83008 Economy Profile: Vietnam Doing Business 2014 Vietnam 2 © 2013 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 15 14 13 12 A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Cover design: The Word Express Doing Business 2014 Vietnam 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 25 Getting electricity ....................................................................................................................... 35 Registering property .................................................................................................................. 43 Getting credit .............................................................................................................................. 53 Protecting investors ................................................................................................................... 60 Paying taxes ................................................................................................................................ 69 Trading across borders .............................................................................................................. 76 Enforcing contracts .................................................................................................................... 84 Resolving insolvency .................................................................................................................. 93 Employing workers .................................................................................................................... 98 Data notes ................................................................................................................................. 105 Resources on the Doing Business website ............................................................................ 111 Doing Business 2014 Vietnam 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2012). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and employing workers. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 189 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 47 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 33 in Latin America and the Caribbean, comparisons and benchmarks are valid across 25 in East Asia and the Pacific, 25 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 20 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2014 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and presents indicators for Vietnam. To allow useful comparison, it business regulatory reforms. The data, along with also provides data for other selected economies information on ordering Doing Business 2014, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2013 (except for http://www.doingbusiness.org. Doing Business 2014 Vietnam 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: East Asia & Pacific business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Lower middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of Population: 88,775,500 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 1,400 percentile rankings on each of the 10 topics included in the index in Doing Business 2014: starting a business, DB2014 rank: 99 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2013 rank: 98* investors, paying taxes, trading across borders, Change in rank: -1 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the DB 2014 DTF: 61.13 percentile rankings on its component indicators (see the data notes for more details). The employing workers DB 2013 DTF: 60.44 indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented Change in DTF: 0.73 in this year’s economy profile. The aggregate ranking on the ease of doing business * DB2013 ranking shown is not last year’s published benchmarks each economy’s performance on the ranking but a comparable ranking for DB2013 that indicators against that of all other economies in the captures the effects of such factors as data Doing Business sample (figure 1.1). While this ranking corrections and the addition of 4 economies (Libya, tells much about the business environment in an Myanmar, San Marino and South Sudan) to the economy, it does not tell the whole story. The ranking on sample this year. See the data notes for sources and the ease of doing business, and the underlying definitions. indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2014 Vietnam 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2014 Vietnam 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy relative to the regional average (figure 1.2). The stands in the aggregate ranking on the ease of economy’s rankings on the topics included in the doing business is useful. Also useful is to know how ease of doing business index provide another it ranks relative to comparator economies and perspective (figure 1.3). Figure 1.2 How Vietnam and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2014 Vietnam 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Vietnam ranks on Doing Business topics Source: Doing Business database. Doing Business 2014 Vietnam 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier tells only part of the story, so do changes in that ranking. measure. This measure shows how far on average an Yearly movements in rankings can provide some indication economy is from the best performance achieved by any of changes in an economy’s regulatory environment for economy on each Doing Business indicator since 2005, firms, but they are always relative. except for the getting electricity indicators, which were introduced in 2009. Moreover, year-to-year changes in the overall rankings do not reflect how the business regulatory environment in an Comparing the measure for an economy at 2 points in economy has changed over time—or how it has changed time allows users to assess how much the economy’s in different areas. To aid in assessing such changes, regulatory environment as measured by Doing Business has changed over time—how far it has moved toward (or away from) the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.4). Figure 1.4 How far has Vietnam come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005, except for the getting electricity indicators, which were introduced in 2009. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the first 9 indicator sets shown in the figure and does not include getting electricity. Data on the overall distance to frontier including getting electricity is available at http://www.doingbusiness.org/data/distance-to-frontier. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2014 Vietnam 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist — numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Vietnam Best performer globally Philippines DB2014 Indonesia DB2014 Malaysia DB2014 Thailand DB2014 Vietnam DB2014 Vietnam DB2013 Lao PDR DB2014 Indicator China DB2014 DB2014 Starting a Business 109 107 158 175 85 16 170 91 New Zealand (1) (rank) Procedures (number) 10 10 13 10 6 3 15 4 New Zealand (1)* Time (days) 34.0 34.0 33.0 48.0 92.0 6.0 35.0 27.5 New Zealand (0.5) Cost (% of income per 7.7 8.8 2.0 20.5 6.7 7.6 18.7 6.7 Slovenia (0.0) capita) Paid-in Min. Capital (% 0.0 0.0 78.2 38.5 0.0 0.0 4.6 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 29 29 185 88 96 43 99 14 China (1) (rank) Hong Kong SAR, Procedures (number) 11 11 25 13 23 15 25 8 China (6) Time (days) 114.0 114.0 270.0 158.0 108.0 130.0 77.0 157.0 Singapore (26.0) Doing Business 2014 Vietnam 11 Best performer globally Philippines DB2014 Indonesia DB2014 Malaysia DB2014 Thailand DB2014 Vietnam DB2014 Vietnam DB2013 Lao PDR DB2014 Indicator China DB2014 DB2014 Cost (% of income per 56.3 66.7 344.7 87.2 45.8 14.7 79.4 8.3 Qatar (1.1) capita) Getting Electricity 156 155 119 121 140 21 33 12 Iceland (1) (rank) Procedures (number) 6 6 5 6 5 5 5 4 10 Economies (3)* Time (days) 115 115 145 101 134 32 42 35 Germany (17) Cost (% of income per 1,726.4 1,988.3 499.2 370.6 1,913.0 49.1 118.2 67.3 Japan (0.0) capita) Registering Property 51 48 48 101 76 35 121 29 Georgia (1) (rank) Procedures (number) 4 4 4 6 5 5 8 2 4 Economies (1)* Time (days) 57.0 57.0 29.0 22.0 98.0 14.0 39.0 2.0 New Zealand (1.0)* Cost (% of property 0.6 0.6 3.6 10.9 1.1 3.3 4.8 6.3 5 Economies (0.0)* value) Getting Credit (rank) 42 40 73 86 159 1 86 73 Malaysia (1)* Strength of legal rights 8 8 5 5 4 10 4 5 10 Economies (10)* index (0-10) Depth of credit 4 4 5 4 2 6 5 5 31 Economies (6)* information index (0-6) Public registry coverage 39.1 37.8 30.2 41.2 2.4 52.9 0.0 0.0 Portugal (100.0)* (% of adults) Private bureau 0.0 0.0 0.0 0.0 0.0 77.2 9.3 49.2 22 Economies (100.0)* coverage (% of adults) Protecting Investors 157 169 98 52 187 4 128 12 New Zealand (1) (rank) Extent of disclosure 7 6 10 10 2 10 2 10 10 Economies (10)* Doing Business 2014 Vietnam 12 Best performer globally Philippines DB2014 Indonesia DB2014 Malaysia DB2014 Thailand DB2014 Vietnam DB2014 Vietnam DB2013 Lao PDR DB2014 Indicator China DB2014 DB2014 index (0-10) Extent of director 1 1 1 5 1 9 3 7 Cambodia (10) liability index (0-10) Ease of shareholder 2 2 4 3 2 7 8 6 3 Economies (10)* suits index (0-10) Strength of investor 3.3 3.0 5.0 6.0 1.7 8.7 4.3 7.7 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 149 145 120 137 119 36 131 70 (1) Payments (number per Hong Kong SAR, 32 32 7 52 34 13 36 22 year) China (3)* United Arab Emirates Time (hours per year) 872 872 318 259 362 133 193 264 (12) Trading Across Borders 65 66 74 54 161 5 42 24 Singapore (1) (rank) Documents to export 5 5 8 4 10 4 6 5 Ireland (2)* (number) Time to export (days) 21 21 21 17 23 11 15 14 5 Economies (6)* Cost to export (US$ per 610 610 620 615 1,950 450 585 595 Malaysia (450) container) Documents to import 8 8 5 8 10 4 7 5 Ireland (2)* (number) Time to import (days) 21 21 24 23 26 8 14 13 Singapore (4) Cost to import (US$ per 600 600 615 660 1,910 485 660 760 Singapore (440) container) Enforcing Contracts 46 46 19 147 104 30 114 22 Luxembourg (1) (rank) Doing Business 2014 Vietnam 13 Best performer globally Philippines DB2014 Indonesia DB2014 Malaysia DB2014 Thailand DB2014 Vietnam DB2014 Vietnam DB2013 Lao PDR DB2014 Indicator China DB2014 DB2014 Time (days) 400 400 406 498 443 425 842 440 Singapore (150) Cost (% of claim) 29.0 29.0 11.1 139.4 31.6 27.5 26.0 15.0 Bhutan (0.1) Procedures (number) 36 36 37 40 42 29 37 36 Singapore (21)* Resolving Insolvency 149 150 78 144 189 42 100 58 Japan (1) (rank) no Time (years) 5.0 5.0 1.7 4.5 1.5 2.7 2.7 Ireland (0.4) practice no Cost (% of estate) 15 15 22 18 10 22 36 Norway (1) practice Outcome (0 as no piecemeal sale and 1 as 0 0 0 0 0 0 1 practice going concern) Recovery rate (cents on 16.2 13.9 36.0 17.9 0.0 48.9 29.9 42.2 Japan (92.8) the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 Vietnam 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day (2 business in an economy by recording all procedures cannot start on the same day). procedures officially required or commonly done in Procedures that can be fully completed practice by an entrepreneur to start up and online are an exception to this rule. formally operate an industrial or commercial Procedure completed once final document is business—as well as the time and cost required to received complete these procedures. It also records the paid-in minimum capital that companies must No prior contact with officials deposit before registration (or within 3 months). Cost required to complete each procedure The ranking on the ease of starting a business is (% of income per capita) the simple average of the percentile rankings on the 4 component indicators: procedures, time, cost Official costs only, no bribes and paid-in minimum capital requirement. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Has a start-up capital of 10 times income per  Is a limited liability company, located in the capita. largest business city and is 100% domestically  Has a turnover of at least 100 times income per owned. capita.  Has between 10 and 50 employees.  Does not qualify for any special benefits.  Conducts general commercial or industrial  Does not own real estate. activities. Doing Business 2014 Vietnam 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Vietnam? days, costs 7.7% of income per capita and requires According to data collected by Doing Business, starting paid-in minimum capital of 0.0% of income per capita a business there requires 10 procedures, takes 34.0 (figure 2.1). Figure 2.1 What it takes to start a business in Vietnam Paid-in minimum capital (% of income per capita): 0.0 Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Vietnam 16 STARTING A BUSINESS Globally, Vietnam stands at 109 in the ranking of 189 regional average ranking provide other useful economies on the ease of starting a business (figure information for assessing how easy it is for an 2.2). The rankings for comparator economies and the entrepreneur in Vietnam to start a business. Figure 2.2 How Vietnam and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2014 Vietnam 17 STARTING A BUSINESS What are the changes over time? The benchmarks provided by the economies that over 2.3) can help show what is possible in making it easier time have had the best performance regionally or to start a business. And changes in regional averages globally on the procedures, time, cost or paid-in can show where Vietnam is keeping up—and where it minimum capital required to start a business (figure is falling behind. Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2014 Vietnam 18 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety economies globally have no paid-in minimum capital requirement. DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Vietnam 19 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Vietnam (table 2.1)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.1 How has Vietnam made starting a business easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. Vietnam eased company start-up by creating a one-stop shop that combines the processes for obtaining a business license DB2011 and tax license and by eliminating the need for a seal for company licensing. DB2012 No reform as measured by Doing Business. Vietnam made starting a business easier by allowing DB2013 companies to use self-printed value added tax invoices. