Upcoming incentives create space for tech-led projects

Vietnamese high-tech groups are welcoming added investment from Asia and beyond. Photo: Le Toan

On October 6, the prime minister issued Decision No.29/2021/QD-TTg, in which new and expanded investment projects will be entitled to special incentives. The decision provides the levels, duration, and conditions for application of incentives on areas such as corporate income tax and land rent.

According to Seck Yee Chung, vice president of the Singapore Business Group (SBG), with the aim to boost the growth of startups, tech companies, and other innovative sectors, the Law on Investment 2020 supplemented the sectors that will be entitled to such funding incentives. The sectors include, among others, high-tech and sci-tech enterprises, innovative small- and medium-sized enterprises (SMEs), research and development centres, and investment in technical facilities for SMEs.

“Decision 29 has provided further guidance on the requirements and specific incentives applicable to these projects and, in general, I believe this new regulation will help promote investment in Vietnam,” he added.

Sophie Mermaz, head of the French Chamber of Commerce and Industry in Vietnam (CCIFV) in Hanoi, said, “Considering that French companies are at the cutting edge of technological progress and innovation in sectors such as digital, energy, and pharmaceuticals, a push for technology and know-how transfer to access a market as vibrant as Vietnam is more than welcome.”

The CCIFV, as one of the largest foreign business associations in Vietnam, is promoting and supporting investors wishing to do business in Vietnam and it greatly welcomes the positive announcement, Mermaz said. “We strongly believe that Vietnam is rapidly emerging as one of the world’s new manufacturing hubs. Through our business centres and associated consultancy services in Ho Chi Minh City and Hanoi, we strive to entice tech and innovative companies to set up in the new ASEAN hub that is Vietnam,” she added.

The new regulations on special investment incentives may also facilitate Vietnam to fulfil its commitments under a wide range of free trade agreements (FTA) it has signed. In particular, the EU-Vietnam FTA is expected to strengthen Vietnam’s competencies by fostering further European high-tech and innovation investments, which are important to accelerate the development of the local industrial and digital economy in line with the country’s development strategy.

Benefiting from maturity

According to Guru Mallikarjuna, managing director of Bosch Vietnam, Vietnam has a favourable economic outlook for German investors, especially with ample advantages for further industrial and high-tech development, such as availability of a competitive labour force, preferable age brackets, and increasing focus on capacity training and development trajectory. In addition, direct effects from FTAs promote Vietnam’s standing even stronger with fewer trade barriers with countries in the EU and Asia, representing a huge purchasing power of billions of potential customers.

“The pandemic has also accelerated digitalisation, leading to higher productivity and promoting leaner production footprints that are closer to end markets,” Mallikarjuna said. “In response to this shift Vietnam, with the right pandemic management strategy, can present itself as a prime candidate for global and German investors.”

He did add, however, that it remains a valid argument that Vietnam’s supply chain could benefit from further maturity and expert availability – but the country is well on its way to addressing this matter to sharpen its competitive edge.

Specifically, for German investors and manufacturers, this is thought to be an opportunity rather than a challenge, providing that they act boldly and imaginatively to leverage the forefront capabilities that German industries are known for, in Industry 4.0 technologies and system quality. Through embracing next-generation digital technologies such as automation, advanced robotics, and more, not only will it enable German firms to significantly improve speed and productivity, but will also promote a much leaner and more flexible supply chain that is located in close proximity with end users of ASEAN’s growing markets, according to Mallikarjuna.

The new regulations on special investment incentives are being offered in the hope of aligning Vietnam’s efforts to attract high-quality investment in the Industry 4.0 era. However, there are still some concerns as to whether certain conditions under the decision would be workable. Chung from the SBG pointed out that in order to enjoy the incentive corporate income tax rate of 9 per cent for 30 years, the project must be in business lines eligible for exceptional incentives, and with a total investment capital of at least VND30 trillion ($1.3 billion), with at least VND10 trillion ($434 million) being disbursed within three years.

Given the significant size of investment capital to be disbursed within a short period of time, the number of projects that can meet the conditions for entitlement to this particular incentive is likely limited. It remains to be seen, in practice, as to how meaningfully this regulation will be interpreted and applied.

Chung also noted that the regulation on investment incentives is a significant effort from the government to facilitate foreign investment, especially in tech sectors, into the country. However, in addition to regulations on investment incentives, tech transfer and investment into a particular market, including Vietnam, depend on the various policies and circumstances.

“These can include support from the government, whether on a business-friendly environment, legal framework on protection of intellectual property rights, cybersecurity, and also taxation. In addition, the country’s ability to manage future crises can be a factor that the investor will consider before making a decision,” Chung stated.

Taking advantage

As Vietnam is reopening its economy, the new investment incentives also give confidence for foreign financiers to retain investment in Vietnam after the implementation of tough coronavirus prevention measures.

Mermaz from the CCIFV said that Vietnam does have advantages in the fast-evolving international supply chain. The country remains in a good position as it has been open for foreign direct investment (FDI), and related regulations have been favourable. The economy is likely to bounce back strongly in 2022, attracting strong demand for relocation.

Despite the complexities of the pandemic, FDI keeps growing in terms of capital investment. Vietnam’s favourable conditions for doing business has cemented its position as a safe and stable destination for investment. “We aim at helping companies make informed decisions when beginning their operations in Vietnam and will continue to do so when the 2022 economic rebound takes place,” Mermaz added.

In the same vein, Chung said that the safety measures introduced to manage the pandemic outbreaks have seriously affected the business of many companies and investments in Vietnam. However, he believed that Vietnam is still an attractive destination for foreign investment. In 2020, Vietnam was one of the few Asian countries to continue to grow and attract new foreign investment despite the impact on the global economy.

“The country’s position in the global supply chain remains important, as investors look at other Asian countries outside of China for production activities. That being said, in order to compete with other countries to attract foreign investment, the government should continue to support companies in Vietnam, whether by way of incentives or ensuring a fair and transparent environment to do business in,” he said.