these grand ambitions is lined with challenges. The financial demands of such projects often exceed conventional funding sources. Navigating the complexities of regulatory frameworks and mitigating risks in unfamiliar environments can be daunting for potential investors. There's a delicate balance between the need for profitable investments and the socioeconomic impact of these projects. As a result, innovative financing mechanisms and partnerships are being explored to bridge the funding gap.

Vietnam's government has emerged as a pivotal player in driving infrastructure development. The introduction of Public-Private Partnerships (PPPs) is a testament to the government's commitment to attracting private sector involvement. By facilitating collaboration between public and private entities, PPPs infuse fresh capital, expertise, and innovation into infrastructure projects. The government's role also extends to providing a stable regulatory environment, reducing bureaucratic hurdles, and establishing dedicated funds to support these initiatives.

Government initiatives to attract foreign investors

Vietnam's pro-business stance is reflected in its policies designed to attract foreign investors. 

Incentives for the chosen investor in the form of PPP

According to Article 30 of Decree No. 35/2021/ND-CP, investors with approved project proposals shall get a 5% preference when assessing bids. In addition, a 3% preference shall be granted to investors who commit to use domestic contractors for at least 25% of the project’s total investment value.

Meanwhile, when participating in the selection of international investors, if the investors pledge to use domestic goods, supplies, materials and equipment for at least 25% of the project’s total investment value, they shall enjoy a preference of 2% in the assessment of bids.

Incentives for Smart City investment

Vietnam, with 48 out of 63 provinces and cities under central governance, is actively shaping smart city initiatives. These encompass plans for entire provinces or specific urban areas.

To foster smart city development, Vietnam has introduced key documents, such as:

• Official Letter No. 10384/VPCP-KGVX on outlining sustainable smart city principles globally and domestically, 
• Document No. 58/BTTTT-KHCN on guiding ICT principles for smart city construction in Vietnam, 
• Decision No. 950/QD-TTg on approving the sustainable smart city project from 2018 to 2025, 
• Document 693/BXD-PTĐT on detailing the implementation of sustainable smart city development in Vietnam, among others.

Particularly, the Politburo's Resolution 31 charts Ho Chi Minh City's path to 2030 and beyond, envisioning digital leadership and development across various sectors. Initiatives include the Digital Transformation Program, the Ho Chi Minh City smart city project, and support for the innovation startup ecosystem.

In addition, on June 16, 2023, Decision No. 700/QD-TTg sanctioned Hanoi's Master Plan adjustments toward a modern smart city. The Hanoi Party Committee's Program No. 03-CTr/TU focuses on urban enhancement and economy until 2025, aiming to invest in new smart-oriented urban areas by then.

Notable Smart City Projects Include:

• Tay Mo - Dai Mo - Vinhomes Park new urban area project in Nam Tu Liem District, Hanoi.
• Hanoi's Dong Anh district, with a 4.2 billion USD investment, prioritizes the Smart City project, streamlining initial construction procedures.

Incentives for Developing Key Economic Zones (KEZs) in Vietnam

As outlined in Article 23 of Decree 35/2022/ND-CP:

• Economic zones are given priority for investment, with funding from state budget and legal sources, dedicated to constructing technical, social, and environmental projects.
• Key infrastructure projects, essential for economic zone advancement, may secure additional funding through compliant bond issuance.
• Investment in vital technical and social infrastructure, public utilities, and service projects in economic zones grants investors support from official development assistance (ODA), concessional loans, and technical aid, as per the law.

Types of infrastructure financing in Vietnam

Vietnam stands at the forefront of Asia's infrastructure drive, channeling substantial resources to spur economic growth, elevate living standards, support energy transition, and bolster resilience, all accounting for around 5.7% of GDP.

The National Master Plan, spanning 2021-2030 with a visionary outlook to 2050 as outlined in Resolution No. 81/2023/QH15, underscores the imperative of a spatial development model. This blueprint accelerates modernization and synchronicity across Vietnam's infrastructure landscape.

