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Lack Of Subsidies Causes Vietnam To Lose Investors

Lack Of Subsidies Causes Vietnam To Lose Investors

Vietnam is reportedly losing investors’ support after refusing subsidies to projects in the country, according to Ministry of Planning and Investment.

Vietnam’s subsidies pause has caused investors to look else where. The government’s recent report revealed after Vietnam started applying the global minimum tax of 15% in January, many multinationals operating or planning to enter the country sought financial incentives since their profits would be affected, but did not receive it and relocated to other countries.

Austrian semiconductor firm AT&S planned to invest in Vietnam and even carried out a survey of the country, but eventually shifted to Malaysia as Vietnam did not offer incentives or had the required number of skilled workers. The Ministry added expansion of some big high-tech projects has gone to the back burner while waiting for the subsidy.

Some large companies have intended suspending new investment or expansion plans if the Government does not offer financial assistance while also levying the global minimum tax. They include a medical devices manufacturing project worth between US$500 million and US$1 billion in the southern Dong Nai Province by SMC of Japan, and expansion by Foxconn, Compal and Quanta of Taiwan to produce equipment for Apple, IBM and Cisco.

The Ministry said without a subsidy or other similar policies, the application of the global minimum tax rate would detract from the effectiveness of corporate income tax incentives, and the country would no longer be attractive enough for foreign investors. It urged the Government to take immediate measures to prevent a wave of relocation out of Vietnam by major investors. It proposed the establishment of an investment support fund to provide direct financial support to businesses meeting certain criteria.

In practice, financial support and subsidies are not paid out immediately but are based on project implementation and allocated to specific costs. For example, under the U.S.’ CHIPS Act, the government will provide 25% of investment in production facilities over a 10-year cycle.

During this period, if the business does not build or sells off the facilities, the subsidy will be revoked. The global minimum tax applies to multinationals with total consolidated revenues of €750 million (US$800 million) or more in two of the four most recent consecutive years. A total of 122 foreign-invested enterprises are required to pay this tax in Vietnam, according to the tax authorities.





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