- Significance and Benefits of UK-Vietnam Free Trade Agreement
- Rules of Origin
- UK-Vietnam Free Trade Agreement: The Tariffs
- When It Comes to Services
- Protection of Intellectual Property and Sustainability
- How the UKVFTA is Boosting Bilateral Growth
- Starting a Business in Vietnam with Company Registration
- Penetrate the Vietnam Market with Assistance from Cekindo
The UK-Vietnam Free Trade Agreement or UKVFTA has become effective on January 1, 2021. The terms of this new agreement are based on the EU-Vietnam Free Trade Agreement (EVFTA) and the European Union Free Trade Agreements (EUFTAs) with third countries.
There is a strong economic partnership between Vietnam and the UK through the UKVFTA and extensive free trade area. The newly enacted UKVFTA includes several new rules and measures regarding tariff-rate quotas, rules of origin, preferential tariffs, and service promotions. The UKVFTA will continue to offer similar standards of intellectual property protection and development sustainability.
Basically, the contents of the UKVFTA Agreement are similar to the EVFTA Agreement, including: trade in goods (including general regulations and market access commitments), rules of origin, and trade facilitation and concern, food safety and hygiene measures (SPS), technical barriers to trade (TBT), trade in services (including general regulations and market access commitments ), investment, trade defense, competition, SOE, government procurement, intellectual property, trade and sustainable development, cooperation and capacity building, and legal and processing.
Significance and Benefits of UK-Vietnam Free Trade Agreement
Trades between the UK and Vietnam rely upon both countries maintaining their UK-Vietnam Free Trade Agreement. There are significant benefits of the UKVFTA for the UK and Vietnam when they are more accountable to each other.
Rules of Origin
Before the UK departed from the EU, all of the UK’s exports were classified as “EU Origin.” Since the UK has already left the EU and EUFTAs are not applicable for the UK anymore, this previous rule of origin is no longer valid. Therefore, all exports from the UK will be categorized as “UK Origin” instead.
To ensure that business activities will continue under the new UKVTA, Vietnam must recognize EU materials and the UK’s exports to each other. The EU processing must also be recognized in the UK’s exports to Vietnam. If this new provision didn’t exist, all the UK’s exports to Vietnam have to depend on the EUFTAs, and the UK would have to pay a higher rate of most-favored nations (MFN) tariff.
UK-Vietnam Free Trade Agreement: The Tariffs
There are no changes on preferential tariff commitments for Vietnam and the UK. This means that Vietnam applies the same preferential tariff for products imported from the EU and the UK.
However, a tariff-rate quota applies. Tariff-rate allocation allows only a fixed quantity of goods overseas entering Vietnam with a reduced or zero tariff rate. Any amount of imported products that exceed the tariff-rate quota is subject to an increased tariff rate or higher MFN tariff rate. Therefore, to ensure business continuity and minimize the impact of the UK’s import to Vietnam with a high tariff rate, the UKVFTA set the tariff-rate quota at a level that will benefit the two countries’ trades.
When It Comes to Services
The terms in the UKVFTA regarding service provisions were created based on the adjustments of EVFTA’s conditions. Significant changes were made in the prohibitions of performance requirements. The amendments provide higher clarity and enable the service commitments and continuity between Vietnam and the UK.
Protection of Intellectual Property and Sustainability
The provisions regarding the protection of intellectual property are the same in the UKVFTA and the EVFTA. The protection provision extends to geographical indicators, meaning products produced in Ireland are also eligible. The UKVFTA also states that domestic laws in Vietnam will protect the geographical indicators for Scottish-farmed salmon.
With regards to sustainability, the UKVFTA integrates the entire sustainability chapter of trade and development in EVFTA. The sustainability chapter covers policy areas such as environment and labor in non-EU international agreements of which Vietnam and the UK are members.
How the UKVFTA is Boosting Bilateral Growth
According to Vietnam’s Multilateral Trade Policy Department’s Ngo Chung Khanh, the UKVFTA represents a “two-way high-speed train”, accelerating imports and exports between the two countries to significant levels.
With the help of the trade agreement, the two countries recorded a trade value of 6.6 billion USD within the first year of its effect. Among imports from the UK in the same period, metals, electronics and pharmaceuticals saw the biggest increase, while exports of iron, steel and produce rose dramatically.
|USD 2.9 billion||USD 372.5 million|
Starting a Business in Vietnam with Company Registration
To be able to start and run a business in Vietnam, company establishment is mandatory. For foreign investors from the UK, there are two common types of legal entities to choose from, namely limited liability company (LLC) and joint-stock company (JSC).
You are required to undertake the following steps to set up a company, either LLC or JSC, in Vietnam:
1. Secure an Investment Registration Certificate (IRC)
It is a must to apply for an investment registration certificate at The Department of Planning and Investment. In general, the process takes approximately a month for the entire IRC registration procedure to be completed, including the issuance of the certificate.
2. Apply for an Enterprise Registration Certificate (ERC)
Another requirement to set up a company in Vietnam is getting an ERC. Vietnam’s Department of Planning and Investment is the authority in charge of issuing the ERC.
3. Register for Tax and Pay for Business License Tax
The company tax number serves as the number of business license certificates. Every company in Vietnam is obliged to pay for taxes, submit tax reports, and declarations via an electronic system. You can only access the online system when you have an electronic signature.
4. Contribute to the Capital
After receiving your ERC, you are required to submit your capital contribution within 90 days. You will be fined if you fail to meet the deadline and are unable to pay for the capital.
5. Secure Other Necessary Permits and Licenses
Certain business lines may require specific licenses and permits to operate. Some examples include logistics, manufacturing, lodging, recruitment and trading of particular services or products. For more information, connect to our team of consultants.
This article was originally published in March 2021, and was updated with fresh data and statistics on 22 August 2022.
Originally published: 23 March 2021; last updated: 22 August 2022, 10:40 am.
Penetrate the Vietnam Market with Assistance from Cekindo
Making that initial step into the Vietnamese market is a pressuring step for most investors and companies. Even though there are often challenges to penetrate and navigate the Vietnam market, the rewards of successfully expanding your business in Vietnam are also enormous.
Cekindo’s advisory support has helped countless clients take advantage of the UK Vietnam Free Trade Agreement to penetrate the Vietnam market. With our immense knowledge and expertise, you can gain a concrete understanding of the local legal and business landscapes and cultural nuances, successfully establishing your business in Vietnam.
Talk to one of our expert consultants to learn more about how Cekindo can help you. Fill in the form below.