Samsung has appetite for lucrative carrots

A change to criteria for cost and labour proportion for R&D would ensure
Samsung’s enjoys the highest incentives

In a document released by the Government Office last week, Deputy Prime Minister Hoang Trung Hai asked the Ministry of Planning and Investment (MPI), along with the ministries of Finance, Industry and Trade, and Science and Technology, to look at possible incentives for Samsung’s investment expansion. Hai asked those ministries to reconsider criteria on cost and labour proportion for research and development (R&D) activities in Vietnam.

The four ministries must report to the government by next month. A MPI source said the government’s move came in the wake of a proposal by Samsung Electronics Vietnam, a wholly-owned subsidiary of South Korea’s Samsung Electronics.

“Samsung wants the government to grant incentives for its expansion to $1.5 billion of a similar nature to the incentives granted for its current $670 million investment,” said the source. He said as Samsung was “a golden investor” that attracted suppliers to Vietnam, the government might offer it further incentives.

“We are going to hold a meeting to discuss this issue in the coming weeks,” the source said.
According to the Investment Law, investors cannot enjoy incentives for investment expansion. However, last year Samsung asked the government to give the highest possible level of incentives to its existing $670 million factory and to its $1.5 billion expansion.

The government subsequently agreed to grant the highest incentives, including a 10 per cent corporate income tax rate and an import tax exemption. However, these applied only to the factory in Bac Ninh province, which manufactures mobile phones, vacuum cleaners, cameras and laptops.

A change to criteria for cost and labour proportion for R&D, meanwhile, would ensure Samsung enjoys the highest incentives for the whole lifespan of its investment.

According to the High Technology Law, a company can only enjoy the highest incentives if it is recognised as a high-tech enterprise and meets criteria including a minimum annual spending on R&D activities in Vietnam. This is 1 per cent of total annual turnover during the first three years of operation and then goes up to over 1 per cent of total annual turnover from the fourth year.

In addition, the proportion of a company’s employees with a university or higher degree personally involved in R&D activities must account for at least 5 per cent of its total workforce. If the government refused to adjust this criteria, Samsung would have trouble meeting it, said the MPI source.

Samsung Electronics Vietnam currently has 18,000 employees at its factory in Bac Ninh. Last year, the firm’s turnover reached about $5 billion. That means to meet the current criteria, Samsung must spend $50 million on R&D and recruit 180 R&D staff.