High-Technology Law in Vietnam Sets High Investment Requirements
Feb. 13 – “Science and technology, along with education, have always been priorities in our national policy, but the [law on high technology] is the first legal document that institutionalizes that policy,” remarked Nghiem Vu Khai, Vice Chairman of the National Assembly’s Committee for Science, Technology and the Environment, in July 2009. It was at this time that Vietnam took a further step in developing its legal framework for its high-technology sector through the implementation of a new law on high-technology.
The passage of the law demonstrated Vietnam’s determination to develop its high-technology industry by developing a legal foundation for foreign investors. The main proponent of the law sought to provide a proper framework for all aspects of high-technology activities, ranging from manufacturing and production to education and training.
However, after the law took effect on July 1, 2009, investors increasingly complained about the overly high requirements for investment projects to be recognized as “high-technology projects.” Commonly cited complaints include the limited number of products that were listed as high-technology products, that high-technology enterprises must commit at least one percent of their annual revenue towards research and development (R&D), and that at least five percent of total workers must be involved in R&D activities.
To put this in perspective, a company such as Samsung Electronics Vietnam, who had a total export turnover of $12.72 billion in 2012, would need to spend $127 million on R&D activities alone, making the costs extraordinarily high and difficult to operate in Vietnam.
High-technology project developers not only have to bend to the strict requirements of the high-technology law, but also to that of the corporate income tax law. Presently, Vietnam only offers investment incentives to newly set up high-technology projects and does not maintain incentives for existing projects that want to expand their investment scale. High-technology enterprises can only enjoy tax incentives when they obtain a certificate of approval, which is valid for a period of five years, from the Ministry of Science and Technology.
Bui Quang Vinh, the Vietnamese Minister of Planning and Investment, is aware of the problems with the law and understands that some aspects will need to be clarified or amended.
“We have asked the Ministry of Science and Technology to amend the provisions of the law, and it has agreed,” stated Vinh.
Vinh further added that a series of policies relating to foreign direct investment should be amended so as to upgrade Vietnam’s investment environment. However, the laws cannot be amended until 2014 when they can be put on the working agenda of the National Assembly.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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