New investment policies for attracting foreign investment in Vietnam

A series of new investment incentive policies has just been issued in Vietnam by the Government to attract global investment capital. So what are incentive policies of investment? Can the policies attract more high-quality projects in the future? We will take a look and review the content of Decision No. 29/2021/QD-TTg recently issued.
 

New incentive policies for investment are outlined in Decision No. 29/2021/QD-TTg
 

After long time waiting, the Government issued Decision No. 29/2021/QD-TTg regulating special incentives for investment, which has been issued and takes effect from October 6, 2021.

In fact, the special investment incentive has been specified in Clause 2, Article 20 of the Law on Investment. The Decision 29/2021/QD-TTg is a document specifying incentives level by level, time and conditions as well for applying special investment incentives.

Accordingly, the policy will offer 3 levels of incentives to be applied to investment projects, depending on their ability to meet the criteria of high technology, technology transfer, added value, and Vietnamese enterprises. Male join the chain.

In addition to corporate income tax incentives, investment projects that satisfy conditions will also be exempted from land rent and water surface rent for 18-20 years; be reduced by 55-75% of land rent and water surface rent throughout the project lifecycle.

This can be considered a "terrible" incentive because according to current regulations, the highest incentive rate that investment projects enjoy is at 10% for corporate income tax rate during 15 years (exemption for 4 years and 50% reduction for the preceding next 9 years). Large investors investing in Vietnam such as Samsung and LG are enjoying investment incentives at this level.

Not only a great incentive, the Decision 29/2021/QD-TTg has been set transparent and clear on the level of technology transfer, investment in R&D, and value creation.

There are enterprises participating in the chain, classified into 3 different levels with specific criteria. As Mr. Do Nhat Hoang, Director of the Department of Foreign Investment (Ministry of Planning and Investment) has repeatedly affirmed that the consistent view of the Vietnamese Government to give higher incentives to foreign investors regarding projects in the field of high technology.

When summarizing 30 years of attracting foreign investment, many economic experts say that Vietnam's investment incentive policies are still rampant and leveled. The Decision 29/2021/QD-TTg is considered a breakthrough of incentive mechanism. In addition, the provisions in Decision also show that the "post-audit" factor is the top concern. If investors do not satisfy the set criteria, they can completely "cut off" incentives.
 

Hope to attract capital from big investors
 

A few months ago, when the Draft Decision on Investment Incentives was released for public review, many people said that the criteria were quite difficult, making not all investors can get along with.

For example, the criterion of the percentage of Vietnamese enterprises participating in the business/production chain, level 1 is set at 30-40%; Level 2 is over 40% of Vietnamese enterprises participating in the chain and performing contracts for assembly, supply of components, materials and services to produce products. Correspondingly, the proportion of product costs generated by Vietnamese enterprises participating in the value chain is at 30% and 40%.

For the criterion of technology transfer, level 1 means that technology transfer is done to 3 Vietnamese enterprises; Level 2 means technology transfer to 3 or more Vietnamese enterprises within 5 years from the time of investment certificate.

These are two important criteria to be considered, if they want to enjoy investment incentives at level 2 and level 3. According to the Vietnam Chamber of Commerce and Industry (VCCI), to meet the above criteria, large corporations will need lots of time and effort to rebuild the chain, even support and train enterprises.

Vietnamese enterprises are capable of participating in the chain. Meanwhile, the gap between levels of incentive is not too large, so there is no incentive for large investment projects to implement these additional criteria.

“For this policy to be practical and feasible, it is necessary to have solutions that are synchronized with other policies to help enterprises meet pre-conditions to enjoy incentives, such as policies to support business development.", an expert at VCCI shared.

This expert also wonders the criteria for technology transfer, because in fact, for some core technologies, few foreign investors are willing to transfer to Vietnam.

It is not unreasonable to say that the criteria given are quite high. However, this is understandable because with the issuance of Decision 29/2021/QD-TTg, the Government is focusing on "eagle investors", not small and medium investors. Because it is a “special offer”, the criteria set must also be high to screen qualified investors.

According to recent information, many large corporations are still "on the verge" of investing in Vietnam. For example, the Adani Group of Indian billionaire Gautam Adani wants to invest in the fields of energy and seaports in Vietnam; Amkor Technology Group wants to invest in a $1.2 billion project in Bac Ninh. Especially Intel, is planning to invest in phase II, with a capital scale of over 2 billion USD. When Intel proposed this project, Vietnamese authorities also considered whether this project met the criteria to enjoy a special investment incentive mechanism.

Obviously, the special incentive mechanism will increase the opportunity for Vietnam to attract the "giant investors"'. However, from another side, Mr. Le Quang Tuan, Head of Investment Department (Vietnam Economic and Cultural Office in Taipei) said that although he is very interested in the investment incentive mechanism, but in the current context, what many foreign investors look forward to the most is "when can they fly to Vietnam".

The Covid-19 epidemic, anti-epidemic measures are delaying many investment plans of foreign investors. Hyosung's $1.3 billion project in Ba Ria - Vung Tau is also behind schedule, for the same reason. This is also something to be concerned about in the current context, if Vietnam wants to accelerate the attraction of foreign investment.
 

Some review on incentive policies stated in Decision No. 29/2021/QD-TTg
 

It can be said that Decision 29/2021 is a quite detailed document on special preferential policies for investment projects. This creates clarity in the appropriate incentive mechanism for each investment industry group with different sizes and different technology content. This will feel better for investors who want to invest in industries with high-tech content.

At the same time, this Decision has also partly stated the point of view on technology transfer to domestic enterprises. This is a breakthrough to help domestic manufacturing industries access new and modern technology.

At the same time, creating a balance between the interests of investors and the interests of contributing to the economic development of Vietnam in a more substantive manner.

Combining investment incentives and technology transfer is a reasonable step, creating choice for investment in Vietnam. Unequal treatment and creating favorable conditions for investment projects committed to the development of Vietnam is absolutely necessary.

It will help improve investment quality, improve labor productivity and improve the competitive advantage of the domestic manufacturing industries. At the same time, it also creates the best mechanism to help investors feel that they really get commensurate benefits when investing and transferring technology to Vietnam.

It may take time for investors to consider this policy for their benefits. However, hopefully when we improve technology requirements, the quality of investment capital will be improved in the near future.

Reference at Investment Newspaper
Read more: Decision 29/2021/QD-TTg at the Government Portal