Policymakers are expecting a sharp increase of foreign direct investment in manufacturing, after approving a special tax incentive policy for large scale projects in industrial parks.
According to the recently amended Law on Corporate Income Tax, which will take effect on January 1, 2014, a company which invests at least VND6 trillion, or $285 million at current exchange rate, in an industrial park will enjoy a 10 per cent corporate income tax rate for 15 years, down from the usual 22 per cent. Furthermore, the investor would also enjoy a four year tax break and a 50 per cent reduction for the following nine years.
This incentive will apply when an investor constructs a project at any industrial park nationwide. However, to be eligible for the incentive, investors have to complete disbursement within three years from receiving an investment certificate, create at least 3,000 jobs or have total turnover at least VND10,000 billion ($476 million) after three years of operation.
"This is intended to make Vietnam more competitive," said Tran Duy Dong, deputy director of the Department of Economic Zones Management under the Ministry of Planning and Investment.
Dong cited the case where Japan's Mazda Motor Corporation last year eyed Vietnam as a location for a $500 million engine factory, but finally backed out after being left unimpressed by the incentives being offered by industrial parks.
"The government has understood that less attractive tax incentives are affecting foreign direct investment. Vietnam wants to lure more foreign investment in terms of manufacturing industry. That explains why this tax incentive has been introduced," said Dong.
The highest current tax incentive in Vietnam is granted to high technology enterprises. According to which, an enterprise can enjoy a 10 per cent corporate income tax throughout its life if it is certified as a high tech enterprise. The lack of attractive incentives for investment in industrial parks has been blamed for the reduction of foreign direct investment in the past.
"We expect greater foreign investment flows into industrial parks from next year," said Dong.
Vietnam currently has 289 industrial parks nationwide, which have played an important role in attracting foreign investment to the country during the past 25 years.
According to the Ministry of Planning and Investment, 80 per cent of foreign invested manufacturing projects are located in industrial parks, with 4,700 projects capitalised at $69.2 billion. Industrial parks are also home to 5,100 domestically invested projects.
By Ngoc Linh – Vietnam Investment Review
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