Vietnam is formulating a series of preferential policies for chip companies, ranging from tax cuts to fast export processes. This rapidly developing country is increasingly attracting the attention of global companies such as Nvidia and Besi. The proposed Digital Technology Industry Law (DTI) lists additional incentive measures, such as allowing companies to deduct 150% of their research expenses before tax, providing subsidies and accelerated visas, and a 10-year rent free land use right.
Vietnam is introducing these rules to seize the opportunities created by the US China tech war, which is prompting semiconductor and other companies to diversify their supply chains - but the government may need to consider whether these measures comply with the new global minimum tax treaty.
In recent years, American chip executives from Intel CEO Pat Gelsinger to Nvidia CEO Jensen Huang have visited Hanoi, sparking discussions on chip investment.
The Vietnamese Ministry of Information and Communications is holding meetings with representatives from other institutions and the private sector to provide opinions on the final draft of the bill, which is expected to be submitted to parliament in October and take effect as early as mid-2025.
These incentive measures aim to consolidate Vietnam's efforts to become a hub for mature semiconductor companies, including investments in energy, infrastructure, and training - all of which currently pale in comparison to more advanced industrial countries. The history of the local chip industry can be traced back to 20 years ago, but it has entered a new era since 2020 due to the impact of the pandemic and technological wars that have increased Vietnam's attractiveness. The investment has expanded to a range of sub industries, from components produced by Samsung to Infineon's chip design business and Synopsis software.
The draft law also includes expedited approval and tax exemption periods for imported materials and personal income, applicable to projects worth $160 million or more.
More broadly, Vietnam has been trying to figure out how to provide incentives while adhering to the 15% global tax floor initially proposed by the OECD and supported by over 140 countries/regions. This means that many preferential policies that allow corporate tax rates below 15% will no longer exist, despite companies lobbying for alternative options such as cash subsidies or tax credits.
Intel previously stated that "Vietnam should modernize incentive policies to support current and future new investors in order to maintain Vietnam's competitiveness." However, cash subsidies and other benefits will incur costs for the government.
Given budget constraints and difficulties with upfront payments, the impact of this plan on the national budget is a major concern for developing countries, "said Thomas McClelland, Deloitte Vietnam Tax Director, in an analysis. The introduction of the new incentive mechanism will bring additional administrative procedures, such as incentive application and evaluation processes, as well as follow-up inspections to ensure that the mechanism is properly implemented and its goals are achieved without causing losses
The proposed Digital Technology Industry Law covers other industries, but has a specific section for semiconductors. The investor base starts with Besi, a Dutch chip equipment manufacturer that has made an initial investment of $4.9 million starting this year, to Nvidia, which supports Vietnam FPT in creating an AI factory locally.
In addition to power and skill shortages, the industry also faces other challenges. For example, Vietnam is one of the few countries/regions in the United States that prohibits Nvidia from exporting some high-end chips due to concerns that these chips may eventually flow into third countries/regions.
