Why European Companies Set up Business in Vietnam

Last year, foreign trade volume between Vietnam and the European Union reached nearly US$41.3 billion. The EU is one of the biggest trade partners of Vietnam, while Vietnam is the EU's 16th largest trading partner. In the framework of the Association of Southeast Asian Nations (ASEAN) Vietnam is the EU's 2nd largest partner (after Singapore).

Ministry of Industry and Trade confirmed that Vietnam's export to the EU in 2021 increased by 28.6% in comparison with 2020.

The Business Climate Index (BCI) from the European Chamber of Commerce in Viet Nam (EuroCham) shows that companies from Europe feel more optimistic and about trade with Vietnam and investments in this country.

So why did Vietnam become so attractive for European companies?

In July, 2018, the legal review of EU-Vietnam Free Trade Agreement (EVFTA) was finished. Foreign products may now receive a tariff advantage because of the abolition of import duties. So they will probably present significant competition for the Vietnamese products.

Some EU companies that regularly deal with Vietnam can find out if their products can benefit from the customs exemption by checking the relevant customs tariff numbers (HS Codes). Those can be found in the related documents of the European Trade Commission. The EU Commission distinguishes between A-products (immediate duty exemption) and B-products (from B3 to B15; duty exemption within the next 3-15 years).

Except the elimination of 99% tariffs, the agreement also considers reducing regulatory barriers and overlapping red tape and opening up services and public procurement markets.

Vietnamese authorities offer many different fiscal and non-fiscal incentives for foreign companies and investors that want to launch and run business in the country. Foreign companies are offered the following preferential tax rates: instead of established corporate income tax (ICT) that equals 20%, they pay 10%, 15% or 17%. Vietnamese government also offers customs duty incentive policies and land rental exemption policies that will allow cut expenses for companies. Thus, it is extremely beneficial for companies from EU to run business here and invest in Vietnam.

During last few years Vietnamese infrastructure is steadily upgrading and improving. It directly enables business operations and reduces transactional expenses. Today there are 21 commercial airports in Vietnam, 10 of which are international. They are equipped with modern facilities and connect Vietnam with numerous destinations around the world. It is the US, East Asia, several European countries, Australia, and others. The road system is quite developed as well as many ports in Vietnam.

During the last few years, Vietnamese economy has shown a stable economy growth. For example, in 2000, Vietnam was the 60th largest economy in the world; by 2019, it was ranked the 44th largest economy. The forecasts say that Vietnam will be the 20th biggest economy by 2050.

Increased GDP contributes a lot to progress in the country. Since 2000, GDP has been increasing by averagely 6.5% every year. In 2020-2021, the growth slowed down but country’s economy still shows growth at nearly 3% despite the pandemic.


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