Nation incentives its charm offensive

Vietnam is now playing catch up to attract foreign investors

Under the Resolution 02/NQ-CP dated two weeks ago, which consists of supportive measures to help enterprises overcome the current challenging time, the Vietnamese government is granting incentives to expansion projects from July 1, 2013.

“The time for tax exemption or reduction granted to expansion projects is equal to the time for tax exemption or reduction granted to newly established projects in the same area and industry,” the government stated in the resolution.

A month ago, the Ministry of Finance (MoF) announced it had added regulations allowing enterprises to enjoy corporate income tax incentives for their investment expansion projects in the amended Law on Corporate Income Tax, which is expected to be effective from earlier next year. The ministry announced that the lack of tax incentives to expansion projects had not created a motivation to encourage foreign investors to expand investments in the country.

Bui Quang Vinh, Minister of Planning and Investment (MPI), said the earlier implementation of this incentive meant the Vietnamese government had started implementing stronger measures to make Vietnam more attractive to foreign investors than neighbouring countries.

The current Law on Corporate Income Tax does not allow enterprises to enjoy tax incentives for their expansion projects, which forces many foreign investors to waiver expansion investments in Vietnam. Examples include Korea’s Kumho Asiana, which is considering to expand production capacity at its $100 million tire factory in southern Binh Duong, and Robert Bosch Vietnam, which also announced to increase the investment capital in Vietnam to $300 million from $100 million.

Taiwan’s E-United Group is another investor wondering about CIT incentives for its expanded $4.5 billion integrated steel project in central Quang Ngai province’s Dung Quat Economic Zone.

“We encourage foreign investors to expand investments in Vietnam,” said Vinh. However, he added, the MPI was proposing the Vietnamese government just allow foreign investors who significantly contributed to the state budget via corporate income tax payment to enjoy incentives for their planned investment expansion.

“Many foreign investors have been reporting losses in the Vietnamese market for a long time but they still ask permission for investment expansion,” said Vinh.