Moreover, Vietnamese Government-led endeavors promote sustainable infrastructure, manifesting through investments in renewable energy sources, incentivizing green buildings, and advocating for electric vehicles. PwC also emphasized the necessity for green infrastructure components, advocating for projects that facilitate a just transition to a low-carbon economy while strengthening climate responsiveness. This clarion call highlights the pivotal role of renewable energy sources, necessitating capacity building and skill development. 

To call for investment in infrastructure development, Vietnamese Government has facilitated various modes of infrastructure financing within Vietnam, including:

• Direct Government Investment: Presently, government agencies, including local governments and state-owned enterprises, predominantly finance Vietnam's infrastructure initiatives. However, private sector involvement remains limited.
• Bank and Credit Institution Financing: The backbone of private sector projects in Vietnam, loans from banks and credit institutions serve as the principal funding source.
• Public-Private Partnerships (PPPs): Enacted through the Law on Public-Private Partnership Investment No 64/2020/QH14, PPPs forge fixed-term collaborations between the state and private-sector entities, enticing private sector engagement.
• Market-Based Instruments: Regulatory frameworks such as Securities Law No. 54/2019/QH14, Enterprise Law No. 59/2020/QH14 (pertaining to shares and equity), and Decree No. 153/2020/ND-CP (pertaining to privately placed corporate bonds and corporate bonds in international markets) facilitate capital mobilization through bonds, stocks, and securities.
• Official Development Assistance (ODA): Regulated by Decree No 114/2021/ND-CP, ODA constitutes foreign donor-provided capital to bolster developmental and social welfare initiatives. It spans various forms, including programmes, projects, non-projects, and budget support.

Recently, a groundbreaking seminar by the Vietnam Center for International Arbitration, Vietnam Confederation of Commerce and Industry (VCCI), and United States Agency for International Development (USAID), underscored the need for innovative investment methods. One such proposition involves leveraging existing infrastructure assets to finance new projects using an Asset Recycling (AR) approach. This approach, utilized by Indonesia and India, harnesses revenue from current government assets to fuel new infrastructure development.

Final Thoughts

In a world of interconnected economies, Vietnam emerges as a captivating investment destination. Its evolution from a nation marked by its history to a nation driven by its future is a testament to the power of vision, determination, and collaboration. As the Vietnamese government paves the way for foreign investors through favorable policies and partnerships, the role of infrastructure development in shaping the nation's destiny becomes clearer.

Foreign investors venturing into Vietnam are not merely joining a growth story; they are contributing to its authorship. With infrastructure financing as the cornerstone, the canvas of Vietnam's future awaits the brushstrokes of those who recognize the beauty of progress. As the journey unfolds, the world watches with anticipation as Vietnam transforms, and foreign investors reap the rewards of their foresight.

Don't miss your chance to be part of this transformative journey. Take action now and explore the possibilities of doing business and investing in Vietnam. Reach out to our team to gain valuable insights and guidance on navigating Vietnam's dynamic investment landscape. 

Together, let's unlock the immense potential and build a prosperous future in the vibrant Vietnamese market!

The outbreak of COVID-19 led to slower growth in consumer lending in Vietnam with consumers taking a more cautious approach to borrowing due to the uncertainty created by the pandemic. However, with the world transitioning into a new normal era, Vietnam’s economy started to bounce back swiftly. This resulted in the double-digit growth of consumer credit, specifically in terms of gross lending and outstanding balance with consumers seeing card lending as an optimal way to manage their finances.

Highlights of Vietnam’s Consumer Finance Market

Market size and growth

Twenty years ago, Vietnam’s consumer finance market barely existed. Since then, the explosion of e-commerce and a rapid-growing tech-savvy generation has set off an exponential growth in this sector. Between 2017 and 2021, the industry went through an unprecedented growth with a compound annual growth rate (CAGR) of 15.1%. 

From January 2020 to July 2022, the country’s volume of loans soared compared to previous years, increasing by 39.5% to 5.6 trillion VND. Also, during the same period, the country’s GDP reported a significant improvement of 12.07%. Which means, according to the calculation of Robocash Group’s experts, for every 1% increase in lending volume, Vietnam’s GDP will increase by approximately 0.6%. Looking at the proven data, we see a strong correlation between the growth of Vietnam’s GDP and consumer loans value. 