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Vietnam 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Vietnam is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Ho Chi Minh City firm. These are identified by Doing Business through collaboration with relevant local Legal Form: cong ty trach nhiem huu han - Private professionals and the study of laws, regulations and Limited Liability Company publicly available information on business entry in Paid in Minimum Capital Requirement: None that economy. Following is a detailed summary of those procedures, along with the associated time Start-up Capital: 10 times GNI per capita and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Vietnam—and the time and cost Time to No. Procedure Cost to complete complete Check the proposed company name; obtain a business registration certificate as well as a tax registration certificate from the local business registration office under the Department of Planning and Investment The applicant has to submit documents in accordance with Government Decree 43/2010/ND-CP (15 April 2010) on enterprise registration, as amended by Government Decree 05/2013/ND-CP (9 January 2013) ("Decree 43"). Pursuant to Article 26 of Decree 43, when the application file for enterprise registration fully satisfies the conditions for issuance of an enterprise registration certificate, information about that file shall be transferred to the database of the Department General of Taxation (Ministry of Finance). The Department General of Taxation is responsible, within two working days from the date of receipt of VND 200,000 1 14 days information from the national database of information, to create an (official fees) enterprise code number and to transfer it to that national database in order for the provincial business registration office to issue it to the enterprise. Each enterprise is issued one unique enterprise code number. This code number is both the business registration code number and the tax code number of that enterprise (Article 8 of Decree 43). An applicant is entitled to apply for enterprise registration online if the applicant uses a public digital signature or a business registration account. Doing Business 2014 Vietnam 21 Time to No. Procedure Cost to complete complete Make a company seal VND 165,000 - VND 2 6 days 370,000 for bronze seal Registration of the seal-sample at the Police Department Most business transaction documents must be signed and stamped before they are considered valid and legal. Pursuant to Circular No. 193/2010/TT-BTC of the Ministry of Finance dated December 2, 2010, 3 the fee to register the seal-sample is VND 50,000. The seal will be 1 day VND 50,000 registered by the police division. The representative has to lodge a copy of the Business and Tax Registration Certificate and also present his or her identity card. Open a bank account Each bank requires a different minimum deposit to open an account. For instance, whereas Vietcombank requires the fixed amount of VND 1 million for an account in VND and USD 300 for one in USD, Asian Commercial Bank requires VND 1 million for a VND account and US 100 1 day no charge 4 for a USD account. To open the account, the bank requires a bank- issued application form, the company seal, the company’s business registration certificate, and the resolution of the management board on the authorized signatures. Publish the registration contents on the National Business Registration Portal (NBRP) According to the Decree No. 05/2013/NĐ-CP dated 09/01/2013, within 30 working days since the date of the establishment or the amendment 5 registration, enterprises shall post their registration contents on the 5 days VND 700,000 National Business Registration Portal (NBRP) as stipulated in the Article 28 of the Enterprise Law and pay the fee for publishing the business registration information. * Pay business license tax The business license tax is paid to the tax authority where the enterprise registers its tax reports or through designated commercial banks. Such business license tax is paid annually and in the first month of a year 1 day, VND 1,000,000 (with regards to enterprises are operating) and in the month when the simultaneous with (business license 6 newly established enterprise obtains the tax registration certificate and previous tax) tax code. The new company established during the first 6 months of the procedure year shall pay the entire annual business license tax, if established during the last 6 months, then pay 50% of annual license tax. Doing Business 2014 Vietnam 22 Time to No. Procedure Cost to complete complete * Buy pre-printed VAT invoices from the Municipal Taxation Department or obtain and print self-printed VAT invoices All companies shall use their shelf-printed VAT invoices from 1 January 2011 according to Decree No.153/2010/ND-CP and its guidelines (if any), therefore, the Company must contact with the publisher to order the print of its VAT Invoice Books for its demand and must implement the legal procedure on registration and circulation of shelf-printed VAT Invoices with the Municipal Taxation Department. To register for self-printing of invoices, company founders must submit an application on a standard form, along with (a) a sample self-printed invoice, including all statutory details; (b) a map showing the location of the company’s office or copy of the lease contract if the premises are leased, certified by the ward commune people’s committee; (c) the general director’s identification card; (d) a copy of the business registration certificate; and (e) and the tax registration certificate and copy. 10 days, According to Ministry of Finance Circular 13/2011/TT-BTC (8 February simultaneous with about VND 200,000 7 2011) which amending Ministry of Finance Circular 153/2010/TT-BTC previous per book (28 September 2010), a company can self-print the VAT invoices if it has procedure incurred a total tax penalty amount of less than 50 million Vietnamese dong within 365 consecutive days before the first self-print. The company shall prepare an announcement of self- issuance of invoice and send it to the relevant tax authority of where the company has its head office, within 10 business days from the date of signing the announcement and 5 business days at the latest before the date on which the invoice is in use, and the announcement must immediately be listed at all establishments using such invoice to sell goods and services during the entire period of such use (Article 11 of Decree 51 and Article 9.4 of Circular 153/2010/TT-BTC guiding the implementation of Decree 51). In total, it may take about 10 days to get the printed VAT invoices and register them with the Municipal Taxation Department. * Register with the local labor office to declare use of labor (Municipal Department for Labor, Invalids and Social Affairs). Within 30 days of starting operations, the employer must register all 1 day, employees and their qualifications with the Labor Office (in conformity simultaneous with 8 no charge with set forms). The relationship between the employer and its previous employees are regulated by the Labor Code and set forth in labor procedure contracts. Doing Business 2014 Vietnam 23 Time to No. Procedure Cost to complete complete * Register employees with the Social Insurance Fund for the payment of health insurance and social insurance. The company must register with the Social Insurance Fund all employees who have contracts for 3 months or longer. The employer must complete a form provided by the Hanoi Social Insurance and include the following information: the employee name and date of birth, salary (as stated in the labor contract), the social insurance book serial number (for employees already issued with those books), a certified copy of the company's business registration certificate, and a 1 day, copy of each labor contract. simultaneous with 9 no charge previous The Social Insurance Office must, within 30 days from the date of procedure receipt of the application file, issue an insurance registration book for each new employee that was not issued such book by the previous employer. The employer is responsible for paying social and health insurance contributions for each employee. Since the health insurance merged with the social insurance funds, payment is made (monthly or quarterly) directly to the Social Insurance Fund. Health insurance certificates are issued during the first month of the year. * Register for trade union with Vietnam General Confederation of Labor The employer must register with the local trade union or industry trade union (as defined below) no later than 6 months from the date it starts operations. The term “trade union” includes (a) provincial or municipal-level confederations of labor under the Vietnam General Confederation of Labor; (b) central-level industry trade unions; (c) trade unions of corporations under the Vietnam General Confederation of Labor; (d) confederations of labor of districts, towns, and provincial cities; (e) local-level industry trade unions, (f) trade unions of processing zones, industrial zones, and high-tech zones; (f) trade unions of corporations; 7 days, and (g) superior trade unions of other establishments. These trade simultaneous with 10 no charge unions are responsible for establishing a trade union for the company, previous according to the provisions of the Labor Code, the Law on Trade procedure Unions, and the Charter of the Trade Union of Vietnam, to represent and protect the lawful and legitimate rights and interests of the employees and the labor collective. If a company trade union is not established within 6 months, the superior trade union shall appoint a provisional executive committee of the trade union to represent and protect the lawful and legitimate rights and interests of the employees and the labor collective. This mandate is provided for by the Labor Code, the Law on Trade Unions, and the Charter of the Trade Union of Vietnam. The term of the provisional executive committee of the trade union and the extension of that term is subject to the regulations of the Vietnam General Confederation of Labor. Doing Business 2014 Vietnam 24 Time to No. Procedure Cost to complete complete * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Vietnam 25 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Submitting all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a land telephone line cost for a business in the construction industry to Registering the warehouse after its obtain all the necessary approvals to build a completion (if required for use as collateral or warehouse in the economy’s largest business city, for transfer of the warehouse) connect it to basic utilities and register the Time required to complete each procedure property so that it can be used as collateral or (calendar days) transferred to another entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day. percentile rankings on its component indicators: Procedures that can be fully completed online procedures, time and cost. are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final Doing Business uses several assumptions about the document is received business and the warehouse, including the utility connections. No prior contact with officials The business: Cost required to complete each procedure (% of income per capita)  Is a limited liability company operating in Official costs only, no bribes the construction business and located in the largest business city.  Will be connected to water, sewerage (sewage system, septic tank or their  Is domestically owned and operated. equivalent) and a fixed telephone line. The  Has 60 builders and other employees. connection to each utility network will be 10 The warehouse: meters (32 feet, 10 inches) long.  Is a new construction (there was no  Will be used for general storage, such as of previous construction on the land). books or stationery (not for goods requiring special conditions).  Has complete architectural and technical plans prepared by a licensed architect or  Will take 30 weeks to construct (excluding all engineer. delays due to administrative and regulatory requirements). Doing Business 2014 Vietnam 26 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 11 procedures, takes 114.0 days build a warehouse in Vietnam? According to data and costs 56.3% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in Vietnam Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Vietnam 27 DEALING WITH CONSTRUCTION PERMITS Globally, Vietnam stands at 29 in the ranking of 189 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Vietnam to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Vietnam and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2014 Vietnam 28 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to deal with time have had the best performance regionally or construction permits. And changes in regional globally on the procedures, time or cost required to averages can show where Vietnam is keeping up—and deal with construction permits (figure 3.3) help show where it is falling behind. Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2014 Vietnam 29 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Vietnam 30 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Vietnam (table 3.1)? Construction is one of them. In an effort to ensure Table 3.1 How has Vietnam made dealing with construction permits easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. Vietnam made dealing with construction permits easier by reducing the cost to register newly completed buildings by DB2011 50% and transferring the authority to register buildings from local authorities to the Department of National Resources and Environment. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Vietnam 31 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Vietnam are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : Ho Chi Minh City information collected from experts in construction licensing, including architects, civil engineers, Estimated construction lawyers, construction firms, utility VND 2,601,200,000 Warehouse Value : service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and that apply to a company and structure matching cost, are summarized below. the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Vietnam —and the time and cost Time to No. Procedure Cost to complete complete Obtain the certification of the designs from the Firefighters Prevention Department According to Regulation NGHỊ ÐỊNH SỐ 35/2003/NÐ-CP NGÀY 04 - 4 - 2003 CỦA CHÍNH PHỦ of 2003, all new commercial buildings need to 30 days no charge 1 obtain a certification of the designs from Firefighters Prevention Department. The certification is included in the building permit application. Request and obtain construction permit from the (District) Department of Construction of Ho Chi Minh City The decision to grant a construction permit is made by the Chairman of the People’s Committee, at the provincial level, and the Director of the Department of Construction. The following documents are required: a) Application for issuance of building permit (standard form) b) Notarized or certified copy of one of the papers on the land use right in accordance with the Law on Land. Land is national property in Vietnam. Only a business can be the holder of the land-use right. It is 2 assumed that the BuildCo already holds the land-use certificate. 30 days VND 100,000 c) Two sets of design drawings, each of which includes: - Drawing of the works position on the land lot with a scale of 1/100 - 1/500, together with the outline of works position; - Drawing of surface, main elevation and section of the works with a scale of 1/50 - 1/200; - Drawing of foundation with a scale of 1/100 - 1/200 and foundation section of 1/50, together with the connection diagram to the system of transportation infrastructure, water supply, wastewater and rainwater drainage, wastewater treatment, electricity supply, communications and other technical infrastructure related to the project with a scale of 1/50 Doing Business 2014 Vietnam 32 Time to No. Procedure Cost to complete complete - 1/200. If deemed necessary, the Department of Construction consults any of the following related offices: • Office of the Chief Architect • Office for Land Planning • Office for Land Management • Department of Culture • Department of Health • Department of Natural Resources and Environment • Fire Protection Office • Department of Public Traffic and Transportation • Local National Defense Office Each consultation separately takes 10 days. However, the Department of Construction is required to abide by the overall time limit of 30 working days to issue or refuse the license. In practice, this time limit is seldom met. The application form can be obtained at the local department of construction. It is currently required for a construction company to go to the office and obtain the form. After obtaining a construction permit, within a time limit of 7 working days prior to the date of commencement of construction of the warehouse, BuildCo is required to provide written notification of the commencement date to the People's Committee at the district level where the warehouse is located. (See Article 68.2 (a) of the Law on Construction No. 16/2003/QH11, dated November 16, 2003.) Receive inspection by the Department of Construction of Ho Chi Minh City This inspection and the following ones are not stipulated by specific 1 day no charge 3 regulations. However, because the authority is mandated to supervise the inspections, these do take place in practice. Request and receive inspection from the municipality after completion of foundation works The company must notify the Department of Construction at the 3 days no charge 4 different stages of construction and suspend construction until the department visits the site 3 days after the notification. Request and receive inspection from the municipality upon completion of building surroundings The company must notify the Department of Construction at the 3 days no charge 5 different stages of construction and suspend construction until the department visits the site 3 days after the notification. Doing Business 2014 Vietnam 33 Time to No. Procedure Cost to complete complete Request water and sewage connection Different areas in Ho Chi Minh City are covered by different public water companies. Therefore, BuildCo is required to contact the relevant water company and submit the following documents: • The application form (available at the water company) • A notarized copy of the business registration certificate of BuildCo 6 1 day VND 4,000,000 The costs of obtaining water/sewage connection depend on the usage capacity of the warehouse, as well as on its exact location in relation to the main water lines. The standard water meters cost approximately VND 1.5 million. * Receive inspection by water company 7 1 day no charge * Connect to water and sewage services 8 14 days no charge * Request and connect to phone line The time frame for requesting and receiving telephone service depends 9 on the district in which BuildCo is located. 