Investment policy approval procedures. Encouraging foreign investment is a key policy of the Vietnamese government to create an engine for economic development. So how is the government currently implementing policies to attract foreign investment? Please refer to the next article on Quoc Bao Law soon .
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What is foreign investment policy ?
Foreign investment policy is a policy in the economic development policy system. Plan activities of national importance. It includes the system of views, principles, tools, and methods applied by a nation to manage its international investment activities.
Conduct investment activities overseas and attract foreign investment .
Aim for a specific goal. Foreign investment policy is a policy of direct investment in a country’s business and production. Manufactured by companies or individuals in other countries .
Investments can take the form of acquiring or expanding a company’s operations in another country. Invest abroad and attract foreign investment. In each country, these two investment activities always receive equal attention. In addition to optimal utilization of economic development investments, investments are also made in other markets .
There is a close relationship between attracting foreign investment and overseas investment. Depending on the different stages of the country’s operation. Developing countries have a high demand for foreign direct investment into the country at an early stage .
It was during this period that it was realized that the application of science and technology and labor standards were not taking full advantage of the efficiency of work. Attracting foreign investment helps to learn from experience .
Promote rapid economic growth. Once domestic companies have accumulated enough capital, they will need to invest abroad. These investment activities represent economic cooperation and development. On the contrary, make the most of your benefits and increase your income .
Vietnam’s foreign investment policy
- Creating an attractive investment environment
FDI attraction is to create an attractive investment environment. The investment environment is the sum of the parts that interact with each other and have a significant impact on investment activities. By appropriately adjusting their objectives, form, and scope of activities, investors can create a favorable environment for business activities and lead to high business efficiency.
The investment environment can be classified according to various criteria, each of which forms a different component environment .
– Based on spatial scope, there are internal investment environment, domestic investment environment, and international investment environment of a company .
– Based on sectors : political environment, legal environment, economic environment, socio-cultural environment, infrastructure …
– Based on attractiveness : There are high competitive investment environments, moderate investment environments, low competitive investment environments, and non-competitive investment environments .
- Securing fundamental rights of investors
Investor’s fundamental rights and guarantees include :
– Guarantee of non-expropriation : This guarantee is usually provided for in the first article of the Foreign Investment Law, as well as through the signing and participation in the Multilateral Investment Guarantee Agreement .
– Warranty against loss : This warranty applies if :
Nationalization : Investors are interested in how a country’s government reacts to nationalization. In Vietnam, the law stipulates that foreign-invested companies cannot be nationalized. Some countries provide for nationalization and adequate compensation in special cases .
+ Destruction due to war: Usually damage caused by external wars is not compensated, but damage caused by problems in the country such as rebellion or terrorism is compensated .
+ Currency Inconvertibility : Inconvertible currencies explain to foreign investors how to balance the required foreign currency and how to convert local currency into foreign currency .
– Foreign exchange remittances (remittances): For foreign investors, most likely there is no regulation from the host country. From there they are free to transfer funds back to their home country. If desired, the following amounts must be repatriated in any case: profits, other income, investment returns, invested capital, principal and interest on foreign loans, salaries of foreign employees. , royalties, technical fees, etc.
- Protection strategies and priorities for investors and foreigners
Includes the following issues :
– Recruitment of foreigners: Recruitment of foreigners is done to ensure the interests of investors. Regulations that countries often use to regulate the hiring of foreigners include :
+ Regulations regarding the total number of foreign workers must not exceed a certain level .
+ Regulations regarding the issuance of residence permits or foreign worker cards to foreign workers and who is required to have such cards in order to work in the host country .
+ Regulations regarding the types of occupations required to employ foreign workers. + Regulations on the design of training programs to replace foreign workers with domestic workers .
– Intellectual property rights: Guaranteed ownership of inventions and trademarks is also a condition that stimulates investors .
-Prioritize government investors
Loans and support from the government are considered one of the incentives to encourage investment .
