Vietnam has been emerging as a significant player in the global semiconductor industry and aimed to become a key market for large-scale chip production. However, the country faces an intense competition from regional and global rivals such as South Korea, Malaysia, and Thailand, each offering attractive incentives to lure semiconductor investments.

Nguyen Hung Du, partner and head of Tax Practice Rajah & Tann LCT

To compete effectively, Vietnam has been considering leveraging strategic incentives to attract foreign semiconductor players and develop a robust local semiconductor workforce as well.

South Korea extended its K-Chips Act that provides substantial tax incentives to investments in advanced industries for another three years. This act is a critical part of South Korea’s strategy to maintain its competitive edge in the semiconductor market.

Malaysia, on the other hand, has been building Southeast Asia’s largest integrated circuit design park and offers a comprehensive package of incentives including tax breaks, subsidies, and visa exemptions to draw in global tech companies, corporate and individual investors, and talents globally. Meanwhile, Thailand offered tax breaks, land subsidies, and workforce development support to attract chip manufacturers.

To position itself competitively, Vietnam has been considering improving tax policies that are not only attractive but also sustainable. Vietnam has offered substantial corporate income tax (CIT) incentives for semiconductor research and development (R&D) and production, including a four-year tax exemption, a 50 per cent tax reduction for nine subsequent years, and a preferential tax rate of 10 per cent for 15 years from the licensing date.

Additionally, customs duty exemptions are provided for imported goods for high-tech projects, including specialised transportation and construction materials.

Vietnam has also established a National Innovation Centre and three high-tech industrial zones in Ho Chi Minh City, Hanoi, and Danang. These zones create an ecosystem conducive to investment and development in semiconductor R&D and production. Vietnam has also been studying the experiences of many countries in establishing tax incentive policies for the high-tech industry.

Common tax incentives for high-tech are granted by many countries, including CIT incentives, workforce incentives under a personal income tax (PIT) regime, incentives in applying VAT to products, and customs import duty. Incentives are set out by some countries, such as conditional tax liabilities reduction, high rate of R&D cost for tax deduction, lower CIT rate for high-tech schemes, reduction in tax and social security contribution in the high-tech industry, and more besides.

To step up its game, Vietnam should consider several tax policy improvements.

- Enhanced tax incentives: Vietnam should introduce an open policy to optimise a tax incentive regime for the semiconductor industry by improving tax administrative procedures. Furthermore, this could include extended CIT exemptions for specific projects in line with the growth plan of the high-tech industry, higher R&D tax credits, and additional deductions for training and workforce development costs.

- Investment support fund: Establishing an investment support fund, financed by the collection of a top-up tax of 15 per cent on multinational groups subject to the global minimum tax (GMT) application, could provide targeted support to high-tech enterprises. This fund would stabilise the investment environment and attract strategic foreign investors, especially in the semiconductor sector.

- Incentives for workforce development: To build a 50,000-strong semiconductor workforce by 2030, Vietnam should offer tax incentives for companies investing in workforce training and development. This could include PIT exemptions for experts and skilled workers in the semiconductor industry, and grants or subsidies for companies that invest in training programmes. Tax policies play a crucial role in developing a local semiconductor workforce. By offering PIT exemptions and reductions for semiconductor experts and skilled workers, Vietnam can pull in top talents from around the world.

- Support for equipment and technology: Providing specific support for equipment purchase and technology transfer can further reduce the entry barriers for semiconductor companies. For example, offering subsidies that cover up to 5 per cent of total equipment costs and facilitating technology acquisition through tax credits or direct grants would make Vietnam a more attractive destination for semiconductor investments.

Vietnam’s ambitious plan to develop a significant semiconductor workforce requires a coordinated effort between the government and the private sector. Tax incentives can lower the cost for companies investing in training and education, making it easier to attract and retain skilled workers. This, in turn, enhances the overall competitiveness of Vietnam’s semiconductor industry.

Vietnam’s future tax policy for the semiconductor industry should focus on creating a favourable investment climate while ensuring long-term sustainability. The upcoming reform of tax policies related to the GMT and the establishment of an investment support fund are steps in the right direction. Additionally, specific incentives for semiconductor projects will further bolster Vietnam’s position in the semiconductor market.