New incentive policies needed to attract and retain strategic investors

Breakthrough policies in need

The Ministry of Planning and Investment has proposed a range of attractive investment support measures in a draft decree relating to the establishment, management, and use of the investment support fund, which is being released for public opinions. The draft decree was developed concurrently with the draft review report on investment promotion policies.

The two draft documents have been formulated after the National Assembly assigned the Government to develop a draft decree regulating the establishment, management, and use of the investment support fund. The fund will be sourced from additional corporate income tax under the Global Anti-Base Erosion (GloBE) rules and other legitimate sources, with the main aim of stabilising the investment environment, attracting strategic financiers and multinational corporations, and supporting domestic businesses.

The National Assembly also asked the Government to make an overall review to synchronously complete policies and laws relating to investment encouragement, thereby meeting the country's development requirements in the new situation.

If the draft decree is approved, many investment support policies described as unprecedented will be introduced, including monetary support for some activities, such as human resource development and training, the creation of fixed assets, social infrastructure investment, production of high-tech products, and research and development (R&D).

In order to enjoy these investment support measures, investors are required to meet certain conditions, including having large-scale and high-tech projects with a R&D centre.

In fact, Prof., Dr. Nguyen Mai, president of the Vietnamese Association of Foreign-Invested Enterprises, says that except for Intel, no foreign firms have received financial support from the Vietnamese Government over the past 35 years since the country opened its doors to foreign investors. However, the support Intel has received has not completely been in the form of finance, but through investment in high-tech human resource training.

Attracting strategic investors

Increasingly fierce competition has been seen in attracting foreign investment over the years. In addition, the 15% global minimum tax rate applied from 2024 is also putting mounting pressure on Vietnam in its attempt to seize upon the opportunities of shifting investment capital flows.

The Ministry of Planning and Investment, when formulating the draft decree, stated that the global minimum tax would greatly impact existing tax incentive policies, thereby requiring quick and timely changes in order to maintain and sharpen the nation's competitive edge in terms of investment attraction.

According to the Ministry, countries are taking their own steps in response to the imposition of the global minimum tax by adopting competitive and attractive investment incentive policies. Among them, India, the United States, Japan, the Republic of Korea, and many European countries have been introducing attractive investment incentive policies, including tax deductions and even cash support, to R&D activities or large-scale projects, in an effort to attract investment.

It is therefore no coincidence that Intel recently decided to invest US$25 billion in Israel, US$4.6 billion in Poland, and EUR30 billion in Germany. The global tech giant was said to have received huge financial support from these countries, including EUR10 billion from Germany and US$3.2 billion from Israel.

In this context, experts say Vietnam needs to formulae preferential policies to support investment in a more competitive direction. Financiers from the Republic of Korea and the EU have repeatedly proposed that Vietnam move to reform investment incentive policies by offering incentives to costs, including financial support measures, instead of incentives based on corporate income.

Thomas McClelland, country tax leader at Deloitte Vietnam, said that even financial incentives would serve as a leverage for the country in attracting foreign investment.

Though these proposals are carefully considered, the simultaneous review and comprehensive study of investment incentive policies for reform and the introduction of new investment support policies represents an important and necessary step the country should take towards attracting and retaining foreign investors.

(Source: VOV)