1. ARE FOREIGN INVESTORS PERMITTED TO SET UP A FACTORY IN DA NANG?

Through active participation in Free Trade Agreements (FTAs) and international organizations like the WTO, CPTPP, and EVFTA, Vietnam has fostered a favorable business environment for foreign investors. Concurrently, Da Nang city has been increasingly investing in infrastructure development, including seaports, airports, highways, and industrial zones, to facilitate both domestic and foreign the investors. As a result, foreign investors are legally authorized to set up a factory in Da Nang within permissible industries.

2. WHAT ARE THE REQUIREMENTS FOR SETTING UP A FACTORY?

(1) Requirements for the investors

• Meeting market access conditions as for Vietnamese investors;
• Meeting the conditions regarding business lines, sectors and trades with restricted market access for foreign  investors, including:
  • Business lines with prohibited market access;
  • Business lines with restricted market access;
• Market access conditions for Restricted industries and Sectors:
  • Holding of charter capital by the foreign investor in a business organization;
  • Investment method;
  • Scope of investment;
  • The investor capacity and partners participating in investment activities;
  • Other conditions specified by Vietnamese Laws and International Treaties;

(2) Requirements for investment project

• Not belonging to prohibited business lines;
• Having a location for project implementation;
• Be in accordance with planning;
• Meeting conditions regarding investment capital and labor;

(3) Requirements for the project implementation location

To set up a factory, the investors must select a location that is in compliance with local land use regulations and has obtained the necessary approvals from competent authorities:

• An export processing zone (EPZ) is an industrial park specifically designed for manufacturing goods for export, providing services to support export production, and facilitating export activities.
• An industrial zone is a designated geographical area primarily dedicated to industrial production and supporting related industrial services.
• An economic zone is a geographically delineated area comprising multiple functional zones, established with the objectives of attracting investment, fostering economic and social development, and safeguarding national defense and security.
• Other locations outside the above-mentioned areas with the permission of the state according to legal regulations.

3. INVESTMENT INCENTIVES FOR SETTING UP A FACTORY IN DA NANG

​(1) General incentives

Article 15.2 of the Investment Law 2020 stipulates the entities eligible for investment incentives, including:

• Investment projects in business lines eligible for investment incentives according to the Investment Law;
• Investment projects located in areas with investment incentives;
• Investment projects with a total registered capital of at least 6,000 billion VND and a minimum disbursed capital of 6,000 billion VND within 03 years are eligible for certain incentives. To qualify, projects must generate at least 10,000 billion VND in annual revenue or employ more than 3,000 workers;
• Investment projects in social housing construction; investment projects in rural areas that employs 500 or more workers; investment projects that employs people with disabilities;
• High-tech enterprises, scientific and technological enterprises, scientific and technological organizations; projects involving technology transfer that fall under the list of technologies encouraged for transfer as stipulated by the Law on technology transfer; technology incubators, incubators for scientific and technological enterprises as regulated by high-tech Laws and scientific and technological Laws; enterprises producing and providing technology, equipment, products and services to meet environmental protection according to environmental protection Laws;
• Investment projects in innovative startups, innovation centers, research and development centers;
• Investments in the products distribution chain of small and medium enterprises; investments in technical facilities supporting for small and medium enterprises, incubators for small and medium enterprises; investments in coworking spaces supporting innovative startups by small and medium enterprises as stipulated by the Law on support small and medium enterprises;

Forms of investment incentives

Article 15.1 of the Investment Law 2020 stipulates the forms of investment incentives available to the investors, including:

• Corporate income tax incentives, including the application of a lower rate of corporate income tax for a certain period of time or throughout  the investment project execution; tax exemption, tax reduction and other incentives according to the provisions of the Law on corporate income tax;
• Exemption from import tax on goods imported to form fixed assets, on imported raw materials, supplies and components used in production, in accordance with the provisions of the Law on export and import tax;
• Exemption and reduction of land use fees, land rent and land use tax;
• Accelerated depreciation and increased deductible expenses when calculating taxable income;

(2) Incentives for business lines and sectors

Article 16.1 of the Investment Law 2020 stipulates business lines eligible for investment incentives, including:

