Foreign experts believe that Vietnam’s adoption of a global minimum tax regime will not significantly affect foreign direct investment (FDI) inflows into the country. With the Ministry of Planning and Investment currently seeking public feedback on the draft Decree regarding the establishment, management, and use of the Investment Support Fund, many experts agree that the global minimum tax will not deter FDI into Vietnam.

Investment Support Fund Aims to Stabilize the Investment Environment and Attract Investors

The Ministry of Planning and Investment emphasized that the primary goal of the Investment Support Fund (ISF) is to stabilize the investment environment, encourage and attract strategic investors and multinational corporations, and support domestic enterprises in specific priority sectors.

The ISF operates on a voluntary, non-profit basis and takes responsibility within its support scope.

The Ministry of Planning and Investment proposed the ISF’s tasks to include: supporting enterprises as stipulated in the Decree; receiving, managing, and utilizing capital in accordance with regulations; implementing reporting and accounting as per the Decree and relevant legal regulations; being subject to inspections, supervision, and audits by competent state management agencies according to the law; purchasing asset insurance and other types of insurance as required by law to ensure the Fund’s safety; providing data and publicly disclosing the Fund’s operating regulations, financial mechanisms, performance results, and audited annual financial reports in accordance with the Decree and related legal regulations.

The Fund’s authority includes: conducting regular and ad-hoc inspections and supervision of the Fund’s capital use; reclaiming support funds from organizations that violate conditions or commitments with the Fund; hiring organizations, experts, and scientists to support the Fund’s activities; and requiring enterprises to cover costs when participating in the Fund’s support activities.

The Fund’s management and operational structure consists of the Fund Management Council, the Executive Agency, and the Supervisory Board.

No Major Concerns from Foreign Experts

There has been some concern that the implementation of the global minimum tax in Vietnam might affect FDI inflows, as it would limit Vietnam’s ability to offer tax incentives to attract FDI. However, according to Mr. Michael Kokalari, CFA, Chief Economist and Head of Macroeconomic Research at VinaCapital, these concerns are unwarranted for two main reasons:

1. Alternative Support Mechanisms: Vietnam can provide alternative solutions to offset part or all of the taxes that multinational corporations would have to pay when the global minimum tax is applied. Currently, the Ministry of Planning and Investment is studying and proposing the “Investment Support Fund” (ISF) to reimburse certain companies through employee training support, R&D costs, or loan interest costs.“The information about the ISF was only disclosed a few days ago, and we expect to hear more details soon. Other countries in the region that are competing to attract FDI will certainly adopt similar measures, making the tax landscape similar to before the implementation of the global minimum tax,” emphasized Mr. Michael Kokalari.
2. Non-Tax Factors as Key Drivers for FDI: According to research from the World Bank and other organizations, tax incentives are not the main factor influencing multinational corporations’ investment decisions in developing countries. Instead, factors such as cost, quality of labor, infrastructure quality, and openness of the business environment play a more significant role in investment decisions.In developed countries, these factors are relatively uniform, making taxes a more important consideration for multinational corporations when deciding on investment locations. In contrast, when considering investment in developing countries, non-tax factors are of higher priority.

Kenglin Tan, Senior Portfolio Manager at Manulife Investment Management, noted that for foreign investors, whether investing in Vietnam or other countries with similar agreements such as Mexico or Thailand, they are all subject to similar policies. The key point is that Vietnam currently enjoys favorable conditions to attract FDI.

Vietnam’s Advantage in Attracting FDI

Recently released data indicates that total FDI into China only reached 33 billion USD in 2023, down about 80% from 2022. This marks the second consecutive year of decline in foreign investment into China and represents less than 10% of the peak level of 344 billion USD recorded in 2021.

If foreign investment is not flowing into China, it is expected that this capital will be redirected to other economies, including Vietnam, especially in new investment sectors such as semiconductors, AI, and high-tech industries. These are the areas that Vietnam is keen to attract investment in, and foreign investors are also viewing Vietnam as a focal point in the global supply chain.

According to the 2024 White Paper published by the European Chamber of Commerce in Vietnam (EuroCham), Vietnam’s business environment has significantly improved, and its global investment attractiveness remains strong. 63% of surveyed businesses listed Vietnam as one of their top 10 FDI destinations. Furthermore, 31% rated Vietnam as one of their top 3 investment targets, with 16% viewing Vietnam as the best investment destination. Notably, more than half of the surveyed businesses plan to increase their FDI in Vietnam by the end of this year.

Recently, Fitch Ratings, an international credit rating agency, upgraded Vietnam’s national credit rating to BB+ with a stable outlook. The agency highlighted that Vietnam is in a favorable position to attract FDI due to its positive economic outlook.

In conclusion, the adoption of the global minimum tax is not expected to significantly impact FDI inflows into Vietnam. The country is well-positioned to leverage alternative support mechanisms, maintain its investment appeal, and continue attracting FDI, particularly in new and emerging industries.