Tax Breaks for High-Tech Transfers Announced in Vietnam
Firms engaged in technology transfer in Vietnam are expected to receive tax incentives according to a recent draft amendment of the Law on Technological Transfer. Tax incentives will be applicable on the import of machinery, equipment, materials, and means of transport that are not manufactured in Vietnam, and used for research and development (R&D) activities, technological innovations, and technology transfer within Vietnam. The amendment is expected to take effect on July 1, 2017.
High technology is defined as technology, which is beneficial in R&D and can create high-quality products with high added value. It can also be applicable for production or service sectors in terms of modernizing the existing sectors. The proposal includes that items mentioned will be exempted from import taxes to increase transfer. Businesses will also receive tax incentives in cases where production is expanded with the introduction of new technology. Individuals and entities investing in high technology in Vietnam or supporting firms involved in innovations are also eligible for tax incentives. The government has also proposed support in the form of capital and loans from the National Technological Innovation Fund and other credit institutions.
The Law on Technology Transfer came into effect in 2006 and has had a significant impact in the last 10 years in domestic technological renovation, which in turn has increased competitiveness. The applicable financial incentives are still unclear in the current draft and the government will release details in the coming weeks.
Importance of high-tech transfers
Vietnam’s low-cost workforce has been instrumental in the country’s economic growth, but going forward Vietnamese firms have to ensure the transition to high-tech manufacturing, further integration into the global value chain and increasing the skilled workforce to move towards an innovation-driven and high-tech economy. Apart from high-tech transfers, R&D is also important for innovation. However, internal R&D is a time consuming and a capital-intensive process, and technology transfer can address the gap to enhance technology absorption, knowledge generation, and productivity growth at less cost and risk.
High technology transfers also help in the development of a skilled workforce through industry-specific training for the local workforce or movement of employees from MNCs to local firms. This influences competitors and downstream companies to enhance their workforce and offerings to keep in pace. Knowledge absorption, competition, and production efficiency increase as well leading to sustainable development.
Complementing tech transfer incentives
Foreign enterprises believe that along with incentives, the government should also focus on other factors to ensure a conducive environment for high technology transfer. One of the major issues is intellectual property protection. Vietnam ranks 92nd among 138 economies in the WEF Global Competitiveness Index 2016-17, and foreign companies believe the government has to do more to ensure robust IP laws.
Also, most local firms in Vietnam have no requirements for high technology products or capital to invest in such technologies. Most of the foreign high-technology companies in Vietnam have chosen the region for assembly operations due to the lack of high-skilled workers and low wages. Although the government has increased their spending in the primary and secondary education sector in the last few years, further spending and industry collaboration is required in the tertiary level to ensure availability of an industry-ready workforce.
The government should also ensure sufficient support to the SMEs in Vietnam to build up supporting industries. Lack of supporting industries has always been a major factor for MNCs not to conduct high-tech manufacturing. Preferential banks loans and lending rates for SMEs involved in technology transfer processes and high-tech investments should be encouraged. This will increase participation of SMEs in global production chain leading to inclusive growth.
Vietnam Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices in China, Hong Kong, Indonesia, Singapore, Vietnam, India, and Russia.
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