The measure approved by parliament is expected to affect more than 120 companies with branches in the country, announced the Vietnamese Ministry of Finance. This doesn’t just affect other large corporations in the technology sector, such as LG, Foxconn and Panasonic. Textile companies such as Adidas and Crocs have also increasingly relied on Vietnam as a production location in recent years.
Many companies have looked to China for alternatives in recent years. Especially as the only production location, the country has become too risky for some companies, taking into account geopolitical and economic factors. Countries such as India, Thailand and Vietnam often serve as a complement.
International companies paid almost no taxes
To attract companies, there have been some surprises in Vietnam so far. The tax rate for companies was already 20%. However, extremely low special rates apply to many international companies. For companies like Samsung, the tax rate was around five percent, as the “Financial Times” (“FT”) writes, and for some an even lower rate of three percent applies, as “Nikkei” reports. ”.
IMAGO/Hans Lucas/Martin Bertrand Textile companies like adidas also manufacture in Vietnam
This minimum tax rate will be raised to 15 percent in January. Vietnam is implementing an agreement reached by more than 130 countries at the initiative of the Organization for Economic Co-operation and Development (OECD) from 2021: To reduce tax competition between countries, the minimum tax rate should be 15 percent everywhere.
Half of Samsung cell phones are manufactured in Vietnam
Although affected businesses did not speak out on Wednesday, the new tax is expected to have a noticeable impact. According to the “FT”, Samsung has around half of its smartphones manufactured in Vietnam. Intel has its largest factory in the world there for producing, packaging and testing chips – and in fact wants to further expand its presence in the country.
On the other hand, Vietnam expects significantly higher revenues from increased taxes: an additional 14.6 billion dong (around 550 million euros) is expected to flow into the state treasury. Investments from abroad were once seen as a driving force in the Vietnamese economy, writes the “FT”, and represent around four to six percent of gross domestic product.
Vietnam’s attractiveness could suffer
However, some companies consider that the changes introduced affect the country’s attractiveness for foreign investment, writes the “FT”. How controversial the minimum tax is is also demonstrated by the fact that Parliament excluded a vote this year, but ultimately the decision was approved this year.
ORF/Günther Rosenberger The National Assembly approved the new tax rules
At the same time, it was hoped that additional incentives would be created as concessions for foreign investors. However, no details were presented on Wednesday. “In order to maintain Vietnam’s attractiveness for foreign direct investment in the short term, (the government, note) must adjust its alternative incentives to attract foreign investment”, the “FT” quotes an expert from Baker McKenzie in the Ho metropolis Chi Minh. City.
Not just tax incentives
But it’s not just the fiscal situation that makes Vietnam a popular destination for investors, according to experts: wages are low and the costs associated with production, such as electricity prices, are also cheap, quotes the “FT” of a specialist. This would be further underlined by the fact that foreign investments have remained quite stable compared to other China alternatives.
Vietnam needs to invest additional tax revenue to make the country even more attractive for investment, economic expert Anh Pham told “Nikkei”. “Vietnam will have the opportunity to increase the quality of its workforce, expand logistics infrastructure and reform administrative processes,” he said.
It remains to be seen how the minimum tax proposed by the OECD will affect foreign investments. But one thing is also clear: Vietnam will not remain the only country to introduce such corporate taxes. Nearly 140 countries have agreed to the global minimum tax, and other countries that are often used as an alternative to China – such as Thailand – are expected to soon follow Vietnam’s lead.