-Ensure a fair competitive environment .
Investors want to ensure a fair competitive environment between domestic and foreign investors, between foreign investors, and between the private and public sectors .
+ Import competition : The host country’s import policy must be appropriate and create conditions for the country’s industrial policy to develop. Domestic products belong to industries that are considered to be in their infancy, so a protection period is set in order to compete with imported products .
+ Government competition : Government programs supporting state-owned enterprises must not violate competition. To this end, the nation needs to clearly differentiate the preferences of each region. Public areas are not allowed to encroach on private areas .
+ Domestic competition through tax systems that remove barriers to entry into the industry. This includes creating level competition between foreign and domestic investors .
- Preferential land treatment for foreign investors
This can also be considered as an investment incentive, as it gives foreign investors confidence in the stability of their investment and other rights. Generally, the most advantageous thing for investors is to own real estate. If ownership of the property is not permitted by law, the investor must use the property within a reasonable period of time .
June 30 , 2014 , land incentives were split into two forms of land allocation : land use fees and land rentals, with payments reduced to 20% , 30% , 50% , or 7 It was exempted or reduced for the year. , 11 years, 15 years. From early July 2014 to date, land incentives have been implemented in accordance with the 2013 Land Law and legislation detailing the collection of land use fees, ground rents and water rents . Therefore, the state agreed to apply a form of leasing land for a fixed period of time for production and business purposes. At the same time, the government issued Decree No. 3 to attract investment and strengthen the management and effective utilization of land resources in special economic zones and high-tech zones. The CP dated April 3 , 2017 provides for the collection of land use . Levy, ground rent, water rent in special economic zones and high-tech parks with higher incentives than traditional investment projects …
Additionally, the government has issued a number of land policies and supports for businesses such as :
(i) 50% reduction in ground rent from 2011 to 2014 .
(ii) reduce the calculation ratio of general land rental unit price from 1.5% ( as stipulated by Decree No. 121/2010/ND-CP ) to 1% ( as stipulated by Decree No. 46/2014/NĐ-CP – CP) ; and the provincial People’s Committee shall specify a tax rate ranging from 0.5 to 3% for each region and route corresponding to each land use purpose in order to apply land rent collection in the region .
(iii) Calculate the land rent by applying the land price adjustment factor to determine the land price .
- Tax exempt .
Tax incentives are part of FDI policy and are always placed in relation to the direction and overall FDI policy. Therefore, fiscal incentive policies often focus on tax policies such as CIT , import and export taxes, and personal income taxes. Specifically :
Capital tax exemption : The government does not levy taxes on stock transfers or profits .
– Tax exemptions and reductions, corporate tax ( CIT )
After a business makes a profit, investors enjoy the incentive of not paying taxes for a period of time. After the tax holiday period, each country reduces its taxes .
In order to meet the strategy and direction of economic transformation, the tax system continued to be reformed, the most important change being the reduction of the common tax rate. Specifically, the common tax rate due to the revision of the Corporate Tax Law will increase from 28 % from 2001 to 2008 , to 25 % from 2009 to 2013 , to 22 % from 2014 to 2015 , and from 2014 to 2015 . tends to decline to 20 % . 2016/01/01…
Currently, the maximum preferential tax rate is 10% for 15 years , tax exemption for 4 years, and a 50% reduction in taxes paid over the next 9 years on new investment projects in many specialized sectors . Information technology, software, renewable energy, environmental protection …
–Other income tax exemptions and reductions .
The government has confirmed that investors will not have to pay local taxes such as sales tax or profit tax, and export-oriented industries and industries that earn a lot of foreign exchange for the country will be exempted .
– Tax reduction/exemption on imported production materials (capital) .
