FDI enterprises can fully take advantage of Vietnam's welcoming new waves of foreign investment in order to suggest and consult Vietnamese Government to perfect policies related to foreign capital flows.
COVID-19 is severely disturbing the global economy, yet surprisingly it is bringing many opportunities for foreign investors in Vietnam.
The effective pandemic response and disease control of our country has been praised internationally. According to Politico, Vietnam is the country with the best public health and economic outcomes in the fight against the virus. Vietnam is also the most populous country with no death recorded due to COVID-19. During the global pandemic, the economy is expected to increase by 2.7% in 2020, making our country the most successful country to respond to COVID-19.
On the other hand, major powers in the world such as Germany, USA, France, and the Netherlands are all suffering badly. While the dominant economies are struggling and hesitating to reopen the economy as they are continuing to fight the coronavirus at the same time, Vietnam has shown that this is a safe destination in the context where the global health crisis is still ongoing.
Vietnam's economy also shows a certain growth and sustainability. While other economies in the region have shown signs of going down, Vietnam has been assessed by the IMF to have the most promising growth prospects of ASEAN 5 in the difficult pandemic period.
On another note, on June 8th, the National Assembly officially approved the EU - Vietnam Free Trade Agreement (EVFTA) and the EU - Vietnam Investment Protection Agreement (EVIPA). This approval from the Government is a new step, opening up a great opportunity for comprehensive and strong cooperation between Vietnam and the European Union. This is a push for the investment market as well as Vietnam's manufacturing industry to recover and offset the damage caused by COVID-19.
This does not only fortify the confidence of capital flows from other countries into Vietnam, but also opens the door for a strong wave of investment based on the safety and stability of the social and trade environment in our country.
Statistically speaking, although the amount of FDI inflows into our country has decreased compared to the same period last year, things are still looking optimistic. According to the Ministry of Planning and Investment, foreign direct investment (FDI) in May reached more than US$ 1.55 billion, bringing the total FDI into Vietnam after the first 5 months of this year to nearly US$ 13.9 billion. FDI has decreased by 17% compared to the same period in 2019. However, in the first 5 months of 2020, the amount of foreign capital into Vietnam still increased higher than the same period of a few years ago despite being affected by COVID-19 (the first 5 months of 2016 reached US$ 10.1 billion; in 2017 US$12.1 billion and 2018 only reached US$9.9 billion).
On one hand, it is a fact that other countries in the region have their own advantages when eagerly welcoming FDI: Indonesia with abundant labour force, Thailand with a reputation for production quality and port system.
On the other hand, Vietnam has yet really optimised its full potential to attract foreign investment. Based on the current capital market context as well as the current situation of the investment environment in Vietnam, FDI enterprises can completely "confide" in the Government to create a more favourable environment.
For example, one of the inadequacies of FDIs in Vietnam is that the proportion of industries and localities is significantly different. Foreign investors are currently investing in 18 sectors, of which the processing and manufacturing industry dominates with total investment capital of US$ 6.88 billion, accounting for 49.5% of total investment capital registered. Electricity production and distribution ranks second with total investment capital of US$ 3.92 billion, accounting for 28.3% of total registered investment capital. This is followed by the retail and real estate business, with total registered capital of US$ 945 million and US$ 801 million respectively. This is what FDI enterprises in other sectors, especially in agriculture, can fully use as a basis for policy advocacy plans, as agriculture is an area in which the Government is also looking forward to attracting investment after Decree 57/2018 was enacted.
Additionally, although the Government has reduced at least 20% of the administrative burden and refrained from issuing new regulations on business operations with foreign enterprises, investment environment factors such as infrastructure, administrative procedures, and the legal environment in Vietnam have not been optimised. According to the Vietnam White Paper on annual economic report in 2020, in the survey of over 500 largest enterprises in the country (in which, the proportion of FDI enterprises accounts for about 20%), up to 73.5% of businesses said that the infrastructure needs improving. The issue of administrative procedures is still a barrier that causes great difficulties when 79.4% enterprises surveyed said that reforms are in need so that administrative procedures are less cumbersome and complicated. The legal environment is the leading factor that makes businesses not really satisfied with 85.3% saying that this needs to be a lot more completed.
In addition, at the Dialogue with Advisory Council for Administrative Procedures Reform and European Business Community in Vietnam and the EuroCham Whitebook 2020 launch on 30th June, FDI enterprises also expressed concern with the Comparable Profits Method (CPM) in determining transfer prices. This is a method of examining the ratio of total profit to expenses, turnover or assets of a taxpayer with certain comparable companies. However, transfer pricing audits performed by businesses are often rejected by tax authorities and they recommend the use of other independent trading margins based on data from another tax-paying enterprise, or use "unlisted comparable companies". Non-public comparable companies usually rely on data from other taxpayers in Vietnam, without having access to said data.
In most countries, comparable companies are selected through a scientific and technical analysis, in which the taxpayer and the tax authority have the opportunity to present the criteria for selecting or rejecting a comparable company. This makes FDI enterprises doubt that they are required to use publicly available data whereas tax authorities refuse to apply publicly available data and use unlisted comparables. This makes it impossible for taxpayers to prove the independent nature of related-party transactions and also gives tax authorities the power to make their own decisions.
The use of unlisted comparables is a subjective and unjust mechanism for taxpayers. Nonpublic comparables data is not disclosed to taxpayers, making it impossible for them to protect their comparable company or criticise the comparables chosen by tax authorities. This is considered to be a violation of the "Principle of Natural Justice".
These issues are not new, but in the context that Vietnam is trying to welcome foreign direct investment in the post-COVID-19 period, these legitimate expectations can be fully used by FDI enterprises to advocate for policies, to create favourable conditions for themselves when choosing Vietnam as the destination of investment.
TIPS FROM US
Here are some suggestions that we have summarised and analysed for your use. This is some practical and proactive actions that enterprises can take during this time so as not to lose your competitive advantages.
Tip 1: Close dialogue between public and private
"Chairman's Coffee Shop" is a funny way for businesses in Dong Thap province to talk about a place that every morning, they can easily meet the Chairman and Vice Chairman of the provincial People’s Committee an hour before the administrative working hours. Within a relatively modest space (about a few dozen square meters) located inside the Dong Thap People's Committee, at a plain white table where coffee is served for free, business owners can come and explain their difficulties, problems, even suggestions and advice for policy-related issues. As a result, many inadequate and inappropriate policies have been amended and supplemented from the comments of enterprises in this province.
This is a simple, but effective and powerful way of communicating. At the same time, it also helps to improve the relationship between local government agencies (grassroots policy management and monitoring units) and enterprises based in the province.
This model can become a model for FDI enterprises in Vietnam to propose other local governments to design similar "Chairman’s Coffee Shops", in order to enhance the exchange and dialogue between parties, increase efficiency in implementing, contributing to and completing foreign investment policies.
Tip 2: Use communication tools and the media to voice up
In addition to waiting for the policies to be approved, FDI enterprises can share the current problems such as obstacles in legal procedures, conditions and mechanisms that are not really suitable for the present situation via media activities such as the dissemination of press releases, organisation of seminars and conferences with direct management ministries and authorities.
From here, representatives of enterprises can offer solutions and recommendations to management levels, thereby increasing the two-way information exchange, quickly removing difficulties for FDI enterprises when the problem occurs. Communication activities are also a measure to help managers to understand the current situation of the industry, avoiding sudden changes in policies, laws or conditions.
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