• High-tech activities, high-tech industrial support products, research and development activities and product production resulting from scientific and technological research in accordance with the regulations of Law on Science and Technology;
• Manufacturing of new materials, new energy, clean energy and renewable energy; manufacturing of products with added value of 30% or more, energy-saving products;
• Manufacturing of key electronic, mechanical products; agricultural machinery, automobiles, auto parts and shipbuilding;
• Manufacturing of products on the List of prioritized supporting industry products;
• Manufacturing of information technology products, software products and digital content;
• Cultivation and processing of agricultural products, forestry products and aquaculture products; afforestation and forest protection; salt production; seafood extraction and fishing logistics services; production of plant seeds, animal breeds, and biotechnology products;
• Collection, treatment, recycling, or reuse of waste;
• Investment in the development, operation, management of infrastructure projects; development of public passenger transport in urban areas;
• Pre-school education, general education, vocational education and higher education;
• Medical examination and treatment; manufacturing of medicinal products and medicinal materials, storage of medicinal products; scientific research on formulation technology and biotechnology for the development of new medicines; production of medical equipment;
• Investment in facilities for training and competition in sports for people with disabilities or professional athletes; preservation and promotion of cultural heritage;
• Investment in geriatrics centers, mental health centers, treatment for  Agent Orange patients; care centers for the elderly, disabled individuals, orphans, homeless children;
• People's credit funds and microfinance institutions;
• Manufacturing of goods and provision of services that create or participate in value chains and industrial clusters;

Article 16.2 of the Investment Law 2020 stipulates that areas eligible for investment incentives include:

• Areas with difficult socio-economic conditions, areas with especially difficult socio-economic conditions;
• Industrial zones, export-processing zones, hi-tech zones and economic zones

(3) Procedures for applying investment incentives

Article 17 of the Investment Law 2020 stipulates the procedures for applying investment incentives as follows:

Step 1: The investor shall base the decisions on the investment incentives outlined  in the Investment Policy Approval Decision, Investment Registration Certificate and The investor Approval Decision to determine the applicable investment incentives.

Step 2: The investor shall carry out the procedures to receive investment incentives at the tax authority, financial authority, customs authority and other relevant authorities according to each type of investment incentive.

4. PROCEDURES FOR SETTING UP A FACTORY IN DA NANG

Phase 1: The investor selects location to set up factory

Before setting up a factory in Da Nang City, the investors must select an appropriate location for the factory. It is essential for the investors to verify whether the chosen location is situated in an area where production activities are permitted, ensuring compliance with legal and environmental regulations in Da Nang. To facilitate the selection of a factory site, the investors may consider implementing one of the following options:

• Leasing existing facilities, pre-built factories from licensed infrastructure leasing companies in Vietnam;
• Leasing land in industrial zones, export processing zones or high-tech zones;
• Leasing land directly from the State;
• In case the investor has land and needs to convert it from residential land to land for factory construction,the investor must fully comply with construction density requirements according to the regulations of Da Nang City in order to be granted a construction permit for a factory.

Phase 2: The investor applies for an environmental impact assessment report.

When foreign investors invest in a business line in Vietnam, they may encounter restrictions from Vietnam's GATS commitments signed upon joining the WTO, such as regulations on capital contribution ratios and limitations on the types of legal entities that can be established for specific business lines in Vietnam. Additionally, when setting up a factory in Vietnam, foreign investors must also address environmental issues. The manufacturing process of business lines may have negative impacts on the environment leading to the requirement for an environmental impact assessment for projects classified as Group I and Group II  in Appendix II of Decree No. 08/2022/ND-CP. This procedure must be conducted during the project preparation stage.

Step 1: The investor submits a dossier for the appraisal of the environmental impact assessment report to the People's Committee of Da Nang City or the Ministry of Natural Resources and Environment.

The time limit for the appraisal of the environmental impact assessment report is calculated from the date of receivinga complete and valid dossier, as follows:

• No more than 45 days for investment projects in Group I, as stipulated in Article 28.3 of the Environmental Protection Law 2020;
• No more than 30 days for investment projects in Group II, as stipulated in Article 28.4(c, d,dd,e) of this Law.