The importance of consumer finance to the broader Vietnamese economy cannot be overlooked, especially when nearly 70% of the country’s adult population is unbanked or underbanked. The Vietnamese government sees consumer finance companies, who are serving those unbanked or underbanked customers, as a critical positive force to help drive greater financial inclusion and accelerate economic growth.

Types of consumer finance products

In terms of product offerings, cash loans, which refer to loans being directly disbursed to consumers’ accounts, still mount up to approximately 60% of the total portfolio. Consumer durables loans and vehicle loans experienced a downward trend in the past few years, whereas credit cards reported a double-digit growth. This coincides with other Fincos’ plans to boost credit card offerings as a cash loan alternative, following the direction of the State Bank of Vietnam (SBV).

Market share

At the moment, the Vietnamese CF market comprises a total of 16 Fincos, all licensed and regulated by the State Bank of Vietnam (SBV). However, over 80% of the market is shared by three main players: FE Credit, Home Credit, and Mcredit. The sector is also witnessing a sharp augmentation in foreign investors’ interest in this fast‐growing sector in Vietnam, through multiple M&A deals led by Japanese investors such as SMBC (JPN), Shinsei Bank (JPN), and Credit Saison (JPN).

Unpacking Vietnam’s Regulatory Environment for Consumer Finance Sector

Consumer finance as regulated in Vietnamese law

Consumer finance is generally regulated by Law on Credit Institutions No. 47/2010/QH12; Circular No. 39/2016/TT-NHNN prescribing lending transactions of credit institutions or foreign bank branches, or both, with customers; and Circular No. 43/2016/TT-NHNN, as amended in 2019, prescribing consumer lending by finance companies. The Law on Credit Institutions provides two types of credit institutions permitted to provide consumer lending:(1) Vietnam-based commercial banks, foreign bank branches, and foreign-invested banks; and (2) Vietnam-based finance companies. Both banks and finance companies must obtain an operating license from the SBV and an enterprise registration certificate from the Department of Planning and Investment. Finance companies are limited to providing loans not exceeding 100 million VND (except for car loans with security). Non-credit institutions such as fintech companies are currently not allowed to provide consumer lending.

Promoting Consumer Finance Amidst Concerns over Illegal Moneylenders

The Consumer Finance sector is expected to undergo significant changes in the coming years with some policy adjustments. Notably, Circular No. 17/2021/TT-NHNN on bank card operations officially established an official legal framework for card issuance using the electronic method, facilitating digital banking development as well as credit card adoption. Besides, the draft decree guiding mechanisms for fintech operation in the banking sector provides a full-fledged legal framework that encourages innovation, prevents financial risk, and promotes financial stability.

Also, in the first half of 2022, SBV continued the accommodative monetary policy it adopted in March 2020 to support businesses while monitoring new inflation trends. The State Bank maintained the refinancing interest rate at 4%, continued its guidance on loan forbearance, and encouraged commercial banks to waive or reduce interest rates and fees to assist businesses affected by the COVID-19 pandemic. These policies have helped maintain strong credit growth and ensure ample liquidity in the market. SBV is also monitoring the rise in inflation driven by the global commodity price shock, focusing on its management through closer coordination between monetary and fiscal policy, especially in the 2022-23 socio-economic support package.

Alleviate Challenges and Capitalizes on future Opportunities

Major Challenges

(1) Asset Quality Declination

First, it is difficult to increase the scale of consumer finance rapidly if asset quality is at risk of declining due to customers' vulnerability to the impact of Covid-19 pandemic, which has caused waves of job loss and income reduction. 

Figure 5: Non-performing loan (NPL) ratios of credit institutions. Source: FiinGroup JSC

According to data collected as of June 2022, Vietnamese FinCos’ NPL ratios still remained at a high level. Going forward, the asset quality of FinCos is expected to improve in the coming time along with strong credit growth and recovered debt repayment capacity of borrowers. However, given such deterioration, it will take some quarters or even a year for FinCos' customer portfolio of subprime borrowers to recuperate to the pre-pandemic asset quality level.

