Will US Amended Tax Law Divert FDI Flow From Vietnam?

The total FDI capital committed by US investors has reached $9.9 billion

Soon after information about the US tax reform passed by the US Congress was released, the PM’s Economic Advisory Council submitted a report showing its concern that the US move may affect the FDI to Vietnam.

According to the General Statistics Office (GSO), by January 20, 2018, Vietnam had licensed 166 new projects with total investment capital of $442.59 million, equal to 36 percent of the same period last year. 

To date, the total FDI capital in Vietnam committed by the US investors has reached $9.9 billion, accounting for 3 percent of total FDI capital in Vietnam, with which the US ranks ninth among the countries and territories which have FDI.

The advisory council warned that the US new tax policy with lower tax rates may prompt US investors to reconsider their plans to make investment in Vietnam. 

They are likely to send the profits they make in Vietnam back home instead of re-investing in Vietnam, and develop projects in the homeland to enjoy the benefits from the new tax law.

However, the decline in the US FDI won’t be the only risk Vietnam is facing. US tax reform will affect FDI flow in general. 

“Some regional countries may offer new tax incentives to persuade US investors to invest, which would make the competition to attract FDI become stiff,” said Vu Viet Ngoan, head of the PM’s advisory council.

An analyst said China, in a quick-response action, has begun offering new tax incentives to retain US investors.

He went on to say that the CIT rate in Vietnam is still lower than in the US (20 percent vs 21 percent). In Vietnam, foreign investors meet big problems in administrative procedures.

Prior to tax reform, the US announced the application of safeguard measures against solar panel and washing machine imports from any source. Vietnam, where Samsung and LG have factories to make the products, will suffer. 

Tax reform is another move taken by the Trump administration to protect local production and encourage investment in the US.

However, some analysts believe there is no need to worry about the US tax reform, saying that the production costs in Vietnam remain very competitive compared with other countries.

“If comparing the investment advantages of Vietnam and the US, it is obvious that Vietnam has advantages in the labor force,” said Nguyen Mai, an FDI expert.

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