After more than six years in effect, the Law on Investment has been officially amended with a number of new articles to improve the country’s appeal to higher-quality foreign investment flows.
The amendments to the Law on Investment has enhanced the appeal of Nam Dinh Vu Industrial Zone
According to experts, the amended Law on Investment will create a great opportunity to welcome “eagles” and “phoenixes” to make “nests” in Vietnam, especially as investors are moving out of China in greater numbers day by day.
The Vietnamese Government has taken drastic and swift action by proposing to add special incentives right before the amendments to the Law on Investment went under discussion and were submitted to the National Assembly for approval.
Specifically, the amended Investment Law does not explicitly set a ceiling for special investment incentives in Article 20.3 and solely stipulates the preferential level and duration of special incentives in accordance with the Law on Corporate Income Tax and the Land Law. Additionally, an instant supplementation at Article 75.4 adding new clauses to Article 13.5 and Article 14.1 of the Law on Corporate Income Tax, shall provide favorable conditions for the government and the prime minister to take initiative during negotiations to attract investment.
Hence, Article 13.5a allows the PM to provide preferential tax reduction by no more than 50 per cent or extend the duration of incentives by no more than 1.5 times the duration specified in Article 13.1 or by more than 15 years or beyond the term of the investment project in question.
Meanwhile, Article14.1a stipulates that for investment projects listed in Article 20.2 of the Law on Investment, the PM shall decide the application of tax exemption for no more than six years and 50 per cent reduction of payable tax amount for no more than 13 years.
The above shows that the Vietnamese government is willing to "negotiate" and offer higher-level incentives to "phoenixes" and "eagles". This is what many multinational corporations have been waiting for since Vietnam began to develop a foreign investment attraction strategy, especially after the Politburo issued Resolution No.50/NQ-TW on foreign investment cooperation in the new situation.
Not stopping there, Minister of Planning and Investment Nguyen Chi Dung asserted the amended Law on Investment also adopts a new approach to the implementation of investment incentive policies, which includes the supplementation of principles and conditions of eligibility, as well as the assurance of the efficiency and quality of incentives that Vietnam offers such as limited time incentives, and performance-based incentives, among others.
In parallel, incentives for projects of a large scale or those in high-tech, research and development, and such fields have also been enforced. It also opened pilots for new forms of investment, reacting to the Industry 4.0 transformation taking place across the globe.
Additionally, several amendments have been made to facilitate investors in carrying out administrative procedures on investment, land, and construction, among others.
Additional provisions on investment incentives and support
The government decided to apply special investment incentives and support mechanisms in order to encourage the development of a number of investment projects with great socio-economic impacts. These include:
- Investment projects on the establishment or expansion of research and development (R&D) or innovation centres with a total investment capital of VND6 trillion ($260.87 million) or more; national innovation centre established under the decision of the PM;
- Investment projects in the business lines eligible for special investment incentives with an investment capital of VND30 trillion ($1.3 billion) or more, disbursing at least VND10 trillion ($434.78 million) within three years;
- Other investment projects which have great socioeconomic impacts, as decided by the PM.
Under the amended Law on Investment, investors are not required to pay deposit or provide bank guarantee on deposit obligations to ensure the implementation of projects using the land allocated, leased out by the state, or permitted by the state to change land use purposes, in the five following cases:
- An investor who wins the land use right auction to execute an investment project on land allocated by the state with land use levy, lease of land with one-off rental payment for the entire lease period;
- An investor who wins the bidding to implement the investment project using land;
- An investor who is allocated or leased land by the state on the basis of transfer of investment project that have settled deposit or completed capital contribution or capital mobilisation according to the schedule specified in the investment registration certificate or investment policy approval document;
- An investor who is allocated or leased land by the State to carry out investment project on the basis of receiving land use right and properties attached to land of other land users;
- An investor who is a non-business unit with revenues or a high-tech park developer established with the approval of competent authorities to implement investment projects on infrastructure development of industrial park, export processing zone, high-tech park, and functional areas in economic zone.
To be entitled to the incentives under the amended Law on Investment, the subjects must be in the following groups:
- Investment projects in the business lines given investment incentives prescribed in Article 16.1 of this amended Law on Investment;
- Investment projects in administrative divisions given investment incentives prescribed in Article 16.2;
- Investment projects with a capital scale of VND6 trillion ($260.87 million) or more, disbursing at least VND6 trillion ($260.87 million) within three years after being granted the investment registration certificate or investment policy approval; and at the same time meet one of the following criteria: having a total turnover of at least VND10 trillion ($434.78 million) per year no later than three years from the year having revenue or employing over 3,000 employees;
- Social housing construction projects; investment projects in rural areas employing 500 workers or more; projects employing people with disabilities in accordance with the Law on Disabilities;
- High-tech enterprises, scientific and technological enterprises, organisations; projects with technology transfer on the list of technologies encouraged for transfer under the Law on Technology Transfer; technology incubators, science and technology business incubators in accordance with the Law on High Technologies;
- Investment projects on creative startups, innovation centers;
- Investment in the product distribution chains of small and medium-sized enterprises (SMEs); investment in technical facilities supporting SMEs, incubators of SMEs; investment in a working area to support SMEs in their creative startups in accordance with the Law on Supporting SMEs.
Abolishing a number of conditional business lines
In the amended Law on Investment, debt collection service business has been removed from the list of conditional business lines and was officially transferred to the list of banned business lines.
The amendment has cut 22 other conditional business investment lines in order to eliminate barriers to business activities; guarantee the right to conduct business of individuals and enterprises in business lines not prohibited by law.
The provision on the list of conditional business lines related to market access for foreign investors is made under the opt-out approach in order to institutionalise Resolution No.50 of the Politburo, giving a hand to improve the transparency and feasibility of Vietnam's market opening commitments under the next-generation of free trade agreements.