(2) Fierce Competition

Up to this point, Vietnam’s consumer finance sector has still been in its early stages of development. Thus, it is inevitable that the number of startups and enterprises wishing to break into this playfield will burst in the next few years to come, which leads to even more fierce competition for market share and profits. Such a landscape can lead to a declination in lending interest rate in a race to win over potential customers. Meanwhile, financial companies still have to borrow capital from primarily credit institutions and the bond market with relatively high-interest rates.

Not to mention, with FE Credit, Home Credit and Mcredit accounts for over 80% of the whole market share, it has become more difficult than ever for new CF players to compete if they can show no distinct advantage over other competitors. 

(3) Regulatory Constraints 

Another challenge for the consumer lending market in Vietnam is that the legal framework is taking an increasingly rigorous and cautious stance, which can contribute to the improvement of the credit institution landscape, but at the same time, can negatively affect the scope of operations and profitability of financial companies.

What’s next for consumer lending in Vietnam?

Given the bumpy road ahead, the future of Vietnam’s consumer lending market remains promising due to a significant change in consumer’s consumption and borrowing habits. The combination of the country’s rapid economic recovery, rising per capita income, and the exponential growth of the middle class has ultimately sparked off an increase in demand for credit and consumer lending. Also, the fact that nearly 69% of the Vietnamese population is unbanked or underbanked is presenting ample opportunities for finance companies to jump in and capitalize on. 

To add up, the strong digital transformation process has created many opportunities for the consumer lending market to modernize, diversify products, improve customer experience, reduce costs and increase consumer access.

With that being said, here are the 3 key trends and developments that will drive the market in the upcoming time.

(1) Buy now, pay later (BNPL) is poised to thrive as a new customer acquisition & retention channel

One of the key trends in the consumer finance market in Vietnam is the rise of the BNPL referred payment method. With over 64 million smartphone users in the country, BNPL is becoming an increasingly popular way for consumers to access credit. Companies like HomeCredit, Fundiin, Atome, and Litnow are leading the way in this space, offering quick and easy-to-access mobile-based loan products and payment services.

(2) Pawnshops' activities flourished posing fierce competition to mainstream CF providers

Besides consumer finance as unsecured loans, other collateral-based loans such as pawnshop business are also catching investors’ eyes. 

According to Forbes data, as of June 2022, Vietnam has over 30,000 pawn shops, with more than 2,300 stores in Ho Chi Minh City and close to 1,700 in Hanoi. If each had lent about VND 1 billion ($43,000) on average, then the outstanding loans would hit a total of VND 30 trillion ($1.3 billion). 

With a total of 830 stores across the country, F88 is currently the biggest pawn shop chain in Vietnam, followed by Vietnmoney, Camdonhanh, Dong Shop Sun, Happy Money, Ok Money, etc. In early March 2023, the company has reported to raise over $50 million of fresh funding from Mekong Capital and Vietnam-Oman Investment Funding. 

(3) M&A may heat up again with potential targets

Dealmaking in the Consumer Finance sector is certainly heating up, fueled by buoyant foreign capital under both direct acquisition and indirect acquisition via regional parent entities. With increasingly fierce competition, M&A would be an optimal solution for CF companies to maintain a competitive position in the imminent years.

Final Thoughts

Given all the challenges ahead, the future of consumer finance remains bright. From new advances in technology to increasing domestic demand, the possibilities are endless for companies working in this rapidly changing industry. If businesses want to rapidly surpass competitors, expand networks and unlock their business potential, connecting with a third party so that the two can jointly support the development, search, and establishment of new business hubs must be a prudent option. Our comprehensive advisory service platform at Viettonkin enables a holistic approach to help both domestic and foreign investors address any legal or operational issues within the context of their own unique operations. 

Harness the full potential of your business with Viettokin today!

