Tax incentives not the only thing to attract FDI

Local authorities have been rushing to attract foreign direct investment FDI by offering high investment incentives to investors. However, experts have pointed out that tax incentives are not the only thing that can be used to attract and retain investors.

In June 2011, the government released a dispatch instructing the Bac Ninh provincial authorities to grant an investment license to Nokia Vietnam Company, which assembles mobile phones in VSIP Industrial Zone in Bac Ninh province. Prior to that, the company wanted to register as a hi-tech project in Vietnam and enjoy the tax incentives designed for hi-tech projects.

With the decision, the government has sent a clear message to foreign investors that its investment policy is consistent, and that Vietnam would say “no” to specific proposals by investors to claim for special investment incentives.

Tax incentives – the tip of the iceberg

As for Nokia, if enjoying tax incentives as a hi-tech enterprise, the investor would bear the preferential corporate income tax of 10 percent for 15 years. Besides, Nokia would enjoy the tax exemption on the machines and equipments to be imported that serve the project implementation.

Meanwhile, under the current regulations, the enterprises in export processing zones bear the corporate tax of 20 percent within 15 years; enjoying the tax exemption for the first two years of operation and the 50 percent tax reduction in the next four years (10 percent). The tax reductions, if Nokia could have enjoyed, would have a big significance if noting that its plant in Vietnam has the investment capital of 200 million Euro.

Nokia, though having not received the investment incentives it wants, has affirmed that it will implement the investment project in Bac Ninh province, planning to kick off the construction of its plant in the next year.

To affirm the determination to make investment in Vietnam, Nokia said it is cooperating closely with VSIP, the Bac Ninh provincial authorities and the government in order to obtain an official investment license. For the time being, Nokia is cooperating with universities such as the HCM City University of Technology and HCM City University of Natural Sciences to build mobile laboratories, a part of the plan to prepare the labor force for the factory.

Commenting about Nokia’s case, Le Hoai Quoc, Head of the HCM City Hi-tech Industrial Zone, said that as the factory in Vietnam only undertakes a simple chain of the process of manufacturing hi-tech products – assembling and doing the outsourcing, this cannot be considered as a hi-tech project eligible for enjoying high investment incentives.

Tax incentives not the most important things

Quoc said that he has found out from the meetings with the investors in the hi-tech sector that the top interests of the investors are not the investment incentives, because Vietnam is now offering relatively high incentives in comparison with other countries in the region.

He said that what investors are most interested is the macro economy stability. Any changes in the macroeconomic stability would have big impacts in their business. For example, the foreign exchange policy, if changed, would badly affect their capital.

In general, multinational groups only make investment decisions after making thorough consideration over the global strategies of the groups and considering the policies of the destination countries. In general, they lease land for a long term of 50-100 years. Therefore, any changes in the macroeconomic policies would not only affect the projects in some countries, but also the business strategies of the groups all over the world.

Quoc said that the most important things to attract investors are the high readiness of professional consultants and the one-stop shop policy which allows settling all the problems of investors in the easiest and quickest way.

Chu Tien Dung, Chair of the Quang Trung Software Park, also said that the good labor force and the open administrative procedures are the things that have the park to attract many investors.

TBKTSG

Tags: invest in Vietnam, Vietnam FDI, Vietnam FDI 2011, Vietnam investment