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FDI enterprises increase but more losses reported

The number of foreign direct investment (FDI) enterprises continues to increase in Vietnam, but more are reporting losses. 

The Ministry of Finance (MoF) said FDI firms' contributions were not yet commensurate with the preferential policies given to them.

FDI enterprises increase but more losses reported hinh anh 1

Bac Lieu province leads other in attracting FDI in Vietnam in 2020 with the total foreign investment of about 4.5 billion USD. Number of FDI enterprises increases but many of them report losses. (Photo


According to a report based on financial statements of 2019, the number of foreign firms continued to increase compared to 2018. The report said in 2019, the revenue of these firms reached 7.18 quadrillion VND (312.17 billion USD), an increase of 720 trillion VND, and total assets reached 7.7 quadrillion VND, an increase of 981 trillion VND. Profit before tax reached 387 trillion VND, an increase of 29 trillion VND, while profit after tax reached 324.4 trillion VND, and increase of 19.5 trillion VND from 2018.

Those increases were equivalent to 11.2 percent, 14.5 percent, 8.2 percent and 6.4 percent compared to 2018, respectively.

The MoF’s report also said 9,494 FDI enterprises, or 45 percent of the whole FDI sector in Vietnam, reported profit in 2019, while another 12,455 FDI enterprises reported losses of 131 trillion VND.

The report said revenue of those reporting losses in 2019 was 846.8 trillion VND, up 12.7 percent from 2018, but their profit was lower. The MoF said by the end of 2019, there were 14,822 FDI enterprises with accumulated losses worth more than 520.7 trillion VND on financial statements, assessing that: “The efficiency of assets and investment capital in FDI enterprises are still low. Many FDI enterprises have not fully utilised their potential.”

The MoF’s report also said: “The profitability targets of some industries are still negative, the budget payment is not commensurate with the incentives they enjoyed. The number of profitable FDI enterprises accounts for a smaller proportion while many enterprises have large and continuous losses for many years.”

At the same time, the MoF pointed out the phenomenon of price transfer and tax evasion in some FDI enterprises, mentioning: “Enterprises always report losses, even continuous losses for many years, but still expand production and business and their revenues keep increasing every year.”

Earlier, research by the Vietnam Institute for Economics and Policy Research (VEPR) on the avoidance of income tax by FDI enterprises in Vietnam stated that the annual tax loss from the FDI sector can be up to 8 trillion VND to 9 trillion VND, or 4 to 4.5 percent of the corporate income tax revenue.

Nguyen Hoang Oanh, expert from the National Economics University, said the typical method of transfer pricing, evasion and tax avoidance of FDI enterprises was that they declared high prices of goods and materials and administrative, technical and legal services within the group.

Oanh added transfer prices could be made through loans from parent or affiliated companies with higher interest rates in order to be able to transfer profits abroad.

Strong measures against price transfer

To deal with the matters, the MoF said that it would continue to direct the General Department of Taxation and local tax branches to strengthen inspection and examination of FDI enterprises with signs of transfer pricing.

The tax agency said Decree 132/2020 / ND-CP (Decree 132), effective since December 20 last year on regulating tax administration for enterprises with associated transactions would be a strong measure to combat transfer pricing in Vietnam.

According to the General Department of Taxation, there are about 16,500 enterprises with associated relationships, of which over 8,000 enterprises have associated transactions. Among enterprises with associated transactions, FDI enterprises account for over 83 percent.

Nguyen Thanh Tung, director of ICC Law Firm, said: “Decree 132 has supplemented the requirement for multinational companies to conduct inter-national profit reporting,” adding the regulation was close to international practices.

Currently, the submission of cross-border profit statements by supreme parent companies has been agreed upon by the members of the base erosion and profit shifting (BEPS) forum and Decree 132 has detailed regulations in cases where taxpayers with a foreign parent company were obliged to prepare international profit reports to tax authorities.

He added: “Vietnam should quickly study and apply anti-evasion and tax avoidance measures applied in other countries, along with stronger inspection and examination, increasing fines and enhancing the qualifications of tax officers to deal with the problem.”

On the topic, economist Le Dang Doanh told local media that: “MoF needed to verify and bring some typical cases of transfer pricing to the public,” adding that “Vietnam needs to attract FDI but not at all costs or keeping its eyes closed to the mistakes of some FDI enterprises.”

Doanh asked related agencies to connect with specialised agencies of the country where the FDI enterprises are based to best verify and clarify the real cost of production./.VNS

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