Global minimum tax offers Vietnam golden chance to upgrade FDI attraction strategy, model

The OECD-initiated Global Minimum Tax (GMT) will not only help Vietnam adopt a new mindset and vision, but also have abundant resources and deeper connections with strategic investors in the new period, said Prof. Dr. Vu Minh Khuong from the Lee Kuan Yew School of Public Policy under the National University of Singapore.

With its current position, what is the competitive advantage of Vietnam?

Currently, Vietnam owns a quite high competitive advantage on all three angles of potential, position and dynamism.

Regarding potential, Vietnam boasts a special advantage in terms of human and strategic location. With a large population of nearly 100 million and an abundant labor force with strong will for development and high integration ability, Vietnam can attract many investors to strategic industries, not only for export but also for domestic consumption.

In terms of position, after nearly four decades of reform, Vietnam has become one of the economies with intensive international integration and a trade-to-GDP ratio of approximately 200%. Of which, trade based on manufacturing and with leading economies accounts for a very high proportion. This advantage helps Vietnam improve its attraction of strategic investors who choose Vietnam as an important link in their global supply chains.

About dynamism, Vietnam is entering the take-off phase with great reform and development determination to become a developed country by 2045 when it celebrates 100 years of independence. With this vision, the economic size of Vietnam will increase from $400 billion in 2022 to over $1,500 billion in the next 20-25 years.

Therefore, investing in Vietnam today will bring great value to investors in the future, when traditional advantages like cheap labor and preferential taxes are transformed into abundant highly qualified workforce, strong synergistic performance of the economic ecosystem, and a solid foundation for building strategic trust.

Who and what areas should Vietnam focus on attracting investment at the moment? For example, big investors, R&D and so on.

Vietnam should pay special attention to the following objects in attracting FDI.

First, investors in the fields of digital and green technology because these industries are making very fast advances in technology and growth rate.

Next are multinational corporations that wish to choose Vietnam as their base in the region (Asia or ASEAN), and investors in the development of the financial system.

Vietnam's FDI attraction strategy should focus on developing indigenous industries, especially manufacturing and services based on digital and green technologies.

What do you think about cost-based incentive tools? In the context of the implementation of the GMT rules and tax exemption and reduction incentives becoming ineffective, what adjustments on investment support and incentive policies should Vietnam make?

In my opinion, the GMT Pillar Two rules coming into force in late 2023 is an invaluable opportunity for Vietnam to upgrade its FDI attraction strategy and model. It not only helps Vietnam adopt a new mindset and vision, but also has abundant resources and deeper connections with strategic investors in the new period.

The special thing is that wholly foreign-invested businesses in Vietnam operate very efficiently. According to the General Statistics Office, this sector posted a pre-tax profit of up to $20 billion, accounting for nearly half of the total profit of enterprises operating in Vietnam.

Since many wholly foreign-owned enterprises are very large and enjoy much lower tax rates than the minimum 15%, Vietnam faces the opportunity to have large additional resources, reaching up to billions of U.S. dollars per year, for development investment and economic competitiveness improvement, thus bringing practical benefits to all businesses that are and will be operating in Vietnam.

To retain and attract more strategic investors, Vietnam needs to develop preferential and support policies to increase its cohesion and resonance with investors in the decades to come.

The government may consider identifying strategic investors as those with R&D activities and high technology to offer effective incentives and support. For example, Vietnam can provide direct support for investors to improve production and business efficiency and competitiveness; support investment in development of infrastructure and human resources in the localities where such investors operate; assist the upgrading of indigenous industries aiding such strategic investors; and support improvement of national productivity and innovation.

In your opinion, is the cash support policy suited to Vietnam's current conditions?

I think it is suitable but it needs to be designed wisely. It helps to create value, not only in terms of effectiveness (economic benefits) but also efficiency (trust and excitement); both short term and long term.

The GMT under OECD Pillar Two is a once-in-a-lifetime global tax reform. It is aimed at ensuring that multinational companies pay their fair share of taxes at least 15%, regardless of where they operate. A number of Organization for Economic Cooperation and Development (OECD) countries have announced to apply the new tax from the beginning of 2024. GMT enforcement will directly affect Vietnam’s budget revenue and competitiveness, and its ability to attract FDI.

The Investor (www.theinvestor.vn) will hold a workshop on Friday to discuss solutions to maintain and improve Vietnam’s competitiveness and lure FDI as countries across the world prepare to implement the global minimum tax (GMT). Participants will include representatives of the Ministry of Finance, Ministry of Planning and Investment, business associations, Vietnamese and foreign investors, economic experts, and the "Big 4" auditing companies.

Time: 8:30 am, Friday, February 24, 2023

Venue: Floor 1, Ministry of Planning and Investment office building at 65 Van Mieu street, Hanoi.

Pls contact Ms. Nguyen Hong Hanh at [email protected] and [email protected], or 0912312954 for registering.