The government does not levy taxes on the import of capital goods (including machinery and spare parts, spare parts, and raw materials) for use in promoted industries, such as export-oriented industries, or industries implementing strategic policies. investment .
to meet the requirements of the Integration Commitments, as well as complete export preferential policies and attract FDI, the laws on import and export taxes were subsequently updated and amended in 2001 , 2005 and 2016 . From 2016 to date, preferential policies have been applied under the Export and Import Tax Law of 2016 . Accordingly, the law added high-tech companies, science and technology companies, and scientific institutions. Technology is exempt from import duties on raw materials, consumables and parts that cannot be imported. Manufactured in Japan within 5 years from the date of manufacture . It complements regulations regarding duty exemption for domestically imported raw materials, consumables and parts that cannot be manufactured for the production and assembly of medical devices, where research and manufacturing must be prioritized.
The following import and export tax incentives apply :
(i) Exemption from import duty on goods imported for processing in a foreign country, and exemption from export duty on goods exported and returned to a foreign country .
(ii) For goods that are duty-free imported for processing purposes, goods that are temporarily imported for reexport, and goods that are raw materials and supplies used in the production of exported goods, the tax payment deadline is the tax date. It can be extended up to 275 days . Taxes, open customs declaration. Goods temporarily imported for re-export can have their tax payment deadline extended by 15 days from the expiration date .
(iii) Exemption from import duties on goods for creating fixed assets for special investment promotion sectors, investment promotion sectors and local investment projects … with difficult socio-economic conditions …
– Royalty Free. The royalty exemption is intended to encourage technology transfer by foreign investors to the host country. However, the government is also considering whether to waive royalties for the duration of the contract, or only for a few years .
– Exemptions from other taxes and fees : Other exempted taxes and fees include various forms of personal income tax for foreign technical experts working in priority sectors. Sales tax and special taxes when starting a business … Concluding a double taxation agreement is also an incentive for investors, as it exempts individuals from paying income tax for a certain period of time .
In some projects that encourage investment, investors are also entitled to receive incentives on land rental and other costs during the implementation and operation of the project .
- government subsidy
–Organizational and operational costs. The host government may allow this to be included in the cost of the project for a period of time .
– Reinvestment : Using profits for reinvestment provides certain incentives .
Investment allowance: Exemption from investment obligation for a certain period of time for a certain billion of invested funds .
–Other deductions : These deductions exist based on special regulations for some industries, such as allowing double exemption in terms of specific incentive amounts and time to regulatory issuance for specific projects. There may be cases .
– Investment tax credit: This is essentially a measure used by governments to encourage investment capital growth, such as investment subsidies, and to refund tax liability already paid to investors .
Other tax credits :
To encourage investors, foreign source income that is already taxed abroad can be registered for domestic deductions that can be used as investment deductions .
- special offer
For multinational companies :
Special incentives for multinationals are needed, as these companies are the world’s major source of investment capital, but governments have to decide whether to introduce incentives and, in particular, how to implement the principle of a “level playing field.” It is necessary to consider whether to secure it .
Special incentives are used in some cases .
+ Treat multinational companies as listed companies on the stock market and enjoy similar incentives
Permission to establish a joint stock company by multinational companies
+ Encouraging technology transfer and internal procurement for multinational companies, as well as facilitating the establishment of headquarters by allowing multinational companies to establish shopping centers in host countries, improving customs formalities, foreign exchange control requirements, employee cards, etc. Simplify registration etc. Creation of export processing zones, high-tech zones and technology concentration zones It is also a measure to encourage multinational companies to expand into the country.
–For offshore financial institutions Encouraging the establishment of these companies also means encouraging foreign companies to invest in the host country, so the host country government exempts local governments from tax and financial obligations, as well as providing support for offshore financial institutions. It tends to facilitate establishment and operation. Offshore financial institutions .
- Laws that create favorable conditions for foreign investors
These are separate regulations that make it easier for foreign investors to do business in the host country. This category includes non-financial incentives such as allowing the unlimited recruitment of foreign workers, securing capital and profit transfers and repatriation. Sign the contract. The power to sell consumer goods to final consumers without going through agents, trading companies, or land ownership.
