Corporate Tax and Foreign Direct Investment in Viet Nam

This study uncovers the effect of corporate tax on FDI in Vietnam. We use GMM and fixed effects models with national and provincial databases between 2011 and 2023. At the provincial level, we use firm-level microdata from the annual Vietnam Enterprise Survey to calculate the effective corporate tax rate. We utilize statutory corporate tax rate differences between Vietnam and foreign countries obtained from national databases. This study finds a negative relationship between corporate tax and FDI. The negative association between the bilateral corporate tax difference and inward FDI is weaker for tax-haven countries than for non-tax-haven countries, although there is insufficient evidence of a statistically significant association for tax-haven countries. Our findings suggest that the government should maintain corporate tax incentives for disadvantaged provinces to promote a more balanced distribution of FDI. Moreover, the effective design of corporate tax policy to attract inward FDI should take into account not only domestic tax conditions but also the tax policies and tax systems of foreign countries.