Vietnam: Captivating incentives target FDI from Europe

• Nov 18, 2021

For this plan to become true, special incentives will soon be offered.

The National Assembly last week adopted the country’s 2021-2025 Economic Restructuring Plan with a raft of proposed solutions to drive the economy forward. One of these solutions is the highlighted position of foreign direct investment (FDI) in socioeconomic development.

“The role of FDI must be enhanced further in the country’s economic restructuring, especially in upgrading value chains, shifting the economic growth model, in connection with the enhancement of the economy’s internal strength,” stated a report on the plan.

The plan has set a target that by 2025, Vietnam will be successful in attracting $150-200 billion in total, or $30-40 billion a year, with disbursement of $100-150 billion for the whole period, or $20-30 billion a year.

The country will focus on wooing projects with advanced technologies and modern governance, in connection with environmental protection. They will also help Vietnam increase the average localisation rate to 30 per cent by 2025, from about 20 per cent now.

“Attracting large-scale FDI will be strengthened with industries of high technology and new, environmentally-friendly technology. There will also be an increase in the connectivity between domestic and foreign enterprises via investment promotion programmes,” said a government report on the plan. “New criteria on selection and prioritised attraction of FDI will be built in line with the planning and development orientations of each sector and geographical area. Projects with backward technology and prone to environmental pollution will not be allowed to expand.”

Until 2025, Vietnam will also centre on luring in investment from multinational corporations and initiatives related to AI, blockchain, fintech, and research and development, especially in Hanoi and Ho Chi Minh City. There will also be an increase in attracting FDI from European nations like Germany and France, as well as the US.

Strong confidence

Returning from a trip accompanying Prime Minister Pham Minh Chinh to the United Kingdom and France, Minister of Planning and Investment Nguyen Chi Dung said that previously British and French businesses remained cautious about investing in Vietnam for several reasons.

“However, after this trip, I see that the business communities of these two nations have demonstrated their strong determination and confidence in investing in Vietnam via investment funds, banks, and groups,” Minister Dung said. “They pay special attention to Vietnam’s investment climate, which they said is better than other regional nations. This is a big opportunity for us to attract more FDI in a more effective manner,” he stressed.

Deputy Minister of Foreign Affairs To Anh Dung told VIR that the PM’s trip to the UK and France has further strengthened Vietnam as a prestigious investment and business destination.

“Under the witness of the PM, nearly 60 MoUs and deals have been inked between Vietnam’s agencies and enterprises and those from the UK and France, worth a total of over $30 billion,” Dung said. “The deals are focused on many sectors such as renewable energy, the digital economy, environmental protection, infrastructure, aviation and space, healthcare, education, agriculture, and tourism. These sectors are also priorities in Vietnam’s FDI attraction strategy.”

Moreover, PM Chinh also met nearly 40 meetings with over 60 leaders of groups, banks, and universities in Europe. Leaders of many Vietnamese ministries have also worked with nearly 50 European groups to discuss specific investment initiatives in Vietnam.

According to the Ministry of Planning and Investment, after a few months of reduction in registered FDI, this type of capital has bounced back since September. During January-October 20, the total newly registered, adjusted, and paid-in capital for share purchase by foreign investors hit $23.74 billion, up 1.1 per cent on-year.

Of this figure, newly-registered capital reached over $13 billion, up 11.6 per cent on-year, while newly-added capital touched $7.09 billion, up 24.2 per cent on-year. In the 2016-2020 period, registered FDI is estimated to be $173-174 billion, up 74-79 per cent over the 2011-2015 period.

Offering incentives

According to Vietnam’s 2021-2025 Economic Restructuring Plan, the government will formulate special mechanisms in attracting and prioritising FDI in Vietnam in order to increase the connectivity between domestic and foreign investment.

There will also be special policies for projects that transfer high technology and modern governance methods to Vietnamese enterprises, and that invest in providing training and skills for Vietnamese labourers, and employing Vietnamese people who have worked and studied in advanced nations.

To lure in more high-quality FDI, the government has enacted a number of policies. For example, on October 6, it issued Decision No.29/2021/QD-TTg on special investment incentives to facilitate more high-tech investments into the country. Decision 29, an implementing regulation of the 2020 Law on Investment, provides the requirements and applicable incentives for eligible investment schemes.

The law was passed in June 2020 which repeals the 2014 version and aims to further attract FDI. It opens up new business sectors eligible for investment incentives, such as for the manufacture of medical equipment, the establishment of innovative startup projects, and the incorporation of research centres, among others. Moreover, the law has removed 22 sectors from the conditional list of sectors in which investors are subject to specific conditions before being permitted to invest.

Under Decision 29, a preferential corporate income tax (CIT) rate of 9 per cent will be applied for 30 years, with an initial exception for five years followed by a 50 per cent reduction for 10 years; and land and water surface rent exemption for 18 years, followed by a 55 per cent reduction for the remaining period of the project.

These incentives are available for ventures in preferential sectors with a total investment capital of at least $1.3 billion with at least $434.7 million disbursed from the issuance of an investment registration certificate (IRC).

In another case, a preferential CIT of 7 per cent for 37 years will be offered, with an initial exception for six years followed by a 50 per cent reduction for 12 years; and land and water surface rent exemption for 20 years, followed by a 65 per cent reduction for the remaining period of the project.

The initiatives entitled to these incentives include those in preferential sectors with a total investment capital of at least $130 million with at least $434.7 million disbursed from the issuance of the IRC.

The Ministry of Planning and Investment (MPI) is building and waiting for comments on the draft of a circular on guidelines for supervision, inspection, and assessment of foreign investment in Vietnam, replacing Circular No.09/TT-BKHDT from June 2016. The draft circular highlights the content of inspections of foreign-invested enterprises (FIEs) and foreign-funded projects, including contribution to charter capital and investment capital, contribution to legal capital, and total capital actualised out of the registered amount. It also covers project progress, implementation of investment objectives, application and transfer of technologies, investors’ fulfilment of commitments, and incentives and support upon operation. Payment of financial duties to the government, implementation of legal regulations on labour, and management of foreign exchange, environment, land, construction, and fire prevention are also included. Moreover, the financial capacity of FIEs is one of the major contents stipulated in the draft. This includes the value of assets contributed; use of machinery that constitute fixed assets exempt from import duty; inspection of valuation of the enterprise and shares prior to listing in particular events of overvaluation of value; and transactions with the parent company abroad or associated enterprises. Also in this list is settlement of accounts payable; establishment of provisions, depreciation of fixed assets, and recording of differences in currency exchange rates; distribution of profits related to state-owned capital investments in FIEs and foreign-funded projects; and preservation of capital of state-funded enterprises and projects. Ministries and specialised ministerial-level bodies should lead, inspect, and evaluate implementation of laws in relation to the fields under their management. These ministries shall mandate local authorities to lead in-depth inspections and assessments in relevant fields. The ministries shall supervise, inspect, and assess foreign-funded projects that operate in fields within the authority of such ministries to consider or certify investments, according to the relevant laws. Finally, ministries are responsible for reporting activities of inspection and supervision annually to the MPI for the latter to compile information by February 20 of the year that succeeds the reporting year.

Source: VIR