Step 2: State agency shall approve environmental impact assessment report

Note: For investment projects classified as Group III and Group IV, there is no requirement to conduct an environmental impact assessment; instead, only registration for an Environmental License is necessary. Accordingly, Projects in Group III must register at the District People's Committee, except forthose located in two or more provinces, which must be registered at the Provincial People's Committee. For Group IV projects,  the investor is required to register solely at the Commune People's Committee.

Phase 3: The investor applies for Investment Registration Certificate

For investment projects subject to investment policy approval:

Step 1: The investor prepares a dossier requesting approval of the investment policy and sends it to the investment registration agency for approval.

Step 2: Upon receiving investment policy approval, the investment registration authority shall issue the Investment Registration Certificate within 5 days to 15 days, depending on the type of investment project.

For projects not subject to investment policy approval:

Step 1: The investor applies a dossier for an Investment Registration Certificate.

Step 2: After receiving a dossier, the Investment Registration Authority shall review its validity and issue a code for the investment project. In case the application is rejected, the Authority shall notify the the investor in writing, clearly stating the reasons for rejection.

Phase 4: The investor applies for enterprise registration certificate

Step 1: The investor submits 01 dossier to the business registration authority.

Step 2: Within 3 working days from the date of receiving the dossier, the Business Registration Authority shall review the validity of the business registration application and issue an Enterprise Registration Certificate.

Phase 5: The investor applies for fire safety design approval

Step 1: The investor submits a dossier for fire safety design approval to the Fire Prevention and Fighting Department or the Fire Prevention and Fighting Division of the City Police.

Step 2: An officer shall receive and check dossier, equipments and construction structure at the actual facility.

• In case a dossier is complete and valid, an officer shall accept it and record the information in the Receipt of Handling Administrative procedures on Fire Prevention and Fighting;
• In case a dossier is incomplete or invalid, an officer shall provide guidance on how to complete the dossier according to regulations and record the information in the Guidance form for supplementing the dossier requesting Handling of Administrative procedures on Fire Prevention and Fighting;

Step 3: Within 10 to 15 days from the date of receiving a dossier, the police shall issue the Fire Prevention and Fighting Design Approval Certificate, stamp the approved Fire Prevention and Fighting design on the explanatory report and the approved drawings; and return them to the investor. The investor must submit a file or copy of the stamped approved documents to the police authority for record-keeping as per regulations before receiving the Fire Prevention and Fighting Design Approval Certificate, except in cases where the documents are submitted online.

Phase 6: The investor applies for a construction permit

Step 1:  The investor submits a dossier for a construction permit to the competent authority.

Step 2: The officer shall receive and check the validity of the dossier.

• Within 07 working days from receipt of the dossier, the competent authority issuing the construction permit must organize the appraisal of the dossier and conduct a field inspection. In case the supplementary dossier does not meet the requirements stated in the notice, within 05 working days, the competent authority shall be responsible for notifying the the investor in writing to continue completing the dossier. The investors shall be responsible for supplementing and completing the dossier according to the notice. If the supplementary dossier still does not meet the requirements, within 03 working days, the competent authority shall be responsible for notifying the investor of the reason for not granting the permit.
• Within 12 working days from receipt of the dossier, the consulted state management agencies shall be responsible for responding in writing on the contents under their management functions. After this time limit, if these agencies have no comments, they shall be deemed to have agreed and shall be responsible for the contents under their management functions; the construction permit issuing agency shall base its decision on current regulations to issue construction permits.

Step 3: The competent authority shall issue the construction permit to the the investor.

From the date of receiving a complete and valid dossier, the competent authority issuing the construction permit must review the dossier to issue the permit within 20 days.

Phase 7: Construction of the factory

Upon completing the above procedures, the foreign  investor may proceed with the contrucstion of the factory. Once the factory is established, the foreign investor must fulfill several essential requirements, including tax registration and declaration, application for a company seal, instalation a signboard, issuance of invoices, and other necessary steps to ensure the factory is operational.

