Foreign companies warn Vietnam of investment freeze without new tax offset, sources said By: Reuters

Francesco Guaracio

HANOI (Reuters) – Major foreign multinationals may freeze new investment plans in Vietnam if there is no subsidy to cover the cost of new surcharges, they said in a meeting with investors and the government. This was revealed by a person involved in the negotiations.

Investment-dependent manufacturing sites have become one of the main beneficiaries of companies relocating activities out of China to minimize the impact of the U.S.-China conflict. But analysts say power supply issues, regulatory hurdles and tax hikes alongside rising wages could undermine the country’s competitiveness.

This year, Vietnam introduced a 15% global minimum tax on large multinational companies in an initiative led by the Organization for Economic Co-operation and Development (OECD). As a result, some multinationals will effectively have to pay an additional tax to meet the 15% tax rate, as incentives that would reduce the tax rate to just 5% will no longer be available.

Some U.S. multinational companies are asking the government to honor its promise of lower tax rates to attract existing investment, the person said, adding that new investment will be difficult without measures to offset the tax increases. added.

The government promised to introduce new subsidies in the first half of last year, but implementation has been delayed.

In December, it released a draft ordinance outlining new subsidies and eligibility conditions, including being classified as a high-tech company. However, many important aspects remain undefined, such as the size of the new incentive fund, and there is no clear timeline for approval of the measure.

Representatives of multinational companies expressed concerns to Ministry of Planning and Investment officials on Tuesday about the size, scope and availability of the planned incentives, people who attended the meeting said in a closed session. He spoke to Reuters on condition of anonymity.

Representatives from the Lego Group, which is investing more than $1 billion in building a new factory in Vietnam, have asked whether companies like Lego that are not classified as high-tech companies will be eligible for the subsidies outlined in the draft decree. The Ministry responded to this question. Officials said they had no intention of doing so, the person said.

The Danish toymaker confirmed to Reuters that one of its representatives had asked about the matter at a meeting.

Representatives for Amcor (NASDAQ:) Technology, a US company that is building a $1.6 billion semiconductor assembly, testing and packaging factory in Vietnam, say the company is having trouble getting classified as a high-tech company. He said that

Officials said representatives from Samsung Electronics (KS:), the largest foreign investor, did not intervene in the meeting. The South Korean company has been one of the most vocal advocates for measures to offset the increased tax burden.

Amkor Technology The Ministry of Planning and Investment did not respond to requests for comment. Samsung declined to comment.

The government estimates that the additional tax will generate VND14.6 trillion ($591 million) in additional tax revenue annually from 122 foreign companies. The company said it intends to use the windfall to provide cash payments to companies in which it invests.

Government officials told business representatives on Tuesday that the new subsidies would not directly compensate for increased tax burdens, in line with the Global Minimum Tax initiative, the people said.

OECD officials say direct ties violate the international agreements behind the initiative and could lead to the transfer of additional profits to multinational companies’ home countries, but enforcement action remains It’s opaque.

But for some companies, the new subsidies could cover most, if not all, of the added tax costs, say experts familiar with the incentive debate. .

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