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Investment opportunitiesWednesday, 03/09/2005, 08:13

Opportunities to invest in the garment-textile sector

Garment and textile products make up 20%-25% of the structure of exported goods in general.
OPPORTUNITIES TO INVEST IN THE GARMENT

OPPORTUNITIES TO INVEST IN THE GARMENT-TEXTILE SECTOR

I. Current situation of the garment and textile sector:
a. Export revenue:

- Garment and textile products make up 20%-25% of the structure of exported goods in general.
- The revenue from textile and garment exports has increased in recent years

years

(Unit: US$ billion)

2000

1.9

2001

2

2002

2.75

2003

3.65

2004

4.32

2005

5.2 (target)

b. Labor cost:
- The labor cost in Vietnam is now the lowest in the Asia, ranging from US$0.16 to $0.35 an hour.

Country

China

Thailand

Indonesia

India

Pakistan

Labor cost (US$)

0.7

1.18

0.32

0.58

0.37

c. Markets:
- Domestic market: The garment and textile sector has yet to meet domestic demand in both terms of quantity and quality. Excluding exported fabrics, the remaining fabric production output is low, averaging three meters per person per year. The country�s fabric domestic consumption by 2010 is forecast to show a six-fold increase on that of present.
- Overseas market: The HCM City�s textile sector has integrated into the following markets:
+ The Commonwealth of Independent States and Eastern Europe: Vietnam has favorable conditions to penetrate into these potential markets. Quota is free for garment and textile exports to these markets that require items with medium quality.
+ The EU: The Agreement on Trade Cooperation and the Agreement on Double Tax Avoidance signed between the EU and Vietnam have created conditions for Vietnamese businesses to promote exports to the EU. Vietnam has seen a diversity of garment products for export to the EU and more and more items have been added into the list of Vietnam�s garments exported to the EU.
+ The U.S.: Many large companies have come to Vietnam to prepare for exports to the U.S. The U.S. is the world�s biggest importer of garment and textile products. After the September 11 event in 2001, the U.S. cancelled contracts signed with the Middle East and shifted to the Vietnamese market. This has given Vietnamese businesses the chance to penetrate into the U.S. market.

II. HCM City garment and textile sector�s 2001-2005 targets and growth rate:
1. Production and trading targets (compared with 2000)

- Industrial production value   15%-16%
- Total revenue             15%-16%
- Export revenue           US$650 million, up 18%-20%
- Yarn output                14%-15%
- Silk and fabric output  19%-20%
- Clothing output           15%-16%

2. Investment targets

- Total projects to be submitted for approval             150
- Total investment        VND5,000 billion
+ State budget            VND31 billion
+ State credits            VND2,000 billion
+ Commercial loans     VND2,500 billion
+ ODA                        VND270 billion
+ Other sources           VND199 billion

III. Incentives:

- Strategy: Government Decree 55/2001/QD-TTg dated April 23, 2001, on approving the development strategy and a number of mechanisms and supporting policies to implement the strategy to develop the Vietnam�s textile and garment sector until 2010.
- Land policy:
According to Ministry of Finance�s Decision 189/BTC dated November 24, 2000.

- Tax policy:
a. Corporate income tax:

+ For foreign-invested enterprises: 25%, 20%, 15% and 10% depending on investment fields and localities (according to the Investment Law and guidelines on implementing regulations on corporate tax rates).
+ For enterprises in industrial parks (IPs) and export processing zones (EPZs):

Export ratio

Tax rate

Exemption
duration

50% reduction duration

Under 50%

15%

Two years

 

50% to 80%

15%

Two years

Two following years

Over 80%

10%

Two years

Two following years

 FDI garment and textile projects with high export ratio (over 80%) investing outside IPs and EPZs are eligible to enjoy a tax rate of 10% and four-year exemption duration and to pay half of regulated taxes in the next four following years.
Enterprises investing in different stages in the textile sector or producing materials for the garment and textile industry are provided with preferential loans with interest rates equaling half of normal rates for half of the loan. The loan duration is 12 years with a three-year grace period.

b. Tax for remitting profit abroad:

3%, 5% and 7% depending on the legal capital of the FDI projects.
Businesses in IPs enjoy a common tax rate of 3%.

c. Import-export tariff:

- Garment and textile products enjoy an export tax rate of 0%.
- Investors pay no import tariff on imported materials to produce goods for export within 275 days. If exceeding this duration, investors have to pay import tax and get a refund of import tax when exporting goods.
- Materials imported for producing goods for export under subcontracts are exempted from import tariff.
- The State does not apply the minimum price list to calculate import tariff for garment and textile materials.
- Most imported machinery and equipment for garment and textile production enjoy an import tariff of 0%.
- Ready-made clothes are subjected to an import tariff of 50% (This aims to protect the domestic garment industry).
d. Subcontracts:
All activities relating to the manufacturing of garment and textile products under subcontracts are governed by Government Decree 24/ND-CP dated July 31, 2001.

e. Value-added tax (VAT):

- For export goods the VAT rate is 0%.
- Cotton processed from cotton planted in Vietnam: 5%.
- Material yarns: 2%; material fabrics: 4%.
- Yarn, fabrics, clothing, embroidered products: 10%.
- Machines and equipment for the garment and textile industry: 5% (For machines and equipment imported for use as fixed assets, the rate is 0%).

f. Personal income tax:

- Vietnamese workers: From VND5 million a month.
- Foreigners: From VND8 million a month (over US$500).
- The wage policy regulates the minimum salary for Vietnamese and foreign-invested enterprises and working hours according to the current Labor Code (8 hours a day, six days a week). Employers are allowed to arrange employees to work in shifts, but overtime is restricted to less than 200 hours a year).
The HCM City�s garment and textile sector is calling for investment in the following fields:
-  Yarn spinning factory (the current factories only meet 50% of the demand)
-  Jersey, Denim, Khaki
-  Micro,  TC, nylon (for tailoring jackets and winter coats)
-  Fabrics for tailoring shirts
-  Industrial fabrics
- the finishing stage in fabrics production (dyeing, fixating process, etc)
- Quality plastic zippers
-  Dyes

(Source: The Textile-Garment-Embroidery-Knitting Association)


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