Vietnam raises multinational corporate tax rate in blow to Samsung and Intel

Vietnam will raise its tax rate in effect on multinational companies including Samsung and Intel, in a move that will bring it in line with a global agreement to crack down on corporate tax avoidance that could hit foreign direct investments to the country.

A top exporter of electronics and textiles, Vietnam’s FDI has hit records as global companies search for a manufacturing alternative to China amid rising geopolitical tensions, a strategy known as “China plus one”.

Technology groups from Apple to Sony as well as clothing and footwear companies including Crocs and Adidas have boosted their factory presence in the south-east Asian country in recent years.

Vietnam’s corporate income tax was already 20 per cent, but for years the country has offered tax breaks and holidays to big foreign investors, allowing companies such as Samsung to pay as little as 5 per cent tax.

On Wednesday, Vietnam’s parliament voted to raise its corporate levy to 15 per cent. The finance ministry estimated the move would affect 122 multinational companies and generate 14.6tn dong ($603mn) in state revenue.

The long-planned change, which comes into effect in January, could hurt the country’s appeal to foreign investors, said some companies. Mitigating measures — such as a government fund or direct financial support for high-tech groups — were expected to offset the impact of the tax rise, but no details were provided on Wednesday.

The move brings Vietnam in step with a global minimum tax rate, which was backed by US Treasury secretary Janet Yellen and agreed by nearly 140 countries at the OECD in 2021. Under the rules, large companies with annual global turnover of more than €750mn paying less than 15 per cent in a low-tax jurisdiction will face a top-up levy either there or in their home country. Other countries that have benefited from the “China plus one” trend, such as Thailand, are expected to follow suit.

FDI is a pillar of Vietnam’s economic growth, accounting for 4 to 6 per cent of gross domestic product and totalling $438bn as of December last year, according to research by HSBC.

South Korea was Vietnam’s second-biggest source of investment in the first seven months of this year, trailing behind Singapore, according to official data. Samsung assembles half of its smartphones in the country. Vietnam is also home to Intel’s largest global factory for assembling, packaging and testing chips, and the US company has been considering expanding its operations.

Samsung declined to comment. Intel did not immediately respond to a request for comment. The Korean and American chambers of commerce in Vietnam did not respond to a request for comment.

A person at a foreign company with large operations in Vietnam told the Financial Times it had been paying about 5 per cent tax, and was “closely watching” whether the government would provide alternative incentives.

“A sharp increase in taxes will be a big burden for companies investing there,” the person said. “Vietnam is likely to make a state-run fund to support foreign investors to prevent [companies from] leaving the country. We expect to receive some support from the fund.”

“To maintain Vietnam’s attractiveness to FDI in the short term, [the government] needs to adjust its new alternative incentives to attract foreign investment,” said Nguyen Thanh Vinh, a partner at Baker McKenzie in Ho Chi Minh City.

Another major FDI contributor in Vietnam is China, which has not said whether it will adopt the OECD rules, noted Duong Hoang, KPMG’s head of tax for Vietnam and Cambodia. This could affect the amount of tax Chinese companies have to pay in Vietnam and their investment plans, he added.

Other analysts said they did not expect the higher tax to have a big impact on FDI.

“Investors don’t just invest in Vietnam because of tax benefits. It has other advantages such as low input costs including electricity and wages [as well as] access to large markets,” said Trinh Nguyen, a senior economist at Natixis.

Vietnam’s FDI has held up this year against regional rivals including India, Thailand and the Philippines despite the tax changes, which have been under discussion since last year, she added.

“It goes to show that investors are not deterred by this news . . . and are motivated to find diversification to China.”