Proposal to improve legal regulations to facilitate innovation activities in Vietnam

In the context that the global economy is shifting strongly based on science – technology and innovation, Vietnam cannot stand out from this trend if it wants to improve national competitiveness, attract quality capital flows and promote sustainable development. Although the Government has promulgated many important policies to build an innovation ecosystem, the implementation is still facing many legal barriers, from the framework of defining innovative enterprises, to tax policies, intellectual property rights, etc  investment procedures and regulations related to new technologies. In that spirit, this article  proposes a number of key contents to improve the legal framework, thereby creating more favorable and sustainable conditions for innovation activities in Vietnam.

Law on business and investment

Firstly, it is necessary to develop  specific criteria for  innovative enterprises in order to accurately identify  the subjects entitled to the State's preferential policies. In particular, it can consider the characteristics of  innovation such as direct investment and concentration of the majority  of investment capital in R&D, as well as focusing on product and service innovation and determining criteria and the possibility of rapid growth. This addition  will help State management agencies have a clear basis to identify  innovative subjects, enterprises have a basis to adjust their strategies and activities  to meet the criteria of becoming an innovative enterprise and enjoy  support policies.

Secondly, for  administrative procedures related to investment, there is still a lack of clear guidance, especially the procedures applicable to foreign investment in Article 67  of Decree No. 31/2021/ND-CP and new fields such as fintech, AI, blockchain, it is necessary to quickly issue  detailed guidance  regulations and build a standardized process nationwide, reduce overlap and increase transparency. This will promote businesses to register for creative start-ups and increase  FDI inflows into our country.

Third, it is necessary to consider increasing or eliminating  the limit on the number of capital contributors of  innovative startup investment funds  similar to international practices, so that the fund can expand the scope of capital mobilization and increase capital sources for innovation activities. At the same time, it is necessary to amend regulations to allow investors to contribute capital in foreign currencies directly or through IICA,  consider allowing the use of loans to contribute capital to  the fund in order to facilitate the expansion of the ability  to mobilize capital from foreign investors and increase flexibility when investing in Vietnam.

Tax law

In this regard,  state agencies may consider applying special corporate income tax incentives for innovative start-up investment funds to promote innovation activities. According to NIC, the Government can consider tax exemption for  the first 4 years and reduce tax by 50% for  the next 9 years for income from investment activities in the startup ecosystem. In case  the innovative start-up investment fund invests in enterprises that are members of the innovation center or research and development center, it is entitled to an additional tax rate of 10% for 15 years. The time to start calculating tax exemption and reduction incentives and preferential tax rates shall comply with the general provisions of the law on corporate income tax^[1].

At the same time, it is necessary to have detailed regulations on how to account for revenue, expenses, allocation of capital sources and tax declaration, ensuring that it is suitable for the specific characteristics of funds. This requires close coordination between tax authorities, accountants and management units to develop a clear and feasible guiding framework. In addition,  training programs can be  organized to support funds and investors to grasp and comply with legal regulations, thereby reducing risks and increasing transparency in operations. In addition, implementing a digital platform to support online tax declaration and payment will help reduce administrative burdens and optimize the compliance process.

To increase attractiveness and competitiveness, Vietnam can apply preferential tax rates, such as 05-10  %, for income from investment capital transfer, especially in the fields of innovation and high technology. In addition, it is recommended to consider the income tax exemption policy for  the first 5-10 years for foreign investors to contribute capital to their enterprises'  innovation funds or R&D projects implemented by companies. This will create a strong incentive to promote international investors to participate in the Vietnamese market.

Intellectual Property Law

One of the important solutions to overcome the current situation is to reform the process of registering IP rights protection. Businesses, especially startups, need a fast, accessible process to protect their products and innovative ideas. Therefore, simplifying administrative procedures, shortening the approval time and reducing costs will help creative entities to quickly bring their products to market without encountering legal barriers. Along with that, improving and modernizing the IP database system will help businesses easily look up information, establish intellectual property rights and reduce the risk of infringement.

At the same time, Vietnam also needs to update legal regulations related to IP  rights for products created by new technologies such as AI. The development of specific legal regulations not only helps protect the interests of technological innovations but also encourages innovation in this field.

In addition, sanctions for handling copyright infringement also need to be strengthened. The current fine is still not strong enough to prevent acts of infringement of IP rights, while the profits obtained by the infringing parties are huge. Vietnam needs to raise the level of fines and strengthen inspection and supervision to create a strict legal environment and effectively protect the interests of intellectual property holders. Only when the law is perfected can  the IP  system operate effectively and promote its full potential.

Law on cyber security and information technology

In  Resolution No. 57-NQ/TW dated December 22, 2024 of the Politburo on breakthroughs in the development of science, technology, innovation and national digital transformation, it was emphasized that  Vietnam will become one of the 30 leading countries in the world in innovation,  digital transformation to 2045. At the same time, attracting at least 05 more leading organizations and technology enterprises in the world to set up their headquarters, invest in research and production in Vietnam[2].

To achieve this, it is first necessary   to remove legal restrictions related to electronic transactions and information security. Accordingly, it is necessary to build and complete a legal framework specifically for new technologies such as blockchain, AI and IoT. The addition of clear regulations, such as for smart contracts, is a prerequisite for protecting the interests of stakeholders and creating trust for businesses when applying   new technologies, thereby setting  a  legal value framework for decentralized transactions and encouraging investment in advanced technological solutions.

At the same time, it is necessary to promote the application of modern technology to information security management and supervision. The government can support innovative businesses through preferential financial policies and in-depth human resource training in the field of data security. Cooperation with international organizations is also an effective way to access and apply advanced security standards, thereby improving the competitiveness of Vietnamese businesses in the international arena.

In conclusion, the adjustment and completion of the legal framework will not only help solve the current inadequacies but also create a more favorable environment for promoting innovation and digital transformation. This will not only strengthen the confidence of businesses and investors but also enhance Vietnam's position in   the global innovation ecosystem  bridge.

Lawyer Nguyen Van Phuc

HM&P Law Firm