7 days VND 300,000 Notify and receive inspection from the municipality after completion of building At the end of construction, the Department of Construction visits the 10 site to confirm that the building was built according to the master 1 day no charge plans, rules, and regulations. BuildCo must provide written notification of the completion of construction. Register the building at the Department of National Resources and Environment The cost for registering ownership of the warehouse should include an administrative fee of VND 350,000.00 (based on Decision 98/2009/QD- UBND of the People's Committee of Ho Chi Minh City of 22 December 2009) and a registration fee of 0.5% of the warehouse value (based on 30 days VND 13,356,000 11 Decree 45/2011/ND-CP of the Government dated 17 June 2011). For the registration fee, the value of the construction contract signed between BuildCo and the construction contractor will be taken as the warehouse value, provided that it is higher than the minimum value calculated by the Tax Department based on the minimum unit price as provided for by the People’s Committee of Ho Chi Minh City. Doing Business 2014 Vietnam 34 Time to No. Procedure Cost to complete complete The application file should be submitted to the Department of Construction of Ho Chi Minh City. According to Decree 88/2009/ND-CP (dated 19 October 2009), On Issuance of Certificates of Land Use Rights, Ownership of Residential Houses and Construction Works, the work carried out by the Department of Construction may take 55 working days, including time for taking measurements or checking the measurements of the construction works, if any; reviewing the application file; submitting the file for approval and signature; and notifying the applicant to make payment of financial obligations (e.g., payment of the registration fee at Tax Department). Decree 88 also states that the applicant must pay all financial obligations within 60 working days from the date of receipt of the notification from the Department of Construction. * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Vietnam 35 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is to either the low-voltage or the medium-  Is a new construction being connected to voltage distribution network and either overhead electricity for the first time. or underground, whichever is more common in the economy and area where the warehouse is  Has 2 stories, both above ground, with a located. The length of any connection in the total surface of about 1,300.6 square customer’s private domain is negligible. meters (14,000 square feet), and is built on a plot of 929 square meters (10,000 square  Requires crossing of a 10-meter road but all the feet). works are carried out in a public land, so there is no crossing into other people's private property. The electricity connection:  Involves installing one electricity meter. The  Is 150 meters long and is a 3-phase, 4-wire Y, monthly electricity consumption will be 0.07 140-kilovolt-ampere (kVA) (subscribed gigawatt-hour (GWh). The internal electrical capacity) connection. wiring has been completed. Doing Business 2014 Vietnam 36 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 115 days and costs 1726.4% of connection in Vietnam? According to data collected by income per capita (figure 4.1). Doing Business, getting electricity there requires 6 Figure 4.1 What it takes to obtain an electricity connection in Vietnam Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Vietnam 37 GETTING ELECTRICITY Globally, Vietnam stands at 156 in the ranking of 189 regional average ranking provide another perspective economies on the ease of getting electricity (figure in assessing how easy it is for an entrepreneur in 4.2). The rankings for comparator economies and the Vietnam to connect a warehouse to electricity. Figure 4.2 How Vietnam and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2014 Vietnam 38 GETTING ELECTRICITY Even more helpful than rankings on the ease of getting performers on these indicators may provide useful electricity may be the indicators underlying those benchmarks. rankings (table 4.1). And regional and global best Table 4.1 The ease of getting electricity in Vietnam Best performer in Best performer Indicator Vietnam DB2014 Vietnam DB2013 East Asia & Pacific globally DB2014 DB2014 Rank Hong Kong SAR, 156 155 Iceland (1) China (5) Procedures (number) 6 6 Timor-Leste* (3) 10 Economies* (3) Time (days) 115 115 Taiwan, China (24) Germany (17) Cost (% of income per Hong Kong SAR, capita) 1,726.4 1,988.3 Japan (0.0) China (1.5) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. * Two or more economies share the top ranking on this indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 Vietnam 39 GETTING ELECTRICITY Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic operations. connection costs reasonable, governments around the In many economies the connection process is world have worked to consolidate requirements for complicated by the multiple laws and regulations obtaining an electricity connection. What reforms in involved—covering service quality, general safety, getting electricity has Doing Business recorded in technical standards, procurement practices and Vietnam (table 4.2)? internal wiring installations. In an effort to ensure Table 4.2 How has Vietnam made getting electricity easier—or not? By Doing Business report year DB year Reform DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2014 Vietnam 40 GETTING ELECTRICITY What are the details? The indicators reported here for Vietnam are based on OBTAINING AN ELECTRICITY CONNECTION a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Ho Chi Minh City utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: Ho Chi Minh City Power verified by electricity regulatory agencies and Company independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Vietnam—and the time and cost Time to No. Procedure Cost to complete complete The customer applies for electricity connection and awaits clearance from Ho Chi Minh City Power Corporation (EVN HCMC) Along with the application, the following documents are needed for requesting electricity connection: | A. Request document for power supply or official dispatch sent to Distribution Department under regulation at Clause 5 of this process attached by breakdown of equipment, regulations, and capacities. | 30 calendar days no charge 1 For the purposes of manufacturing and business, a service having a maximum capacity of over 80kW or a transformer with a capacity beyond 100kVA, a copy of the load schedule and technical specification of the equipment must also be submitted. | B. There are also the following 2 categories of documents (notarized copies): | Doing Business 2014 Vietnam 41 Time to No. Procedure Cost to complete complete B.1 The first category is related to the construction location: | • Ownership certificate; | • Certificate of land-using right; | • House-hiring Contract confirmed by authorized organization; | • Land-hiring Contract confirmed by authorized organization; and | • Decision of handling over house or land of Authorized organization. | In case these documents are not available, one can submit a Confirmation Paper from the authorized organization or local administration when requesting power supply (not adhering to this Clause in the case of a specific construction is investigated by the utility). | B.2 The other category of documents is related to the client: | • Business registration Certificate or Certificate of registration of branch, representative office; | • Investment license; and | • Decision of unit foundation. | After the utility has received the application, it inspects the site to determine the specifics of the connection. No estimate of connection fees is prepared. However, the client needs to await approval (clearance) of Ho Chi Minh City Power Corporation (EVNHCMC) on the requested power. | Doing Business 2014 Vietnam 42 Time to No. Procedure Cost to complete complete The customer obtains external inspection from Ho Chi Minh City Power Corporation (EVN HCMC) 2 The utility inspects the client's site to determine the specifics of the 1 calendar day no charge connection. The customer has to obtain an excavation permit for the underground connection at the Traffic and Transport Department 3 The customer has to obtain an excavation permit for the underground 15 calendar days no charge connection at the Traffic and Transport Department. The customer hires a private firm for the design and carrying out of the external works The customer can either ask the Distribution Department of EVN HCMC to do the works for them or hire a private firm to do it. The more common approach is to hire an outside firm. If more than 100 kVA is needed, a substation must be built. In the case where the customer chooses to hire an outside agency to carry out the 4 works, the electricity company must first approve the designs. 63 calendar days VND 544,000,000.0 A contract is signed after both parties have agreed on the capacity, construction schedule, construction border, etc. There is no inspection of the entire internal wiring , and any electrician can carry out the internal installation. To ensure liability, the customer could hire a licensed electrical construction company. The customer obtains certification of the design of the substation from Fire Fighters prevention Department For any sub-station with a transformer of at least 110 Kva, the Fire- 5 fighters prevention Department has to give an approval/certification of 30 calendar days no charge the designs. This is required by regulation NGHỊ ÐỊNH SỐ 35/2003/NÐ- CP NGÀY 04 - 4 - 2003 CỦA CHÍNH PHỦ of 2003. The customer obtains meter installation and final connection from Ho Chi Minh City Power Corporation (EVN HCMC) 6 When the external works have been completed, the customer requests 7 calendar days no charge meter installation from the Distribution Department of the utility. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2014 Vietnam 43 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day. time and cost. Procedures that can be fully completed online are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final several assumptions about the parties to the document is received transaction, the property and the procedures are used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure (% of property value)  Are limited liability companies, 100% domestically and privately owned. Official costs only, no bribes  Are located in the economy’s largest No value added or capital gains taxes included business city. and no rezoning is required.  Have 50 employees each, all of whom are  Has no mortgages attached and has been nationals. under the same ownership for the past 10  Perform general commercial activities. years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story  Has a value of 50 times income per capita. warehouse of 929 square meters (10,000 The sale price equals the value. square feet). The warehouse is in good  Is registered in the land registry or cada- condition and complies with all safety stre, or both, and is free of title disputes. standards, building codes and legal requirements. There is no heating system. The  Is located in a periurban commercial zone, property will be transferred in its entirety. Doing Business 2014 Vietnam 44 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 57.0 days and costs 0.6% of the Vietnam? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 4 Figure 5.1 What it takes to register property in Vietnam Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Vietnam 45 REGISTERING PROPERTY Globally, Vietnam stands at 51 in the ranking of 189 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Vietnam to transfer property. Figure 5.2 How Vietnam and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2014 Vietnam 46 REGISTERING PROPERTY What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to register time have had the best performance regionally or property. And changes in regional averages can show globally on the procedures, time or cost required to where Vietnam is keeping up—and where it is falling complete a property transfer (figure 5.3) help show behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2014 Vietnam 47 REGISTERING PROPERTY Cost (% of property value) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Vietnam 48 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Vietnam (table 5.1)? Table 5.1 How has Vietnam made registering property easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Vietnam 49 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property City: Ho Chi Minh City lawyers, notaries and property registries. These procedures are those that apply to a transaction Property Value: VND 1,575,574,208 matching the standard assumptions used by Doing Business in collecting the data (see the section in The procedures, along with the associated time and this chapter on what the indicators cover). cost, are summarized below. Summary of procedures for registering property in Vietnam—and the time and cost Time to No. Procedure Cost to complete complete Build an application for the transfer of land use rights and ownership of assets attached to the land Parties buy a land use right transfer contract (standard form). The dossier 1 includes: Land-use right (LUR) certificate, Decision or Resolution of the 1 day VND 4,000 highest decision-making body of the company regarding the LUR transfer, and company's legal status documents. The transferor and transferee will sign the contract which will be witnessed and certified by a notary located in the same area as the property The land use right transfer contract shall be made in duplicate, one for the seller and another for the buyer. The Contract for Transfer of Property must be notarized by the public notary where the land is located (based on Decree 181/2004/ND-CP Guiding the Implementation of the Land Law (Government, October 29, 2004, as amended on January 27, 2006) , Art. 119.1.b) VND 1 million + The dossier for the public notary office includes: 0.06% of the 2 2-10 days (i) Request for notarization of the contract or transaction on the standard amount exceeding form; VND 1 billion (ii) Property transfer contract; (iii) Document evidencing transferor’s title to the land and warehouse (e.g., land use right certificate for the 557.4 square meters land and construction works ownership registration certificate for the warehouse or certificate of land use right and assets attached to the land for both land and warehouse; (iv) business registration certificate of the transferor and transferee; (v) the transferor's corporate approval on transfer of property to the transferee; Doing Business 2014 Vietnam 50 Time to No. Procedure Cost to complete complete (vi) power of attorney granted by the legal representatives of the transferor and transferee if the signatory is not legal representative of the transferor and transferee; and (vi) ID card of the signatory (including the legal representative and authorized person, if any) (Joint Circular No. 04/2006/TTLT-BTP-BTNMT dated June 13, 2006 of the Ministry of Justice and the Ministry of Natural Resource and Environment). (vii) Copies of other documents relevant to the contract or transaction which the law stipulates must be available (Article 35 of Law No. 82- 2006-QH11 on Notarization, effective as of 1 July 2007) The time-limit for notarization shall not exceed 2 working days in the case of a complex contract or transaction, this time-limit may be extended but not beyond 10 working days (Article 38 Law on Notarization No. 82/2006/QH11 takes effect in 1/7/2007). If the value of property or contract between VND 1,000,000,000 and VND 3,000,000,000 notary fee is VND 1,000,000+0,06 % of the amount of the value of property or value of the contract/transaction exceeding 1.000.000.000 . (Joint Circular No. 08/2012/TTLT-BTC-BTP dated January 19, 2012 of the Ministry of Finance and the Ministry of Justice on rates, collection, payment, management and use of notary fees ("Circular 08"), effective from March 15, 2012 which replaces Joint Circular No. 92/2008/TTLT-BTC-BTP dated October 17, 2008 of the Ministry of Finance and the Ministry of Justice ("Circular 91") The parties pay income tax on assignment of the land-use right and The registration the registration fee at the relevant District Department of Taxation fee (paid by the transferee) is 0,5% The registratiom fee (paid by the transferee) is 0.5% (Decree (Circular 45/2011/ND-CP and Circular 124/2011/TT-BTC on registration fee) . 