Maximizing Incentives Without Technology Transfer: The Risk of Remaining a Manufacturing Hub

On the morning of November 27th, during the discussion on the amended Investment Law, Delegate Ha Sy Dong (Quang Tri Province) provided feedback on ensuring foreign investors’ rights to transfer assets abroad. He noted that while the law establishes legal rights for investors, it lacks requirements for transparent auditing and reporting of related-party transactions before profit repatriation.

In the context of increasingly sophisticated transfer pricing, the absence of mandatory audit mechanisms makes it challenging for authorities to monitor cash flows, potentially leading to budget shortfalls. Therefore, the delegate proposed adding a provision allowing profit transfers only after audits, investment capital verification, and disclosure of related-party expenses.

Regarding investment and business protection policies, Delegate Ha Sy Dong agreed with the principle of policy stability but emphasized that incentives should not be maintained for projects causing pollution or failing to meet environmental standards. He suggested adding a clause allowing the revocation of incentives for projects exceeding emission limits for six consecutive months.

Concerning special incentives, Delegate Ha Sy Dong views them as the “backbone” of investment attraction policies. However, he warned that large incentives without technology transfer requirements could perpetuate Vietnam’s role as a manufacturing hub. While the draft law introduces special incentives for projects with capital ranging from 3 to 6,000 billion VND, it lacks technology transfer commitments.

Delegate Dong proposed adding minimum conditions, requiring projects receiving special incentives to transfer technology at level two or higher and train at least 200 high-skilled workers annually in Vietnam. Failure to meet these commitments should result in incentive revocation and double the penalty of the received incentives.

Regarding projects requiring investment approval, Delegate Ha Sy Dong noted that the draft law expands the list of projects needing approval, including commercial housing and urban development projects regardless of scale. This could lead to prolonged approval processes.

Delegate Dong suggested narrowing the scope to require approval only for housing and urban projects with land use exceeding 50 hectares and populations over 3,000.

Competing for Real Estate Incentives Without Proportional Value Creation

Also addressing investment incentives and support, Delegate Nguyen Hoang Bao Tran (Ho Chi Minh City) highlighted their critical role in shaping Vietnam’s investment environment in the new phase.

Well-designed, transparent, and forward-looking policies in this area will serve as a crucial lever for attracting high-quality investment and supporting domestic business development.

The draft law establishes two key policy tools: investment incentives and investment support, providing a legal framework for encouraging businesses. However, Delegate Tran suggested three improvements.

First, clearly distinguish between incentives and support. Investment incentives reduce burdens, primarily through tax and land benefits, while investment support enhances capabilities, such as workforce training, infrastructure, and research development.

The current draft lacks clear differentiation, potentially leading to overlapping incentives or unsupported initiatives. Delegate Tran proposed separating the scope, criteria, and conditions for each tool to ensure policy coherence.

Second, set incentive caps. Delegate Tran observed that Vietnam has seen a “race to the bottom” in incentives, particularly in real estate, textiles, and simple assembly, eroding tax revenues without commensurate value creation.

“The draft law should introduce maximum thresholds for certain incentives and require impact assessments before granting them to ensure fiscal discipline,” Delegate Tran suggested.

Third, link incentives and support to actual performance. Delegate Tran proposed clarifying the principle: “Incentives and support must be tied to investor commitments and outcomes; failure to meet requirements should allow state agencies to adjust, revoke, or demand reimbursement.”