Italian Investment in Vietnam – How to Leverage the EVFTA

Alberto VettorettiManaging Partner, Dezan Shira & Associates

On June 8, 2020, both the European Union Vietnam Free Trade Agreement (EVFTA) and the EU Vietnam Investment Protection Agreement (EVIPA) were ratified by Vietnam’s National Assembly.

Expected to take effect by July or August 2020, the EVFTA will eliminate almost 99 percent of customs duties between the EU and Vietnam, as well as provisions on intellectual property rights, investment, and sustainable growth.

Why Vietnam?

Vietnam has experienced a 6-7 percent yearly growth in the last 20 years, successfully reducing the poverty rate from a worrying 49 percent in 1992 to only 3 percent according to the latest estimate.

According to the Global Competitiveness Index 2019 report by the World Economic Forum, Vietnam ranks 67 out of 141 countries and shows a largely stable business environment according to the World Bank’s Doing Business 2020 report.

Today, with almost 100 million people – including about 55 million workers – and an emerging middle class, Vietnam is the EU’s second trading partner in ASEAN and one of the most promising economies in the world.

Vietnam’s economy is export-focused and labor-intensive, with key industries being smartphones and electronic products, textiles, footwear, and agriculture. It is likely the EVFTA will foster the expansion of such industries in terms of capital expenditure and employment.

EVFTA impact – Near-complete removal of custom duties

65 percent of duties on EU exports to Vietnam will be eliminated when the agreement takes effect, while the remaining will gradually be phased out over a 15-year period. On the other hand, 71 percent of duties on Vietnam exports to EU countries will be eliminated immediately, with the remaining being eliminated in seven years.

Investors can check whether and when specific products can benefit from customs exemption by checking the Harmonized System (HS) codes in the related documents of the European Trade Commission. The European Trade Commission classifies A-products (immediate duty exemption) and B-products (duty exemption within three to 15 years).

Other changes

Apart from the elimination of most custom duties between the EU and Vietnam, the agreement contains provisions on intellectual property (IP) rights, investment, and sustainable development.

  • Reduction of non-tariff barriers and simplified customs procedures: Vietnam will align with international standards on motor vehicles and pharmaceuticals – which means EU products will not require additional testing and certification procedures in Vietnam – and a single document will be used for completing all formalities for placing goods under customs procedures (lower costs and complexity);
  • Remanufactured goods: The text of the agreement allows remanufactured goods to be imported and will open up trade for high-value products such as medical devices and car parts to serve the aftersales market;
  • Repaired goods: No custom duties will apply to goods re-entering the country after being temporarily exported while there will be no customs duties to goods imported temporarily;
  • Geographical indications: recognition and protection of geographical indications for wines, spirits, agricultural products and foodstuffs; and
  • Contractual service suppliers: If EU companies without a presence in Vietnam conclude a service contract with a Vietnamese company, their employees (contractual service suppliers) are granted the entry and temporary stay in Vietnam for a period of no more than six months or for the duration of the contract (whichever is less). The following services are allowed:
    1. Architectural services;
    2. Urban planning and landscape architecture services;
    3. Engineering services;
    4. Integrated engineering services;
    5. Computer and related services;
    6. Higher education services (only privately funded services);
    7. Foreign language training; and
    8. Environmental services.

Opportunities for Italian companies

Italy has highly specialized industries such as textiles, foodstuffs, machines, eyewear, and so on while being the third economic power in the European continent. In addition, Italy ranks ninth among EU countries that have invested in Vietnam.

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This article is produced by Vietnam Briefing, a premium source of information for investors looking to set up and conduct business in Vietnam. The site is a publishing arm of Dezan Shira & Associates, a leading foreign investment consultancy in Asiawith over 27 years of experience assisting businesses with market entry, site selection, legal, tax, accounting, HR and payroll services throughout the region.

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