VinaCapital Vietnam still attracts FDI despite imposing a global minimum tax

DNHN - According to analysts at VinaCapital, Vietnam may be losing its FDI capital competitiveness compared to India, Malaysia, and/or Indonesia.

Foreign direct investment (FDI) is one of the most important factors driving economic growth in Vietnam, and Vietnam benefits more from the US-China trade war in terms of capital flows than many other nations. FDI.

Recently, however, two potential risk factors for Vietnam's FDI inflows have emerged. According to the Chief Economist of VinaCapital, Mr. Michael Kokalari, this is attracting the attention of business leaders and policymakers in Vietnam.

First, analysts assert that Vietnam's FDI competitiveness may be declining relative to India, Malaysia, and/or Indonesia.

Second, the new global minimum corporate tax regime will diminish Vietnam's allure as an FDI destination by limiting the tax incentives available to potential FDI investors.

Tim Cook's visit to India last month, as noted by the expert VinaCapital, sparked several rumors regarding Apple's intentions to build new factories in India.

However, it is essential to note that the majority of Indian-made goods will be sold on the domestic market. This indicates that investing in India differs from the strategy of promoting FDI inflows into Vietnam since the onset of the US-China trade dispute.

In the past two years, FDI inflows have also increased dramatically in Malaysia and Indonesia, but primarily to promote the production of goods that Vietnam does not produce, such as electric vehicle (EV) batteries.

Vietnam has received a disproportionate amount of FDI since the US-China trade war began in 2018. Therefore, Vietnam's competitors in the region in terms of FDI inflows are beginning to catch up after falling behind Vietnam in recent years.

Michael Kokalari predicts that Vietnam will continue to benefit the most from FDI investments driven by the China + 1 strategy in the coming years.

Since the trade tensions, China's share of US exports has decreased by approximately 13%. Vietnam has captured approximately fifty percent of China's declining export market share, increasing its share of US exports from six percent in 2018 to thirteen percent in 2022.

According to VinaCapital, Vietnam is the country that has benefited the most from the trade war due to three significant advantages that have encouraged multinational corporations to invest and led to a significant increase in exports.

Thus, factory wages in Vietnam are roughly half of those in China, while productivity is comparable. Vietnam's proximity to Asia's supply chain makes it an ideal location for manufacturing high-tech goods.

Vietnam also benefits from the "Friendshoring" phenomenon, in which multinational corporations invest more in countries with a lower risk of high tariffs on exports to the United States.

The global minimum tax rule is a progressive tax reform aimed at preventing large corporations from minimizing taxes by relocating profits to tax havens or conducting global business via digital platforms. A nation with no physical presence.

If the countries with the parent company enforce the global minimum tax, these countries will receive an estimated VND 12,000 billion in additional tax revenue in 2024. Thus, tax incentives will no longer be effective, posing a significant challenge to maintaining Vietnam's investment environment's competitiveness.

Starting in 2024, the majority of European Union member states, Switzerland, the United Kingdom, Korea, Japan, Singapore, Indonesia, Hong Kong, and Australia have committed to applying a minimum tax rate of 15%. In the meantime, South Korea, Singapore, Japan, etc. are countries with a substantial amount of foreign investment in Vietnam, and their businesses will be subject to the minimum tax rate. Global.

If countries implement a global minimum tax, Vietnam's previous tax incentives will have little impact. Since then, maintaining the nation's investment climate's competitiveness will face numerous obstacles.

In reality, the global minimum tax is new and comprises a variety of technical factors. Vietnam is a developing nation with a large open economy that primarily receives foreign investment; therefore, global minimum tax rules have an impact on whether or not the country participates. very large movement.

Director of the Institute of Financial Strategy and Policy at the Ministry of Finance, Nguyen Nhu Quynh, emphasized that Vietnam must adapt its policies to the new context by the global minimum tax's general rules. In addition, Vietnam must continue to foster an environment conducive to investment, while balancing investor interests with tax collection rights to ensure state budget revenue.

Mr. Quynh proposed supplementing the regulations governing the standard domestic minimum additional tax regime for multinational corporations investing in Vietnam with a minimum actual tax rate below 15% while maintaining the current tax rate. Currently, the rate is 20%. This expert also stated that the completion of the corporate income tax incentive policy must establish clear objectives, not only to align with the implementation of the global minimum tax but also to redesign policies. Combining tax incentives with non-tax policies to encourage and attract investment.

P.V (t/h)