6. IMPORTANT CONSIDERATIONS WHEN SETTING UP A FOREIGN-INVESTED FACTORY

• Choosing a suitable business line

The Law on Investment of Vietnam stipulates a list of industries with restricted market access for foreign investors, including business lines with prohibited market access and business lines with restricted market access. Therefore, before setting up a factory in Da Nang, foreign  investors need to carefully research to choose a suitable business line that does not violate Vietnam's investment Law.

• Thoroughly researching the market

Foreign  investors need to thoroughly research the market before investing in the establishment of a factory in Da Nang to ensure that their investment decisions are smart and effective. Da Nang is a rapidly developing city with significant economic potential, but it also has its own unique characteristics and challenges. Market research helps the investors understand local demand and consumer trends, assess the level of competition and identify specific opportunities and challenges in the Da Nang market. Additionally, being aware of legal regulations, business requirements and the investment environment in Da Nang is essential to ensure compliance with legal requirements and optimize operational costs. Research also helps  the investors choose suitable geographic locations, optimize costs and effectively access local labor and materials. In summary, thorough market research in Da Nang not only helps the investors minimize risks but also opens up numerous opportunities for sustainable development and long-term success.

• Choosing the right location

To set up a factory, foreign investors must verify that their selected location is within an area designated for manufacturing activities, thereby ensuring compliance with local environmental regulations. Furthermore, the investors should evaluate the infrastructure in the area intended for the factory setup to confirm that it can adequately support manufacturing operations. This includes assessing the availability of essential services such as electricity, water supply, drainage systems, transportation networks, and other logistics services.

• Thoroughly preparing dossiers for obtaining various licenses

The process of setting up a factory in Da Nang is intricate and involves numerous steps, procedures, and documentation. To ensure a smooth and time-efficient process, investors must meticulously prepare the application documents required for obtaining various related licenses. This preparation is a critical step in the factory establishment process; therefore, investors should exercise caution and thoroughly research legal requirements to ensure that their dossiers are accurate and complete.

7. WHY DO THE INVESTORS NEED TO HIRE A LAWYER WHEN SETTING UP A FACTORY IN DA NANG?

Setting up a factory in Da Nang is a complex process involving numerous procedures and legal regulations. This can be particularly challenging for the investors, especially foreign investors. Hiring a Lawyer when setting up a factory in Da Nang is crucial to ensure that the investment process runs smoothly and complies with legal requirements. A Lawyer will help the investors understand the relevant regulations and procedures, from investment registration and business establishment to obtaining necessary licenses. The Lawyer will also assist with preparing documents, drafting and reviewing licenses, contracts to protect the the investor’s legal interests. Additionally, with years of experience, the Lawyer will provide strategies to minimize legal risks and resolve any disputes that may arise. This allows the investors to focus on their core business activities without worrying about complex and constantly changing legal issues in Da Nang. Hiring a Lawyer when setting up a factory in Da Nang not only saves time and costs but also reduces legal risks associated with the process.

8. WHERE TO FIND A LAWYER FOR CONSULATION ON FACTORY SETTING UP?

With the complex legal procedures and stringent requirements, setting up a factory can present a significant challenge for foreign investors. However, with extensive experience in consulting on factory setup in Da Nang and the Central – Central Highlands region, Phong & Partners Law Firm confidently stands as a reliable partner for the investors. With a deep understanding of investment Law and practical expertise, Phong & Partners' team of Lawyers will help the investors mitigate risks and efficiently complete legal procedures in a professional manner.

Phong & Partners is committed to providing legal services with the motto "Give Quality - Get Trust" ensuring that theinvestors feel completely secure and satisfied throughout the service process. When choosing a Factory Setup Consultation Service of Phong & Partners, clients gain not only a trusted legal partner but also a companion on the journey to realizing all their business goals.

You can learn more about Phong & Partners' legal services at their website: www.phong-partners.com.

9. FAQ

• How to open a hotel in Da Nang

See more: https://phong-partners.com/en/how-to-open-a-hotel-in-danang

• How to open a restaurant in Da Nang

See more: https://phong-partners.com/en/how-to-open-a-restaurant-in-da-nang

• Procedures for renting industrial zone land in Da Nang

See more: https://phong-partners.com/en/procedures-for-renting-industrial-zone-land-in-da-nang

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