A statistical report from Vietnam’s Central Institute for Economic Management (CIEM) in late 2021 reveals that the majority of both state-owned and private banks have a foreign ownership ratio of lower than 30%. However, despite the government’s restriction on ownership rates, many domestic banking institutes keep looking for investments from foreign sources. This can be explained by the mounting capital needs for banks to meet Basel 2 & 3 international standards and to enhance their governance capacity and market access. 

Capital Ownership of foreign investors at credit institutions 

The current Vietnamese legal system has enforced strict regulations on the foreign ownership of credit institution shares in congruence with each type of investor. 

Article 7 of Decree 01/2014/ND-CP stated that foreign investors shall not hold over 5% ( for individuals) and 15% (for organizations) of the charter capital of a Vietnamese credit institution, except for certain special cases regulated by the law. 

If a foreign strategic investor decided to enter the Vietnamese credit industry, the ownership of shares is restricted at 20%, though total foreign share ownership can go up to 30% of the whole credit institution’s charter capital. 

Conditions for foreign investors to own capital at Vietnamese credit institutions (Article 9, 10 Decree 01)

Conditions for a foreign organization to purchase shares that lead the shareholding level to be 10% or more of the charter capital of a Vietnamese credit institution 

• Ranked at a stable or higher level by reputable international credit rating agencies
• Having sufficient financial resources to purchase shares as determined by the independently audited financial statement of the year preceding the dossier submission year and a lawful capital source for share purchase as prescribed by law.
• The share purchase must not pose any negative impact on the safety and the stability of the Vietnamese credit institution system; nor does it create a monopoly or impede the competition among banks in the market.
• Not involved in any serious violations of the laws on currency, banking, and securities market of Vietnam and the country where the foreign investor is headquartered within 12 months from the time of share purchase application submission.
• Having total assets of at least $10 billion for foreign investors who are banks, financial companies, and finance-leasing firms or having the minimum charter capital equivalent to $1 billion for foreign investors being other organizations in the year preceding the year of the share purchase dossier submission.

Conditions for foreign organizations to purchase shares and become foreign strategic investors 

• Conditions specified in clause (1) above, excluding the condition of having total assets.
• Foreign banks, foreign financial companies, and foreign finance-leasing companies are allowed to perform banking activities as prescribed by the law of the countries where they are headquartered. Foreign financial companies are only permitted to be strategic investors in Vietnamese financial and finance-leasing companies. 
• Having at least 5-year experience in international operations of banking and finance.
• Having minimum total assets of $20 billion in the year preceding the year of share purchase dossier submission.
• Having a commitment and an explicit plan on building long-term relationships with Vietnamese credit institutions and assisting them in modern technologies application, banking products & service development as well as financial, administrative, and executive capacity enhancement.
• Not owning 10% or more of charter capital at any other credit institution in Vietnam.
• Committed to or already owning 10% or more of the charter capital of Vietnamese credit institutions where foreign organizations proposed to purchase shares and became a foreign strategic investor. 

Current status of ownership of foreign enterprises in Vietnamese credit institutions

The report "Study on the necessity of expanding the limit of ownership for foreign investors in Vietnamese credit institutions" published by CIEM on December 15th, 2021 reveals that many domestic banks have already raised their foreign share ownership up to approximately 30%.

Specifically, as of June 30, 2021, there are a total of 19 credit institutions (3 state-owned and 16 joint stock commercial banks) with foreign institutional shareholders owning more than 1% of the credit institution's charter capital. In addition, 11 credit institutions are reported to have a foreign ownership rate of over 15%, out of which 5 institutions have a foreign share ownership rate going up to 25%. 

According to the CIEM’s 2021 Economic Financial report, from 2018 to June 2021, a number of banks have announced high ownership of foreign investors such as BIDV with KEB Hana owing 15%; MSB with the participation of 8 foreign investors whose total ownership accounts for up to 28.22%; VPB with 9 foreign investors owning 13.33%; LVB (1 foreign organization owning 2.1%) and SCB (1 foreign organization owning 4.94%).

