Vietnam to develop initiatives to sustain FDI flows

Vietnam will set up a support fund to encourage and lure strategic investors and multi-national groups, making it more attractive in attracting foreign direct investment, as the National Assembly recently approved a resolution on applying additional corporate income tax in accordance with the Global Anti-Base Erosion Rules (global minimum tax).

Under this resolution that takes effect from the first day of the next year, a global minimum tax rate of 15% will apply to multinational enterprises (MNEs) with revenue exceeding 750 million EUR (about 800 million USD) or more in two of the four consecutive years. Investors subject to the tax will have to pay the global minimum tax in Vietnam. It is estimated that more than 120 MNEs in the country will be affected by the global minimum tax.

The 15th National Assembly agreed in principle and asked the Government to build a draft decree on the establishment, management and use of a fund to support investment from the global minimum tax and other legal sources to stabilise the investment climate and attract strategic investors and MNEs.

This means together with embracing the global minimum corporate tax rate, Vietnam will carry out initiatives to retain its foreign investment magnetism.

At the Vietnam Business Forum (VBF) held earlier this year, Prime Minister Pham Minh Chinh said the Government was keeping a close watch on and learning experience from other countries to sketch out a suitable policy on the global minimum corporate tax that is able to create favourable conditions for foreign enterprises to run effective business in Vietnam.

Meanwhile, Minister of Planning and Investment Nguyen Chi Dung has reiterated that Vietnam will prepare “incentive pakages” to support investors in the context that the global minimum corporate tax is levied right in 2023, helping sharpen the competitive edge of the investment environment and hamornising benefits of the sides.

Although there is a long way to go to build the draft decree, the Government and National Assembly’s moves will make a significant contribution to winning confidence from foreign investors.

Canon Vietnam Deputy General Director Dao Thi Thu Huyen said tax incentive is a key factor for the company to expand large-scale production in Vietnam, adding the country should have timely policies to maintain the commitments it has made or foreign firms will consider relocating their workshops to other destinations with better competitive advantage.

Many other giants have expressed their concern that the new global tax will make them less competitive in the Vietnamese market, which will possibly lead to their decision to withdraw their capital from the market.

According to economist Tran Hoang Ngan, besides financial incentives, Vietnam should sharpen focus on the upgrade of socio-economic infrastructure, training of high-quality human resources, the development of green economy, and the facilitation in administrative procedures.

Those are the issues that foreign investors are interested in, he said.

The FDI inflows have not only created favourable conditions for Vietnam to speed up the expansion of the international market, but also helped the country improve its business activities in all aspects, thus reducing the capital burden for many large-scale projects.

Alongside, the attraction and use of FDI has also motivated the economic transition and restructuring and growth model renovation, enhancing the competitiveness of the nation, sectors, products and services, and promoting the reform of institutions, legal policies, and environmental considerations, heading to the development of a full, modern and integrated market economy.