Vietnam: Tax rise on multinationals unlikely to harm investor attractiveness

Event   

The National Assembly, Vietnam’s parliament, voted to raise the effective corporate tax to 15% as of 2024. This will bring it in line with the international agreement on a minimum corporate tax rate of 15% for multinationals, reached by the OECD and the G20 in the end of 2021.

Impact  

This decision could slightly hit Vietnam’s reputation of low tax for foreign investors nation, but should not affect Vietnam’s high FDI attractiveness. In fact, the national corporate income tax rate already amounts to 20%, a relatively lower level compared to regional peers, but in practice is lower for multinationals (much less than 15%) thanks to various tax relief measures. Neighbouring countries are also expected to raise their rates next year in accordance with their ratification of the international tax agreement. Moreover, the government expects it will bring an extra revenue of less than 1% of total revenues in 2024. Those revenues are planned to be directed into a newly created investment support fund aimed to strengthen the investment environment in strategic sectors and offer companies and investors some compensations. 

More generally, even though electronics companies will be mainly hit by this rate rise, given Vietnam’s attractiveness in this sector and with Samsung by far the most likely affected, the country keeps valuable assets. Indeed, the country benefits a lot from the diversification of supply chains away from China and this trend is not expected to change. Geopolitical tensions between China and the USA and rising European mistrust vis-à-vis Beijing will remain strong drivers behind the ongoing diversification of global supply chains in Asia and the “China plus one” strategy. Vietnam’s regional appeal to foreign multinationals, due to its political stability, business-friendly environment (rated C/G and expropriation risk rated 3/7), young and skilled workforce, low labour costs and resilient economic activity, will remain intact. After a weaker year 2023 (forecast at 4.7%) amid softened external demand, GDP growth is expected to accelerate to 5.8% next year and to 6.9% in 2025, supported by infrastructure spending and fiscal stimuli. In spite of this persisting optimism about the future economic trajectory, geopolitical risks and rising global protectionism will be major uncertainties clouding the outlook for Vietnam’s open economy. 

The outlook for Credendo’s business environment risk (C/G) and short-term political risk (2/7) ratings is currently stable.

Analyst: Raphaël Cecchi – r.cecchi@credendo.com