Benefits of areas attracting foreign direct investment
Addition of domestic capital
If an economy wants to grow faster, it needs more capital. When domestic capital is insufficient, the economy will seek foreign investment, including FDI .
Acquire management skills and pass on technology
Attracting investment funds from multinational companies provides an opportunity to receive the transfer of management know-how and technology that the companies have accumulated and developed over many years .
Join our global production network
FDI from a multinational company , not only the companies and sectors that hold that company’s investment capital but also other domestic companies and sectors that have business relationships with that company will participate in the global division of labor .
Countries that attract foreign direct investment therefore have the opportunity to participate in global production networks and expand their exports .
increase employment and train workers
FDI aims to take advantage of conditions to achieve lower production costs, which results in foreign companies hiring local workers .
As a result, the income of local residents increases and contributes to the development of the local economy. Its recruitment process involves training in vocational skills, creating a highly skilled and professional workforce .
Projects that attract foreign investment
Permanent Deputy Prime Minister Pham Binh Minh signed Decision 1831 /QD-TTg promulgating the list of domestic projects seeking foreign investment for the period 2021-2025 .
From 2021 to 2025 , 157 projects are calling for foreign investment in the following areas : Infrastructure for industrial parks and special economic zones. energy infrastructure. Information technology infrastructure. Waste and wastewater treatment systems. education and health infrastructure; Cultural, sports and tourism infrastructure. Agriculture, forestry and fisheries. manufacturing and service industries .
The Ministry of Planning and Investment shall have primary responsibility for the implementation of the decision and shall guide and inspect its implementation. Mainly responsible for refining detailed project information and coordinating with ministries, bureaus and local governments. Organize promotional activities to disseminate the list. Summarize the progress of the listed projects and report to the Prime Minister. We recommend reviewing, adding to, and adjusting the list according to the actual circumstances of each period. Expenses for activities carried out in accordance with regulations .
Current status of Vietnam’s investment policy
The reality of Vietnam’s policy to attract foreign investment
FDI have increased significantly in recent years , thanks to open investment promotion policies . However, the proportion of foreign investment in key sectors such as agriculture, seafood processing, renewable energy, and software production remains low .
In economically less developed regions, the ability to attract foreign investment is limited due to limitations such as geographic location, infrastructure, limited availability of qualified personnel, and continued difficulties in transportation and transportation of goods between regions. Low compared to other regions. Not only that, but loopholes in Vietnam’s legal policy system are still being used to implement transfer pricing and losses are being reported by FDI companies .
Specifically : Our tax system is very short and sets deadlines for investors. Only short-term investors should be brought in. Once the incentive expires, the investor will switch to a new project to continue enjoying the tax incentive .
Frequently asked questions
How do foreign investors purchase stocks and investments in companies ?
– Buy shares in a corporation from a company or shareholder. We purchase the investments of the members of a limited liability company and become members of the limited liability company .
Become a contributing member of a partnership by purchasing the equity of a contributing member of the partnership .
Purchasing investment capital from members of other economic organizations that do not fall under the above. In what cases does an investor need to complete procedures such as registering an investment, acquiring shares, or investing in an economic organization?
Foreign investors provide capital, purchase shares or provide capital to economic entities operating in the field of investment and business with conditions applicable to foreign investors .
– By contributing capital, purchasing shares or contributing capital, foreign investors and foreign-invested economic organizations will own 51 % or more of the chartered capital of the economic organization .
How can I avoid complicated procedures when setting up an FDI company ?
– Selection and purpose of foreign investors. Sources of funding for project implementation .
– Project size. Fields in which foreign investors want to do business. Laws specific to each investment field. Trade agreement between the investor’s country and Vietnam. An international treaty signed by both parties. Investments in the form of capital contributions, share purchases or capital contributions to Vietnamese companies are not subject to the following restrictions :
– Ownership percentage of foreign investors in listed companies, public companies, securities exchange institutions and securities investment funds based on securities laws .
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