Impact of Amended Investment Law and Tax Policies on FDI Attraction

 

According to Dr Vu Tien Loc, VCCI President, official data from the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment (MPI) showed that the FDI sector is a dynamic, stable and effective business sector. Foreign investment accounts for 21-30 percent of total social development investment. Foreign-invested companies contributed nearly 20 percent to the country’s gross domestic product (GDP). Notably, from 2013 to the present, more and more large-scale foreign-invested projects are located in Vietnam. Big investors usually lead a lot of small and medium-sized companies which supply parts for big ones. Needless to say, in the context of global economic downturn, the substantial contribution of the FDI sector has turned out to be a bright spot.

 

He noted that the Investment Law 2005 has revealed a lot of inadequacies, inappropriateness and limitations in the current context. These drawbacks are somewhat affecting the investment and business environment in Vietnam. The most outstanding is many obstacles and inconsistencies with later-issued documents. This is an unavoidable occurrence in a developing country.

 

Dr Loc said that if adopted by the lawmaking National Assembly, the amended Investment Law will provide more favourable conditions for foreign investors in Vietnam and draw more big investors to the country. The Government has expressed its cares for FDI enterprises by new tax preference policies. New tax policies and the amended Investment Law, if passed, will hopefully facilitate foreign investors to arrive in Vietnam as well as support local businesses to operate efficiently.

Quach Ngoc Tuan, Deputy Director of Legal Department under the Ministry of Planning and Investment, said the groundbreaking content in this amended Investment Law is the information on prohibited lines and conditional lines.

 

The draft law shall comply with constitutional principles of freedom of investment and business. People are free to do what the law does not prohibit.

He said investors are not restricted from doing business if it is not included in the list of prohibited sectors and conditional sectors.

 

According to the draft law submitted to the National Assembly, the list is comprised of 6 prohibited sectors; 272 conditional sectors based on the reviewing of 51 prohibited sectors; and 386 conditional sectors. The list is continued to be reviewed.

 

Besides, one of important contents of the draft is the clearly specified regulations on the law enforcement to economic organisations with foreign investment. Specifically, the amended Investment Law may impose conditions and procedures as foreign investors in the case of starting up business, contributing capital, purchasing shares and carrying out investment projects if they hold over 51 percent of stake or they are a partnership company where a majority of individuals are foreigners, or they have foreign investors and economic organisations with foreign investment keeping over 51 percent of stake. Other cases are applied the same as to domestic investors.

 

He added that the new law will abolish procedures to grant the Investment Registration Certificate for domestic investors.

 

"The draft law also eradicates the examination process for granting the Investment Certificate for foreign investors, while it applies the process of granting the Investment Registration Certificate with the maximum period of 15 days instead of 45 days as now. (It reduces the former three processes of: registration for granting of investment certificate, examination for the granting of investment certificate, and grant of investment certificate; to the current two processes: granting of investment registration certificate and granting of investment registration certificate to investments approved in principle.) Besides, foreign investors are allowed to establish businesses at business registration bodies instead of investment certificate-granting agencies as now,” Tuan said.

 

Major changes in the new law are investment incentives and supports. Accordingly, the draft law clearly specifies forms, principles, procedures and conditions of incentives and adds subjects applicable to incentives like labour-intensive projects in the countryside and fast-disbursed projects instead of basing on fields and localities as now.

 

In addition, the draft provides the list of preferential sectors, supplements and updates the list of investment incentives for high-tech, agriculture and other activities to encourage investment for development of some key industries and supporting industries, promote technological innovation, and create added value.

 

Regarding investment procedures and the State management on investment activities, Mr Tuan pointed out the draft law still exposes some weaknesses: Procedures of granting investment certificate are applied too broadly, comprising all foreign investment projects and many domestic investment projects, including projects only engaged in ordinary trade and service and not included in conditional investment sectors.

 

In addition, regulations on foreign investors’ capital contribution and share purchase in Vietnamese enterprises are problematic because the law does not specify the proportion of foreign ownership in enterprises or conditions and procedures for implementing this activity.

 

Last but not least, investment project implementation procedures are not fully defined, especially procedures related to investment adjustment, suspension, operation extension, project termination, investment certificate revocation, project transfer and liquidation. This does not provide enough legal foundation for investors to make investment and does not provide enough instruments and powers for State agencies to deal with issues emerging from investment activities.

Incentives to foreign companies investing in Vietnam include import tariff exemptions on machinery, materials and specialised vehicles imported to create fixed assets for investment-encouraged projects; materials that the country cannot make; products imported for the first time based on the list of the Government for hotel, office, apartment, golf course, resort and amusement park projects; materials and components of special investment-encouraged projects or projects in areas with specially difficult conditions are exempted from import tariffs in the first five years dating from the date of production.

 

Land rent exemption and reduction: Investment-encouraged projects will have three-year exemption. If they are located in difficult areas, they will be granted seven years of exemption. 11 years of exemption will be applied to investment-encouraged projects or projects in specially difficult areas. 15 years of exemption will be applied to investment-encouraged projects in specially difficult areas. BOT and high-tech zone projects will be lifetime exempted.

New tax policies in 2014 include VAT: Decree 209/2013/ND-CP, Circular 219/TT-BTC dated December 31, 2013 and brought to effect in 2014; Corporate income tax: Decree 218/2013 and Circular 78/2014/TT-BTC dated June 18, 2014 and made effective on August 2, 2014; Foreign contractor tax: Circular 103/2014; Land rent: Decrees 45 and 46/2013, Circulars 76 and 77/2014; Circular 119/2014 that amends seven circulars and Decree 91/2014 that amends four decrees.

 

Investment-related taxes. Export and import taxes: Slashing tax rates in line with commitment roadmaps (Circular 164/2013/TT-BTC dated November 15, 2013); Land rental: Decree 45/2014 but operational FDI companies are not affected; VAT: Circular 219/2013, effective from January 1, 2014; Corporate income tax: Decree 218/2013, Circular 78/2014/TT-BTC, effective on August 2, 2014.

 

New regulations on corporate income tax are expressed in: Salaries, rewards and other supports for employees as specified in labour contracts/labour agreements or corporate by-laws.

 

New investment projects which are granted corporate income tax preferences are projects: Implemented for the first time of enterprises or projects independent of ongoing projects. In case enterprises enjoy incentives by investment location, if they have new projects in localities with incentives, such projects must be classified different industries from ongoing projects.

Institutional building is important but institutional execution is more important. About 15,000 foreign-invested enterprises are dissatisfied with civil servants. Therefore, the Government should pay attention to administrative apparatus to reduce harassment and red tape.

 

Recently, not only Vietnamese investors but international media in Italy, Germany and other countries also saw that Vietnam has clear improvement in institutions and investment environment. For example, for the first time, Vietnam government bond issue received good response: VND30 billion placed to purchase bonds bearing high coupon rates. Currently, five big companies are investing in Vietnam. Starting to invest in Vietnam in 2007, Samsung Group has become the biggest foreign investor after many times of investment increases. Microsoft was expected to move its factory in Hungary to Vietnam to manufacture smartphones. Intel decided to move its chip plant to Vietnam to produce about 80 percent of its chip for the world market.

 

In my opinion, there is a new wave of high-quality, high-tech investment in Vietnam on the horizon. Hence, it is necessary to make the Law on Investment and the Law on Enterprises effective to provide more investment opportunities for Vietnam and help Vietnam have powerful companies in the next 5 - 10 years.