High-tech laws not fit for purpose

October 22, 2021 | 16:00
The currently effective high-tech laws and regulations are dated back to the Law on High Technologies adopted by the National Assembly in 2008. During this period, Vietnam has adopted and implemented the Law on Investment 2014 and the 2020 version. Concurrently, during this period Vietnam has ratified two significant international treaties and multiple other free trade agreements with its trading country partners.
Vietnam needs to make incentives more accessible for high-tech investors, Photo: Shutterstock
Vietnam needs to make incentives more accessible for high-tech investors. Photo: Shutterstock

Clearly, Vietnam has committed to encourage direct investment and integrate its economy with the rest of the world. Yet, its high-tech laws remain the same as 13 years ago.

The world has based its tremendous growth on innovations and technologies, and Vietnam is not beyond this trend. For the country to grow at a similar rate with the region and the wider world, the economy must gradually switch to high-end production, services, and technologies. For the past two years, the world has had to endure unexpected challenges that almost saw the entire global economy come to a grinding halt – with the exception of the technology sector.

It seems that we are near the end of the tunnel and we see some light. It is time for Vietnam to resume its operations and prioritise what is most promising to help Vietnam regain some strength. It has to be innovative and tech-led, and the government should see its role in shaping and nurturing this direction.

On this note, the prime minister has issued several decisions over the past few years, on high-tech agricultural enterprises, on high-tech products development, and on regulating criteria of related enterprises. These are part of ongoing efforts from the government to consider and evaluate which enterprises should be offered tech-based incentives. However, in practice, few enterprises see these incentives as meaningful rewards – or they cannot access them easily.

Currently, only a few groups may be eligible for related incentives: high-tech enterprises; agricultural groups applying high technologies; and both sci-tech enterprises and organisations.

To enjoy these incentives, first and foremost they must apply for and obtain a certificate relevant to each business vehicle (for example, a Certificate of High-tech Enterprise, Certificate of High-tech Agricultural Enterprise, and Certificate of Sci-Tech Enterprise). In order to apply for any of them, the enterprise will have to meet several conditions.

First, the enterprise must manufacture high-tech products or apply high technologies that are named in a government list (such as precision agriculture, new processing tech, or agricultural preservation products); revenues from high-tech products must account for 30-70 per cent of the annual net revenues; total research and development expenses account for at least 0.5-2 per cent of annual net revenues; and the enterprise must have a certain number of employees with relevant qualifications.

Having met these stringent requirements, the enterprise will receive its relevant certificate and be entitled to enjoy a corporate income tax (CIT) preferential rate of 10 per cent for 15 years (the normal rate is 20 per cent); a CIT exemption for four years and 50 per cent CIT reduction for nine subsequent years; and exemption of import duty for selected fixed assets and 5-year exemption of import duty for materials not yet produced domestically.

Some projects may be entitled to land rental incentives subject to further conditions, as well as state funding and loans depending on the industry.

Vietnam’s intention to encourage high technologies has existed early on, but while the economy and actual development conditions have changed drastically over the last three decades, the regulations remain the same. The decisions to adjust the list of enterprises eligible for related incentives are welcomed, but are not that significant. The incentives have remained static over the years, and the criteria for selecting and incentivising related enterprises also remain the same. Maybe it is time to revamp these regulations to make the incentives stronger and easier to access by all enterprises. Only then can high-tech enterprises become a real driver for economic growth.

By Nguyen Lan Phuong, Partner, Baker McKenzie Vietnam

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