Samsung gets a break

illustration photo

Samsung Electronics Vietnam, a wholly-owned subsidiary of Korea’s Samsung Electronics, will enjoy more tax incentives for its manufacturing complex in northern Bac Ninh province.

An amended investment certificate, following in-principle approval from Prime Minister Nguyen Tan Dung, allows Samsung Electronics Vietnam  to enjoy 10 per cent corporate income tax (CIT) for all products manufactured at its $670 million factory. The normal CIT rate in Vietnam is 25 per cent.

The firm will also receive a CIT exemption in its first four years of operation and pay half this 10 per cent rate in the nine years that follow. Furthermore, imported mobile phone components will be tax exempt during the five years from April 2009, according to the investment certificate.

Samsung Electronics Vietnam announced it would raise investment capital to $1.5 billion by 2020 to produce mobile phones, laptops and other electronic products, making the complex one of its largest manufacturing bases in the world.

Not all of Samsung’s Bac Ninh products are covered by the list of hi-tech products to enjoy tax incentives, according to the Ministry of Science and Technology. But the Ministry of Planning and Investment (MPI) said Samsung’s project was important because it created jobs, boosted the development of the local supporting industry and made a notable contribution to the state budget.

“The electronics industry in Vietnam has not yet been significantly developed, the products are mainly assembled. So, the long-term investment of Samsung should be highly appreciated and granted flexible and reasonable support,” said an MPI report sent to the government.

The report added that Samsung would boost the development of supporting electronic industry by luring 174 suppliers to the country, including 91 domestic suppliers.

So far, it has recruited nearly 9,000 workers and attracted more than 30 suppliers to the country with total commitment capital at around $250 million.

The MPI estimates even with the mentioned-above tax breaks, the company’s accumulated tax contribution to state coffers until 2055 will be up to $5.5 billion.

Bac Ninh People’s Committee estimates the firm will contribute $150 million each year to the provincial and state budget, 450 times higher than the combined tax contribution of other foreign invested enterprises in the province this year.

However, the incentives can be removed if it fails to meet its commitments to the MPI, according to the new investment certificate. This is considered as a pre-condition ensuring Samsung’s contribution to the economic development of Vietnam.

The commitments include disbursing $670 million by 2015 and $1.5 billion by 2020. In addition, the localisation ratio of Samsung’s products should be 30-50 per cent after four years since the first ones were manufactured.

The firm has also commitment to use components made by Vietnamese enterprises if those satisfy conditions of delivery, quality and price. Another commitment is that it has to make a specific plan to help domestic companies become suppliers.

Last month, the government refused to recognise Nokia’s proposed mobile phone project in Bac Ninh as a high-tech one which would give the world’s largest mobile phone maker lots of tax incentives. Instead, the government certified Nokia as an export processing enterprise. Nokia can register to enjoy the preferential conditions for a hi-tech enterprise when it meets the conditions of a hi-tech one, said a Government Office document.