79/2008/TT- BTC 1. Corporate Income Tax ("CIT"): dated 15/9/2008 (i) Law No. 14/2008/QH12 on Corporate Income Tax, adopted by the replaced Item II National Assembly on 03 June 2008 and took effect on 01 January 2009 Section II Circular ("CIT Law"); 95/2005/TT- BTC (ii) Decree No. 124/2008//ND-CP dated 11 December 2008 of the 25-30 days guiding on 3 Government providing details and guidelines for the implementation of registration fee). a number of articles of the CIT Law ("Decree 124"); (iii) Circular No. 130/2008/TT-BTC dated 26 December 2008 of the The tax rate of the Ministry of Finance ("MOF") providing guidelines for the implementation income tax from of a number of articles of the CIT Law and Decree 124 ("Circular 130"); the assigment of and (iv) Circular 18/2011/TT-BTC dated 10 February 2011 of the MOF land use right amending and supplementing Circular 130. (paid by the A transfer of the Property is subject to the new standard CIT rate of 25% transferor) is 25% for both transferring of land use rights and transferring of the (Based on Part G warehouse; no surtax applies (Articles 3.2 and 10.1 of the CIT Law). Section II.2 Doing Business 2014 Vietnam 51 Time to No. Procedure Cost to complete complete Circular 2. VAT: (i) Law No. 13/2008/QH12 on VAT adopted by the National 130/2008/TT-BTC Assembly on 03 June 2008 and took effect on 01 January 2009 ("VAT dated 26/12/2008 Law"); (ii) Decree No. 123/2008/ND-CP dated 08 December 2008 of the guiding of Government providing details and guidelines for the implementation of implementation of a number of articles of the VAT Law ("Decree 123"); and (iii) Circular No. Corporate income 129/2008/TT-BTC dated 26 December 2008 of the MOF providing guidelines for the implementation of a number of articles of the VAT Law tax). and Decree 123. The transferor is A transfer of land use rights is not subject to VAT (Article 5.6 of the VAT required to declare Law), but a transfer of the warehouse is subject to VAT rate of 10% the corporate (Article 8.3 of the VAT Law). income tax for each time of 3. Registration Fee: (i) Decree 176/1999/ND-CP dated 21 December transfering 1999 of the Government on registration fee ("Decree 176"), as amended property. The by (ii) Decree No. 80/2008/ND-CP dated 29 July 2008 of the Government taxation authority on amending and supplementing a number of articles of Decree 176 will base on the ("Decree 80"). declaration to A registration of the Property in the Buyer's name is subject to the rate record, adjust the of 0.5% of the value of the Property (Article 6.1 of the Decree 176 and payable tax and Article 1.2 of Decree No. 80). issue a tax notice to the taxpayer Within 30 days of the date of the agreement on sale and purchase of the within 3 working Property or the date of confirmation of the legal dossier of the Property days from the day by the competent authorities, the Buyer and the Seller must declare the of receiving such transfer for payment of the registration fee (Article 7.1 of the Amended declaration. Decree 176. (Part G Section II & III Circular 130/2008/TT-BTC dated 26/12/2008 guiding on implement of corporate income tax). The land-use right transferee shall register the right to use land According to The Land Use Right Registration Office is the prescribed authority. Circular Currently, there are many land use rights registration offices in Ho Chi 106/2010/TT-BTC Minh City, including the provincial land use rights registration office dated 26 July 2010 (immediately under the Department of Natural Resources and 2 to 4 weeks 4 issued by the Environment of Ho Chi Minh City) and district land use rights registration offices (under the people's committee of districts). Ministry of Finance, the cost According to Article 4.1 of Circular No. 20/2010/TT-BTNMT dated for registering the October 22, 2010 of the Ministry of Natural Resources and Environment, LURC are as in order to obtain the LUR certificate, the transferee may request the LUR follows: Doing Business 2014 Vietnam 52 Time to No. Procedure Cost to complete complete Office to issue a new LUR certificate or an update on the existing LUR certificate. (a) | Not over 1. Issuance of a new LUR certificate VND100,000 for the issuance of a Dossier: According to Article 21.1 of Decree 88 and Article 23.1 (a), the new LURC; or | application dossier for issuance of new LUR certificate includes: (i) application for issuance of LUR certificate; (ii) a copy of the business license; (iii) the sale and purchase contract for the Property; (b) | Not over (iv) the original LUR certificate and the certificate of ownership of the VND50,000 for the warehouse; update/amendme (v) copies of relevant tax payment receipts; and nt to the existing (vi) a map of the Property (if existing documents on the Property do not LURC in the event have such a map). of 1 (b) above occurs | Time-limit: 28 working days from the date of receipt of the proper dossier (Article 3.2 of Circular 16). 2. Update on the existing LUR certificate Dossier: According to Article 23.1(a) of Circular 17 and Article 6 of Circular 16, the application dossier for update on the existing LUR Certificate includes: (i) the sale and purchase contract for the Property; and (ii) the original LUR certificate and the certificate of ownership of the warehouse. Time line: not over 20 working days from the date of receipt of the valid dossier (Circular 16/2011/TT-BTNMT,article 3.2(a) dated May 20, 2011) * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Vietnam 53 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders’ rights to view a potential borrower’s Strength of legal rights index (0–10) financial history (positive or negative)—valuable Rights of borrowers and lenders through information to consider when assessing risk. And collateral laws they permit borrowers to establish a good credit Protection of secured creditors’ rights through history that will allow easier access to credit. Sound bankruptcy laws collateral laws enable businesses to use their assets, especially movable property, as security to generate Depth of credit information index (0–6) capital—while strong creditors’ rights have been Scope and accessibility of credit information associated with higher ratios of private sector credit distributed by public credit registries and to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the  Has up to 100 employees. secured transactions system, involving a secured  Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and  Is a private, incorporated, limited liability the strength of legal rights index. company.  Has its headquarters and only base of operations in the largest business city. Doing Business 2014 Vietnam 54 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Vietnam stands at 42 in the ranking of 189 collateral and bankruptcy laws in Vietnam facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 4 on the The rankings for comparator economies and the depth of credit information index and a score of 8 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in Vietnam support lending and borrowing. scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Vietnam and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2014 Vietnam 55 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened — well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in Vietnam support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in Vietnam over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. .. 40 42 Strength of legal rights 6 6 6 8 8 8 8 8 8 8 index (0-10) Depth of credit 2 3 3 3 4 4 4 4 4 4 information index (0-6) Public registry coverage 0.8 1.1 2.7 9.2 13.4 19.0 26.4 29.8 37.8 39.1 (% of adults) Private bureau 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Vietnam 56 GETTING CREDIT One way to put an economy’s score on the getting shows the number of economies with this score in credit indicators into context is to see where the 2013 as well as the regional average score. Figure 6.3 economy stands in the distribution of scores across shows the same thing for the depth of credit economies. Figure 6.2 highlights the score on the information index. strength of legal rights index for Vietnam in 2013 and Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2013 information index (0–6), 2013 Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Source: Doing Business database. Doing Business 2014 Vietnam 57 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Vietnam (table 6.2)? Table 6.2 How has Vietnam made getting credit easier—or not? By Doing Business report year DB year Reform The public credit registry in Vietnam extended the historical credit information distributed from 2 to 5 years, partially DB2009 explaining a 32% increase in coverage to more than 8 million individuals and firms. DB2010 No reform as measured by Doing Business. Vietnam improved its credit information system by allowing DB2011 borrowers to examine their own credit report and correct errors. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Vietnam improved its credit information system through a DB2014 decree setting up a legal framework for the establishment of private credit bureaus. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Vietnam 58 GETTING CREDIT What are the details? The getting credit indicators reported here for Vietnam The data on the legal rights of borrowers and lenders are based on detailed information collected in that are gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as collected through a survey of a credit registry and/or well as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, credit information index, a score of 1 is assigned for a score of 1 is assigned for each of 8 aspects related to each of 6 features of the credit registry or credit legal rights in collateral law and 2 aspects in bureau (see summary of scoring below). bankruptcy law. Summary of scoring for the getting credit indicators in Vietnam East Asia & Pacific OECD high income Indicator Vietnam average average Strength of legal rights index (0-10) 8 7 7 Depth of credit information index (0-6) 4 4 5 Public registry coverage (% of adults) 39.1 35.6 42.9 Private bureau coverage (% of adults) 0.0 44.8 73.9 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Regional averages for the credit registry coverage exclude economies with no credit registry. Regional averages for the credit bureau coverage exclude economies with no credit bureau. Strength of legal rights index (0–10) Index score: 8 Can any business use movable assets as collateral while keeping possession of the assets; and Yes any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically No to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's names? Doing Business 2014 Vietnam 59 Strength of legal rights index (0–10) Index score: 8 Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor Yes defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is Yes liquidated? Are secured creditors either not subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure, or does the law provide secured No creditors with grounds for relief from an automatic stay or/and sets a time limit to it? Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Depth of credit information index (0–6) Credit bureau Credit registry Index score: 4 Are data on both firms and individuals distributed? No Yes 1 Are both positive and negative data distributed? No Yes 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as No No 0 financial institutions? Are more than 2 years of historical credit information No Yes 1 distributed? Is data on all loans below 1% of income per capita No Yes 1 distributed? Is it guaranteed by law that borrowers can inspect No No 0 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 0 550,000 Number of individuals 0 23,950,000 Source: Doing Business database. Doing Business 2014 Vietnam 60 PROTECTING INVESTORS Protecting investors matters for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not protect minority shareholders, investors may be reluctant to provide funding to companies through Extent of disclosure index (0–10) the purchase of shares unless they become the Approval process for related-party controlling shareholders. Effective regulations define transactions related-party transactions precisely, promote clear Disclosure requirements in case of related- and efficient disclosure requirements, require party transactions shareholder participation in major decisions of the company and set detailed standards of accountability Extent of director liability index (0–10) for company insiders. Ability of minority shareholders to file a direct or derivative lawsuit What do the indicators cover? Ability of minority shareholders to hold Doing Business measures the strength of minority interested parties and members of the shareholder protections against directors’ use of approving body liable for prejudicial related- corporate assets for personal gain—or self-dealing. party transactions The indicators distinguish 3 dimensions of investor protections: transparency of related-party Available legal remedies (damages, repayment of profits, fines, imprisonment and rescission transactions (extent of disclosure index), liability for of the transaction) self-dealing (extent of director liability index) and minority shareholders’ access to evidence before and Ease of shareholder suits index (0–10) during trial (ease of shareholder suits index). The Access to internal corporate documents ranking on the strength of investor protection index is (directly or through a government inspector) the simple average of the percentile rankings on these 3 indices. To make the data comparable across Documents and information available during trial economies, a case study uses several assumptions about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of  Is a publicly traded corporation listed on the shareholder suits indices economy’s most important stock exchange (or at least a large private company with multiple shareholders). the company purchase used trucks from another company he owns.  Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of  The price is higher than the going price for used Buyer where permitted, even if this is not trucks, but the transaction goes forward. specifically required by law.  All required approvals are obtained, and all The transaction involves the following details: required disclosures made, though the transaction is prejudicial to Buyer.  