In an interview with Vietnam Economic Times in December 2021, Dr. Can Van Luc - Chief economist of BIDV Research and Training Institute commented: “As of now, 3 out of 4 major state-owned banks including Vietcombank, Vietinbank, and BIDV are reported to have foreign ownership rates of between 16.7% and 25.5%, while Agribank is still in the process of equitization preparation. Thus, the average rate of foreign ownership in these 4 biggest banking institutes only accounts for 16–17%, leaving 13% of shares untouched.” 

Private commercial banks, on the other hand, have used up most of the room available for foreign investors at the rate of 27-28%, but are still looking for more capital resources from both domestic and foreign investors. However, finding suitable strategic investors is exceedingly challenging since the hard cap remains at 30%.

This 30% cap will limit the options for the local lenders, said Amit Pandey, a banking analyst at Ratings. "Domestic capital sources may not be sufficient, as local markets will have limited capacity. Meanwhile, foreign capital is constrained by regulations. Low capital levels are one of the key risks associated with the banking sector”, he added.

Government’s intention of increasing equity for foreign investors

Over the past few years, many nations in the area, including China, Thailand, and Indonesia, have made significant improvements in the ownership threshold for foreign investors. 

Given such a shift in the global market, the CIEM representative suggests that it is the right time for Vietnamese policymakers to open up new room for foreign investors. In addition to enhancing executive management and the adoption of cutting-edge digital technology, this will generate countless opportunities for banks to attract valuable foreign capital and support a more successful banking restructuring.

Recently, on June 8th, 2022, the Prime Minister of Vietnam released Decision 689/QĐ-TTG demonstrates the government’s aims to reduce the number of credit institutions, settle legacy bad debts, and push for banks to achieve higher capital adequacy ratios of 10- 11% by 2023, and at least 11-12% by 2025. This action marked the Vietnamese government’s effort to further enhance the quality of its credit institutions and by doing so, draw a wider pool of foreign investors from both the domestic and global markets to jump in and spice up the game. 

Furthermore, Vietnamese banks' plans to raise at least $2.8 billion of capital at the end of 2022 to foster growth can be seen as an excellent opportunity for foreign investors to expand their business scope and carve a slice of economic activity in this emerging manufacturing hub.

In order to achieve that goal, Vietnamese banks will need to tap into both domestic and foreign investors to meet their capital ambitions. "If banks want to raise this amount of money and have a good valuation, they also need to reach out to the participation of foreign investors…" shared Quan Trong Thanh, Head of Research at Maybank Securities Vietnam in an interview with S&P Global Market Intelligence. 

In conclusion 

Given the bumpy road ahead, Vietnam is displaying significant potential to grow its credit market as the government is constantly working towards lifting the restriction on the ownership cap for foreign investors.

In fact, Vietnamese legal regulations on foreign ownership in credit institutions have been loosened over the past few years and thus, opened a wider room for overseas investors. As of now, the Commonwealth Bank of Australia (CBA) is reported to be the largest foreign shareholder, holding around 20% of VIB's shares. In addition to that, VPBank also sold an estimated 49% of FE Credit shares to SMBC and consequently lifted the maximum foreign ownership cap from 15% to 17.60% of charter capital. The rise in the foreign ownership ratio will give domestic banks the opportunity to seek better global collaboration and learn from the world’s top prestigious financial institutions on how to apply international governance standards and improve their current business models. 

At the same time, lenders can reap great benefits investing in the country’s credit institutions and carve a slice of their name into the development process of Vietnam’s credit industry. They should consider this as an excellent opportunity to arm themselves with the best strategies and practices of Vietnam’s domestic credit industry so that, once the door’s wide open, they will be the first to dive in and take hold of the market. 

If you’re still looking for a safe set of hands to assist you with your first steps into Vietnam’s credit market, connect with Viettonkin for more in-depth, up-to-date, and personal investment advice. Here, with a community of reputable consultants, and highly developed communication channels along with a network of diverse connections of domestic and international businesses, we are well positioned to offer M&A advisory services to provide assistance for foreign investors to enter the banking sectors. Contact us now to enhance your chance of business success!