Vietnam lures global tech giants with high-tech workforce push

[HO CHI MINH CITY] Armed with a bold new Investment Support Fund, Vietnam is stepping up its game to court tech giants, offset the impact of the global minimum tax (GMT) and tackle its high-tech talent crunch, with targeted workforce training that sets it apart from regional rivals.

The fund, which was rolled out this year, prioritises the semiconductor and artificial intelligence (AI) industries over other high-tech sectors, as Vietnam competes aggressively with other emerging countries to secure major investments in these areas.

Leif Schneider, lawyer and country head at international law firm Luther’s Vietnam practice, identified human capital requirements as one of the “unusual eligibility criteria” that set the fund apart in South-east Asia.

For example, it offers incentives to enterprises with microchip-design projects that employ at least 300 Vietnamese engineers and managers, and train 30 high-skilled engineers annually, without needing them to meet the minimum revenue or capital scale.

“Neither Malaysia nor Singapore – two of the most sophisticated economies in the region – have such specific and detailed requirements for human capital development in their incentive schemes,” he added. 

Financed by top-up tax revenue from large multinationals, the fund will provide cash grants for operational and initial investment costs to eligible high-tech projects of enterprises, including up to a 50 per cent reimbursement for the training of Vietnamese workers in a fiscal year, as outlined in a decree effective Dec 31.

It also offers reimbursement of up to 3 per cent of the added manufacturing value of high-tech products in Vietnam, provided the sum constitutes at least 30 per cent of the total cost of goods sold, and the enterprises employ at least 10,000 people with a minimum revenue of 200 trillion dong (S$10.8 billion).

Other incentives include as much as 30 per cent of the costs for research and development (R&D), 10 per cent for additional fixed assets, and up to 25 per cent for the construction of social infrastructure such as housing for workers, schools and medical facilities.

These elements also make the fund stand out, said observers.

“The direct reimbursement of R&D and training costs, which is a unique aspect of Vietnam’s approach, is not commonly seen in the region,” said Jack Nguyen, chief executive for Vietnam at the Singapore-headquartered business advisory company, InCorp.

Industry-specific focus

Under the new decree, eligible firms must have high-tech project investment capital of at least 12 trillion dong or a project turnover of at least 20 trillion dong per year.

However, enterprises in the chip industry, semiconductor integrated circuits and AI data centres need only meet half of these sums – or a minimum of six trillion dong in investment capital or 10 trillion dong in revenue – to qualify for the incentives. 

They are also entitled to be reimbursed up to 3 per cent of added manufacturing value of their products, and do not have to meet the minimum headcount.

“The semiconductor and AI industries are prioritised over other high-tech sectors,” said Hoang Thuy Duong, partner and head of tax at KPMG in Vietnam and Cambodia, who noted that Vietnam is in a fiercely competitive field with other emerging countries in the race for large investments in the two specific spaces.

As a large chunk of foreign direct investment (FDI) in the coming years will probably target areas such as semiconductors and AI, these sectors thus play a critical role in the country’s push to redefine itself as a regional or global high-tech and IT hub, Schneider said.

This opportunity emerges against a seismic shift in the global FDI landscape and international trade dynamics, driven by tensions between two major world powers – the US and China.

“With new trade tariffs looming, restructuring revenue sources and reinventing the domestic productivity infrastructures seems like a wise decision for Vietnam,” he added.

Appeal to tech giants

The GMT policy, effective since January 2024, imposes additional taxes on 122 foreign corporations operating in Vietnam, including major players such as Samsung, Intel and Foxconn. Some of these have benefited from effective tax rates as low as 2.75 per cent over their entire investment periods in the country.

However, based on a review by the investment ministry last year, only a minority – 22 firms, which contribute to roughly 80 per cent of the total top-up tax revenue – are likely to qualify for the new incentive scheme.

“If investors heed the call of the Vietnamese regulator, this distribution will change over time as an increasing number of companies try to become eligible for these benefits,” said Schneider. 

KPMG’s Duong observed that, given the current criteria, the scheme primarily targets technology giants with significant capital and revenue.

The latest measure offers more hope of attracting these sector stalwarts as Vietnam’s previous tax-incentive packages proved insufficient, especially with the adoption of the 15 per cent GMT.

“There is hope for significant improvements (in Vietnam’s investment incentive system) aimed at attracting large investors and promoting substantial, long-term investments,” Duong added.

Despite the promising incentives, significant challenges remain.

Nguyen from InCorp said large global tech firms face non-tax entry barriers in Vietnam, including talent shortage, infrastructure deficiencies, regulatory uncertainties and a fledgling ecosystem for high-tech sectors.

“Lingering issues could hinder Vietnam’s potential as a high-tech investment destination,” he noted. “Let’s not forget that competition is fierce. Countries like Singapore and Malaysia have already set the bar high.”