Mr. James, a director and the majority shareholder of the company, proposes that  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2014 Vietnam 61 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections against self- index (figure 7.1). While the indicator does not dealing in Vietnam? The economy has a score of 3.3 on measure all aspects related to the protection of the strength of investor protection index, with a higher minority investors, a higher ranking does indicate that score indicating stronger protections (see the an economy’s regulations offer stronger investor summary of scoring at the end of this chapter for protections against self-dealing in the areas measured. details). Globally, Vietnam stands at 157 in the ranking of 189 economies on the strength of investor protection Figure 7.1 How Vietnam and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2014 Vietnam 62 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how ranking on the strength of investor protection index well regulations in Vietnam protect minority investors over time shows whether the economy is slipping today, data over time show whether the protections behind other economies in investor protections—or have been strengthened (table 7.1). And the global surpassing them. Table 7.1 The strength of investor protections in Vietnam over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. 169 157 Extent of disclosure 3 3 6 6 6 6 6 6 7 index (0-10) Extent of director 0 0 0 0 0 0 1 1 1 liability index (0-10) Ease of shareholder 2 2 2 2 2 2 2 2 2 suits index (0-10) Strength of investor protection index (0- 1.7 1.7 2.7 2.7 2.7 2.7 3.0 3.0 3.3 10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Vietnam 63 PROTECTING INVESTORS One way to put an economy’s scores on the protecting shows the number of economies with this score in investors indicators into context is to see where the 2013 as well as the regional average score. Figure 7.3 economy stands in the distribution of scores across applies to the extent of director liability index, and economies. Figure 7.2 highlights the score on the figure 7.4 to the ease of shareholder suits index. extent of disclosure index for Vietnam in 2013 and Figure 7.2 How strong are disclosure requirements? Figure 7.3 How strong is the liability regime for directors? Number of economies with each score on the extent of Number of economies with each score on the extent of director liability index (0–10), 2013 disclosure index (0–10), 2013 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2014 Vietnam 64 PROTECTING INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Number of economies with each score on the ease of shareholder suits index (0–10), 2013 Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2014 Vietnam 65 PROTECTING INVESTORS The scores recorded over time for Vietnam on the changes over time in the regional average score on strength of investor protection index may also be this index. revealing (figure 7.5). Equally interesting may be the Figure 7.5 Have investor protections become stronger over time? Strength of investor protection index (0–10) Note: The higher the score, the stronger the protections. Source: Doing Business database. Doing Business 2014 Vietnam 66 PROTECTING INVESTORS Economies with the strongest protections of minority reasonable time. As a result, reforms to strengthen investors from self-dealing require detailed disclosure investor protections may move ahead on different and define clear duties for directors. They also have fronts—such as through new or amended company well-functioning courts and up-to-date procedural laws, securities regulations or civil procedure rules. rules that give minority shareholders the means to What investor protection reforms has Doing Business prove their case and obtain a judgment within a recorded in Vietnam (table 7.2)? Table 7.2 How has Vietnam strengthened investor protections—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. Vietnam strengthened investor protections by requiring higher DB2012 standards of accountability for company directors. DB2013 No reform as measured by Doing Business. Vietnam strengthened investor protections by introducing DB2014 greater disclosure requirements for publicly held companies in cases of related-party transactions. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Vietnam 67 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for ease of shareholder suits indices, scores are assigned Vietnam are based on detailed information collected to each based on a range of conditions relating to through a survey of corporate and securities lawyers disclosure, director liability and shareholder suits in a about securities regulations, company laws and court standard case study transaction (see the data notes at rules of evidence and procedure. To construct the the end of this chapter). The summary below shows extent of disclosure, extent of director liability and the details underlying the scores for Vietnam. Summary of scoring for the protecting investors indicators in Vietnam East Asia & OECD high income Indicator Vietnam Pacific average average Extent of disclosure index (0-10) 7 5 7 Extent of director liability index (0-10) 1 5 5 Ease of shareholder suits index (0-10) 2 6 7 Strength of investor protection index (0-10) 3.3 5.3 6.2 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Score Score description Extent of disclosure index (0-10) 7 What corporate body provides legally sufficient Board of directors and Mr. James is 2 approval for the transaction? not allowed to vote Whether disclosure of the conflict of interest by Mr. 2 Full disclosure of all material facts James to the board of directors is required? Whether immediate disclosure of the transaction to 1 Disclosure on the transaction only the public and/or shareholders is required? Whether disclosure of the transaction in published Disclosure on the transaction and Mr. 2 periodic filings (annual reports) is required? James' conflict of interest Whether an external body must review the terms of 0 No the transaction before it takes place? Extent of director liability index (0-10) 1 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction 1 Yes causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller transaction causes 0 Not liable to the company? Whether shareholders can hold members of the approving body liable for the damage that the Buyer- 0 Not liable Seller transaction causes to the company? Doing Business 2014 Vietnam 68 Score Score description Whether a court can void the transaction upon a Not possible or only in case of Seller's 0 successful claim by a shareholder plaintiff? fraud or bad faith Whether Mr. James pays damages for the harm caused to the company upon a successful claim by 0 No the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 No shareholder plaintiff? Whether fines and imprisonment can be applied 0 No against Mr. James? Ease of shareholder suits index (0-10) 2 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 0 No filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to investigate the 0 No transaction? Whether the plaintiff can obtain any documents from 0 No documents available the defendant and witnesses during trial? Whether the plaintiff can request categories of documents from the defendant without identifying 0 No specific ones? Whether the plaintiff can directly question the 2 Yes, without approval from the judge defendant and witnesses during trial? Whether the level of proof required for civil suits is 0 No lower than that of criminal cases? Strength of investor protection index (0-10) 3.3 Source: Doing Business database. Doing Business 2014 Vietnam 69 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2012 (number per year adjusted for Doing Business data, in economies where it is more electronic and joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector — Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures Time required to comply with 3 major taxes the taxes and mandatory contributions that a (hours per year) medium-size company must pay in a given year as well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 1 Profit or corporate income tax being applied to the total tax rate. To make the data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2011. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes  Taxes and mandatory contributions include and mandatory contributions paid during corporate income tax, turnover tax and all the second year of operation are recorded. labor taxes and contributions paid by the  Taxes and mandatory contributions are company. measured at all levels of government.  A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 25.5%. Doing Business 2014 Vietnam 70 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Vietnam stands at 149 in the ranking of 189 taxes in Vietnam—and how much do firms pay in economies on the ease of paying taxes (figure 8.1). The taxes? On average, firms make 32 tax payments a year, rankings for comparator economies and the regional spend 872 hours a year filing, preparing and paying average ranking provide other useful information for taxes and pay total taxes amounting to 35.2% of profit assessing the tax compliance burden for businesses in (see the summary at the end of this chapter for Vietnam. details). Figure 8.1 How Vietnam and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2014 Vietnam 71 PAYING TAXES What are the changes over time? The benchmarks provided by the economies that over show what is possible in easing the administrative time have had the best performance regionally or burden of tax compliance. And changes in regional globally on the number of payments or the time averages can show where Vietnam is keeping up—and required to prepare and file taxes (figure 8.2) help where it is falling behind. Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2014 Vietnam 72 PAYING TAXES Total tax rate (% of profit) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.5% applied in DB2014, the total tax rate is set at 25.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2014 Vietnam 73 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Vietnam (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Vietnam made paying taxes easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. Vietnam has relieved the tax bruden on business by reducing DB2010 both the corporate income tax and the value added tax, and eliminating the surtax on income from the transfer of land use. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Vietnam made paying taxes more costly for companies by DB2014 increasing employers' social security contribution rate. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Vietnam 74 PAYING TAXES What are the details? The indicators reported here for Vietnam are based LOCATION OF STANDARDIZED COMPANY on a standard set of taxes and contributions that would be paid by the case study company used by Doing Business in collecting the data (see the City: Ho Chi Minh City section in this chapter on what the indicators cover). Tax practitioners are asked to review standard financial statements as well as a standard list of transactions that the company completed The taxes and contributions paid are listed in the during the year. Respondents are asked how much summary below, along with the associated number of in taxes and mandatory contributions the business payments, time and tax rate. must pay and what the process is for doing so. Summary of tax rates and administrative burden in Vietnam East Asia & Pacific OECD high income Indicator Vietnam average average Payments (number per year) 32 25 12 Time (hours per year) 872 208 175 Profit tax (%) 11.4 16.4 16.1 Labor tax and contributions (%) 23.7 10.7 23.1 Other taxes (%) 0.2 7.4 2.0 Total tax rate (% profit) 35.2 34.5 41.3 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Employer paid - Social gross 12 335 17% 19.2 Security contributions salaries taxable Corporate income tax 5 217 25% 10.1 profit Employer paid - Health gross 0 paid jointly 0 2.5% 3.4 insurance contributions salaries Doing Business 2014 Vietnam 75 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Income tax from transfer of capital 1 0 25% 1.3 land use rights gains Employer paid - gross 0 paid jointly 0 1% 1.1 Unemployment insurance salaries VND Business Licensing Tax 1 0 fixed fee 0.2 1,000,000 included small Fuel tax 1 0 5% in fuel 0 amount price value not Value added tax (VAT) 12 320 10% 0 added included Totals 32 872 35.2 Source: Doing Business database. Doing Business 2014 Vietnam 76 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing Inland transport and handling a standard shipment of goods by sea transport, and the number of documents necessary to Customs clearance and inspections complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation Does not include sea transport time requirements and procedures at customs and other regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business: military items.  Is of medium size and employs 60 people.  Do not require refrigeration or any other special environment.  Is located in the periurban area of the economy’s largest business city.  Do not require any special phytosanitary or environmental safety standards other than  Is a private, limited liability company, accepted international standards. domestically owned, formally registered and operating under commercial laws and  Are one of the economy’s leading export or regulations of the economy. import products. The traded goods:  Are transported in a dry-cargo, 20-foot full container load.  Are not hazardous nor do they include Doing Business 2014 Vietnam 77 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Vietnam? Globally, Vietnam stands at 65 in the ranking of 189 According to data collected by Doing Business, economies on the ease of trading across borders exporting a standard container of goods requires 5 (figure 9.1). The rankings for comparator economies documents, takes 21 days and costs $610. Importing and the regional average ranking provide other useful the same container of goods requires 8 documents, information for assessing how easy it is for a business takes 21 days and costs $600 (see the summary of in Vietnam to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How Vietnam and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2014 Vietnam 78 TRADING ACROSS BORDERS What are the changes over time? The benchmarks provided by the economies that over possible in making it easier to trade across borders. time have had the best performance regionally or And changes in regional averages can show where globally on the documents, time or cost required to Vietnam is keeping up—and where it is falling behind. export or import (figure 9.2) help show what is Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2014 Vietnam 79 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2014 Vietnam 80 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Vietnam 81 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Vietnam (table 9.1)? risk-based inspections and electronic data interchange Table 9.1 How has Vietnam made trading across borders easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. Increasing competition in the logistics industry along with application of new customs administration procedures as part DB2010 of the WTO membership reform program have reduced delays to trade in Vietnam. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Vietnam 82 TRADING ACROSS BORDERS What are the details? The indicators reported here for Vietnam are based LOCATION OF STANDARDIZED COMPANY on a set of specific procedural requirements for trading a standard shipment of goods by ocean transport (see the section in this chapter on what City: Ho Chi Minh City the indicators cover). Information on the procedures as well as the required documents and the time and cost to complete each procedure is The procedural requirements, and the associated time collected from local freight forwarders, shipping and cost, for exporting and importing a standard lines, customs brokers, port officials and banks. shipment of goods are listed in the summary below, along with the required documents. Summary of procedures and documents for trading across borders in Vietnam East Asia & Pacific OECD high income Indicator Vietnam average average Documents to export (number) 5 6 4 Time to export (days) 21 21 11 Cost to export (US$ per container) 610 856 1,070 Documents to import (number) 8 7 4 Time to import (days) 21 22 10 Cost to import (US$ per container) 600 884 1,090 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Procedures to export Time (days) Cost (US$) Documents preparation 12 160 Customs clearance and technical control 4 100 Ports and terminal handling 3 150 Inland transportation and handling 2 200 Totals 21 610 Procedures to import Time (days) Cost (US$) Documents preparation 12 130 Doing Business 2014 Vietnam 83 Procedures to import Time (days) Cost (US$) Customs clearance and technical control 4 95 Ports and terminal handling 4 175 Inland transportation and handling 1 200 Totals 21 600 Documents to export Documents to import Bill of Lading Bill of Lading Commercial invoice Cargo release order Customs export declaration Commercial invoice Packing list Customs import declaration Technical standard/health certificate Inspection report Source: Doing Business database. Packing list Technical standard/health certificate Terminal handling receipts Doing Business 2014 Vietnam 84 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent Procedures to enforce a contract through courts encourage new business relationships the courts (number) because businesses know they can rely on the courts if a new customer fails to pay. Speedy trials Steps to file and serve the case are essential for small enterprises, which may lack Steps for trial and judgment the resources to stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment Time required to complete procedures What do the indicators cover? (calendar days) Doing Business measures the efficiency of the Time to file and serve the case judicial system in resolving a commercial dispute before local courts. Following the step-by-step Time for trial and obtaining judgment evolution of a standardized case study, it collects Time to enforce the judgment data relating to the time, cost and procedural complexity of resolving a commercial lawsuit. The Cost required to complete procedures (% of ranking on the ease of enforcing contracts is the claim) simple average of the percentile rankings on its Average attorney fees component indicators: procedures, time and cost. Court costs The dispute in the case study involves the breach Enforcement costs of a sales contract between 2 domestic businesses. The case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city.  The dispute on the quality of the goods requires an expert opinion.  The buyer orders custom-made goods, then fails to pay.  The judge decides in favor of the seller; there is no appeal.  The seller sues the buyer before a competent court.  The seller enforces the judgment through a public sale of the buyer’s movable assets.  The value of the claim is 200% of income per capita.  The seller requests a pretrial attachment to secure the claim. Doing Business 2014 Vietnam 85 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Vietnam stands at 46 in the ranking of 189 dispute through the courts in Vietnam? According to economies on the ease of enforcing contracts (figure data collected by Doing Business, contract enforcement 10.1). The rankings for comparator economies and the takes 400 days, costs 29.0% of the value of the claim regional average ranking provide other useful and requires 36 procedures (see the summary at the benchmarks for assessing the efficiency of contract end of this chapter for details). enforcement in Vietnam. Figure 10.1 How Vietnam and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2014 Vietnam 86 ENFORCING CONTRACTS What are the changes over time? The benchmarks provided by the economies that over help show what is possible in improving the efficiency time have had the best performance regionally or of contract enforcement. And changes in regional globally on the number of steps, time or cost required averages can show where Vietnam is keeping up—and to enforce a contract through the courts (figure 10.2) where it is falling behind. Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2014 Vietnam 87 ENFORCING CONTRACTS Procedures (number) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Vietnam 88 ENFORCING CONTRACTS Economies in all regions have improved contract often work on reducing backlogs by introducing enforcement in recent years. A judiciary can be periodic reviews to clear inactive cases from the docket improved in different ways. Higher-income economies and by making procedures faster. What reforms tend to look for ways to enhance efficiency by making it easier (or more difficult) to enforce contracts introducing new technology. Lower-income economies has Doing Business recorded in Vietnam (table 10.1)? Table 10.1 How has Vietnam made enforcing contracts easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Vietnam 89 ENFORCING CONTRACTS What are the details? The indicators reported here for Vietnam are based COURT NAME on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this chapter City: Ho Chi Minh City on what the indicators cover). These procedures, and the time and cost of completing them, are Claim Value LCU: 54719673 identified through study of the codes of civil procedure and other court regulations, as well as People's Court of Ho Chi through surveys completed by local litigation Court Name: Minh City, District Level lawyers (and, in a quarter of the economies Court covered by Doing Business, by judges as well). The procedures for resolving a commercial lawsuit, and the associated time and cost, are listed in the summary below. Summary of procedures for enforcing a contract in Vietnam—and the time and cost East Asia & Pacific OECD high income Indicator Vietnam average average Time (days) 400 551 529 Filing and service 50 Trial and judgment 200 Enforcement of judgment 150 Cost (% of claim) 29.0 48.7 21.0 Attorney cost (% of claim) 21.0 Court cost (% of claim) 5.0 Enforcement Cost (% of claim) 3.0 Procedures (number) 36 37 31 Number of procedures (without bonus points) 37 Specialized commercial courts -1 Total number of procedures (including bonus 36 points) Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Doing Business 2014 Vietnam 90 ENFORCING CONTRACTS No. Procedure Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. Plaintiff’s filing of summons and complaint: Plaintiff files his summons and complaint with the cour t, orally * or in writing. * Plaintiff’s payment of court fees: Plaintiff pays court duties, stamp duties, or any other type of court fee. Registration of court case: The court administration registers the lawsuit or court case. This includes 2 assigning a reference number to the lawsuit or court case. Assignment of court case to a judge: The court case is assigned to a specific judge through a random * procedure, automated system, ruling of an administrative judge, court officer, etc. Court scrutiny of summons and complaint: A judge examines Plaintiff's summons and complaint for 3 formal requirements. Judge admits summons and complaint: After verifying the formal requirements, the judge decides to * admit Plaintiff’s summons and complaint. Delivery of summons and complaint to person authorized to perform service of process on Defendant: 4 The judge or a court officer delivers the summons to a summoning office, officer, or authorized person (including Plaintiff), for service of process on Defendant. Mailing of summons and complaint: Court or process server, including (private) bailiff, mails summons * and complaint to Defendant. First attempt at physical delivery: A first attempt to physically deliver summons and complaint to 5 Defendant is successful in the majority of cases. Second attempt at physical delivery: If a first attempt was not successful, a second attempt to physically 6 deliver the summons and complaint to Defendant is required by law or standard practice. Substituted service: Substituted service is accomplished by publication in newspapers, by affixing a notice 7 in court or on public bulletin boards, etc. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. (see assumption 5) Decision on pre-judgment attachment: The judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. This step may include requesting that Plaintiff submit guarantees or bonds to secure Defendant Guarantees securing attached property: Plaintiff typically submits guarantees or bonds to secure 8 Defendant against possible damages to attached property. (see assumption 5) Pre-judgment attachment.: Defendant's property is attached prior to judgment. Attachment is either 9 physical or achieved by registering, marking, debiting or separating assets. (see assumption 5) Doing Business 2014 Vietnam 91 No. Procedure Custody of assets attached prior to judgment: Defendant's attached assets are put under enforcement 10 officer's or (private) bailiff's care. (see assumption 5) Report on pre-judgment attachment: Court enforcement officer or (private) bailiff issues and delivers a 11 report on the attachment of Defendant’s property to the judge. (see assumption 5) Trial and judgment: Defendant’s filing of defense or answer to Plaintiff’s claim: Defendant files a written pleading which includes his defense or answer on the merits of the case. Defendant's written answer may or may not 12 include witness statements, expert statements, the documents Defendant relies on as evidence and the legal authori Framing of issues: Plaintiff and Defendant assist the court in framing issues on which evidence is to be 13 presented. Court appointment of independent expert: Judge appoints, either at the parties' request or at his own * initiative, an independent expert to decide whether the quality of the goods Plaintiff delivered to Defendant is adequate. (see assumption 6-b of this case) Notification of court-appointment of independent expert: The court notifies both parties that the court is 14 appointing an independent expert. (see assumption 6-b of this case) Delivery of expert report by court-appointed expert: The independent expert appointed by the court * delivers his or her expert report to the court. (see assumption 6-b of this case) Setting of date for mediation hearing: The judge sets a date for a mediation hearing, sometimes also * called a 'pre-trial conference,' and notifies the parties of the hearing date. Mediation hearing: The judge during this informal meeting with the parties encourages them to settle the 15 case. The judge acts as mediator. If the case cannot be settled, the judge may draft a pre-trial conference report, after which the case may be allocated to another judg * Setting of date(s) for oral hearing or trial: The judge sets the date(s) for the oral hearing or trial. Summoning of (expert) witnesses: The court summons (expert) witnesses to appear in court for the oral 16 hearing or trial. (see assumption 6-a) Oral hearing (prevalent in civil law): The parties argue the merits of the case at an oral hearing before the 17 judge. Witnesses and a court-appointed independent expert may be heard and questioned at the oral hearing. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 18 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 19 Writing of judgment: The judge produces a written copy of the judgment. Registration of judgment: The court office registers the judgment after receiving a written copy of the 20 judgment. Court notification of availability of the written judgment: The court notifies the parties that the written 21 judgment is available at the courthouse. Doing Business 2014 Vietnam 92 No. Procedure 22 Plaintiff's receipt of a copy of written judgment: Plaintiff receives a copy of the written judgment. Notification of Defendant of judgment: Plaintiff or court formally notifies the Defendant of the judgment. 23 The appeal period starts to run the day the Defendant is formally notified of the judgment. Appeal period: By law, Defendant has the opportunity to appeal the judgment during a period specified in 24 the law. Defendant decides not to appeal. Judgment becomes final the day the appeal period ends. Reimbursement by Defendant of Plaintiff's court fees: The judgment obliges Defendant to reimburse 25 Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff’s request for enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 26 judgment. Judge's order for physical enforcement: The judge orders the police to assist with the physical 27 enforcement of the attachment of Defendant's movable goods. Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a 28 (private) bailiff requests Defendant to voluntarily comply with the judgment, giving Defendant a last chance to comply voluntarily with the judgment. Identification of Defendant's assets for attachment by court official or Defendant: Judge, a court 29 enforcement officer, a (private) bailiff or the Defendant himself identifies Defendant's movable assets for attachment. Notification of intent to attach: A court enforcement officer or (private) bailiff notifies other creditors of 30 the intent to attach Defendant's goods. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 31 assets). Valuation or appraisal of attached movable goods: The court or court appointed valuation expert 32 evaluates the attached goods. Call for public auction: The judge calls a public auction by, for example, advertising or publication in the 33 newspapers. 34 Sale through public auction: The Defendant’s movable property is sold at public auction. 35 Judge's decision on bids: The judge determines the adequacy of the bids presented at public auction. Distribution of proceeds: The proceeds of the public auction are distributed to various creditors (including 36 Plaintiff), according to the rules of priority. 37 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2014 Vietnam 93 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Outcome well as public information on bankruptcy systems. Whether business continues operating as a The ranking on the ease of resolving insolvency is going concern or business assets are sold based on the recovery rate, which is recorded as piecemeal cents on the dollar recouped by creditors through Recovery rate for creditors (cents on the reorganization, liquidation or debt enforcement dollar) (foreclosure) proceedings. The recovery rate is a Measures the cents on the dollar recovered function of time, cost and other factors, such as by creditors lending rate and the likelihood of the company continuing to operate. Present value of debt recovered To make the data comparable across economies, Official costs of the insolvency proceedings Doing Business uses several assumptions about the are deducted business and the case. It assumes that the Depreciation of furniture is taken into company: account  Is a domestically owned, limited liability Outcome for the business (survival or not) company operating a hotel. affects the maximum value that can be recovered  Operates in the economy’s largest business city.  Has 201 employees, 1 main secured  Has a higher value as a going concern—and creditor and 50 unsecured creditors. the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2014 Vietnam 94 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses piecemeal sale. The average recovery rate is 16.2 cents characterize the top-performing economies. How on the dollar. efficient are insolvency proceedings in Vietnam? Globally, Vietnam stands at 149 in the ranking of 189 According to data collected by Doing Business, economies on the ease of resolving insolvency (figure resolving insolvency takes 5.0 years on average and 11.1). The rankings for comparator economies and the costs 15% of the debtor’s estate, with the most likely regional average ranking provide other useful outcome being that the company will be sold as benchmarks for assessing the efficiency of insolvency proceedings in Vietnam. Figure 11.1 How Vietnam and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2014 Vietnam 95 RESOLVING INSOLVENCY What are the changes over time? The benchmarks provided by the economies that over possible in improving the efficiency of insolvency time have had the best performance regionally or proceedings. And changes in regional averages can globally on the time or cost of insolvency proceedings show where Vietnam is keeping up—and where it is or on the recovery rate (figure 11.2) help show what is falling behind. Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2014 Vietnam 96 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. “No practice” indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for “no practice” economies is 0. Regional averages on time and cost exclude economies with a “no practice” mark. Source: Doing Business database. Doing Business 2014 Vietnam 97 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Vietnam (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How has Vietnam made resolving insolvency easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Vietnam 98 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of employing workers methodology proposed by the employment, specifically as it affects the hiring and consultative group are available on the Doing Business redundancy of workers and the rigidity of working website (http://www.doingbusiness.org). The data on hours. Over the period from 2007 to 2011 employing workers are based on a detailed survey of improvements were made to align the methodology employment regulations that is completed by local for the employing workers indicators with the letter lawyers and public officials. Employment laws and and spirit of the International Labour Organization regulations as well as secondary sources are reviewed (ILO) conventions. Only 4 of the 188 ILO conventions to ensure accuracy. cover areas measured by Doing Business: employee To make the data comparable across economies, termination, weekend work, holiday with pay and night several assumptions about the worker and the work. The Doing Business methodology is fully business are used. consistent with these 4 conventions. The ILO conventions covering areas related to the Employing The worker: Workers indicators do not include the ILO core labor  Earns a salary plus benefits equal to the standards—8 conventions covering the right to economy’s average wage during the entire collective bargaining, the elimination of forced labor, period of his employment. the abolition of child labor and equitable treatment in  Has a pay period that is the most common for workers in the economy. employment practices.  Is a lawful citizen who belongs to the same race and religion as the majority of the Between 2009 and 2011 the World Bank Group worked economy’s population. with a consultative group—including labor lawyers,  Resides in the economy’s largest business city. employer and employee representatives, and experts  Is not a member of a labor union, unless from the ILO, OECD, civil society and the private membership is mandatory. sector—to review the employing workers methodology and explore future areas of research. A i The business:  Is a limited liability company. full report with the conclusions of the consultative  Operates in the economy’s largest business group is available at city. http://www.doingbusiness.org/methodology/employin  Is 100% domestically owned. g-workers.  Operates in the manufacturing sector.  Has 60 employees. This year Doing Business continued research collecting  Is subject to collective bargaining agreements additional data on regulations covering the in economies where such agreements cover probationary period for new employees. more than half the manufacturing sector and apply even to firms not party to them. Doing Business 2014 presents the data on the  Abides by every law and regulation but does not grant workers more benefits than employing workers indicators in an annex. The report mandated by law, regulation or (if applicable) does not present rankings of economies on the collective bargaining agreement. employing workers indicators nor include the topic in the aggregate ranking on the ease of doing business. Detailed data collected on labor regulations and the Doing Business 2014 Vietnam 99 EMPLOYING WORKERS What do some of the data show? One of the employing workers indicators is the worker in his or her first job. Doing Business data show difficulty of hiring index. This measure assesses, among the trend in the minimum wage applied by Vietnam other things, the minimum wage for a 19-year-old (figure 12.1). Figure 12.1 Has the minimum wage for a 19-year-old worker or an apprentice increased over time? Minimum wage (US$ per month) Note: A horizontal line along the x-axis of the figure indicates that the economy has no minimum wage. Source: Doing Business database. Doing Business 2014 Vietnam 100 EMPLOYING WORKERS Employment laws are needed to protect workers from past 5 years did so in ways that increased labor market arbitrary or unfair treatment and to ensure efficient flexibility. What changes did Vietnam adopt that contracting between employers and workers. Many affected the Doing Business indicators on employing economies that changed their labor regulations in the workers (table 12.1)? Table 12.1 What changes did Vietnam make in employing workers in 2013? DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Vietnam abolished priority rules for redundancy dismissals or DB2014 layoffs and increased the minimum wage. Source: Doing Business database. Doing Business 2014 Vietnam 101 EMPLOYING WORKERS What are the details? The data on employing workers reported here for lawyers and public officials. Employment laws and Vietnam are based on a detailed survey of regulations as well as secondary sources are reviewed employment regulations that is completed by local to ensure accuracy. Rigidity of employment index The rigidity of employment index measures 3 areas of labor regulation: difficulty of hiring, rigidity of hours and difficulty of redundancy. Difficulty of hiring index The difficulty of hiring index measures whether fixed- worker. (The average value added per worker is the term contracts are prohibited for permanent tasks; the ratio of an economy’s gross national income per capita maximum cumulative duration of fixed-term contracts; to the working-age population as a percentage of the and the ratio of the minimum wage for a trainee or total population.) first-time employee to the average value added per Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? No Maximum length of a single fixed-term contract (months) 36 - Art. 22.1 of the Labor Code 2012 Maximum length of fixed-term contracts, including renewals (months) 72 Minimum wage for a 19-year old worker or an apprentice (US$/month) 73.1 Ratio of minimum wage to value added per worker 0.44 Source: Doing Business database. Doing Business 2014 Vietnam 102 EMPLOYING WORKERS Rigidity of hours index The rigidity of hours index has 5 components: whether respond to a seasonal increase in production; and there are restrictions on night work; whether there are whether the average paid annual leave for a worker restrictions on weekly holiday work; whether the with 1 year of tenure, a worker with 5 years and a workweek can consist of 5.5 days or is more than 6 worker with 10 years is more than 26 working days or days; whether the workweek can extend to 50 hours or fewer than 15 working days. more (including overtime) for 2 months a year to Rigidity of hours index Data 8 - 10 hours, according to art 104.2: If the working hours are determined on Standard workday in manufacturing (hours) a weekly basis, the normal workings hour shall not exceed 10hrs/day and not exceed 48hrs/week 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in production? Maximum working days per week 6.0 Premium for night work (% of hourly pay) in case of continuous 30% operations Premium for work on weekly rest day (% of hourly pay) in case of 100% continuous operations Major restrictions on night work in case of continuous operations? No Major restrictions on weekly holiday in case of continuous operations? No Paid annual leave for a worker with 1 year of tenure (in working days) 12.0 Paid annual leave for a worker with 5 years of tenure (in working days) 13.0 Paid annual leave for a worker with 10 years of tenure (in working days) 14.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 13.0 working days) Source: Doing Business database. Doing Business 2014 Vietnam 103 EMPLOYING WORKERS Difficulty of redundancy index The difficulty of redundancy index has 8 components: worker; whether the employer needs approval from a whether redundancy is disallowed as a basis for third party to terminate a group of 9 redundant terminating workers; whether the employer needs to workers; whether the law requires the employer to notify a third party (such as a government agency) to reassign or retrain a worker before making the worker terminate 1 redundant worker; whether the employer redundant; whether priority rules apply for needs to notify a third party to terminate a group of 9 redundancies; and whether priority rules apply for redundant workers; whether the employer needs reemployment. approval from a third party to terminate 1 redundant Difficulty of redundancy index Data Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? No Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? Yes Third-party approval if 9 workers are dismissed? Yes Retraining or reassignment obligation before redundancy? Yes Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2014 Vietnam 104 EMPLOYING WORKERS Redundancy cost The redundancy cost indicator measures the cost of notice requirements and severance payments advance notice requirements, severance payments and applicable to a worker with 1 year of tenure, a worker penalties due when terminating a redundant worker, with 5 years and a worker with 10 years is used to expressed in weeks of salary. The average value of assign the score. Redundancy cost indicator Data Notice period for redundancy dismissal (for a worker with 1 year of tenure, in salary 0.0 weeks) Notice period for redundancy dismissal (for a worker with 5 years of tenure, in 0.0 salary weeks) Notice period for redundancy dismissal (for a worker with 10 years of tenure, in 0.0 salary weeks) Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 0.0 of tenure, in salary weeks) Severance pay for redundancy dismissal (for a worker with 1 year of tenure, in 8.7 salary weeks) Severance pay for redundancy dismissal (for a worker with 5 years of tenure, in 21.7 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 43.3 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 24.6 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2014 Vietnam 105 DATA NOTES The indicators presented and analyzed in Doing rounds of verification, leading to revisions or Business measure business regulation and the expansions of the information collected. protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of ECONOMY CHARACTERISTICS regulation, such as the number of procedures to start a business or to register and transfer commercial property. Second, they gauge the time and cost to Gross national income per capita achieve a regulatory goal or comply with regulation, such as the time and cost to enforce a contract, go Doing Business 2014 reports 2012 income per capita through bankruptcy or trade across borders. Third, as published in the World Bank’s World Development they measure the extent of legal protections of Indicators 2013. Income is calculated using the Atlas property, for example, the protections of investors method (current U.S. dollars). For cost indicators against looting by company directors or the range of expressed as a percentage of income per capita, assets that can be used as collateral according to 2012 gross national income (GNI) in U.S. dollars is secured transactions laws. Fourth, a set of indicators used as the denominator. GNI data were not documents the tax burden on businesses. Finally, a set available from the World Bank for Afghanistan, The of data covers different aspects of employment Bahamas, Bahrain, Barbados, Brunei Darussalam, regulation. The 11 sets of indicators measured in Djibouti, the Islamic Republic of Iran, Kuwait, Libya, Doing Business were added over time, and the sample Myanmar, New Zealand, Oman, San Marino, the of economies expanded. Syrian Arab Republic, West Bank and Gaza, and the Republic of Yemen. In these cases GDP or GNP per The data for all sets of indicators in Doing Business 2 capita data and growth rates from other sources, 2014 are for June 2013. such as the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Unit, were used. Methodology Region and income group The Doing Business data are collected in a standardized way. To start, the Doing Business team, Doing Business uses the World Bank regional and with academic advisers, designs a questionnaire. The income group classifications, available at questionnaire uses a simple business case to ensure http://data.worldbank.org/about/country- classifications. The World Bank does not assign comparability across economies and over time—with regional classifications to high-income economies. assumptions about the legal form of the business, its For the purpose of the Doing Business report, high- size, its location and the nature of its operations. income OECD economies are assigned the “regional” Questionnaires are administered to more than 10,200 classification OECD high income. Figures and tables local experts, including lawyers, business consultants, presenting regional averages include economies accountants, freight forwarders, government officials from all income groups (low, lower middle, upper and other professionals routinely administering or middle and high income). advising on legal and regulatory requirements (table Population 21.2). These experts have several rounds of interaction with the Doing Business team, involving conference Doing Business 2014 reports midyear 2012 calls, written correspondence and visits by the team. population statistics as published in World For Doing Business 2014 team members visited 33 Development Indicators 2013. economies to verify data and recruit respondents. The data from questionnaires are subjected to numerous The Doing Business methodology offers several advantages. It is transparent, using factual information about what laws and regulations say and allowing 2 The data for paying taxes refer to January – December 2012. multiple interactions with local respondents to clarify Doing Business 2014 Vietnam 106 potential misinterpretations of questions. Having entrepreneurs reported in the World Bank Enterprise representative samples of respondents is not an issue; Surveys or other perception surveys. Doing Business is not a statistical survey, and the texts This year Doing Business completed subnational of the relevant laws and regulations are collected and studies in Colombia, Italy and the city of Hargeisa answers checked for accuracy. The methodology is (Somaliland) and is currently updating indicators in inexpensive and easily replicable, so data can be Egypt, Mexico and Nigeria. Doing Business also collected in a large sample of economies. Because published regional studies for the g7+ and the East standard assumptions are used in the data collection, African Community. The g7+ group is a country- comparisons and benchmarks are valid across owned and country-led global mechanism established economies. Finally, the data not only highlight the in April 2010 to monitor, report and draw attention to extent of specific regulatory obstacles to business but the unique challenges faced by fragile states. The also identify their source and point to what might be member countries included in the report are reformed. Information on the methodology for each Afghanistan, Burundi, the Central African Republic, Doing Business topic can be found on the Doing Chad, the Comoros, the Democratic Republic of Business website at Congo, Côte d’Ivoire, Guinea, Guinea-Bissau, Haiti, http://www.doingbusiness.org/methodology. Liberia, Papua New Guinea, Sierra Leone, the Solomon Islands, South Sudan, Timor-Leste and Togo. Limits to what is measured The subnational studies point to differences in business regulation and its implementation —as well as The Doing Business methodology has 5 limitations that in the pace of regulatory reform—across cities in the should be considered when interpreting the data. First, same economy. For several economies subnational the collected data refer to businesses in the economy’s studies are now periodically updated to measure largest business city (which in some economies differs change over time or to expand geographic coverage from the capital) and may not be representative of to additional cities. This year that is the case for all the regulation in other parts of the economy. To address subnational studies published. this limitation, subnational Doing Business indicators were created (box 21.1). Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified Changes in what is measured size—and may not be representative of the regulation The methodology for 2 indicator sets—trading across on other businesses, for example, sole proprietorships. borders and paying taxes—was updated this year. For Third, transactions described in a standardized case trading across borders, documents that are required scenario refer to a specific set of issues and may not purely for purposes of preferential treatment are no represent the full set of issues a business encounters. longer included in the list of documents (for example, Fourth, the measures of time involve an element of a certificate of origin if the use is only to qualify for a judgment by the expert respondents. When sources preferential tariff rate under trade agreements). For indicate different estimates, the time indicators paying taxes, the value of fuel taxes is no longer reported in Doing Business represent the median included in the total tax rate because of the difficulty values of several responses given under the of computing these taxes in a consistent way across all assumptions of the standardized case. economies covered. The fuel tax amounts are in most cases very small, and measuring these amounts is Finally, the methodology assumes that a business has often complicated because they depend on fuel full information on what is required and does not consumption. Fuel taxes continue to be counted in the waste time when completing procedures. In practice, number of payments. completing a procedure may take longer if the business lacks information or is unable to follow up In a change involving several indicator sets, the rule promptly. Alternatively, the business may choose to establishing that each procedure must take at least 1 disregard some burdensome procedures. For both day was removed for procedures that can be fully reasons the time delays reported in Doing Business completed online in just a few hours. This change 2014 would differ from the recollection of affects the time indicator for starting a business, Doing Business 2014 Vietnam 107 dealing with construction permits and registering with one another, while the distance to frontier property. For procedures that can be fully completed measure benchmarks economies to the frontier in 3 online, the duration is now set at half a day rather than regulatory practice, measuring the absolute distance to a full day. the best performance on each indicator. Both measures can be used for comparisons over time. The threshold for the total tax rate introduced in 2011 When compared across years, the distance to frontier for the purpose of calculating the ranking on the ease measure shows how much the regulatory environment of paying taxes was updated. All economies with a for local entrepreneurs in each economy has changed total tax rate below the threshold (which is calculated over time in absolute terms, while the ease of doing and adjusted on a yearly basis) receive the same business ranking can show only relative change. ranking on the total tax rate indicator. The threshold is not based on any economic theory of an “optimal tax Ease of doing business rate” that minimizes distortions or maximizes efficiency The ease of doing business index ranks economies in the tax system of an economy overall. Instead, it is from 1 to 189. For each economy the ranking is mainly empirical in nature, set at the lower end of the calculated as the simple average of the percentile distribution of tax rates levied on medium-size rankings on each of the 10 topics included in the index enterprises in the manufacturing sector as observed in Doing Business 2014: starting a business, dealing through the paying taxes indicators. This reduces the with construction permits, getting electricity, bias in the indicators toward economies that do not registering property, getting credit, protecting need to levy significant taxes on companies like the investors, paying taxes, trading across borders, Doing Business standardized case study company enforcing contracts, and resolving insolvency. The because they raise public revenue in other ways—for employing workers indicators are not included in this example, through taxes on foreign companies, through year’s aggregate ease of doing business ranking. taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of Construction of the ease of doing business index the methodology). This year the threshold is 25,5%. Here is one example of how the ease of doing business index is constructed. In Denmark it takes 4 procedures, 5.5 days and 0.2% of annual income per capita in fees Data challenges and revisions to open a business. The minimum capital requirement Most laws and regulations underlying the Doing is 24% of annual income per capita. On these 4 Business data are available on the Doing Business indicators Denmark ranks in the 12th, 11th, 1st and website at http://www.doingbusiness.org. All the 79th percentiles. So on average Denmark ranks in the sample questionnaires and the details underlying the 25th percentile on the ease of starting a business. It indicators are also published on the website. Questions ranks in the 21st percentile on getting credit, 19th on the methodology and challenges to data can be percentile on paying taxes, 27th percentile on submitted through the website’s “Ask a Question” enforcing contracts, 5th percentile on resolving function at http://www.doingbusiness.org. insolvency and so on. Higher rankings indicate simpler regulation and stronger protection of property rights. Ease of doing business and distance to The simple average of Denmark’s percentile rankings frontier on all topics is 17th. When all economies are ordered Doing Business 2014 presents results for 2 aggregate by their average percentile rankings, Denmark stands measures: the aggregate ranking on the ease of doing at 5 in the aggregate ranking on the ease of doing business and the distance to frontier measure. The business. ease of doing business ranking compares economies More complex aggregation methods—such as 3 For getting electricity the rule that each procedure must take a principal components and unobserved components— minimum of 1 day still applies because in practice there are no yield a ranking nearly identical to the simple average cases in which procedures can be fully completed online in less than a day. For example, even though in some cases it is possible to apply for an electricity connection online, additional requirements mean that the process cannot be completed in less than 1 day. Doing Business 2014 Vietnam 108 4 used by Doing Business. Thus, Doing Business uses 58 on enforcing contracts, 116 on dealing with the simplest method: weighting all topics equally and, construction permits and 145 on getting electricity. within each topic, giving equal weight to each of the Variation in performance across the indicator sets is topic components. not at all unusual. It reflects differences in the degree If an economy has no laws or regulations covering a of priority that government authorities give to specific area—for example, insolvency—it receives a particular areas of business regulation reform and the “no practice” mark. Similarly, an economy receives a ability of different government agencies to deliver “no practice” or “not possible” mark if regulation exists tangible results in their area of responsibility. but is never used in practice or if a competing Distance to frontier measure regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the A drawback of the ease of doing business ranking is ranking on the relevant indicator. that it can measure the regulatory performance of economies only relative to the performance of others. The ease of doing business index is limited in scope. It It does not provide information on how the absolute does not account for an economy’s proximity to large quality of the regulatory environment is improving markets, the quality of its infrastructure services (other over time. Nor does it provide information on how than services related to trading across borders and large the gaps are between economies at a single getting electricity), the strength of its financial system, point in time. the security of property from theft and looting, macroeconomic conditions or the strength of The distance to frontier measure is designed to underlying institutions. address both shortcomings, complementing the ease of doing business ranking. This measure illustrates the Variability of economies’ rankings across topics distance of an economy to the “frontier,” and the Each indicator set measures a different aspect of the change in the measure over time shows the extent to business regulatory environment. The rankings of an which the economy has closed this gap. The frontier is economy can vary, sometimes significantly, across a score derived from the most efficient practice or indicator sets. The average correlation coefficient highest score achieved on each of the component between the 10 indicator sets included in the indicators in 10 Doing Business indicator sets aggregate ranking is 0.38, and the coefficients (excluding the employing workers indicators) by any between any 2 sets of indicators range from 0.18 economy. In starting a business, for example, Canada (between getting electricity and getting credit) to 0.58 and New Zealand have achieved the highest (between trading across borders and resolving performance on the number of procedures required (1) insolvency and between trading across borders and and on the time (0.5 days), Denmark and Slovenia on getting electricity). These correlations suggest that the cost (0% of income per capita) and Chile, Zambia economies rarely score universally well or universally and 99 other economies on the paid-in minimum badly on the indicators. capital requirement (0% of income per capita) (table 22.2). Consider the example of Canada. It stands at 19 in the aggregate ranking on the ease of doing business. Its Calculating the distance to frontier for each economy ranking is 2 on starting a business, 4 on protecting involves 2 main steps. First, individual indicator scores investors, and 8 on paying taxes. But its ranking is only are normalized to a common unit: except for the total tax rate, each of the 31 component indicators y is rescaled to (max − y)/(max − min), with the minimum 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to value (min) representing the frontier—the highest Do It” (World Bank, Washington, DC, 2005). Principal components performance on that indicator across all economies and unobserved components methods yield a ranking nearly since 2003 or the first year the indicator was collected. 5 identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the For the total tax rate, consistent with the calculation of pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less 5 Even though scores for the distance to frontier are calculated from importance in the context of a specific economy. 2005, data from as early as 2003 are used to define the frontier Doing Business 2014 Vietnam 109 the rankings, the frontier is defined as the total tax rate Economies that improved the most across 3 or at the 15th percentile of the overall distribution of more Doing Business topics in 2012/13 total tax rates for all years. Second, for each economy Doing Business 2014 uses a simple method to calculate the scores obtained for individual indicators are which economies improved the most in the ease of aggregated through simple averaging into one doing business. First, it selects the economies that in distance to frontier score, first for each topic and then 2012/13 implemented regulatory reforms making it across all topics. An economy’s distance to frontier is easier to do business in 3 or more of the 10 topics indicated on a scale from 0 to 100, where 0 represents included in this year’s ease of doing business ranking. 6 the lowest performance and 100 the frontier. Twenty-nine economies meet this criterion: Azerbaijan, The maximum (max) and minimum (min) observed Belarus, Burundi, Côte d’Ivoire, Croatia, Djibouti, values are computed for all economies included in the Gabon, Guatemala, Guinea, Italy, Kosovo, Latvia, the Doing Business sample since 2003 and for all years former Yugoslav Republic of Macedonia, Malaysia, (from 2003 to 2013). To mitigate the effects of extreme Mauritius, Mexico, Moldova, Mongolia, Morocco, outliers in the distributions of the rescaled data (very Panama, the Philippines, the Republic of Congo, few economies need 694 days to complete the Romania, the Russian Federation, Rwanda, Sri Lanka, procedures to start a business, but many need 9 days), Ukraine, Uzbekistan and the United Arab Emirates. th the maximum (max) is defined as the 95 percentile of Second, Doing Business sorts these economies on the the pooled data for all economies and all years for increase in their distance to frontier measure from the each indicator. The exceptions are the getting credit, previous year using comparable data. protecting investors and resolving insolvency Selecting the economies that implemented regulatory indicators, whose construction precludes outliers. In reforms in at least 3 topics and improved the most in addition, the cost to export and cost to import for each the distance to frontier measure is intended to year are divided by the GDP deflator, so as to take the highlight economies with ongoing, broadbased reform general price level into account when benchmarking programs. The criterion for identifying the top these absolute-cost indicators across economies with improvers was changed from last year. The different inflation trends. The base year for the deflator improvement in ease of doing business ranking is no is 2013 for all economies. longer used. The improvement in the distance to The difference between an economy’s distance to frontier measure is used instead because under this frontier score in any previous year and its score in measure economies are sorted according to their abs- 2013 illustrates the extent to which the economy has olute improvement instead of relative improvement. closed the gap to the frontier over time. And in any given year the score measures how far an economy is from the highest performance at that time. Take Colombia, which has a score of 70.5 on the distance to frontier measure for 2014. This score indicates that the economy is 29.5 percentage points away from the frontier constructed from the best performances across all economies and all years. Colombia was further from the frontier in 2009, with a score of 66.2. The difference between the scores shows an improvement over time. The distance to frontier measure can also be used for comparisons across economies in the same year, complementing the ease of doing business ranking. For example, Colombia stands at 63 this year in the ease of doing business ranking, while Peru, which is 6 Doing Business reforms making it more difficult to do business are 29.3 percentage points from the frontier, stands at 42. subtracted from the total number of those making it easier to do business. Doing Business 2014 Vietnam 111 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2014 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 189 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 189 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 10,200 specialists in 189 economies profiles who participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers Entrepreneurship data underlying Doing Business Data on business density for 139 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics/e ntrepreneurship Research Abstracts of papers on Doing Business topics and Doing Business iPhone App related policy issues Doing Business at a Glance App presents the full http://www.doingbusiness.org/research/ report, rankings and highlights http://www.doingbusiness.org/specialfeatures/ iphone Doing Business 2014 Vietnam 112